Will the bank of the future be invisible?

Future of transaction banking is invisible, connected, automated, insights-driven, real-time and always on

As the world continues to cope with challenges, such as climate change, supply chain disruptions and geopolitical tensions, along with fresh disruptions from the likes of artificial intelligence-powered innovations like ChatGPT, few things are as certain in our lives as the ubiquity of technology.

In financial services, transaction banking is at the forefront of this disruption. While striving to retain the best elements of traditional tools, such as cheques and other paper-based documents, it’s moving towards a future where banking will need to be invisible, connected, automated, insights-driven, real-time, and always on, all in a bid to enhance the overall customer experience.

So, what does all of this mean from a corporate treasury perspective? Part of the answer, as Andy Abraham, Head of Transaction Banking, New Zealand & Pacific at ANZ, explains, centres around lending institutions becoming fully integrated into the ecosystem in such a way that transactions become friction-free and effortless.

“As we look to making banking invisible, so to speak, it is actually about expanding our reach and presence to create more convenient options for the customer to transact – be it an app, ERP system, or a wealth management platform,” he says. “It is about taking the effort out of historically manual tasks like making a payment and reconciling an account. It's also about using technology to surface richer data insights and actions for the customer's benefit.”

Open banking: Key to transaction banking’s future

Because customer data is a powerful tool that must be handled with utmost care, the open banking framework is key to any process that seeks to harness this information. It enables lending institutions to create an enhanced, data-driven, personalised experience for customers while giving the latter control over how their personal data is collected, shared and stored.

As open banking gains traction in many jurisdictions, new use cases and opportunities are arising for banks to provide customers with more personalised and efficient payments and accounts-related functions. This is especially relevant for overlay services that capitalise on a bank’s existing expertise, data security capabilities, and the trust earned with its customer base. Some examples of innovations driven by open banking include:

• Instant onboarding: Efficient, single-touch onboarding process to pay for services across different accounts and FIs thanks to standardised and shared KYC data, ID linkage and user authentication.
  
  
• Account aggregation and micro-investments/savings: Read data from a user’s accounts held across multiple FIs to track their finances and investment portfolio, identifying and potentially automating micro-investments or savings.
  
  
• Payment initiation: Customers can allow third-party connectivity to their banks to initiate pre-authorised payments, so businesses can receive the funds instantly. Instead of needing to open their banking app or payment interface to manually enter account or card details, users can simply pre-authorise payments with their bank and preferred account with a single click, removing the potential for error from making manual entries.
  
  
• Advanced, real-time, context-driven data exchange and analytics:
  
  
  • Real-time view of treasury and intelligent automation: Real-time ingestion of data from across a customer’s business ERP systems helps to identify spending patterns, automate treasury decisions based on detected changes, and enable deeper insights into business operations and areas for improvement. 
    
  • Optimised credit decision-making: Using more comprehensive data sets that are not limited to just credit payments, FIs can make more accurate and up-to-date credit score assessments when deciding when and whom to lend to.
    
  • Personalised customer experience: Using richer data sets about a user’s spending behaviour FIs can recommend more suitable products and services the customer may not have known about.
    

Ultimately, the thinking goes, providing customers control over how their data is collected, shared and stored, will in turn encourage greater competition, innovation and the creation of client-centric services across the financial services industry.

Customer-centric innovation

And it’s not just about the data. As banks set out to further personalise the overall customer experience and make it completely friction-free, they are changing their approach to designing products and services.

According to Leigh Mahoney, ANZ’s Head of Wholesale Digital, banks are now taking into account customers’ unique needs, which is a shift from the past when their offerings sought to closely control the customer experience in order to enhance it.

“What we're trying to drive through digital banking is becoming more embedded in the activities of our customers,” he says. “And if we do it the right way, it enables our customers to carry out their usual financial activities without actively thinking about it.”

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ANZ is developing solutions that can be tailored to suit a client’s changing requirements and successfully carry out a range of functions with minimal client involvement. Because, this goes a long way towards enhancing the overall user experience, notes Lisa Vasic, Managing Director Transaction Banking, ANZ. "The idea is to digitally integrate the fragmented components, which is the traditional way that services have been delivered."

The solutions being developed to that end utilise longstanding web- and mobile-based technologies as well as emerging solutions – from enabling customers to integrate ERP and other MIS into a FI’s systems to streamline functions such as payments, receivables and account reconciliation, to providing enhanced workflow and industry analytics, and corporate finance insights.

Powering these solutions are APIs – a technology that allows separate applications to work together, and build modularity and flexibility into systems while bolstering resiliency and saving costs. For instance, ANZ is seeing APIs help host-to-host (H2H) solutions – which automate various financial processes, including business payments, reporting and workflow management – take off in various markets.

How a global H2H customer integration solution works

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Source: Host-to-host solutions, ANZ

“If you look at what APIs are doing now, it's effectively us offering a range of services for a customer to choose from in order to drive their own experience discreetly at the backend,” says Mahoney, adding: “We're providing an integrated omni-channel experience where customers can opt to do business with us over files or APIs. And we’re extending that to include more traditional services, such as web and mobile.”

Yet another example of an integrated system that’s gaining traction is PayTo. Developed by NPP Australia, PayTo supports e-invoicing and QR codes to speed up transactions while reducing manual intervention, which means fewer errors. 

Along with offering corporates new avenues of being able to receive and manage money from their customers – such as the digitisation of direct debits – PayTo provides greater visibility into the mechanics of a transaction, for instance, informing users when a payment has been paused, changed or cancelled. And this level of transparency means clients also have better control, notes Nigel Dobson, Banking Services Lead, ANZ.

“Previously, customers would sign a piece of paper and someone debited your account once a month. You would have no control over that,” he says. “Now, with the PayTo functionality, ANZ and other banks can give their customers greater control and visibility into those transactions.”

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Source: Payments that keep business moving, PayTo

According to Vasic, tools like PayTo will change the way treasuries operate in the 24X7 environment created by real-time payments. "Specifically in Australia, we expect PayTo will  bring a fundamental shift around how banks provide digital propositions to their consumers, and turn the whole direct debit model on its head," she says. "We're quite excited about PayTo."

The ongoing proliferation of such tools enables institutions like ANZ to operate in the background while offering unprecedented flexibility and transparency, and a top-notch user experience. At the same time, integrating new technologies into existing products and solutions has to take into account considerations such as scalability, cost, compatibility with business models, and customers’ security needs, especially because new technologies are coming up and being trialed all the time.

Among the various innovations on the horizon with the potential to check many of these boxes is the tokenisation of assets – the digital representation of physical assets on distributed ledgers. Tokenisation using blockchain tech offers many benefits, foremost among them being enhancing the liquidity of an asset.

Tokenisation also means the ability to use smart contracts, thereby reducing dependence on intermediaries and producing cost savings as companies are spared the burdensome, process-heavy task of managing paper-based transactions. And because tokenisation provides a crystal-clear picture of ownership, there is greater transparency, which enables instant settlement of transactions and the mitigation of counterparty risks and, ultimately, leads to a friction-free experience.

For these reasons, increasing numbers of corporates can be expected to embrace it and banks like ANZ must be prepared to assist clients with a tokenisation strategy and keep pace with new entrants such as fintechs and non-traditional financial services providers, according to Dobson. 

“So, in another 10 years’ time, we could see decentralised networks and digital tokens become popular,” he says. “And while we don't know that for sure, the one thing we do know is that our customers will determine whether we go in that direction, and how far.”

While there is no dearth of new technologies being deployed in the financial services industry – ranging from AI and machine learning to blockchain and RPA – any successful digital transformation effort eventually comes down to offering an effective and workable replacement to a legacy instrument, according to Vasic.

“It's one thing to say cheques are part of the old world. But if the new world doesn't have the capabilities to replace the benefits of the cheque, it's going to remain part of the landscape,” she says. “So a big part of a bank’s job is to not just think about the future, but also act as a bridge, handholding customers from the past into the current, and then into the future.”

What does this mean for the corporate treasury?

As banks continue to invest in emerging technologies, competition and innovation in the industry are driving better outcomes for clients. 

Uber and Spotify offer ideal analogies from the retail consumer world – one is an example of frictionless payments and another a repository of highly customisable products (songs, in this case) – to showcase how the user experience is changing. From the corporate treasury and transaction banking perspectives, while payments are on their way to becoming friction-free, other key functions such as onboarding and lending, as well as liquidity and cashflow forecasting, are now the target of digitisation and automation.

“If our customers want a supply chain finance or trade finance product, they don’t need to come and tell us that. They should simply be able to say, ‘You know what's happening in my system, so offer me a financing option and we can tell you whether we want it or not.’ So those are the types of experiences we need to build for the future,” says Hari Janakiraman, Head of Industry and Innovation, Transaction Banking, ANZ.

For that to happen, FIs must delve deeper into their clients’ internal processes to gain a better understanding of their business, their risk parameters, and the frictions they are trying to rid their systems of. And bankers must take a design-thinking approach, according to Mahoney, to help treasurers cope with the typical challenges of switching from legacy systems, as well as cost and process-intensive endeavours such as transitioning to global standards like ISO 20022.

“Transaction bankers are finding that they need to go much earlier into that conversation with the customer, to help them think through their current creative process, and also understanding how the bank’s services can help the customer achieve their goals,” says Vasic.

This will also allow banks to help customers reimagine their business processes in light of what the technology can enable, redefine the standard of service that customers have come to expect, and work closely with them to co-create experiences for their clients. Of course, this increased engagement raises the issue of trust, which must be addressed by safeguarding the integrity of client information, especially around the use of KYC data.

As banks move to embrace the future, Janakiraman cautions, it’s crucial not to lose sight of the basics – such as ensuring payments are processed on time. “We need to give confidence to our customers that we will do the expected things, the hygiene tasks, really well. I think that’s the number one priority as we help them on their transformation journey.”

Preparing for the future

As momentous shifts occur in the transaction banking landscape, in turn impacting how corporate treasuries function, it’s incumbent upon institutions like ANZ to help treasurers cope with and navigate these changes, with some give and take. 

“What we need from treasurers is to really invest the time and resources needed to understand these major developments and the network effect they have on the industry as a whole,” says Vasic.

According to Janakiraman, banks now more than ever need to map out a bold and well-defined innovation strategy driven by investing in hiring and retaining top-tier talent who can think boldly and support the push to future-proof operations before the window of opportunity closes.

Abraham concurs, adding: "Bankers as well as treasurers need to upskill and understand how we can help our respective clients... so less focus on ‘putting out fires’ and more on value-added advisory around issues such as liquidity management, and leveraging emerging tech and ecosystem opportunities."

Yet another task that treasurers must prioritise is putting together an action plan to strengthen internal cybersecurity measures, according to Mahoney. And there are many avenues to choose from. For instance, AI and machine learning can be deployed to monitor payments to detect malware in real time. Yet another example is the self-executing smart contract, which FIs are investing in to minimise counterparty and conduct risk.

“The risk of cyber fraud has increased on all metrics on a global and national scale,” he says. “Ignoring the issue would be unwise for any corporate treasurer or their organisation.”

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Source: Simplifying cyber security for business, ANZ

While existing services like PayTo and PayID are vital for tackling some of these risks, banks are also devising digital identity solutions tailored to help corporate treasury clients safeguard their transactions, and prevent fraud and scams. At the same time, treasurers are advised to consider incorporating FI-driven and government-endorsed digital IDs into their payments ecosystems.

“Digital identities are coming and we'd like corporate treasurers to think about that from a transaction security perspective as well as in terms of interacting with other counterparties, such as suppliers, in aid of preventing financial crime,” says Dobson. “It will be a fully digital experience, facilitated through an interface of your choice and bolstered with the requisite security and checks and balances that are required to give you the comfort and trust that you're dealing with an organisation that is going to fulfill and protect your transactions.”

Finally, perspective matters. Because, while banks are working to support their institutional customers navigate the myriad local, regional and global changes occurring across the transaction banking ecosystem, it’s increasingly evident that the successful companies are the ones that have a firm eye on the big picture, and not just the next upcoming trend.

“This is not a one-time journey,” says Janakiraman. “The best bet for success for treasurers undertaking digital transformation is to take the long view on where their function is heading, and work with their preferred banking partners to recognise the complexities, opportunities and challenges without being distracted by the immediacy of current events. It’s crucial to think long-term.”