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With the industry instability this spring driving the need for organizations to diversify and hold multiple banking relationships, it’s of growing importance to understand the complexities that come with gaining the primary relationship with commercial clients.
Marc Salinas and Eric Campbell from Bottomline Technologies join us to share how recent industry events create an opportunity for financial institutions to position themselves as a valued resource for their business banking and commercial clients and win the battle for primary ownership of the customer relationship.
A few takeaways from the conversation:
Interview transcript
Joining us today are Marc Salinas and Eric Campbell, senior consultants at Bottomline Technologies. They’re with us to share how recent industry events create an opportunity for financial institutions to position themselves as a valued resource for their business banking and commercial clients, and win the battle for primary ownership of the customer relationship. Marc and Eric, welcome to the BAI Banking Strategies podcast.
Marc Salinas: Thank you, Holly. And great to be with you today.
Eric Campbell: Thank you, Holly. Wonderful to be here.
Marc, I’ll start with you. It’s certainly been an eventful year in business and commercial banking. How have things changed? And what will be the impact going forward?
Marc Salinas: We’re seeing several outcomes from the turmoil that we all experienced this spring that should have a lasting effect on both how banks serve their clients, ranging from SMBs all the way up to the largest corporates. Banks are demanding more timely insight into transaction activity and funds flows, which saw rapid changes as all the disruption played out. And they’re also leaning more heavily on their digital channels to serve those businesses. Their clients are also being forced to rethink their banking relationships in ways that have important implications for how banks manage and grow those relationships going into the future.
And Eric, what changes or impacts have you seen? What would you add?
Eric Campbell: I would just add it’s very, very important for the banks to think more about what are their clients’ problems, what are the clients’ environments, how are the clients dealing with those environments, and what can they do to make that easier for them. Really putting themselves in their clients’ shoes, and looking at the world from their perspective.
And with this environment that we’re in and the things that we’ve been through, Eric, what are some of the implications for how banks compete to serve their clients?
Eric Campbell: It’s going to be a fact that banks are going to have to understand the fact that corporates will need to have multiple banking relationships. And with that comes a lot of complexity. So if a bank assumes that their job is to get all of that banking business to make their customer’s life easier, which frankly has been the mindset for many years, that’s probably not going to work. The bank’s reality is they’re going to have multiple banking partners, they’re going to have multiple banking solutions. And we really have to think about how as, if you want to be the lead bank, if you want to be that leading banking partner, even if you don’t have the biggest relationship with that company, how do you win that relationship? And you might not win all the transactions, you might not have the majority of the account, but you may really end up with the mind share of that customer and being able to solve their problems and have a much more sticky relationship.
And let’s talk a little bit more about those specific products and services. Eric, are you seeing any significant changes in the ways that banks look at their transaction banking services, medium to long-term strategies?
Eric Campbell: We’re starting to see that. Certainly, the banks are looking at how do they extend their footprint, certainly in terms of the traditional things around sending payments and getting information out to their clients and looking at ways in which you can go deeper into connections to their ERP systems, and connections to really make their integration with the bank much easier. But more importantly, how do you get that to work with other banks and how do you help that customer get through that. I do see the emergence of banks looking at how do I help our customers deal with this multi-bank strategy, and how do I give them as much value as I can.
Talking a little bit more about primary ownership, Eric, a follow-up question for you in terms of those offerings, should banks be adjusting their offerings to win primary ownership as the need has increased recently to have multiple banking relationships after those bank failures that we talked about earlier?
Eric Campbell: I would say absolutely. We have to figure out ways in which… That is a new reality. You may want to have some ways in which you could provide some relative risk as to how the banks that they’re dealing with, how does it look in the market, if there are ways to provide intelligence to the clients to understand where are the risk factors. I think that wake up call we had in the spring was really a wake up call. One of my friends who works for a small startup, all their deposits were Silicon Valley Bank, and there was a very, very dark weekend when they didn’t know if they had a business on Monday morning.
Such an interesting time and a lot of repercussions coming from that. Let’s talk a little bit more about competition. Marc, a question for you. It seems like we’re seeing more fintech competitors than ever vie for high value portions of the client value relationships. How are focused offerings in areas like automated payables, automated receivables and cash flow forecasting impacting the value equation for banks and clients?
Marc Salinas: Well, as Eric suggested, the battle banks are in now is one to really determine who will be the most valuable partner to the offices of the CFO for their key client relationships. We feel that battle will be fought and won really across the entire business payments and cash lifecycle, spanning invoice to pay, invoice to cash, and cash management. So leading banks are working to improve cash visibility across more of this lifecycle, and really to make their solutions more efficient and more intuitive and more automated, which we feel is really the key to winning this primary ownership that you talked about. We’re also seeing interest from banks in creative ways to drive financial performance, like monetizing more traditional payments such as ACH and check through solutions like premium ACH payment networks.
And Eric, is there anything else that you would add here in terms of the competition?
Eric Campbell: I would. I just hate to sound like a broken record for those of you remember what a broken record means, but I would love to just reiterate that cashflow forecasting and things like that only are relevant if they’re taking into consideration all of the bank transactions for all of the different banks. The customers do not divide their business up by which banks they’re using, they divide their business up in how they should run their business, whether lines are defined. And so really that aspect of getting all that information and providing business intelligence across all your banks, across all your transactions, I think that’s where we need to head.
And Marc, you mentioned unique growth opportunities for banks as one benefit of serving clients across this payment and cash lifecycle. Could you give us an example?
Marc Salinas: Monetizing ACH payments that are originated via digital banking is one way to really open up significant new revenue streams for banks as vendors pay them revenue share. This revenue share is typically less than they would pay for a car payment, and in exchange the vendors are getting really rich remittance data and a guarantee of good funds for those premium ACH payments. Banks can further incent clients to move away from check payments, which are costly and inconvenient for everybody involved, by giving those clients a portion of that revenue share for converting the checks to ACH.
The great thing about these ACH monetization initiatives is that they complement rather than compete with broader AP automation strategies that the banks may currently be pursuing, because they’re focusing exclusively on those payments that are originated through digital banking channels that the clients are already using. Obviously, the breadth and the depth of the premium ACH network that banks partner with will have a big impact on the value prop to clients, and to the revenue that banks ultimately drive from these types of initiatives. But we really see them as a win-win-win for the bank, for their payer clients and for the vendors they pay.
Talking about payments a little bit more deeply, Eric, we’re also seeing innovation and change in payments related services and standards. How are cross-border and real-time payments changing and how should banks prepare?
Eric Campbell: Back in 2002 when what flip calls MX messaging or ISO 20022 started to emerge, many people in the industry believed it would take about two or three years. Here we are in 2023 and it still hasn’t happened yet, but it is happening. So what we’re seeing across the world, across the globe and with Swift, is this really rallying around the standard of ISO 20022 as the way forward in terms of all of our financial messaging, between banks, between corporates and their banks, between banks and their corporates. And that has a kind of double-edged sword. One of the things that’s interesting about format standards is you have one group of people who define the standard and they want to make it as flexible as humanly possible, and then you have the industry who wants to implement the standard and they want to make it as simple as possible.
As we look over the next 5 to 10 years, we’re going to see people using this new standard in ways that we probably can’t anticipate now, but now that we’ve opened up the doors, we have much more flexible standards, we don’t have to live in the constraints of a punch card payment transaction like we have for many years, and we have a much more open way to go. And those legacy systems that have been out there for a long time speaking the same format, speaking the same language, the industry’s going to have to provide them with tools to be able to transition those legacy systems to the new world, because it’s going to be across the globe, whether you’re in Asia Pacific or whether you’re in Europe or whether you’re in UK or United States, everybody’s kind of moving in the same direction and they’re moving with differing velocities, but they’re moving fast.
I would say on the real-time payment side, that’s really changing fast as well. Almost all the central banks are starting to look at this. We had clearing house with real-time payments, we’ve had a bit of traction on that. We have Fed now coming out shortly. There’s a similar initiative in many countries where this idea of having a real-time payment where I can have a conversational interface with my counterparty to talk about what they need, what’s missing, what they disagree with, suddenly that all becomes real-time and becomes much more efficient than it did before even five years ago. As these new real-time payment methods evolve and become adopted, we’re going to again see a major change just the way we use, how the iPhone came about.
Certainly a lot of work, and a follow-up question there, thinking about the challenge maybe for a smaller bank. Eric, can you talk about how smaller banks could effectively offer cross-border and cross-currency payment services to their customers?
Eric Campbell: Yes. Smaller banks are not going to want to entertain a large correspondent bank network the way a Bank of New York would or the JPMorgan Chases of the world. They have those, they manage them, they spend a lot of time managing them. What needs to happen for these smaller banks is they have to have a close relationship with either a correspondent bank of their choice, or a third party service provider that they can trust and that’s accredited that can provide them these kinds of cross-border payment services and the transparency around that.
As this evolves, we’re going to see some of the new disrupting people coming into this space offering almost real time cross-border payment transactions. Not because they’re going through some new intriguing clearing system, but really because they have their own networks that they can leverage, and really kind of give these smaller banks a correspondent network in a box, where they don’t have to worry about what goes on after they send the message to their correspondent or their service provider. The service provider takes all that, provides them with one transaction charge, provides them with the various information around the cutoff times with the currencies and things like that so they can be compliant with what’s needed to initiate that transaction. And many times also, some of these services provide real-time rates and FX trading as part of that, and they’re bundling that in with the correspondent services that they’re offering their smaller banks. I think, as that evolves, there are some leaders in that space now and I think there are going to be some new players coming into it, and some new technologies as well.
Through all this, we know that business and commercial clients have had a lot of questions that they’ve been posing to their banks and their relationship managers. Marc, a question for you. What should banks be doing to help their relationship teams guide clients through this shifting landscape?
Marc Salinas: We’re seeing a big focus on helping relationship managers and treasury management officers better understand how their clients are engaging digitally, and act on the risks and the opportunities that changes in digital engagement may indicate. Too many relationship teams, they simply don’t know what level of digital engagement their clients have or how it’s changing over time, or they’re forced to spend time they could use elsewhere piecing together that information. Banks want this information available to their teams through the CRM systems that they’ve already invested so much in deploying, and they want to ensure that it’s available quickly in time to understand and really to capitalize on the types of rapid changes that Eric and I mentioned earlier.
And Eric, anything else that you’re seeing? Are you on to add here?
Eric Campbell: Oh, here I go again with the multi-bank. I would say that that’s really important. If you look at your channel and your channel’s data and your bank’s data with regard to that customer, that certainly provides you with some interesting insights. But if you take it a step further and say, “Oh, not only do I know what that customer’s doing with me, I in fact know what they’re doing with our competitors,” That becomes very insightful. And so again, if the bank can position themselves in to be part of that solution, part of that multi-bank information network if you want to call it that, the business intelligence goes up dramatically.
As we close out our conversation, a lot of good points have been raised. One other area that I think would be helpful for us to discuss is data and business intelligence. Marc, I’ll start with you and then I’ll give Eric the last word here. We’d love to know more from your perspective, what kinds of business intelligence can banks glean from the client information they retain within their transaction banking channels?
Marc Salinas: Engagement with digital platforms can really provide a wealth of information and intelligence throughout each client’s lifecycle, from onboarding through cross-selling to deepen relationships, as well as identifying behaviors that may indicate risks to the value of the relationship over time. Banks are becoming more proactive in monitoring the initial use of digital platforms, either when migrating to an entirely new platform or integrating a recent acquisition. And this looks like tracking first login and first transaction for each client that’s new to the platform, to really proactively engage clients that may be struggling with the transition.
Rather than just sitting back and waiting for a call from an irate client, banks can play offense and offer help as the need for it arises. As banks sell new payment and treasury services, this same approach of monitoring first use to drive adoption, it also helps ensure that cross sales really translate into fee income more predictably, and that onboarding process hiccups or training issues don’t prevent those sales from becoming volume. We’re also seeing real value in using machine learning to monitor the complex and rapidly changing stream of intelligence that all this digital engagement data provides, from big swings in login activity to changes in balance and transaction mix, and using that to predict which relationships may be at risk and time to intervene and to preserve that value for the bank.
And Eric, any final recommendations that you would leave with the audience here as we close out our conversation?
Eric Campbell: Yes. I would say to build on what Marc was saying when client gets onboarded to a transaction banking system, I’ll use that transaction banking service. When the clients onboarded they have a certain profile, and a lot of times that company can get locked into that profile. And in doing so, the bank may forget that that client, since 2018, for example, has changed dramatically and suddenly the bank’s customer’s going to know their bank because the bank that’s in play didn’t know that the client changed so much. So really looking for ways to understand what has changed with that client. There’s a lot of turnover, things can happen, banks have a lot of customers, and having some way to have systematic alarms to say, “Okay, we’ve got a client who’s changing dramatically here. We need to be in the position to win the new business.”
I think that’s some great advice for us to end on here. Marc Salinas and Eric Campbell, senior consultants from Bottomline Technologies, many thanks again for joining us on the BAI Banking Strategies podcast.
Marc Salinas: Thank you, Holly. Great talking with you.
Eric Campbell: Thank you very much, Holly. It really was a pleasure. Thank you.
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