Corporate banks are scrambling to find digital solutions to serve e-commerce businesses. This is a broad field including any transaction purchased or sold online, and the data and payments that go with it – from shopping on Amazon to hailing a ride with Grab to using a mobile wallet.
This represents new territory for banks, as mobile technology requires them to follow their big corporate customers down to the consumer level like never before.
Banks are prioritizing investments in mobile experience, digital connectivity, and machine-driven data. Some of these are reaping immediate rewards.
Other investments may come out of the “innovation” budget but are reactive, designed to keep legacy systems relevant. Often it is to support open banking and APIs – a field usually considered the purview of consumer banking, but now relevant to corporations as they help treasurers and CFOs manage their customers.
Similarly, e-commerce is not really a “consumer” market but the cutting edge of corporate payments, treasury and data.
The handful of banks that has invested in building APIs to corporate treasurers, such as DBS, is already generating profits. “I see very little competition,” said the bank’s group head of digital for institutional banking, Abdul Raof Latiff.
Banks are also using digital tools to go after small- and medium-sized enterprises that are too costly or risky for their expensive, brick-and-mortar branch networks to service. Standard Chartered has recently launched a digital bank in India targeting SMEs; earlier this week, it won a virtual banking license in Hong Kong to do the same.
I see very little competitionAbdul Raof Latiff, DBS
HSBC, on the other hand, is using PayMe, its closed-loop mobile payments tool, to leverage relationship with merchants in the hope of leveraging data to serve the retail arms of Hong Kong’s conglomerates.
The biggest challenge for banks is simply keeping up with their customers and prospects. The growth opportunity is e-commerce, which in Asia is now a $1.3 trillion market growing at 18% per annum. But Ron Karpovich, global head of e-commerce solutions at J.P. Morgan, told DigFin the hard part is maintaining pace.
“Companies in this space set up to fail fast,” he said. Which means they build fast, and need payments solutions quickly – and their needs can change just as fast. It’s difficult for banks to maintain the same flexibility.
E-commerce clients keep pushing the boundariesMorgan McKenney, Citi
There’s also a fiscal challenge in serving e-commerce companies operating on a lean model with the costs that bankers bring: their people and their (still) legacy systems are a magnitude more costly.
“E-commerce clients keep pushing the boundaries,” said Morgan McKenney, head of core cash management for Asia Pacific at Citi. “They want instant pricing, instant implementation, instant products and instant service.”
All service everywhen
This is forcing banks to adopt real time responses, as well as omni-channel collection of payments by consumers for online purchases. This means being able to service the proliferation of e-wallets, other mobile payment services, QR codes, new point-of-sale machines, and longstanding credit card infrastructure.
But the complexity of harnessing new technologies successfully – it’s basically impossible for banks to do – has led to a new reliance on external partnerships.
In Citi’s case, it’s now working with Feedzai, an A.I. company, to provide alerts regarding possible outliers to treasurers (including retailer DFS). In trade finance, HSBC partners with specialist software companies to automate bills of lading. Bank of America collaborates with HighRadius to digitally match a corporate treasurer’s incoming payments with invoices.
The constant churn is also forcing banks to seriously rethink payments networks. Big banks by nature are inclined to support SWIFT for cross-border correspondent banking. It’s established, has 10,000 member banks, and it works in fiat currencies.
“We want to support regulated infrastructure,” McKenney said.
It’s not zero returns; it’s negative returnsFaisal Ameen, Bank of America
SWIFT’s upgrades have been welcomed, such as adding a tracking identifier for payments in its network. And where local countries have introduced domestic real-time payment rails, SWIFT messages can now arrive intraday.
Such improvements have kept blockchain-based challengers such as Ripple at bay, and banks satisfied that they are backing the right horse.
But such clarity may be eroding. IBM has now rolled out its World Wire, a blockchain-based payments system. Although the initial focus is remittance payments, small-value stuff that the banks have already abandoned, it is also aimed at payments for cross-border e-commerce. That is a high-growth industry. Only 10% of the world’s retail business is done online, a statistic with only one direction. World Wire is a direct attack on the status quo, with a crypto-currency element to boot.
Slow blockchain burn
When it comes to blockchain, banks are investing heavily – yet they are also struggling.
Bank of America, for example, earmarks 30% of its innovation budget to blockchain. It says, however, that it doesn’t expect to generate a return on these. “It’s not about zero returns; it’s about negative returns,” said Faisal Ameen, head of global transaction services for Asia Pacific.
Scalability is five years away, and probably beyondVinay Mendonca, HSBC
Projects still look viable on paper, but will need to attract more players to reach their potential. For example, J.P. Morgan has gone life with its Interbank Information Network, built on its proprietary Quroum protocol. It provides data around failures in payments, and is meant to augment payment messages on the SWIFT network.
Such projects imply that, one day, SWIFT could find itself disrupted; but probably not for a long time. J.P. Morgan says there are now 200 banks on INN, but there are 10,000 banks on SWIFT.
The last mile
Perhaps the boldest blockchain projects in corporate banking have been in the trade-finance space, and HSBC has been the most visible player. It backed Voltron, a platform with companies like Cargill and Reliance testing it; and it’s in the consortiums behind Hong Kong’s eTradeConnect and Europe’s we.trade.
But these remain largely bank-focused projects that have yet to attract the many other players in trade finance (shippers, freight-forwarders, insurers, customs houses, plus importers and exporters).
“Scalability is three to five years away, and probably beyond,” said Vinay Mendonca, HSBC’s global head of product and propositions for trade and receivables.
The likes of HSBC, Citi, StanChart and BoA are therefore integrating digital solutions into the one advantage they have over internet companies, startups, and the sheer pace of change itself: banking licenses on the ground in many countries.
They are digitizing their pipes into “last mile” connections, either directly or through fintech partners, to ensure these bastions remain relevant. It’s the last stand of the analog world in online commerce.