Before the 2008 financial crisis, most businesses had one long-standing banking relationship, with their chosen bank meeting most of their funding and liquidity management needs. However, since the crash, corporates around the world have faced the fallout from the solvency of banks. These new challenges reshaped the landscape, ultimately making many move towards a multi-banking model, in which a range of bank accounts are used for operations.
It is becoming more important for organisations to have access to real-time intra-liquidity information, especially given that as the speed of transactions increases, so too does the need for timely and accurate information. Liquidity management structures are not set in stone and should be periodically reviewed to check if they continue to support the organisation’s needs.
The current landscape
The current industry is highly fragmented, with all banks being intensely competitive, looking to win more corporate customers. However, some commenters claim this may not last much longer as the concept of multibank platforms comes into play.
A recent survey found that organisations have up to 20 core banks which provide the necessary levels of credit to retain their business; however 75% of the executives surveyed revealed that they do not have a formal process for reviewing core banking partners.
Respondents also indicated that the evolving regulatory landscape had a strong effect on their banking relationships, and they now closely monitor bank stability, along with potential risks the banks may pose to their organisation. As risk monitoring processes become more rigorous and often proactive, many companies look for flexibility in their banks so that they can change their providers quickly and simply if required.
The midsized corporate market is beginning to demand more specific and tailored solutions to fulfil their banking needs. Corporate bankers have often invested less time into understanding the needs of their customers in comparison to retail bankers, but this trend is beginning to change.
Managing relationships with multiple banks can be extremely difficult, causing isolated liquidity pools which, in turn, obscures the cash picture and lowers control. On the other hand, having multiple finance providers gives companies the opportunity to negotiate optimum terms and conditions for any transactions. Involving several banks also spreads the risk and premiums for high-value transactions. It can be difficult for finance departments to stay on top of all financial instruments to ensure they are updated and used in the most cost-effective manner when using multiple services from a variety of banks. This structure can cause fees to become bloated and operating costs to rise.
Each bank is likely to have significantly different IT systems, which can be time-consuming and potentially confusing for employees to use, with different passwords and security checks for each portal.
Increasingly, corporations are moving towards consolidating all banking needs onto third-party platforms where available, such as the Crealogix portal, which frees up man-hours previously spent managing all accounts, increases visibility and allows substantial savings in bank fees and costs. These web-based solutions, offer modern, flexible options to create well structured liquidity management.
The concept of multi-banking platforms is currently not mainstream, however, it could have huge benefits, including weakening the economic powers of individual organisations by favouring collaborative ventures with higher efficiency. The biggest challenge in the widespread implementation is the international compliance and regulatory processes that can be costly and lengthy for financial institutions. Collaborating with multiple financial institutions can benefit users exponentially, especially when they have different areas of expertise; in trading zones, countries or jurisdictions.
These platforms allow users to aggregate all bank accounts, opening up cash pooling functions, transaction approvals and distribution of liquid assets. Crealogix’s solutions for banks allow them to offer small to medium businesses increased visibility and control over payments and transactions, optimising management and costs. Contact us for more information. This post was also published on LinkedIn from Marc Staehli. Find more there.
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