Bank Systems & Technology has a thorough article today on the various challenges facing commercial banks as they fight commodization of their core transaction processing capabilities.
The need to differentiate on service to overcome product
commoditization is especially true in the payments area, says Maggie
Scarborough, research manager with Boston-based Financial Insights.
"For years, banks have sat on their position as the only entry point to
payments," she comments. "They hurt themselves by operating on thin
margins. This drove prices down. In payments, there's very little
differentiation in pushing transactions around.
Primary Needs for Corporates / Opportunities for Banks
- Consolidating bank relationships – corporates are centralizing their banking relationships and will move business to those banks that provide the most meaningful partnership, often on a global basis. Only banks that can provide exemplary customer service will maintain and grow their client base.
- Corporates are demanding that banks agree upon and adhere to file standards that simplify interfaces and increase straight through processing.Ideally corporates want to submit a single payment file to a bank with interoperability among its payment platforms (ACH, wire, etc).
- Banks should help their customers transform back office operations so that corporates can maximize the value of their ERP systems.
- Supply chain services – from electronic invoicing to automatic payment regardless of the size and sophistication of the trading partner – are one of the most important areas for value add and differentiation for banks.
- Real time visibility to account information is necessary to support liquidity management.
Banks will only achieve differentiation through truly value add services, delivered consistently, and continuously improved upon as corporate needs evolve. If banks cannot deliver solutions to corporate needs, more nimble and innovative non-bank providers will, leaving banks to compete with one another for the low cost, commoditized transaction processing on the back end.
Transaction Processing Not Enough to Succeed In Commercial Banking
Bank Systems & Technology
September 28, 2007
Studies cited in the article:
Global Corporate Banking 2007-2011 Spending Forecast and Analysis