Why Banks struggle to deliver on the FX management tech promise
By Richard Eaddy, CEO Hedgebook
The rapid shift from in-person to online banking in the past couple of years has been impressive. Equally so has been the ability to integrate corporate accounting and payment systems into banks eco-systems. It has supported the rapid shift to remote or hybrid working and changed the banking relationship for good.
The natural extension of this is to extend that eco system to include other aspects of banking such as FX management. The ability for a corporate to be on the same platform as their banker, sharing the same data, reports and analysis drives not only a better relationship but better FX hedging outcomes.
Banks are able to bring even greater value to the table while corporates can make better decisions, using real-time data, faster than ever before. But not all banks have embraced this. Those that have are reaping the rewards but for those slow to follow, it is a growing gap that isn’t showing signs of closing.
Pushing the chicken to buy an egg
Firstly, it is commendable banks are looking to use available technologies to create an integrated eco-system as opposed to building their own. Today’s best-of-breed cloud solutions are designed for integration and should deliver optimal results for minimum outlay by both the bank and by default, its customers.
However, creating an interconnected environment is a lot harder than it might sound. Banks are being faced with a considerable investment to maintain the various tools and technologies involved, including security, staff training and support. This is a significant long-term commitment that banks quite rightly aren’t taking lightly.
It can also require skill sets that sit outside of the established bank technology stack and IT team. Procurement, without this in-house expertise, can be seen as carrying a higher risk – immediately pushing the ‘chicken’ out of its comfort zone to buy an egg.
One of the issues in building the business case is that a customer-connected eco system doesn’t fit with a bank’s established, service-based, commercial model. Proving the ROI on an online banking solution a majority of customers will use is much easier than for an app serving a smaller, even though significant, set of accounts.
While there does appear to be real desire amongst the banking community to change, there is a shortage of both the internal champions and resources needed to drive this through. Hopefully this will change as the number of banks offering a shared FX management solution increase and new commercial drivers appear.
New commercial drivers
In parallel to this, customers are hatching their own set of needs as market confidence grows in accessing banking services on-line. Customers are looking to partner with a bank and this includes having shared data on key issues, such as FX risk, tax, interest rates etc. They are constantly looking for ways to improve financial efficiency and their bottom line, including making better business decisions, faster.
Whereas banks have historically dictated the tools its customers use, customers are no longer waiting for them to take the lead. The metaphorical ‘egg’ is now deploying tools that make sense and expect their bank not to chicken out when it comes to using them.
The entry level investment for customers is off-set by reduced banking services and the customer is better equipped to have informed discussions on its accounts portfolio than ever before.
In many ways it should create a strong business case for a bank to get on board: banks get better connected with customers; customers get to make better, faster decisions with a qualified banker’s oversight; everyone is dealing with the same reports and data sets, in real time, in a highly secure environment. Customers, if anything, are more ‘sticky’ than ever before.
The cost to banks of not moving faster
So why are so many banks are so slow to move? It appears to come back to the size of the problem. In trying to create a strong business case based on a highly integrated compelling eco-system to serve the largest possible group of customers, the project takes on the profile of an Everest summit. Instead of taking an iterative approach and gradually integrating apps into the eco-system, momentum stalls on trying to do it all at once.
Banks should start with one or two additional offerings. While FX hedging is a front runner, it should be based on what is the most compelling need its customers have. Not only would it be at a lower cost and lower risk, it also provides the missing proof point of the value to banks in taking the technological lead in this way.
While the conversation may have been brewing for a decade, the cost and usability of the technologies has reached a tipping point. If more banks don’t start acting soon customers will be able to significantly self-serve to create their own app eco-system to deliver the business banking outcomes they are missing.
Instead of enhancing the bank’s service offering it would significantly reduce the need for a bank to be involved at all. Which would seem to be a very poor outcome for everyone involved – not least the customer.
About the author: Richard Eaddy – Chief Executive Officer and Director
Richard has more than 25 years of treasury experience gained in New Zealand, Australia and Europe. He has worked as both a hands-on Treasurer working for major corporates in New Zealand and Europe, as well as a risk management advisor to some of New Zealand’s largest companies.
In 2002 he established ETOS Limited, which is now the leading provider of treasury services in Australasia. Richard headed up ETOS for ten years and remains a board member and the largest shareholder. He was appointed CEO of Hedgebook in 2012.
Richard currently resides in London growing Hedgebook’s UK and European business.
Hedgebook is a global cloud-based treasury management solution which has been sold in the UK since 2017. Having captured 75% of the Top 30 UK Audit firms Hedgebook is now growing its footprint with banks, brokers and corporate treasury managers directly and through channel partners.
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