When Finastra surveyed the global banking sector in collaboration with Aité in 2017, we found that the majority of financial institutions were not using integrated Cash Management solutions, and that over 80% of bankers believed that they could improve the experience they provided to their corporate clients. This was especially true in the case of Treasury and Cash Management services provided by banks to businesses.
While the situation is changing in Europe and the USA, progress has been slower in Africa. There are a couple of reasons for this situation, and a number of drivers that are now creating a tipping point of wider acceptance for different ways of working.
Drivers for change
The reasons behind slower acceptance rest mainly with the relatively fragmented banking industry across the 54 countries that make up the African continent, as well as the economy’s general reliance on SME businesses rather than large corporates.
There are few regional and pan-African banks providing true multi-country Cash Management services, with this area arguably dominated by global banks such as Citi, and African regional banks such as Ecobank. Using Finastra’s Fusion Cash Management solution, Ecobank has been able to offer a leading Cash Management and Intra-Africa Payments solution to its clients.
So, it could be argued that there has not been the same pressure from organizations for sophisticated treasury and Cash Management services, nor have banks seen the requirement to provide them. However, we believe some strong drivers for change have emerged which mean that corporates now require more sophisticated services.
One such driver for change is undoubtedly the Covid-19 pandemic, which has accelerated banks’ often nascent digitalization programmes. Ultimately, it has meant that banks needed to stand back from working in traditional ways, which manual or Excel-based processes continued to dominate.
This ‘Sellotape and string’ approach has not been sustainable, especially as the need for real-time information grew when businesses faced the economic slowdown caused by the impact of the pandemic. It became more important than ever to be able to see liquidity positions, and real-time payments and receivable notifications. In addition, treasurers have utilised the up-to-date view of their cash positions to manage distributed funds and optimize their liquidity.
This driver has not been uniquely required by larger corporates. SMEs and increasingly MSMEs have required this real-time information presented to them in a contextual manner, as they adjust to new business practices and cashflow management techniques which are likely to be here to stay, beyond the pandemic. During 2020 it therefore became clear that Cash Management services have become as important for SMEs as for corporates.
A further big driver for the adoption of better Cash Management services is the advent of the African Continental Free Trade Agreement (AfCFTA), which will remove trade tariffs across the continent – opening up the market for cross-border electronic commerce for SMEs. Trade naturally requires better control of liquidity and payments and access to easy-to-reach Cash Management services.
Open Banking is on the verge of adoption
Open Banking has developed strongly in the UK and Europe, driven largely by regulation and adoption standards. Whilst this regulatory-led approach has not been seen in Africa to date, many banks are adopting the principles of Open Banking in re-shaping their client and go-to-market strategies, coupled with an open marketplace, from which banks can integrate third-party apps, often designed for the local market, into core systems.
This model becomes even more relevant if the core product vendor exposes key components into such a platform through Open APIs. This is the model developed by Finastra through its FusionFabric.Cloud open platform.
While more companies are looking for Cash Management solutions, smaller banks do not always have the financial resources to invest in the systems that enable them to offer such services..
One answer to the problem would be to adopt cloud-based technology delivered as software as a service (SaaS). But this raises another challenge, relating to Government or Central Bank regulation regarding how data can be held and processed within and outside different African countries.
The general guiding sentiment of this regulation is that data (be that ‘personal’ or ‘corporate’ in nature) should not leave a country at all, so larger banks and cloud providers such as Microsoft and AWS have adopted the approach of creating their own regional cloud-based data processing hubs in countries such as South Africa.
Yet as the regulatory situation and the impact of AfCFTA evolve, demand for a subset of the corporate banking solutions used by large banks will grow as institutions serving SMEs strive for greater payments and receivables functionality, and automation of processes such as customer onboarding or cashflow forecasting.
Adoption of these solutions will help banks provide the personalized services that today’s SMEs need. Instead of providing a blanket facility for working capital, for example, banks could offer a tailored approach where the amount of lending needed could scale up or down depending on changing commercial requirements, and by applying AI or Machine Learning tools to better forecast cashflow requirements.
The difference between the old and this new way of working is that there will be a shift from companies pulling information from their banks reactively to banks pushing data to their clients on a proactive basis. This will increasingly be managed on an ‘added-value’ basis by suggesting a suitable trade and working capital facility or a sweep between accounts to maximise liquidity, reduce debt costs or increase return on surplus funds.
A data-first and single-view approach could well reinforce new demands for additional Cash Management services. Banks’ corporate clients are demanding better fraud and AML detection and prevention, for example. Businesses will see improvements in efficiency and liquidity optimization from multi-channel approvals, or better Cash Management with greater payments and receivables volumes. A wider range of businesses could look to enhance liquidity and manage funds in different ways or even access more complex Cash Management functionality such as virtual accounts.
Solving the data processing issue and implementing regional data hubs is already happening. And this paves the way for open APIs and Open Banking, too. This will be another challenge for banks to grapple with as pressure builds on their core systems and their ability to adapt to future demands or regulations – at Finastra we are having conversations about “future-proofing” banks’ core systems every day.
A bright future
The reality is that technology has now caught up with the real needs of companies: greater transparency, more certainty and stronger controls - through better insights derived from real-time data.
This doesn’t mean that the relationship between banks and their clients becomes wholly transactional. In fact, banks can build on the value they already deliver on a personal basis to corporate clients through a better understanding of how they can finance and build their businesses.
It also means that their relationship managers can focus less on the process of lending money, and become empowered to provide the relevant data and support their clients with more ‘tuned’ products and services.
The building blocks are now in place for banks to adopt technology that will enable them to respond to the need for a wider range of Cash Management and liquidity services. The global pandemic has given an already growing demand from businesses the push it needed to get it over the line, while AfCFTA and Ecobank, working with Finastra, are showing what a single, continent-wide trading and export bloc could look like in the very near future.
If you would like to discuss managing payments, liquidity and addressing other Cash Management needs, make sure to contact me. Our solutions are all self-service, in channel, via integration to the corporate back-office, and all open, in a multi-bank world.