Solutions for a global banking dilemma

400 years of progress?
Although international business is nothing new – indeed, trade has had an international focus for 400 years or more, the past two decades have witnessed a rapid acceleration. Now more than ever, customer and supplier relationships are increasingly cross-border, not only for large multinationals, but for companies of all sizes. This inevitably creates challenges for the financial institutions who service their needs: how can we, as banks, support our customers’ global ambitions without spreading our resources and expertise too thinly?

One of the dilemmas faced by institutional customers in a global context is how to manage their payments: make cross-border payments from a central hub, which may be efficient but expensive? Leverage a central hub and make use of a multi bank or referral arrangement? Or simply manage and make payments locally? If the international banking community had achieved the same depth and sophistication of payments globally as many have achieved locally, the answer may be straightforward. As it is, it is not. As bankers, we need to realise that our customers have global payment needs that require the same degree of automation, depth of service and cost efficiency as domestic payments.

All banks are experiencing income pressure on their transactional business. Both from a transaction margin/fee and liquidity perspective, we cannot afford to lose the international payments business of our customers to competitors. Therefore, financial institutions need to respond rapidly and proactively to provide their customers with the level of international payments capability that they require, While bank partnerships have an important role to play, it is not enough simply to refer our customers to a partner in countries where we do not have a presence and leave it at that. The fragmented MT101/ MT940 file formats of the past are no longer acceptable. What is required is a stable, robust and transparent environment in which the referring bank remains engaged and accountable for delivering on a customer’s payment needs, irrespective of the party delivering the service.

Familiar services, new deployment
In many ways, the alternative is not new, and has existed quietly and unobtrusively for a number of years, often referred to as the re-account model. Essentially, this means that accounts are opened in the name of user banks but on behalf of customers. This solution is offered by several banks in Europe; for example is SEB a primary provider in the Nordic region with our “White Label Services” (WLS). A re-account solution adds both breadth and depth to a customer proposition offered by a bank. Account opening can be made in just a few days instead of the weeks required for traditional referrals. The customer can gain rapid access to a far wider range of products than the traditional multibanking or referral arrangements allow. Furthermore, the relationship with a customer remains with the primary bank, which in turn receives services and data from the local provider bank.

In addition to the obvious benefits for the customer, there are also significant benefits for the referring bank as the customer relationship is not diluted or disconnected, with implications for liquidity, pricing and interest terms. The provider bank also benefits as it does not need to go through credit analysis and contract negotiation with the customer, and can continue to direct relationship management resource to their own primary bank customers.

Expanding the proposition
To support the ongoing growth of the reaccount model, new services are now added, offering services in which domestic banks have traditionally excelled. As an example, the launch of the Nordic Direct Debit (NDD) enables our financial institution clients to provide access to direct debit schemes in Denmark, Norway and Sweden to their customers under a common white labelled umbrella. A single ISO20022-based format based on the SEPA DD template replaces the existing proprietary formats for each of the 3 Scandinavian clearing houses. Furthermore, as it is consistent with the SEPA DD, customers can make use of them interchangeably depending on the country required.

Financial institutions and their customers are seeking a real alternative to fragmented local solutions and disconnected relationships with multiple banks in order to fulfil efficiency, transparency and accountability objectives; consequently, the re-account model is now poised to expand considerably as financial institutions and their customers demand increasingly cohesive payment and cash management solutions globally. The only true alternative would be a fully fledged global branch network, but no bank is in a position to offer the same depth and quality of service in every market that an expert local provider is able to fulfil. For example, with 150 years’ experience in the Nordic region, financial institutions globally can take advantage of our whitelabelled re-account arrangement so that their customers are able to access the depth of service and market insight that we offer within the context of their primary bank relationship, and fulfil their global ambitions.

The author, Jesper Lindén, is Offering Manager at SEB.