BANGALORE: The relationship between corporations and their banks is changing. The global financial services crisis is clearly one of the driving factors behind this development, but not the only one. Corporations are looking for seamless connectivity, which will ensure effective, operationally efficient and secure communication with their banks. This means financial institutions need to rethink their IT strategies or risk being left behind.

Today’s top performing banks are adopting models of operation that focus on delivering customer value. Banks are now assessing the information corporations require, and how promptly and accurately they can deliver it. This represents a fundamental evolution in the way banks and their corporate clients engage, be it the complex large multinationals or the ever demanding small and medium enterprises.

These developments have created a clear impetus for financial institutions to urgently discard outdated, inflexible legacy IT infrastructures, and support the transformation of their traditional business models with innovative use of technology.

In this age of velocity and constant change, banks must focus beyond robust financial health and operational best practices, towards protecting their most valuable asset: their customers. Strong, loyal and valuable customer relationships benefit from innovative and efficient IT solutions that address business processes, business intelligence, and information systems.

Corporate Banking in India, for instance, could great benefit from service innovation: there is tremendous scope for offering new services, new products and achieving more with higher operational efficiency. For example, Reserve Bank of India’s (RBI) National Electronic Funds Transfer (NEFT) system is a step forward in this direction. NEFT is a nation wide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch. It works on net settlement, unlike RTGS that works on gross settlement and the regulator’s electronic funds transfer system (EFT) which is restricted to the fifteen centres only where RBI offices are located. As of December 16, 2008, 52,347 branches of 89 banks are participating and steps are being taken to widen the coverage both in terms of banks and branches.

In fact the latest RBI statistics show that customer transactions on the RTGS Platform doubled from Rs..71,67,808 crores in 2006-07 to Rs..1,61,00,173 crores in 2007-08 – indicating an economy raring to grow. Why then, is this growth reflected in the manually operated RTGS platform rather than the NEFT platform, when the latter is meant to be more efficient and hassle free?  The answer lies in the absence of ‘last mile connectivity’, a medium connecting Banks with the ERP platforms of corporate customers, and by staying connected to banks, can improve the corporations’ access and usage of the NEFT facilities.

The fact is that the ‘last mile connectivity’ is not a luxury or sophistication, but a solution whose time has come, a norm that should be implemented sooner rather than later. When implemented, this real-time communication channel between Banks and Corporates will facilitate high velocity of business transactions, adding teeth to business prowess and enabling greater possibilities throughout the entire financial supply chain.

Point-solutions have not been really helpful in this regard. They neither have in-built security, nor the sophistication to orchestrate and enable a two-way host-to-host integration to facilitate "straight through processing" between the two concerned parties.
Host-to-host real-time connectivity is the next level of maturity for banks that already have a Corporate banking portal.. The connectivity framework sets up a direct and secure communication and transaction channel between a corporation’s ERP systems and the bank’s integrated platform. It will facilitate a variety of transactions, such as trade finance and forex cover apart from just payments and collections. By enabling a streamlined financial supply chain management, corporate connectivity will lead to optimised working capital, while productivity of the Shared Services Centres set up for centralising Payments, collections & reporting will be enhanced. The entire value chain can benefit from the integration, as it removes the redundancies in processes across the entities. Further, the entire network of players involved in a business like the supplier, customer, and the logistics provider, can all get connected to a bank on the same platform to transact business safely.
The return on investment made by banks can be realised in a number of ways. For one, increased satisfaction for corporate banking customers, thanks to the higher speed of service in a more secure and virtually operationally risk free environment is likely to generate higher fee based income. Reduced manual work for the Cash Management department, by eliminating the need to download or upload transactions, and perform reconciliations will follow and so will fast on-boarding of new corporate customers on the connectivity platform. Furthermore, this will help lower the cost of IT operations by reducing operational risks, such as redundancy of broken processes, for example.

The corporate banking connectivity (CBC) solution from SAP is a unique standards-based solution that provides real-time bank-to-corporate connectivity, reduces costs and IT complexity, while improving profitability, allowing higher transaction volumes and providing the information every corporate treasurer requires to run their business. The solution is quick to deploy, forgoing the need for new file types to be created by the corporate, as was previously demanded by most banks. Both procure-to-pay and order-to-cash transactions are handled directly between the corporate’s ERP and their bank’s cash management systems in an STP fashion with zero opportunity or need for manual manipulation or human intervention. Some of the large private sector banks like HDFC Bank and global banks such as HSBC have already adopted this solution.

Unified corporate-to-bank connectivity such as this will, over time, benefit both banks and corporations, as service offerings will continue to evolve. With the evolution of standardised protocols and ERP applications, the opportunity now exists to create a fully contained corporate-to-bank environment for all financial transactions, moving beyond the payments and cash space and extending further into a corporation’s supply chain. This will provide value-added banking services at multiple points within a corporation’s business lifecycle.

With this style of highly configurable customer transaction portal and by providing an improved unified corporate-to-bank connectivity, banks have the opportunity to move from a transaction based business to high-touch, high-value long-term relationships based on trust, knowledge, and flawless execution. It will simply become the default way banks will engage with their corporate customers.

Specifically in India, banks that want to grow need to develop distinct value propositions, and thus innovative technology platforms that make service and product differentiation possible are critical enablers in winning the competition.

The author is Vice President- Solution Engineering, SAP Indian Subcontinent