On-boarding and Electronic Bank Account Management for ...

Market intelligence report – September 2009On-boarding and ElectronicBank Account Managementfor Corporate TreasuriesSponsored by:®On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited

Market intelligence report – September 2009BackgroundPractices for account opening and management, at both corporates and banks, are still very manual andpaper-based, creating an inefficient, error-prone environment. SWIFT and a small group of leading banks,corporates and IT vendors have been working to help address the problem through the development ofelectronic bank account management (EBAM) standards.In July and August 2009, Finextra and Pegasystems surveyed corporate treasuries and banks worldwide toestablish what the current pain points are around account management, what awareness there is of EBAM,what hurdles there are to greater standardisation and improvement, and what benefits are up for grabs.We received 43 survey responses from 39 banks, and 53 responses from 51 corporates, for a total of 96respondents.Among the corporates, 60% of respondents have an annual turnover higher than US$500m. 41% currentlymaintain more than 500 bank accounts and 44% deal with 11 different banks or more.Among the banks, 40% of banks operated in 11 countries or more, 63% had more than 1,000 corporatecustomers, and 51% managed more than 800,000 corporate customer accounts.Pegasystems in the financial services industryPegasystems has been providing business solutions to the financial services industry for over 23 years.Leading banks and financial services institutions work with Pegasystems to provide solutions for paymentinvestigations and SWIFT E&I, client on-boarding and electronic bank account management (EBAM), knowyour customer (KYC) and sanctions management. Pegasystems solutions are used by seven of the top tenglobal banks, and seven of the top ten credit card issuers. Pegasystems technology also supports 60% ofthe world’s payment investigations.Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europe and Asia. Visit us atwww.pega.comAbout FinextraFinextra Research is the leading newswire and online community for the global financial technology industry,with 3 million page views and 110,000 unique visitors per month. More than 26,000 financial technologyprofessionals worldwide receive our free daily and weekly e-mail newsletters. Finextra additionally operatesits own conferences and exhibitions on a range of topics under the Finexpo brand, and collaborates with theEuro Banking Association to produce the annual pan- European payments conference EBAday. Finextra isalso the official online news vendor for Swift’s annual financial technology conference Sibos.Finextra additionally hosts an online professional networking and blogging service for the global financialtechnology industry – www.finextra.com/community2On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited

Market intelligence report – September 2009Executive summaryIndustry initiatives to improve the customer experience and drive out cost from account opening andmaintenance are still at a relatively early stage. Specifically, incorporating an easy to use EBAM standard tostreamline these activities is lagging. But there is plentiful pent-up demand among corporatetreasurers to streamline these processes and add new channels by which they can engage their bankingprovider. Banks that move quickly to build EBAM capability while aligning themselves with developingindustry standards will have a short-term competitive differentiator in the market.National regulatory compliance issues will continue to complicate efforts to streamline processes forcompanies that operate across borders. But effective investment in IT process improvement andstandardisation can help banks simplify requirements for corporate customers while also delivering thespeed of service they desperately require.Key findings from the survey were:Account management is slow and inefficient, and corporates are demanding a better service• 60% of corporates say it currently takes them more than one week to open a new bank account.Even large multinationals are still largely reliant on manual processes when dealing with their banks,and are under-resourced.• 44% of corporates would switch banks for better service around account opening, maintenanceand closing. In this competitive environment banks are at risk of losing customers or customer shareof wallet to banks that can meet the corporates’ needs.• A growing number (15%) of corporates expect all of their bank providers to offer EBAM services inthe short term and are adding it to all of their new RFPs.Process automation and standardisation around EBAM are challenging• 60% of corporate respondents said that legal differences and lack of standardisation were theirbiggest or second biggest challenge in streamlining the processes around bank accountmanagement. Those that chose this as their biggest challenge were almost exclusively corporatesthat have moved from having treasury operations in each country they operate to having severalregional centres or a single global treasury centre.• Most banks saw the lack of IT resources and technologies as the biggest obstacle to thembeing able to deliver timely EBAM services to their corporates. 60% saw this as the biggest orsecond biggest challenge. This is becoming an even bigger issue for banks as more and morecorporates are demanding service level agreements (SLAs) for account management activities.Already 57% of corporates have negotiated such SLAs.• 47% of banks believe that it would take more than a year to undertake the necessary process andsystem re-engineering to enable EBAM.Corporates will obviously benefit, but banks will also see a return on their investment• Banks recognise that delivering EBAM services is a great opportunity to win new clients andmaintain existing ones. 63% of banks believe it will help them win new clients.• Banks also believe they can reduce their operational costs associated with account managementby an average of 21%.On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited3

Market intelligence report – September 2009Account management is slow and inefficient, and corporatesare demanding a better serviceOpening new bank accounts and maintaining their lifecycles are all still verymanual processes for corporate treasuries. Particularly when a company isoperating across borders and dealing with multiple banks, it finds that themultitude of different legal and process requirements are placing a highburden on the few staff resources they have allocated to accountmanagement functions.Chart 1: Corporates - How manystaff focus on accountmanagement?14%The majority (52%) of corporate survey respondents had less than fourstaff in such roles (Chart 1). Not surprisingly the few well staffed companieswith more than 21 staff on board all had turnovers of more than $1 billion.But among those with less than four staff, there were also many such largecompanies. 46% of companies operating with less than four staff hadannual revenues greater than $1 billion, and on average companies with thisstaffing level had around 500 accounts open at any one time.In today’s online world, individual customers have come to expect rapidapplication and account opening from financial services firms. Many onlinedirect savings banks, for example, are able to open new customer accountsin less than 10 minutes.In the world of corporate banking, there are, of course, more complexrequirements for account opening. But even still, it is somewhatsurprising that for 60% of corporates it takes more than a week to opena new account (Chart 2). And for 40%, it takes a similar length of time tomake a simple change such as adding a new authorised person to theaccount.10%24%1-34-1011-2021+52%Chart 2: Elapsed average time to open/maintain/close a bank accountOpenCorp.Bank10% 6% 24% 29% 31%21% 28% 30% 14% 7%MaintainCorp.Bank31% 14% 15% 25% 15%40% 32% 26% 2%CloseCorp.Bank12% 12% 42% 13% 21%21% 30% 28% 7% 14%0 20 40 60 80 10042hrs

Market intelligence report – September 2009Interestingly, when asked the same question, banks were much moreoptimistic in their time frame estimates (Chart 2). It is likely that most wereonly taking into account the required activities taking place at the bank, andnot the information gathering and form filling required by the customer aspart of the total process. Even still, the majority (51%) of banks said it tookthem more than two days to open an account.The biggest disconnect between banks and corporates was the time ittakes for a maintenance activity. 40% of corporates said this took themmore than a week, compared to just 2% of banks.As a result of the complex environment they’re operating in, and lack ofresources, the survey revealed that corporates are increasingly turning totheir banks for help. Such is their current pain that 44% of corporates saidthey would be willing to switch banks to get better service, standardisationand automation for account management processes (Chart 3).Switching may not mean cutting off a bank completely, but even if acorporate shifts just some of their business elsewhere for better service,banks can risk losing share of wallet among customers and even marketshare in an increasingly competitive environment.Chart 3: Corporates - Would youconsider switching to a differentbank for better accountmanagement capabilities?56% 44%yesnoThe propensity to switch is despite the fact that stringent know yourcustomer (KYC) compliance requirements and other new client proceduresare themselves a significant barrier to switching to a new bank.On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited5

Market intelligence report – September 2009Awareness and demand for EBAMWhile there are challenges in automating processes in such a complexenvironment, the majority of corporates have started to adopt some levelof systemised support for account management. Only 30% of respondentssaid that they are still operating in a completely manual environment (Chart5). For this particular question respondents were free to select any or nostatements to agree with.Most corporates have some understanding and awareness of EBAM,whether it’s from media and trade associations, SWIFT’s outreach about itsstandardisation efforts, or sales teams from some of the leading banks. Only21% claimed no awareness. And a growing number (15%) are beginning toexpect such services from all their banks.In fact, when banks were asked about RFPs, 79% of them said they haveseen EBAM requirements in RFPs from potential customers at least44sometimes, with 32% of all banks saying that this has become a frequentrequest (Chart 4).This demonstrates that as the corporate transaction banking environmentbecomes increasingly competitive, with top corporates more likely to cherrypick and switch banks, that EBAM capabilities are gradually becoming astandard industry requirement.Chart 4: Banks - How often doyou see automated on-boardingand management services inRFPs?21%Not at allSometimesFrequently47%32%Chart 5: Corporate approach to automated electronic bank account management (EBAM)We've done some internal work toautomate account management,but are missing the link with our banks9%We've heard about some of the work beingdone to improve standardisation and automationin account management, and are interestedin finding out more13%We view it as an optional extra,and are hoping to see it offeredby some of our bank providers15%We expect all of our bank providersto offer EBAM services in the short termand are adding it to all new RFPs15%We're not aware of any EBAM initiatives21%Our account managementprocesses are still fully manual30%60 5 10 15 20 25 30On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited

Market intelligence report – September 2009Process automation and standardisation around EBAMare challengingHaving established that account management activities take muchlonger than corporates would like, we investigated the wider challengesthey face to find some reasons why. The number one reason was the lackof standardisation. Currently, account management processes are handleddifferently by every bank, and are tailored to specific legal requirements ineach country or region. Faced with this duplication of often incompatibleprocesses, it can be a challenge to implement best practices for streamlinedoperation, and it is also a challenge to increase automation through the useof information technology.60% of corporate respondents said that legal differences and lack ofstandardisation were their biggest or second biggest challenge (Chart 6).Those that chose this as their biggest challenge were almost exclusivelycorporates that have moved from having treasury operations in eachcountry they operate to having several regional centres or a single globaltreasury centre.Mandate management, keeping track of who has the mandate to do whaton which account, was collectively seen as another pressing issue, with54% viewing this is the biggest or second biggest challenge they face. Thisfigure maps well with the 55% of corporates who said that a single accountmaintenance action (e.g. amending a mandate) with their banks took morethan two days on average (Chart 2).Chart 6: Corporate challenges in bank account managementMultiple legal jurisdictions make governanceand standardisation of processes difficult47% 13% 8% 16% 16%Mandate management16% 38% 17% 13% 16%Cost of staff required to manually maintain accounts15% 18% 19% 24% 24%Digital identity management/authentication13% 13% 22% 10% 42%Inefficient processes increase our exposure to fraud9% 25% 25% 19% 22%0 20 40 60 80 1001-biggest challenge 2 3 4 5- least challengeOn-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited7

Market intelligence report – September 2009Investment and hurdles to implementation and adoptionGiven the demand from corporates for EBAM services it is interesting totake a look at how banks are currently positioned and how many arecurrently involved in projects to improve their capabilities and industrystandardisation. Around 13 banks worldwide have already beenparticipating in the EBAM working group and pilot program with SWIFT onthe new EBAM standard, and six of these participated in the survey.Across all bank participants, 47% have made plans to invest in improvingclient on-boarding of new accounts and maintenance (Chart 7). But giventhe level of demand from corporates, it is perhaps surprising that 53% havenot yet made any plans to invest in IT and automation. Those that did planto invest tended to be larger and included many of the survey participantsfrom the US, UK and the Netherlands.Those without plans to invest spanned a wide range of sizes of banks andcountries. This is important especially in light of the fact that 57% ofcorporates said they have negotiated service-level agreements (SLAs) withtheir banks. To be able to respond to these SLAs banks simply mustautomate these processes and make their customer service highly efficient.Chart 7: Banks - When will youinvest in IT to improve andautomate on-boarding andaccount management?53%2009201026%21%no concrete plans yetChart 8: Corporate roadblocks to simplifying/automating bank account managementCountry regulations still imposetoo much use of paper based documentation44% 16% 12% 12% 16%Different practices in each financial institution32% 29% 16% 10% 13%Lack of bank appetite dueto compliance and risk concerns19% 16% 37% 19% 9%Integration issues with our HR, GLand treasury management systems6% 9% 19% 41% 25%Unfamiliarity with SWIFT and standards9% 3% 19% 25% 44%0 20 40 60 80 1001-biggest roadblock2345- least roadblock8On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited

Market intelligence report – September 2009Some investment will obviously be required, and in fact most banks saw thelack of IT resources and technologies as the biggest obstacle to them beingable to deliver EBAM services to their corporate customers. 60% saw thisas the biggest or second biggest challenge (Chart 10).Chart 9: Banks - How long will ittake to re-engineer processesand systems to offer EBAM toclients?But for both banks and corporates, national and regional legal differencesand requirements for paper-based processes are a significant barrier (Chart8). Any industry efforts to streamline and standardise EBAM will have tocontinue to address this challenge through dialogue with regulators.18%12%A contributing factor to IT resources being identified as the biggest hurdleto delivering EBAM services is that almost half of banks (47%) believe thatit would take more than a year to undertake the necessary process andsystem re-engineering (Chart 9).Those that have already begun investing in EBAM delivery, however, tendedto expect a shorter time frame of 7-12 months, with several quite largebanks even saying it could be done in as little as 3-6 months.29%18 months+13-18 months41%7-12 months3-6 monthsChart 10: Bank hurdles to embracing electronic onboarding and account managementAvailability of IT resources and technologiesto create service offering (e.g digital identity),integrate with internal processesand systems, and support clients33% 27% 20% 13% 7%Country regulations still impose toomuch use of paper based documentation27% 53% 13% 7%Predicting ROI and getting budgetfor process re-engineering project13% 33% 21% 13% 20%Getting buy-in from all relevantentities in global financial group13% 33% 40% 7% 7%Lack of corporate appetite forremoving paper-based processes40% 33% 7% 20%0 20 40 60 80 1001- biggest 2 3 4 5- leastOn-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited9

Market intelligence report – September 2009Benefits to banks of EBAMWhen asked what potential benefits they could gain from offering EBAMservices, winning new corporate clients was seen as the most important(Chart 12). Given the growing frequency of requests in RFPs (Chart 5), itseems that this is a ripe opportunity right now, even though not manyinstitutions are well progressed in being able to deliver.Improving customer loyalty and reducing churn is the flipside of the samedriver to maintain and grow the transaction banking business. But anotherconsideration for banks is the cost associated with serving thousands, oreven tens of thousands, of clients – each with multiple accounts – inanything other than a fully automated environment.Chart 11: Banks - With betteraccount management automation,by how much could you reduceassociated operational costs?31%7%31%This will obviously be reduced if EBAM can deliver to a bank similarprocessing efficiencies to those it is passing on to its clients. Estimates onoperational cost savings varied quite widely. But, on average, banksexpected to reduce costs directly associated with account opening,maintaining and closing by 21% (Chart 11).41%+31%10-20%31-40%

Market intelligence report – September 2009SummaryCorporates have a lot to gain if their banks can provide effective EBAM services. Banks too stand to boosttheir competitiveness and market share if they can build and market their capabilities around on-boardingand account management.Banks that are investing in this area in 2009 and 2010 will be well placed to benefit rapidly from developingindustry standards and burgeoning corporate demand. But with the right approach to processre-engineering, other banks should also be able relatively quickly to add EBAM to their service portfolio asthe market matures.“When we’re evaluating our banking relationships, we absolutely give preferenceto banks that can meet SLAs for account management activity.”Treasurer at IT company“We haven’t really heard much about EBAM. And we’re still pretty much manual in ourprocesses. But we would consider switching business to a bank that can address ourproblems in this area, as long as it also meets our other requirements.”Senior financial consultant, food and beverage company“Some of our banks have made efforts to streamline account management.And it helps. But we deal with a lot of banks. Until EBAM services are morewidespread, and there are industry standards for processes and messages,we won’t really see the true benefit.”Cash manager at pharmaceutical companyOn-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited 11

Market intelligence report – September 2009About PegasystemsPegasystems, the leader in Business Process Management, provides software to driverevenue growth, productivity and agility for the world’s most sophisticated organizations.Customers use our award-winning SmartBPM® suite to improve customer service, reachnew markets and boost operational effectiveness.Our patented SmartBPM® technology makes enterprise applications easy to build andchange by directly capturing business objectives and eliminating manual programming.SmartBPM® unifies business rules and processes into composite applications that leverageexisting systems – empowering businesspeople and IT staff to Build for Change®,deliver value quickly and outperform their competitors.Pegasystems’ suite is complemented by best-practice frameworks designed for leadersin financial services, insurance, healthcare, government, life sciences, communications,manufacturing and other industries.Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europeand Asia. Visit us at www.pega.com.®On-boarding and Electronic Bank Account Management for Corporate Treasuries - 2009 © Finextra Research Limited