E Banking

The Adoption of Web-based Cash Management Systems

Technology

1. Banks and corporates are moving from corporate Internet banking solutions to web-based cash management systems.

2. Web-based cash management systems allow banks to offer a wider range of products and more integrated solutions to their customers.

3. For banks to do this successfully, enabling an integrated view of the client relationship is key.

4. Standards-based technology and open architectures are enabling banks to address the challenges and provide flexibility.

The Internet and web technologies have already left their indelible mark on the way the world functions. The rise of the Internet towards the end of the 1990s, followed by the dot-com boom and eventually the dot-com bust, was not surprising. After all, in those heady days, strategies were disregarded, business plans were thrown out of the window and the need for business models were redundant. It was tempting to dismiss the Internet as an idea whose time had not come. Fortunately, common sense prevailed. Introspection resulted in one deafening conclusion - we need the Internet. However, we also need business plans, business models and a good understanding of how we can leverage the power of the Internet. Retail customers quickly accepted Internet banking. It was no surprise that it was only a matter of time before banks and their corporate customers began jointly exploring the mutual benefits that could possibly accrue to them by leveraging the Internet.

Evolution of Web-based Cash Management Systems

The central role that financial institutions play in the activities of their corporate customers has never been disputed. From the traditional role of being financiers, to holding cash and investments, to handling payments and settlements, banks today are closely linked with the activities of their corporate clients. While it may be argued that the role of banks as lenders is becoming somewhat diluted, there is no questioning the increasingly important role that they play in managing cash and handling payments. Businesses and treasurers in large corporates like to have control over their cash operations. With businesses being globalised and corporate clients increasingly feeling the need to manage operations efficiently, clients are placing a much greater emphasis on the need to have access to "anytime" and "anywhere" information. It is not surprising, therefore, that banks and their corporate clients have quickly realised the role that the Internet can play in this regard. Over the years, we have seen a strong shift, in some parts of the world at least, from text-based systems to computer-based solutions and finally to the present situation, namely, web-based cash management systems.

Just how rapidly this section is growing can be seen from the following statistics - TowerGroup1 estimates that the market for online corporate cash management systems in the US was between USD 300m and USD400m in 2003. The growth is estimated at the rate of 5-10% in the large corporate segment and at an even higher rate in the small business segment.

Many of us may be surprised by these statistics; that the rate of growth in the small business segment is higher than that in the large corporate segment. This is not really surprising and there is more than one reason for this - the fast increasing opportunities for small businesses through the globalisation of corporate and business banking, the rapid integration between cash management and trade services, and high-end technology no longer being the exclusive domain of large clients.

What Are the Benefits From a Customer's Point of View?

As the demand to move from a thick-client to a thin-client system increased among corporate clients, and the advantages of doing so were somewhat obvious2, no corporate or small business wanted to lose functionality in the bargain. Therefore, it was natural to expect that customers would want to have and retain every bit of functionality around the traditional services of collections, payments and reporting.

The main features typically offered through web-based cash management can be classified into: payment management, liquidity management, electronic collections and information reporting, as shown in Figure 2. Other features such as single sign-on and billing engine complete the offering. Interfaces with various payment systems (e.g. local automated clearing house interface, Fedwire and CHIPS in the US, BACS in the UK and Target in Europe), different services associated with fund transfers (stop payments, cheque imaging, positive and reverse positive pay, retail and corporate lockbox facility, etc.) are all considered passй today by corporate clients. Increasingly, customers are demanding cross-border settlements and integration with mainline treasury functions.

Large multinational corporates need multi-locational collaborative environments, given the global nature of their operations. This is especially true for companies with regional treasury centres or the ones operating out of shared service centres, where transactions are initiated in one location and exception approvals are done elsewhere. By web-enabling their cash management service, banks are able to offer them operational flexibility. An obvious advantage that corporate customers want to derive in their adoption of Internet-based systems is the efficient management of funds and risk management. Corporate treasurers are highly conscious of carrying idle cash and want to do everything possible to make judicious use of the funds available. This necessitates the integration between the cash management system deployed within the organisation, and the general ledger, accounts receivables and accounts payables systems within the company. The more seamless the integration between these systems, the more timely and accurate will be the reporting function.

As we can see from Figure 3, effective cash management requires integration and availability of information, not just from sources within the organisation but from external sources too. It also demonstrates that cashmanagement today assumes a highly strategic dimension for customers.

What Are the Benefits From a Bank's Point of View?

Just as in the case of corporate clients, banks also want to move to web-based solutions but not at the expense of