Warming up for SvD Bank summit, we met Tim Tyler, Senior Industry Principal for Corporate Banking at Finastra for a chat about the bank industry.
Nice to meet you Tim, please tell us a bit more about yourself.
Sure, being a senior industry Principal in the solution consulting Team here at Finastra means I cover corporate banking across lending, trade finance, working capital but with a particular background in cash and liquidity. I’ve been in Financial Technology my entire working life from both sides of the coin having worked for a number of banks as well as a number of vendors, but having been in Finastra for the largest proportion of my career. I think the background of having started from the technical side, from engineering and moving across through the business and moving to the consulting side gives me great insight and hopefully foresight into what the industry is moving towards.
What do you believe will be the main discussion points at this year’s SvD Bank Summit and why?
I think there will be a strong discussion around a return to normal and what do we believe normal even is – is there going to be a normal? I don’t like the use of “return” as that implicates we are going back to former practices. I think more realistically we should be thinking about how we are defining our new normal, what will that look like, what will be the best working practices that we can adopt and can support our customers from a banking perspective, how we can best operationalize within the bank, what technology we need to support that and fundamentally how do we best support those customers in the new environment they find themselves in. So, I think “normal”, what is it? – This will be the main topic for me.
Another area of focus at the conference is open banking, can you tell us a little about why this is such an important topic?
Open banking is a new term for something that has been around for a while. I think a lot of us would look at PSD2 as a big driver for change around open banking, but that of course was very retail orientated. At its heart there were opt outs on the corporate banking side and often we see – or perceive perhaps – a technology lag on the corporate banking side of the business compared to retail banking. Often retail banking would get bigger marketing budgets than corporate banking would get for the underlying technology shifts. Surprisingly I think we saw a fundamental change in that as open banking became a more front of mind topic.
I think the use cases that open banking can drive and support far exceed that of retail and the level of interactivity between and bank and its customers. More importantly, as we look towards that evolution of open banking, the wider ecosystems is a key driver for it. Time pressures on corporate treasurers squeeze their effectiveness: they have less and less time to do more and more. Automation from the business side of the coin, you’ve got the provider of the finance – the bank, and then typically you’ve got the consumer of the finance – the business (SME or corporate), looking to automate so that more and more gets done in a timely manner. One way of doing that is through open banking, allowing integration and connectivity between the likes of accounting and MRP, ERP tools. We are also evolving into a world of “what do we even mean by a bank?” We are looking at a financial institution perhaps which might aggregate services from multiple providers. You have a single port of call for someone that is looking for financial services, so the Bank becomes that player in the middle providing their trusted regulatory framework that makes them a partner of choice but is enabled on the back-end by open banking.
Open banking sits in this paradigm where you can get straight through processing from the corporate back office that flows all the way through the bank to the other side of the bank – perhaps without human intervention. We are moving towards a real-time environment which suits the business better than lots of manual steps that slow the process down.
How can the cost be minimized for this?
When we talk about the cost of open banking, there is the cost of the technology to put in place, but are you cannibalising your own business? When we look at an ecosystem of Fintechs which are bringing particular services to market – nibbling at a bank’s heels – in bringing those closer, is a bank giving up part of its business? The flip side of that is that there are certain areas that banks don’t want to do. A fundamental business to a bank is for example payments, banks don’t like payments because of the cost to serve. The cost is far greater than the income they receive for providing that service, and that’s why we see the proliferation of payment providers now that are becoming the intermediary in that payment space. They carry out a complex part of the payment, and hand off to the bank at the last opportunity.
The bank becomes a service provider which open banking is allowing, and this is important for two aspects; 1) is there a cost to them giving this business up? Possibly? They might be forgoing revenue but at the same time they are removing costs associated with it. 2) the wider play – that is, if you can be framed as a bank that is aggregating different services, we know from talking with corporate treasurers and studies that we have carried out in the market, that what corporations are after is value added services: what more can a bank provide for me outside of the core package that we would consider banking to be. That’s where a bank needs to move towards a more open infrastructure. Note though – we mustn’t conflate being open with being insecure. Open banking is an unfortunate phrase really – it paints a picture of a bank with its safe door stood wide open. At its heart it has to be secure, controlled, permissioned. Whilst we say its open, we are granting access to those that need it, when they need it with the right permissions and that then enables the banks to provide these additional services that their customers are asking for. We think about what is a bank? It’s a licence holder, it’s a balance sheet that enables a great deal of trust. I think cannibalizing the business was the feeling five years ago, whereas I think the realisation now is that the bank is a part of this ecosystem. How can we orchestrate, how do we retain that wallet share of our customer even if we are handing some of it over to our partners? We need to be central in providing the full range of services which are constantly evolving and perhaps the banks aren’t a quick at evolving as the Fintechs are, but being center stage is what’s important
How do you further see Open banking evolving over the next 10-15 years?
I think it will grow. The breadth of services that will be enabled. The trigger point across the world was the PSD2 changes that mandated accessibility mainly on the retail side, that was the big kick everyone needed.
There were earlier moves in corporate banking such as EBAM (Electronic Bank Account Management), where you had the ability to open and close accounts through SWIFT messages. They’ve been around 10 years but never took off. I think open banking has become a movement as we are seeing now what is possible, and so we are now spreading across the corporate banking landscape. What started off as being able to consolidate your account balances and to instruct bank to bank payments or from a 3rd party to the bank, we can now look at the entirety of transactions and financial instruments that corporations and banks get involved in. How can we enable that in an open banking world? More and more networks for trade finance and opening up all the different instrument types, or looking at more advanced liquidity services. For example, the power of virtual accounts and virtual IBANs to drive even greater strength through receivable processing and reconciliation. Looking at what you can do from lending and the loan administration that takes place. There are so many touch points in corporate banking. If we can open them up, we can integrate them, we can connect to the corporate back office systems. If we can leverage that through innovation and the power of the ecosystem, and if we can orchestrate that together then we’ll start seeing the services we know today seeing greater automation, but we’ll also see new services off the back of that. There will be new concepts – for example as the “internet of things” develops, the connectivity between IOT and banking can enable new scenarios. For example, as the shipping container with your goods passes a certain waypoint on its journey it could automatically release a tranche of funding on your trade finance instrument that you’ve got in place. We can start thinking about new use cases of risk or pricing of lending – understanding what the temperature in that container is, make it stable and consistent because you’ve got access to a data point in Maersk because of their API’s that are now connected to the Bank’s open APIs to keep a closer eye on that tracking. We can maintain or even give you a better price on those goods in transit. I think we’ll see more and more growth around open banking, more and more end points and more and more novel services that we can re-imagine because of that connectivity we will have.
What insights do you want to audience to take away from the event?
Open banking friend or foe? The key message is – be prepared. I believe that if you are thinking about tomorrow today, you are too late. You’ve got to be thinking a lot further ahead – beyond tomorrow – and you need to make sure that the vessel you are in charge of is moving in the correct direction. You don’t want to arrive in the wrong destination or arrive too late to be a part of the party. So be ready for what’s coming, think about what that future might be, think about that future horizon and how you want to get there, and think about a plan on how you want to arrive.
Meet Tim and Finastra at this year’s SvD Bank Summit 2021.