Corporate Clients Seek One-Stop Shopping

When doing business with banks organized by product-based silos, corporate treasury clients have had to contact a different department at a bank for each type of payment. ACHs would go to the ACH department, wires to the wire room, and foreign exchange payments to the FX desk.

As a result, even entirely predictable events such as sending pension or dividend checks had become a rather unwieldy process. In general, whenever large numbers of relatively small payments were headed to a diverse collection of recipients, companies would incur significant transaction costs.

That's no longer acceptable in the world of corporate treasury. "The large corporates - and maybe the mid-sized as well, are essentially looking for the banks to behave differently," says George Ravich, senior vice president and CMO of Fundtech (Jersey City, N.J.). "Corporates want the bank to take, as an example, a pension file which would include US dollar payments and foreign exchange payments, or payments to a foreign entity."

Then, the banks would have to figure out how to make all of the appropriate payments based on rules for selecting the best-available channels using least-cost routing - and then provide a "clear reconcilement on what was sent where," Ravich adds.

As a result, the fee structures are starting to change from a transaction-based model, as with a telephone bill, into a more relationship-based approach. "Corporations are beginning to offload some of the decisions they had to make and some of the preprocessing they had to do to the bank," says Ravich. "In some ways, they're pushing the costs from their own shop outwards."

"From the corporate point-of-view, it's really business process outsourcing," adds Joe Mazzetti, executive vice president of global sales and marketing for Fundtech. "It's outsourcing all of the work it used to take to separate these payments for different needs and different reasons, and outsourcing all of that work to the bank."

By doing so, corporations are not only simplifying the way that they interact with their banks, but also the number of banks with whom they interact. And it doesn't stop there. "Corporations want to cut down the number of banks they deal with, and banks want to cut down the number of correspondent banks they deal with," says Mazzetti.

As such, smaller banks that currently have close relationships with their corporate clients are at an advantageous position in the chain between payor and payee. Indeed, they're finding themselves inundated with new opportunities to form partnerships with global payments partners.

Fundtech itself has been approached play a role in brokering such partnerships. "People are coming to us and saying, 'You represent a potential sales channel to us,'" says Mazzetti. "'How can your banks [using Fundtech software] enter transactions on your system [so that] we can somehow get involved in making that transaction go out as a Euro payment or whatever the case may be?'"

"Some big banks are saying, 'We'll use our payment system, we'll do all the processing, and the smaller bank won't even have to have a payments department,'" adds Mazzetti. "That's the extreme endgame in this payments business."