Global Transaction Banking 3.0
By Akshay Borkar-Oracle on Jun 25, 2014
New York Times columnist and Pulitzer Prize winning author Thomas Friedman once made an astute observation about our planet.
“In Globalization 1.0, which began around 1492, the world went from size large to size medium,” he said. “In Globalization 2.0, the era that introduced us to multinational companies, it went from size medium to size small. And then around 2000 came Globalization 3.0, in which the world went from being small to tiny.”
If you’re a banker involved in Global Transaction Services (GTS), that quote probably strikes a chord with you. Companies source supplies and sell products across the globe, and supply chains have become incredibly complex and sophisticated. You've got to be able to meet the demands of your corporate customers as they juggle payments and receipts in multiple currencies.
According to PricewaterhouseCoopers, a fresh approach to customer segmentation can drive up product margins and contribution per customer. Banks can pinpoint the most attractive opportunities by:
- Segmenting the market on the basis of customers’ needs, financial sophistication, credit dependency and operational capability;
- Identifying different targeting opportunities;
- Mapping those needs against specific products; and
- Targeting with systematic strategies based on relationship, price and product.
Global pricing and billing plays a key role in this process, but doing it for large customers is a huge challenge for Banks. For example, how do you provide seamless services to your biggest customer when in some regions their footprint is small?
Let’s take a step back. Banks have grown through mergers and acquisitions. Initially tier 1 customers maintained separate relationships, and the various GTS businesses contributed independently to the Group balance sheet. Eventually they were consolidated into one controlling banking entity.
So what happened? Banks couldn’t deepen the relationship with their customers because they lacked a true picture of activity across business lines and geographies. They had no single view of the truth because they failed to make long-term investments in their IT architecture. But that’s changing now, and banks are beginning to sanction large scale IT transformation programs.
Understanding what products customers have and how to charge for services competitively is fundamental to the relationship banking model. Rolling out a global revenue management, pricing and billing system is a win-win for banks and their customers.
- The bank knows what the global relationship is worth and stops revenue leakage.
- Customers can transact business more profitably and manage their cash more effectively.
Of course banks should do a cost-benefit analysis before taking the plunge. It should take into account the number of corporate customers they’re servicing in a particular region, which could be 500 or less, and how teams are structured.
PricewaterhouseCoopers maintains there’s significant shareholder value locked up in transaction businesses. Consider a bank that has $2 billion in annual revenue, $700 million in annual earnings and a typical value of $5.6 billion. “A bank should be able to persuade an analyst to value its processing business at, say, 15 times earnings rather than valuing it default at, say, 8 times earnings. This has the potential to create a valuation uplift of $4.9 billion.”
Thomas Friedman was envisioning the vast opportunities made possible by Globalization 3.0. We could say the same for Global Transaction Banking 3.0.
Clayt Harris is a Senior director at Oracle. He can be reached at clayt.harris AT oracle.com