Generation Data: Banks and FinTechs Delivering On The Technology Promise
As Fintechs and other non-bank providers enter the financial services arena, banks face increasing competition. To remain relevant in this new environment, banks need to compete with these nimble competitors by tapping into underserved segments of the corporate marketplace. By offering trade services, such as reverse factoring normally reserved exclusively for large corporate clients, banks can build on the strength of client relationships, and avoid being disintermediated by third-party providers.
The key to achieving this goal is to leverage the wealth of data that exists in bank’s connections with client ERP systems. The importance of data in today’s financial services industry cannot be underestimated. According to “The Future is Data,” Finextra’s Reflections on Sibos 2017, “if iron was the raw material for the industrial age, data is the raw material for the information age,” stated Luc Vantomme, Head of Innovation – Product Management for Euroclear.
His colleague, Peter Golder, Global Head of Information Solutions & Analytics for Euroclear, took this metaphor one step further. “I can mine iron ore and try to sell it – and that’s a commodity,” Golder said. “Or I can extract the steel which goes into the Rolex and definitely isn’t a commodity. We need to think about how we get the business insights we need to move beyond the commodity space.”
Rather than view FinTechs as the enemy, banks can embrace them as partners in a race to utilize data and exploit critically important cross-selling opportunities. In fact, this trend is already underway. Business Insider reported in February 2017 that 69 percent of global banks viewed partnering with third-party providers as more of an opportunity than a threat — up from 52 percent the previous year. The story goes on to say that 38 percent of those banks surveyed were happy to distribute third-party products through their own platforms, as compared to 29 percent the year before.
There’s no doubt banks are starting to see the advantages of leveraging FinTech capabilities to bolster their own portfolio of offerings to their client base in an effort to expand critical treasury and trade business.
Tapping Into an Underserved Market
While small businesses have long been the backbone of the U.S. economy, traditionally speaking, banks have largely ignored this segment of the marketplace when it comes to trade finance solutions. For the most part, banks have primarily focused on investment grade buyers for their supply chain finance programs. The U.S. Department of Commerce stated in its “The Economic Benefits of Reducing Supplier Working Capital Costs” report, only around one percent of businesses with less than $25 million in revenue are able to access debt and equity markets in contrast to more than 90 percent of firms with over $1 billion in revenue.
Without access to vital reverse factoring solutions, these smaller organizations have greater challenges in supporting suppliers and growing their business. This is where partnership with a FinTech can make a real difference. Traxpay’s approach is to capture the vital data streaming between banks and their client’s Enterprise Resource Planning (ERP) solutions, such as SAP and Oracle, to offer an opportunity for more in-depth transaction and trade analysis. Armed with these invaluable insights, banks can help facilitate more robust communications between buyers and suppliers.
This opens the door for banks to offer working capital services, such as dynamic discounting, to clients who would not previously have such solutions available to them. The beauty of partnering with a FinTech like Traxpay is that this approach doesn’t supplant any of the bank’s technology and only enhances current capabilities by utilizing existing platforms.
Building on Trusted Banking Relationships
When banks leverage data collected by a FinTech partner, they are better able to tailor offerings to clients, such as reverse factoring, cash forecasting, and metrics to more effectively manage Days Payable Outstanding (DPO) and Days Sales Outstanding (DSO). Ultimately, this allows banks to deepen relationships with clients.
At the end of the day, many companies simply prefer to do business with their banking partners because they already have a trusted relationship. After all, these organizations have come to rely on their bank for support on payments and for safe, secure ways to transact loans. It only makes sense that when it comes to handing over valuable data from their ERP systems, they’d be more comfortable doing it with their bank, who is going to use it to provide better services and solutions.
Traxpay stands out from the FinTech pack because its business model is based on complementing a bank’s services, and supporting the bank’s role as a trusted advisor. By offering a previously untapped segment of the business marketplace access to trade tools they need, banks can leverage Traxpay’s suite of innovative trade products to fill their own gaps at a lower cost than innovating in-house. At the same time, this cross-selling approach frees up bank resources, so they can be focused on additional research and development on back-end operations that will deliver an important competitive advantage.
Data is the New Oil of 21st Century
Banks have an opportunity to work with a third-party provider to leverage a gold mine of data that will prove invaluable to corporate clients. Working with Traxpay, banks are empowered to automate decisions based on the most recent customer behavior and risk assessment, speeding up processes and strengthening client relationships. In this way, banks can uncover new business prospects and grow share of wallet. Most importantly, choosing a third-party provider that is committed to supporting the banking ecosystem, such as Traxpay, will help banks avoid becoming marginalized over the long-term.
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To learn more about how banks can achieve cross-selling success, click here and contact Traxpay.
Alan Koenigsberg is the Chief Revenue Officer at Traxpay.
He is a payments expert and served as a banking and
payments executive at global financial institutions for
more than 25 years.