Reprinted from American Banker, Tuesday, November 28, 1995



Global Electronic Banking Falls Short,
Businesses Say

By Steven Marjanovic

Commercial bank customers see lots of room for improvement in global electronic banking, a survey found. Although many financial institutions received high grades for specific products or services, most fell short of providing a full range of electronic banking capabilities for international cash management, trade finance, and securities processing. Also, few banks could integrate treasury operations.

“This is kind of a disappointing report card from the bank’s point of view,” said John Laurino, a managing director with Westport Consulting Group, Inc.Westport, Conn., which conducted the survey with FGI Research Inc.

John Laurino, Managing Director, Westport Consulting Group, Inc.

“International electronic banking is still more of a concept than a reality,” said Susan Skerritt, a director of global cash management with Morgan Stanley & Co., New York.

The bank-sponsored survey, which polled 329 companies from 17 countries, suggested that commercial customers are loyal to their banks — 71% of respondents rely on either bank salespeople or bank mailings for electronic banking information. However, that loyalty could be jeopardized if banks do not heed the calls for more comprehensive and integrated systems.

Mr. Laurino said the “dream electronic banking system” would let companies perform cash, trade, and securities processing from a single platform, but few banks have this cross-application ability. The shortcomings are the result of “a combination of a lack of sophistication on the companies’ part, the lack of availability of systems,” Mr. Laurino said.

Ms. Skerritt, who is also secretary of the Treasury Management Association, Bethesda, Md., noted that the cost of integration is high because most wholesale banking operations are fragmented.

Mr. Laurino said large corporations depend on bank services for managing cash positions, moving surplus assets among disparate operations, and investing in short-term securities.

International cash management includes account maintenance, payment and collections, netting across corporate operations, pooling of assets, short-term investments, and foreign exchange. Securities processing is local and global custody, securities lending and clearing, and short-term paper issuance. Trade finance includes import and export collections, and import and export letters of credit.

Within these areas, corporate treasurers were most disappointed with the limited possibilities of electronic banking. For instance, corporations often must “go across systems, go manual, or go with paper to be able to move assets,” said Mark T. Greene, managing director of FGI Research, Chapel Hill, N. C. For example, even as cash managers pledge to improve their computing systems, most are only taking existing capabilities and “dressing them up” with Windows, Mr. Laurino said. Mr. Greene said that Windows-based systems are welcome but are “just one of the prices of entry.”

 Mark T. Greene, Managing Director, FGI Research, Inc.

 

Other shortcomings in bank systems result in a small use of electronic banking services. For example, only one in three corporations in the survey were able to use electronic services for netting across their entire operations. In addition, only 40% of respondents said they receive foreign exchange services through their electronic banking systems. “I’m sure they all do foreign exchange, but they don’t have it integrated in their electronic banking systems across countries,” Mr. Laurino said.

In securities processing, few companies said they use electronic bank systems for international operations. “You are looking at about seven or eight corporations of the 329 that are doing that on an electronic international basis,” Mr. Greene said.

In trade finance, just over half the respondents said they have both export and import letter of credit capabilities, and import collection capabilities.

“I would have thought for sure that we would have found a much tighter set of capabilities, and a more precise, demanding set of things that people wanted,” Mr. Laurino said. “We are still dealing with what I consider to be the basics.” Mr. Greene added that many corporations “haven’t been promised any improvements for the next two years.”


Commercial bank customers see lots of room for improvement in
global electronic banking, the survey found.

Sources: Westport Consulting Group, FGI Research


Dan Taylor, president of the U. S. Council on International Banking, said several U.S.-based corporations use in-house systems to “interface with a number of different bank trade finance systems using standard message systems.” But he said most companies’ trade systems were not integrated with other trade or cash systems. “I’d think you’d see a lot more cash management links to securities than you’d see trade finance linked to cash,” Mr. Taylor said.

Lawrence Forman, a market research manager with Ernst & Young, New York, and an expert in cash management services, said he was not too surprised at the level of disconnection between cash, trade, and securities systems because these services have evolved from different areas within a bank. “There is that historic division between those lines of business,” Mr. Forman said. However, he said, “I think banks are making the movement towards integration in these areas.”

For example, Citicorp, with its sprawling international presence, has started moving some of its 3,000 global corporate customers to a new service that claims to offer integration among many of its transaction processing services. The service offers cash, securities, and trade on one delivery system, said James L. Bailey, an executive vice president of Global Transaction Services.

Electronic Banking Information Sources

Sources: Westport Consulting Group, FGI Research