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© 2010 Treasury Strategies, Inc. All rights reserved.
Key Trends in Online Banking
PRESENTED BY:Dan Miner, Principal
May 19, 2010
w w w . T r e a s u r y S t r a t e g i e s . c o m 2
Market Trends - Overview
• Heightened sensitivity
• Counterparty risk
• Payments fraud
• The Internet removesboundaries.
• Global needs enhancevalue.
• Companies are looking forsolutions, not products.
• Companies seek deeperintegration opportunities.
RiskGlobalizationTreasury 3.0
The Web is becoming the primary channel and face of the bank.
w w w . T r e a s u r y S t r a t e g i e s . c o m 3
Time
Rev
enue
Treasury Management Timeline
1947 - 1970 1970 - 2005 Now - Future
BusinessServices
ClientAccommodations
Cash Management /Treasury
Management
$0
$100B
$1T+
Comprehensive payment& liquidity solutions
Supply chain solutions
Increased segmentationand refined competitive
identities
Web solutions /innovations
Rapid volume andservice scope
growth, butrevenues remained
at $0 as industryfailed to
commercialize
Approaching zero-sumgame
dominated byseveral “global”players & selectregional players
TS 1.0 TS 2.0 TS 3.0
Market Trends - Treasury 3.0
w w w . T r e a s u r y S t r a t e g i e s . c o m 4
Market Trends - Treasury 3.0
Receivables ReconciliationDisbursementA/PCashConcentrationCollectionsBilling
• Establish and manage credit risk
• Create invoice
• Receive / acquire payment
• Remittance processing
• Exception processing
• Payment clearing
• Cash application
• Disputes / collections
• Customer service
Receipts PaymentsLiquidity• Investigate vendors to work with• Analyze supplier risks• Negotiate contract with vendor• Receive and sort invoice• Enter invoice data into ERP• Manually correct data entry errors• Route invoice for approval• Manage vendor file• Resolve matching errors• Authorize payment• Clear and settle payment• Reconcile payment• Customer service / inquiries• Make sales tax payment• Issue 1099• Manage escheated payments• Research and communicate with
vendors
• Concentrate funds
• Cash position
• Cash forecast
• Investment selection
• Investment policy management
• Reconcile investments
• Benchmark and portfoliomanagement
• Secure credit facilities
• Borrow and repay debt
• Manage interest rate, foreigncurrency, and commodity risk
$1 Trillion
w w w . T r e a s u r y S t r a t e g i e s . c o m 5
Market Trends - Globalization
Degree of Globalization
Global Banking Services Required
Purely domesticsales, purchases,
operations
N/A
Limited foreignsales and/orinclusion of
foreign suppliers
Letters of credit &other trade
services, foreignexchange trades,international wire
transfers
More robustforeign sales
and/or inclusion offoreign suppliers
+ Automatedmanagement oftrade services,
foreign exchangerisk management/
hedging
Establish foreignsales office(s) or
retail outlet
+ In-country accountservices, local coin/currency services,
local branch access,fund local operating
accounts, make localpayments, globalfinancial/ position
informationmanagement, local
collections
Establish foreignmanagement
offices (beyondsales)
+ Global liquiditymanagement tools,
pooling/ nettingservices,
centralizedmanagement oflocal small-value
payments
Establish morerobust foreign
operations(manufacturing
plant, etc.)
+ Full array ofglobal cash
managementproducts and
services
w w w . T r e a s u r y S t r a t e g i e s . c o m 6
Market Trends - Globalization
More businesses are globalizing and the extent of their globalization isbecoming more profound.
Source: Treasury Strategies Corporate Treasury Research Program - 970 Corporate Treasurers interviewed
w w w . T r e a s u r y S t r a t e g i e s . c o m 7
• 2009 AFP Payments Fraud Survey found that 71% of all firmsexperienced at least an attempted fraud in 2008.
• Estimates have put the total cost of payments fraud at $50 billion ayear.
• Online fraud is increasing
• Banks have failed!
Market Trends - Risk
w w w . T r e a s u r y S t r a t e g i e s . c o m 8
Best-in-class banks utilize multifactor authentication and use different layers of securitybased on perceived algorithms.
Multifactor authenticationcan include a combinationof:
• Username• “Challenge Question”• Pass code• Recognition of a new
or public computer• Separate pages for
each entry
Token System
DatabaseTokens / Users
Market Trends - Risk
w w w . T r e a s u r y S t r a t e g i e s . c o m 9
Bank back-office systems could monitor individualtransactions for anomalies:• Unusual transaction type, amount, and payors
can be flagged for review by the bank’s risk /fraud group.
• Parameters should be set which determine theresolution of suspicious activities (e.g., confirmvalidity with RM or client call, text message toclient).
Banks can help corporates decrease risk / fraud.• Requiring clients to purchase positive pay along
with a business checking account.• Advanced user administration features specifying
parameters by payment type, amount, and payor.• Future bank solutions that monitor other products
in the same manner.• Training and education
Market Trends - Risk
w w w . T r e a s u r y S t r a t e g i e s . c o m 10
Security depends on more than technology.Policies, procedures, and controls on the front- and back-ends of webportals are necessary to accommodate the increasing security needs ofbanks and their clients.
Future security measures could include technology that has alreadybeen developed but has not yet moved into the banking industry:
• Fingerprint Recognition• Face Recognition• Voice Recognition• Keystroke Recognition
• Finger and Hand Geometry• Retina Scan• Iris Scan• Handwriting Recognition
Market Trends - Risk
w w w . T r e a s u r y S t r a t e g i e s . c o m 11
Market Trends - Implications
• Deploy a portfolio of security measures• Educate customers - the weak link in the risk chain - of
their responsibilities and best practices in managing risk
Payments fraud
• Provide near-real time views of cash balances• Deliver tools and information to help clients understand
and forecast their cash position
Real-time information
• Deliver seamless information, payment and collectioncapabilities via the web
• Provide education and training to clients on global issues
Globalization
• Deliver accessible, easy to use tools to help firms bill,collect, pay and manage cash
• Ensure web channel is extensible, permitting scopeexpansion
Deeper integration
• Deliver entire bank through a web channel with singlesign-on and integrated data and workflow (e.g., FXintegration with international wire)
Solutions not products
ImplicationTrend
w w w . T r e a s u r y S t r a t e g i e s . c o m 12
Power of the Web Channel
• Migrate customerservice and setupto the web
• Promote lowercost channels
• Validatetransactions toincrease STP
• Automateprocesses
• Provide intuitivenavigation soclients don’t haveto have a “PhD inbanking”
• Increase clientloyalty
• Increaseintegration and“stickiness”
• Act as anaggregator forclients usingmultiple banks
• Increase clientsatisfaction
• Deepen processand dataintegration
• Personalize thecustomer / userexperience
• Deliver integratedsolutions
• Motivate referrals
• Brand the bank
• Differentiatecompetitively
• Provide afoundation forgrowth
• Align with thebank’s identityand valueproposition
Improve BankEfficiency
Improve ClientProductivity
Increase ClientRetention
Deepen ClientRelationships
Attract NewClients
w w w . T r e a s u r y S t r a t e g i e s . c o m 13
Power of the Web Channel
Product & UsageEducation
Integrated ProductAccess
Customer Service
Indirect Sales
Supports Clients
IntegratedProduct Delivery
Risk Management
Customer ServiceRisk Management
Web Channel
Direct Sales Branding
Operations
Client DataMining & Analytics
On-boarding &Implementation
InformationMgmt & Integration
Best Practices &Efficiency Education
Peer Networking& Education
Market & IndustryEducation
Bank-Driven Education
Self ServiceIntegratedFinancial Mgmt
The web channel has a far-reaching impact on business banking activities.
w w w . T r e a s u r y S t r a t e g i e s . c o m 14
At MarketBelow Market Above Market
Pricing of Information Services
Information Services Pricing
Pricing of TransactionsCom
posi
tion
ofTo
tal P
ricin
g
100%
50%
0%
Inform-ation-
Centric
AverageBank
Trans-action-Centric
Price Information at PremiumPrice Transaction at Premium
Some banks price their onlinebanking platforms below themarket average with hopes ofencouraging the transaction-driven revenue needed to offsetbelow-market pricing.
Transaction-CentricSome banks price their onlinebanking platforms above themarket average and dependless on transaction-drivenrevenue.
Most banks price their onlinebanking platform at the marketaverage and rely ontransaction-driven revenuepriced at market average toensure client-level profitability.
Information-CentricAverage Bank
Power of the Web - Pricing & Adoption
Banks are pricing their online services to leverage the value provided.
w w w . T r e a s u r y S t r a t e g i e s . c o m 15
MONTHLY BASE MAINTENANCE FEEUsually includes prior day reporting for at least 1 account.
•The reporting is usually at the summary level.•Some banks include unlimited accounts.
MONTHLY ENHANCED MAINTENANCE FEEThis charge usually offers current day reporting.
•A few banks offer detailed reporting as well at this level.
SET
UP
FEES
DATAEXCHANGE
• These can be peritem or monthlycharges.
• E.g. BAI Detail forData Exchange.
• File Transmission.
CUSTOMREPORTS
• Any special reportsare charged amonthly fee or a perreport fee.
TRANSACTIONACTIVITYREPORTING
• At some banks, thisis offered at a per-item price, notcommon outside US.
• Could be bundledinto monthlymaintenance.
Additional Fees FEES
PER USER MAINTENANCE FEES
SUPPO
RT FEESPER ACCOUNT MAINTENANCE FEES
OTHER FEES• e.g.Penalty
Pricing• Manual entry of
positive pay.• Paper Image
Statements.
Access and Maintenance Fees
MONTHLY MODULE MAINTENANCE FEESThese are fees for access to specific modules such as ACH, wire transfer and internal transfer.
•Some banks do not charge module charges at all.
$ $$ $
Pricing Components
Power of the Web - Pricing & Adoption
w w w . T r e a s u r y S t r a t e g i e s . c o m 16
Competitive Trends
The largest cash management banks spend anywhere from 100 to 200X thelevel of small regional banks on discretionary IT investments.• The average bank invests 12% of total cash management revenues (fees
+ spread) in IT and of this spend, roughly 45% is discretionary investment.• As a rule of thumb, banks generate roughly 2.5% of C&I loan balances as
cash management revenues.• The largest banks essentially run “in-house” software companies.
$0.6 MM$1.5 MM$12.5 MM$500 MM
$240.0 MM$600.0 MM$5.0 B$200 B
$120.0 MM$300.0 MM$2.5 B$100 B
$12.0 MM$1.2 MM
TypicalDiscretionary Spend
$250.0 MM$25.0 MM
Typical CMRevenues
$30.0 MM$10 B$3.0 MM$1 B
Typical ITSpend
C&I LoanPortfolio
w w w . T r e a s u r y S t r a t e g i e s . c o m 17
Competitive Trends
Consolidation and technology innovation are rewriting industry scaledynamics. Small and mid-sized players continue to grow, however, byleveraging the scale of partners like FIS.
Nimble regional and community banks are leveraging the power ofthird-party partners to win and retain business.• Faster to market• Meet current needs and consider future needs
Even regional and community banks are beginning to develop specificidentities beyond just a “local relationship bank.”