Think of it as just-in-time inventory management for money. According to International Data Corp.‘s Financial Insights unit, it’s an opportunity both banks and their customers should be thinking about more than they are.
“There is market opportunity for integrated financial supply chain services that is centered on specific vertical markets and business processes,” write analysts Maggie Scarborough and Aaron McPherson in Financial Insights’ 2007 North American Commercial Payments Study. “Areas of potential co-operation clearly emerge in account receivable (A/R) and accounts payable (A/P), with interesting prospects for businesses, bankers and vendors to collaborate to realize joint benefits.
For instance, McPherson told ITBusiness.ca a bank might present its customer with invoices from the customer’s suppliers electronically. On receiving an invoice, the customer could choose – with the click of a mouse – to pay it from company funds or to have the bank pay it on the company’s behalf, effectively securing just-in-time financing. The customer would also have other options such as disputing the invoice or deferring payment until later.
The customer might want to take advantage of a discount for early payment but not have money available, McPherson explained. “It would be helpful for the bank to be able to step in and offer financing.”
Ultimately, the IDC Financial Insights study says, banks could play a bigger role in many aspects of their customers’ accounts payable and receivable processes, from purchase orders through to payments. But they have some work to do first.
“They’re still very much at the point of just being able to get the silos to work together,” McPherson said. Most banks today offer distinct products backed by systems that don’t talk to each other, he explained. “Just getting their systems to work together is a big issue right now, before they can even think about integrating products.”
A few large banks, including JPMorgan Chase, HSBC and Citigroup, are actively working on integrated financial supply chain offerings for their customers, according to the study. But for most, McPherson said, the first task will be to get their systems to work together.
To do that, he said, banks need to turn to service-oriented architecture (SOA), messaging hubs or enterprise integration layers. “Most of the banks I’ve been talking to are working on something like that.”
They will also have to sell the integrated financial supply chain idea to their customers, who, the survey found, don’t think of this as an area where their banks can help them.
“The corporates’ main complaint is that the banks come at them with all these discrete niche products, and not a complete offering that focuses on really cutting their costs,” McPherson said. “And that’s sort of their main focus is how can I drive costs out of my organization, whereas the banks are sort of coming at them with all these point solutions.”
Jacob Jegher, a Montreal-based senior analyst with research firm Celent LLC of Boston, said changing bank customers’ business processes will be the major challenge.
“I think it’s a great idea,” Jegher said, “but we have to kind of put technology in the back of our minds and say this is a change management problem.”
Even electronic bill presentment and payment has not gained wide acceptance in the corporate world yet, Jegher said. That’s because people who handle accounts payable have established processes and are reluctant to change. “The folks who are using this stuff say whoa, I don’t know anything about this and I don’t necessarily want to know anything about this.”
Jegher said he thinks there is a market for integrated financial supply chain services like those IDC describes, but it will take time. “I’m typically not shy to make predictions,” he said, but “I’m not going to make one here.” Jegher said he doesn’t like to predict more than three years into the future and believes this sort of service is at least that far from reality.
He and McPherson don’t differ widely on that point. “Some of it’s happening now,” McPherson said. “I think we’ll probably see some of this stuff happening the next couple of years – but it probably won’t be widespread for the next three to five years.”