Traditional bank customers appear to lose patience
JOHANNESBURG - General Electric’s Kristen Michaud is a top client in a business that generates $1 trillion a year for banks - and she is deeply frustrated.
Michaud helps run GE’s cash-management system, using 200 banks and 8 000 accounts to move money to remote corners of the world. When sending cash, she does not always know how much intermediaries might nibble away in fees, or when it will reach suppliers. Payments can pass from bank to bank, arriving in strange amounts with memos erased, leaving recipients confused.
“You might have a supplier calling you up saying they did not get paid and then you’re spending days working with multiple banking partners to chase down the status,” Michaud said. “It could take multiple days for a bank to respond.”
Payment apps - such as Chinese juggernauts Alipay and WeChat Pay - are making the movement of money look so easy that traditional banks’ biggest customers are losing patience with the global patchwork that has handled their funds for decades.
Such apps have barely started serving multinationals, but their presence is putting pressure on financial firms to up their game, or risk losing their grip on another business.
Corporate treasury officials such as Michaud have been expressing growing exasperation at industry conferences, sometimes contrasting the slow, opaque system they use with Chinese apps and services such as PayPal Holdings’ Venmo that beam money almost instantly between consumers and retailers.
If technology can help millennials split a restaurant bill in seconds or let tourists tap phones to pay taxis abroad, why must companies sometimes wait three to five days to confirm
their money reached its destination?
“We’re coming into this age that’s more digital,” Michaud said. “Similar to the Amazon example, you want to know if your package was delivered to your house or to your apartment, and so the same should hold true with a payment.”
Banks say they are working on improvements. And so far, corporations are sticking with them because of their proven security for both money and data. Even if apps enhance services to lure big companies, banks will undoubtedly strive to fend
them off. The stakes are high, because handling cross-border payments is especially lucrative.
The $23trln in corporate money that flows over borders annually is dwarfed by the $104trln that moves between businesses within their own countries, but it generates about half of the revenue that facilitators collect. Banks dominate international money flows, handling about 95 percent.
Along the way, banks and their partners deduct about $1.02trln in fees and foreign-exchange costs, according to Goldman Sachs.
Much of the innovation in payments in recent years has occurred on the consumer side, as tech startups sought to wrest business from banks, which then fought back with apps of their
own. Many upstarts carry out transactions within their own ecosystem, instantly shifting money from one account to another.
That contrasts with the network corporations use when moving money overseas. They rely on the correspondent banking system, which links domestic banks with foreign counterparts. In a cross-border payment, a corporation’s money may jump from one bank to the next in a chain several links long, with each setting its own timeline and fees along the way.
Harry Newman, the head of banking at SWIFT, the messaging system that connects 10 000 financial institutions around the world, concedes the existing system needs to improve.
“Correspondent banking has been around for a long time and it’s done a good job for many years,” he said in an interview. “But it’s obviously a child of the ’80s and it lacked the transparency and predictability that you really want to see in a modern payments mechanism.”