Bank-agnostic platforms in Asia − An update

21 October 2021

Deutsche Bank’s Raphael Jansa explains how bank-agnostic platforms have regularly demonstrated their value over multiple asset classes and use cases and why he thinks they are here to stay

Since the 2008 global financial crisis proved that banks could collapse, treasury functions have considered ways to lessen dependency on their financial provider and become as bank-agnostic as possible. The value that bank-agnostic platforms have since brought to MNCs is undeniable, particularly for those operating across many jurisdictions in Asia out of a partially or fully centralised treasury set-up. Benefits range from efficiency gains through sharing information with multiple banks using common standards instead of duplication of bilateral communication efforts – as well as interchanging bank providers smoothly – to minimising counterparty risks and receiving aggregated pricing proposals.

They span all areas of deployment. In payments corporates with direct Swift connectivity benefit both from automation into enterprise resource planning/treasury management systems (ERP/TMS) and from the flexible use of its payments banks with a common format. In FX, treasurers equally appreciate the TMS integration as well as the transparency and variety of quotes and execution options and for liquidity platforms consolidating multiple bank account positions into one tool can prove powerful.

While everything might seem perfect with bank-agnostic platforms, regional considerations remain. Asia-Pacific has restricted currencies and various regulations and documentation obligations around transactions in the payments and FX space. While these platforms aim to also address local operating requirements, not all can cater to every service equally in all regions and markets. So are bank-agnostic platforms the solution to any situation, or are better ways possible for certain use cases? Let’s examine a couple.

Use cases in FX and liquidity and cash applications

Suppose a Japan-based MNC wants to exchange the equivalent of US50m into Vietnamese dong ahead of a significant purchase in Vietnam. Their treasurer inserts the request for quote (RFQ) into the platform and awaits the participating banks’ spot FX rate bid. Corporates typically consider this trade from one angle only – pricing, i.e., the actual FX rate offered by banks on the platform. The deal usually goes to the bank with the best rate and execution capability, but is this always the cheapest execution method?

Now factor in the banks. To be able to execute larger trades in restricted or less liquid currencies, a corporate must create several smaller tickets to get their whole trade filled. Banks need to provide quotes for all those trades they wish to participate in. Sending multiple requests via agnostic platform generates multiple RFQs and potentially would indicate to the market that demand exceeds just the initial US$50m. This could affect the prices being offered through the platform, i.e., wider spreads and higher cost of execution.

Arguably a smarter way of doing this particular trade is with a single bank directly, especially since bank-agnostic platforms usually only provide services to a restricted market’s onshore corporate entity.

This bilateral approach not only mitigates market disruption risk but has four significant advantages for the corporates:

  • Anonymity: What corporates can overlook in the above scenario is that putting such a trade on a third-party platform is viewable by all participating banks. This cannot be in a corporate’s interest especially for underlying sensitive business purposes.
  • Cost: Leveraging on a bank’s liquidity – letting the bank internalise the order – tends to be cheaper for the corporate (and possibly, the bank!) than on bank-agnostic platforms as brokerage fees, platform and possibly additional spread are not added. This applies even more so for multiple smaller trades.
  • Documentation: For FX trades on a third-party platform, the onus of handling documentation requirements still lies with the corporates, especially with some markets even requiring physical documentation with signatures to be submitted to their cash bank. On the contrary, banks facilitate that documentation burden in a bilateral trade.
  • Tools: Major global banks’ advanced transaction cost analytics tools can showcase the potential cost savings per trade or trade sequence (i.e., narrowest spread and smallest market impact) in advance, better positioning the corporate treasurers’ strategic decision making around emerging market currencies.

Visibility issues

Inadequate visibility into regional or global cash positions and payments regularly appears in any survey of corporate treasurers’ biggest pain points. While the industry has found a solution for cross-border payments through Swift’s Global Payment Innovation (GPI) initiative and corporates having direct or indirect (via banks) access to all payment statuses, the situation differs when it comes to visibility into respective bank account balances.

Here, leading global banks provide their own web-based dashboards such as liquidity portals with comprehensive analytical functionalities. Corporate treasurers, however, dislike the need to manually log into each bank’s respective portals.

The fate of bank portals

The Treasurers’ Way – including third-party providers’ data into a propriety tool – is a common market practice. But common practice suggests that corporate treasurers feel reluctant to share their accounts and exposures of their big banking partners with their peers’ liquidity and banking platforms due to concerns that the information could be used by that bank to their detriment.

Consequently, the consolidation of account information in liquidity portals does not occur horizontally but rather only vertically as “smaller banks” data feed into the portals of bigger banks. That approach reduces – but does not remove – the need to log into various liquidity portals.

So are application programming interface (API) feeds an option? First, while the account balance feeds from the third-party banks are useful, especially in higher frequency, they may be costly and are hardly in real time. Second, as global banks aspire to deeper integrate with treasurers’ ERP/TMS landscape, why not directly feed that information?

The ideal North Star solution would be a bank-agnostic third-party provider that aggregates all the corporates’ bank balances in real time and in a standardised format. While there are some providers who are offering such omni-market platform, the adaption of these solutions is still in its infancy.

Besides, would treasurers overcome data security and trust concerns and put all their account information and investment vehicles onto such a third-party platform? Given the current environment and adapted risk management policies, corporate treasurers avoid onboarding new fintech vendors, and rather continue to rely on bank services that include such fintech solution modules. Therefore, sticking with multi-bank solutions still seems to be the best fit for purpose here, especially in times of treasurers facing limited resources and restricted IT budgets.

Value over multiple asset classes

In conclusion, bank-agnostic platforms have regularly demonstrated their value over multiple asset classes and use cases and are here to stay. Ongoing technological progress continues to further amplify their value proposition to corporate treasurers.

In the FX space the multi-bank platforms cater to most use cases and corridors, especially for G10 currencies. However, in cases such as a trade with a non-open currency equivalent north of a 7 or 8-digit US$m equivalent may see a better home with a bank propriety platform for reasons of practicality, full cost and anonymity. Furthermore, these platforms are focused on trade execution. Ancillary services such as access to bank account balances are not part of the standard offering, which is where banks and their liquidity portals enter the picture.

For liquidity management purposes visibility matters! Better visibility leads to more efficient use of funds for internal funding as well as for yield return through investments. Bank-agnostic third-party platforms have yet to emerge as a popular option among corporates. Therefore, global banks’ multi-bank solutions with a vertical integration of smaller regional or local banks’ exposures – especially in Asia despite some local banks’ limitation in sending across bank balance information – remain corporate treasurers’ preferred choice.

Treasury practitioners should understand the nuances of practicability of bank-agnostic platforms for their own use cases, adjusting their strategies – or even treasury policies – accordingly to avoid higher costs and inefficiencies.

This article has first been published in the October 2021 issue of The Asset Magazine.

Raphael Jansa

Raphael Jansa

Director, Treasury Advisory - Cash Management, Asia Pacific, Deutsche Bank

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