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Reducing Costs, Generating Revenue: The Value of a Bank Partnership

by Tom Shrimpton, Director of Payments & Cash Management, Global Financial Institutions,  Lloyds Banking Group

The financial services market, in particular the correspondent banking sector is in the midst of a major transformation with growing competitive, regulatory and operational challenges. Today more than ever, financial institutions are under pressure to reduce costs, develop new revenue streams and maximise access to liquidity. Core to achieving this is the need to provide comprehensive, cost-effective and robust cash management services to clients. Working with Lloyds Banking Group (‘Lloyds’) as a partner for sterling clearing services gives our financial institution clients the confidence that they can meet their clients’ current and future requirements, supported by the bank’s scale, processing excellence, expertise and innovation.

In a largely commoditised business with narrow margins and relentless competitive pressures, financial institutions are seeking a market-defining cash management provider who can offer a combination of robust, reliable and cost-effective core processing with innovative solutions that can generate new revenue streams, manage clearing costs while further enhancing their clients’ experience. At Lloyds, we have the technology and experience, developed over many years, to achieve our clients’ objectives. In an industry which processes huge payment volumes daily, there will inevitably be the occasional issue. With cost reduction among the top priorities for our financial institutions, with a focus on the end-to-end cost of processing and servicing payments, clients trust Lloyds to have the skills and commitment to resolve issues promptly and efficiently, minimising disruption to their business. We take accountability for our performance in delivering our services, developing trust with our clients, resulting in industry-leading levels of client satisfaction.

Creating competitive advantage in a changing regulatory landscape 

We work closely with our clients to develop market-leading capabilities that set our clients apart from their competition by enabling them to deliver pragmatic solutions that benefit both their clients and their bottom line. For example, sending a cross-border, cross-currency payment, such as a US dollar payment to the UK, can result in an FX when processed onto the beneficiary’s account including both a margin and deduction - from which only the bank providing the FX conversion and account benefits. Centralising payments traffic into the UK through our Local Currency Payment Conversion solution (FX Share) can enable our clients to share equally in these revenue streams, strengthen relationships, and add commercial advantage to our clients’ proposition without jeopardising the payment experience.  

New industry and regulatory initiatives create challenges for financial institutions, but by leveraging our skills and innovative approach, we can help turn these into opportunities. For example, the Single Euro Payments Area (SEPA) and Payments Services Directive (PSD) provide the opportunity for a harmonised, cohesive approach to payments processing across the Eurozone. Lloyds is a direct member of the major euro clearing schemes (EBA (EURO1 and STEP2) and TARGET2) as well as supporting the necessary payment instruments and formatting requirements.

Not only does the changing regulatory environment pose issues for financial institutions, but payment processing is also going through major developments that create both challenges and opportunities. For example, SEPA Direct Debits (SDD) will become increasingly important to non-bank financial institutions, such as insurance companies, from November 2010, as banks supporting domestic direct debit schemes will be obliged to support the new instruments. We are already helping clients to develop new client offerings and integrate data efficiently into their organisation. We anticipate SDD will ultimately replace many MT101 payment requests, as they are quicker and more cost-effective to administer, so again, this is an area in which we are supporting our clients. SEPA also brings the potential for financial institutions and their clients to rationalise their banking partners, incoming and outgoing payments processing, and technology infrastructure, which is likely to lead to fewer, closer relationships based on mutual value. This relationship model has been steadily and successfully adopted by Lloyds over a number of years.  

Another example of the changing landscape in the UK is the increasing focus on cheques. The National Payments Council is engaged in a cheque reduction programme, although cheques still play an important part in the overall payments landscape, not least because the float is valuable for liquidity purposes. However, use of cheques is expensive and reduces the predictability of cash flow, which actually impedes efforts to manage liquidity and maximise use of cash. We are working closely with clients to understand the potential impact of phasing out cheques, and find innovative solutions that deliver added value, including Bacs, SDD and Faster Payments.

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