Increasingly Sophisticated Customers
Custody banks have traditionally attracted business based on their aversion to risk, as asset owners look for a safe place to park their assets. However, today's customers are more cost- conscious and are open to dealing with nonbank competition offering solutions with better processes.
Developments in the payments industry is also affecting the way custody banks need to service their clients. Faster payments and increased adoption of ISO 20022 standards offer real-time transaction processing and reduced settlement times from days to seconds.
Cash managers are currently facing operational difficulties such as inefficiencies linked to the process of cash settlements. This can be made more efficient by reducing the number of interactions required between the trading platform and the cash system, as well as through higher straight through processing when such interfaces are required. This would provide the customers a more transparent view of their funds and help manage liquidity more efficiently.
Corporates can now enjoy efficiency gains from improved liquidity controls and reconciliations. At the same time, there is greater flexibility in changing banking relationships as corporates are no longer locked in with proprietary formats. The custodian now needs to evolve the conversation beyond cash management to improving yields in liquidity and cash reserves.
Customers are also becoming more sophisticated with multiple funds and multiple currency portfolios across different asset classes in different parts of the world.
At the same time, customers now demand a digital experience with real-time updates that's similar to what they are accustomed to in other parts of the business. Customers expect a higher level of transparency and a real-time view of the markets and their assets. They also expect the banks to provide them with the capability to make the best out of their funds by offering innovative liquidity solutions.
Unfortunately, traditional custodial banking technology architecture is not designed for the sophisticated demands of customers today. The many stakeholders involved in the transfer of assets—from investor, brokers, and global to sub custodians—can contribute to billions of dollars in costs and inefficient processes.