How COVID-19 has created potential payment efficiencies for fiduciaries

“When COVID-19 first emerged and we entered lockdown, fiduciaries faced a number of challenges when it came to payment operations and managing cash for their clients,” says Matt Charrett, Head of Cash & Liquidity Specialists, Barclays.

“Maintaining visibility of their banking balances and transactions with all their banking partners, for example, proved a real challenge because a lot of fiduciaries are multi-banked. Keeping that high level of visibility of balances, what they need to execute in terms of payments and what funds are coming in, is harder the greater the number of banks.”

“Many had to re-set up online banking systems. With each bank operating differently in terms of the hardware and software it uses, that wasn’t necessarily straightforward, and many had to re-think how to make that work in this new environment.”

A gateway to greater efficiency?

The position of working with multiple banks is often a legacy of clients coming to fiduciaries with existing, historical banking relationships, perhaps across multiple jurisdictions that they’re keen to maintain. Could that change in the post-COVID world?

“We’ve often talked with fiduciaries about streamlining the number of banks they work with to create efficiencies,” says Adele Bohlen, Head of Fiduciary Business, Barclays, “but COVID-19 has highlighted the imperative of that.”

“Some of the fiduciaries we work with are dealing with 40 or 50 banks, but I think the pandemic will act as a driver, giving them a push to review the financial institutions they engage with, identify those they have had particular challenges in dealing with during the crisis and streamline the overall number to three or four banks. As we emerge from the crisis into recovery, that will offer them, and their clients, multiple benefits in terms of safety and efficiency.”

Meeting the challenges of remote working

Another practical issue fiduciaries faced when lockdown began, was around payment authorisation. “Ensuring they could make payments in accordance with the mandates they held with their banks was important,” says Charrett. “That became a key issue when the availability of authorised staff could change very quickly. If they were off ill, for example, there needed to be enough people with the right level of permissions to maintain that service for their clients. As a bank, we had to mobilise quickly to support clients to securely and safely broaden their number of authorised users to ensure they could deliver that service.”

Remote working in itself added to the difficulties fiduciaries faced in maintaining client services. With many clients more focused on their liquidity needs, the demand for time critical transfers of funds between accounts increased, at just the point that process time also increased. “When people are working remotely, processes just take longer,” Charrett points out.  “That means allowing more time to complete processes, particularly those that are time critical – and also managing client expectations around that.”

Technology offers process benefits

But COVID-19 created additional challenges in terms of payment authorisation. With staff working remotely, the method of receiving instructions also had to be reviewed. “Under normal circumstances, we would accept written instructions in wet ink,” explains Bohlen. “However, that changed virtually overnight, and we had to adapt quickly to using e-signatures from authorised signatories. With a significant amount of work on protocols and governance and support in place for clients, it’s actually been another success that’s emerged from the crisis, again creating more efficient processes.”

The growing use of e-signatories has been part of a much broader enhancement of digital engagement, which has led to the adoption and acceleration of a number of digital initiatives, both by banks and businesses. Across the cash management and payment space generally, there has been much wider interest and take-up of digital  – think contactless payments, online banking and even online shopping.

“We are all learning from this crisis,” says Charrett. “One of the key learnings, I think, will be around technology and how it can be used by fiduciaries to streamline their operational processes. Many fiduciaries, for example, are still manually keying data into systems, whether that’s to create a payment or reconcile a bank account statement. Automating these processes could help reduce the costs of serving their clients, which can boost  profitability and enhance their competitiveness, as well as reduce risk.”

Learning from the crisis

The crisis has also offered an opportunity for fiduciaries to review what worked well, where challenges arose and where the opportunities to improve can be made.

“Firms may be looking to reduce reliance and risk associated with human intervention by, for example, improving straight through processing rates for payments and increasing auto-reconciliation of banking transactions.  To do this they may need to review their internal workflow processes and also consider alternative ways of connecting to their banks such as using host to host or SWIFT network connections,” says Charrett. “Additionally, multi-jurisdictional fiduciaries may have offices and payment teams around the world who have experienced having to move to contingency arrangements.”

“As a result, they may want to review their current operating model and consider whether benefits could be driven by centralising certain activities such as payments.. Not only could that drive efficiency more generally, but it may also enable them to enact contingency plans quicker and more efficiently should similar business impacts be seen in the future.”

Managing payment risk in the new normal

While changing processes and adopting new technology offers significant opportunity, it doesn’t come without risk. It is no coincidence that levels of cyber-crime and fraud have increased during the pandemic. “Change and uncertainty creates an environment where that kind of activity can thrive,” says Bohlen. “That’s why we’re supporting fiduciaries to keep cyber-security front of mind.” Insight into the nature and scale of the cyber threat and steps fiduciaries can take to protect themselves and their clients, can be found in our article on cybercrime prevention.

In the midst of the pandemic, regulatory changes are also continuing, and these too are designed to enhance security of payments. “In addition to the changes we are likely to see as part of the Payment Services Directive (PSD2), Confirmation of Payee, although primarily related to UK domestic payments, will help protect fiduciaries and their clients, by checking that the payee name matches the beneficiary bank account name for the bank details used on the payment. Whilst banks are at different stages of roll-out, there is a commitment to launch the initiative this year.”

Finding opportunity in change

Despite the challenges that COVID-19 has created, there have also been a number of opportunities concludes Bohlen. “Sometimes we (and I count fiduciaries and financial institutions in that) continue to do things the way we’ve always done them, but then an event like this happens and we have to re-think our operations and our processes.”

“It offers the chance for us to find efficiencies and streamline day-to-day processes, and to push forward our adoption of new technological or digital solutions, so that we can carry on delivering the service our clients expect, and it gives us the potential to emerge as a stronger, more resilient business.”

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