Advancing technology must enable better decision making, connectivity and profitability in the financial sector. Anoop Nair explores the issues faced by a multinational company who incorporated its India subsidiary in the early 2010s, and the challenges of opening local currency accounts.
In this article:
The Challenges
A multinational company incorporated its subsidiary in India back in 2015. They were an American manufacturing mid-cap and had large manufacturing plans in India. They started with incorporating a wholly owned subsidiary and turned to their American bank (an MNC Bank) to open a current account for their subsidiary.
An email request was sent in LA, California to their Relationship Manager in the US. The RM sitting in California wrote to their Indian branch and copied in a senior coverage banker. The local RM then reached out to the subsidiary, hosted a meeting and understood their requirements for a current account (to infuse capital).
It was at this stage that the challenges arose. RM, an experienced banker having worked at many multinational banks, knew the process very well and account opening documents were sent to the Indian subsidiary. Alongside local conditions, there were a host of global requirements including Shareholding Pattern, UBO Identification and Verification and the local company documents. The Head of Finance at the subsidiary requested that the bank consider global documents from their US branch where the parent company was an existing client. The RM had a standard rebuttal – Indian law requires all documents be signed and stamped by the local company. Consequently, all the documents were re-printed and provided to the bank in India.
Account opening is a crucial step here because the entire capital infusion and subsequent RBI compliances such as filing the FCGPR and allocating the share capital has defined timelines. In parallel, the subsidiary’s budgets are being discussed at their California head office. These plans come with a definitive timeline and breaches, often leading to monetary losses.
The Indian branch
TThe Indian branch of the global bank sent a list of discrepancies to the Indian subsidiary. These included signature mismatches, missing ID documents and signatures. Frustratingly, the Indian subsidiary’s finance manager started re-working the account opening documents.
After six weeks, the Head of Finance of the subsidiary became exasperated as the delays were disrupting the business plan. In comes a strongly worded email from the bank’s LA office stating the importance of the global client, and how the Investment Bank has been eyeing a mandate in the US and this India story is creating negative coverage.
Fearing backlash, the Indian RM wrote to the Head of Business to make an exception approval. In the next 24 hours, all discrepant documents are noted and the account is made operational provisionally for FDI purposes. There was a time limit on these discrepancies and if the subsidiary fails to provide resolution, their Indian current account would be blocked until a resolution is provided.
At this stage, the RM received accolades for collecting the capital and adding a new customer to the bank. The subsidiary was happy because the FDI was successfully completed.
Post-resolution of all discrepancies, the subsidiary reached out to the bank in India to access to an online banking platform. Once again, a set of forms are mailed to the company requesting details on the level of access required in India
The Finance Manager responded but the bank requested originals to be sent to their Indian branch, which was completed. To the surprise of the subsidiary, the forms are sent to the US for implementation before being returned to the Indian branch for record keeping.
Finally, online banking access was provided. The subsidiary then wanted to integrate their ERP, HROPs, and treasury functions, to take care of all the levels of authorisation. Citing miscommunication, the Indian branch did not set-up the integration but only provided generic payments and view access. A year passed by, and the subsidiary is now accustomed with the limited level of service and access on this global bank’s platform.
Transaction Banking in India was always complicated but with the growth of technology, convenience is taking the precedence above cost and relationships. This example, presents some an interesting insight into how global transaction banking is set for disruption.
Global to local is a utopia
Many multinational banks have struggled to keep up with change, especially with technology. No matter the size of upgrade, it costs millions of dollars. This is where the games begin. Local stopgaps are piled on a global platform to behave like a local platform. Additionally, customer/sector specific customisations are built to ensure client retention. The global platform must then interface with another layer of a local system that it doesn’t recognize. UATs after UATs are conducted to ‘iron out any wrinkles’. Post-UATs, the system is launched. Customer journey, user experience and ease of secure payments is still yet to be achieved.
With the arrival of FinTech’s, corporate clients and financial institutions expect more. As they continue to evolve to deliver a superior product to their clients they will not tolerate operating on a platform that is still catching up.
Innovation is a catch-up game
Large global banks have real organisational problems in execution. Multiple teams, budgets, decision makers and projects make innovation a catch-up game.
One of the MNC Banks in India launched an excellent warehousing solution for their Indian customers that tied in FX rate booking platform along with payments. After their launch, the bank won multiple awards and customers.
Other MNC banks continue to play catch-up. They still don’t have that same solution (or even a poorer form of it) in the market. Now time is up, and that good warehousing solution has also become outdated given the onset of blockchain, for instance.
In the current climate, a bank that has the ability to redefine its technology either through long lasting partnerships or build out will remain on the path of prosperity and the rest will continue to play the game of catch-up.
Sync locally becomes sink locally
Customer registration process can be complex. After all, dealing with customer data, especially identification and verification, is a very sensitive. Numerous attempts have been made by banks to develop an on-boarding process that is seamless and quick, but the journey is still paralysed with inconsistencies.
For example, even today, most banks are unable to use global data to on-board locally. Yes, there are KYC, Customer On-boarding regulations, data localisation and protection laws that slow down such innovations, but there must be solutions in fintech development.
Don’t replace the voice
Technology must co-exist with the human touch. One cannot expect that a Senior Treasurer can go through codes on a bank’s online portal to confirm cash leakages or look at a leveraged product that can support working capital.
Technically, it’s possible, But verbal reassurance and expertise is crucial. Sadly, many bankers are in the “you can download the report” phase of their relationship building journey which is not best practice.
A truly global alternative banking solution
Technology must enable better decision making, connectivity and profitability.
At Interpolitan, we are building a global transactional alternative banking service. Our clients have access to multiple markets allowing them to transact globally on a platform built with ubiquity at heart. Transacting like a local allows ambition for growth and international investment.
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We can open client accounts within 7- 10 working days. Funds are held in designated, safeguarded bank accounts with tier one banking partners.
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