Pros and Cons of Multi-Banking

In the previous article, we have already seen what multi-banking is. We are now aware of how multi-banking is an extension of open banking and how it operates. Once the basic details about the technology are known, the next obvious question is whether or not a technology is worth implementing.

In order to make this decision, it is important for us to know the pros and cons of the decision. This article aims to provide this information. In this article, we will have a closer look at the pros and cons of multi-banking.

Pros of Multi-Banking

Multi-banking is the new buzzword in commercial banking. This is because it offers several benefits to corporations that use it. Some of the important benefits have been listed below:

• Best of Breed Banks: Firstly, multi-banking makes it possible for corporations to reduce their dependence on one bank. Since corporations are free to choose and interact with different banks, they can choose the banks which provide the best features.

  For example, if a corporation thinks that JP Morgan Chase provides the best corporate credit card service, they can use that service without worrying about how this service will get integrated into their overall banking landscape.

  Hence, multi-banking provides more freedom and flexibility to individual corporations. This feature is quite valuable for corporations, especially ones which have business interests across the globe. This is because when corporations transact across the globe, they are compelled to have banking relationships with many local banks which they find difficult to integrate into their overall strategy. Multi-banking helps get rid of these issues.

• Higher Negotiation Power: In the previous point, we have already seen that multi-banking enables corporate customers to change their commercial banks. This is because corporations can now choose to leverage the capabilities of several banks by choosing the multi-banking platform. As a result, customers can choose different services from different banks. This means that banks have to be more competitive in all their service offerings. They can no longer sell a bundle of services wherein only one or two are of high quality. This higher negotiation power enables customers to get better deals from corporate banks and makes the whole system more competitive as a whole.

• Simpler Information Systems: Corporations have to spend a considerable amount of money in trying to create integrated information systems with different banks. The company has to devise a plan to ensure that information from all sources is collated and presented to the management within the required time. When companies choose multi-banking, they do not have to take this pain.

  1. Firstly, there is no need to integrate their systems with the bank’s systems.

  2. Secondly, there is no need to collate any data since the data becomes available automatically due to the integration between the portal and the banks.

  Hence, companies have the opportunity to significantly simplify their systems using the multi-banking framework.

• Cheaper to Implement: As mentioned above, multi-banking systems do not require any complex integration. Instead, the company has to connect with only one portal and they are then integrated with all the other banks. This too can be done quickly and seamlessly.

  Hence, the cost of implementing and maintaining a multi-banking-based system is quite low from a corporation’s point of view. This lower cost is a catalyst for faster adoption by corporations.

• Operational Efficiencies: Since all the banking relationships and transactions are accumulated at a centralized location, it becomes very easy to manage the same from an operational point of view. The amount of time spent on spreadsheets trying to collate the information is reduced. Also, the transactions can be automatically executed on time with the help of the multi-banking system.

Cons of Multi-Banking

There are some disadvantages associated with multi-banking as well. Some of the prominent ones have been mentioned below:

• Dependence on Third Party Providers: The entire multi-banking system is based on the existence of a portal that will not be provided by any bank. This portal can be provided by a third party which may be a private entity specializing in such technology or alternatively it could be a consortium of banks. In either case, a huge dependency is created on a third-party system.

  Companies do not have any control over the performance or service levels of such systems. For multi-banking to be successful, corporations must be able to trust the functioning of such third-party systems. Right now, this trust is lacking and may take some time to build.

• Data Security: Just like open banking and banking-as-a-service, multi-banking is also a banking innovation where data security is a concern. This is because even in this case, the data is transferred across different channels many of which are not controlled by either bank. Also, since so many parties are involved, it becomes difficult to ascertain the guilty party in the event of a data leak.

  Multi-banking requires several layers of security to ensure data security. The technology for providing data security is still being developed and is likely to undergo a lot of change in the forthcoming years.

• Difficult to Implement: It is important to understand that multi-banking is still a nascent concept. Even though theoretically it is quite promising, right now, the implementation is not up to the mark.

  With the passage of time, the technological infrastructure required to support the multi-banking ecosystem will come up and that is when the services will be delivered in a more efficient manner.

Hence, it can be said that multi-banking definitely has more pros as compared to cons. Also, it is likely to become a norm in the future. However, as of now, there are a lot of challenges and roadblocks which need to be figured out.