Banks: too big to serve NGOs?

NGOs may rely on banks for cross-border payments, but are they being left behind by institutions built for scale, not service?

In business, bigger is often seen as better. More revenue. More customers. More growth. This is particularly so in payments and banking, where volume is prized. But does it follow that the bigger the bank, the better it will be for NGOs?

Why bigger is not always better

When businesses reach a certain size, they generally deploy tools to manage customers, rather than serve them. That’s why modern customer service is about automated switchboards, group mailboxes, scripts and stock responses. It’s not really about customers or about service.

Hold that thought. It’s significant when it comes to the purpose and needs of NGOs.

NGOs are delivering humanitarian aid to support the casualties of conflict. They’re offering relief to victims of natural disasters, famine and poverty in low-income countries. Or paying salaries in-country.

These are not standard B2B or B2C payments. Quite the opposite, they’re the epitome of non-standard. Moreover, there are the environments in which NGOs operate.

NGOs frequently work in challenging countries. There may be civil or political disruptions, a lack of banking infrastructure or unexpected banking issues. Regulatory requirements and corruption further complicate some transfers. Again, so far, so non-standard.

This is not the basis for a happy match with big banks that only want to deal with big clients. Or with big banks that only want to deal with small, manageable problems. What if you’re a small NGO? Or an NGO with big problems (read: hard-to-manage or non-standard needs)? There comes a point where big banks become too big to serve their customers.

The problems of size

Banks are not necessarily set up to provide the true consultative service that NGOs desperately need.

This is partly on account of their customer service model. The bigger they get, the less time banks have to spend on customers. Automation, bots and self-service are in. Direct communication, personal attention and dedicated service from experts are out.

It’s also partly on account of their core business and skillset. If they specialize in deposit accounts, savings products and mortgages, they’re not experts on other countries’ banking infrastructure. What would they know about specific NGO payment corridors? Or about the documentation needed to move payments along?

The problems of age

Banks may be big because they’ve been around a long time. A long history brings with it a reputation, trusted brand, historic data and a head-start in understanding banking and risk. But there are down-sides to age, including legacy infrastructure, policies and procedures.

Banks are spending a staggering 70% of their budgets on maintaining outdated legacy systems, a new report finds. Of the remaining budget, the majority goes on compliance and regulatory requirements, leaving little over for innovation.

After a while, big banks become too big to manage their own operations. Small wonder they have the reputation of being not very fast-moving, nimble or responsive.

‘Ripping and replacing’ systems is no longer an option. Yet simply patching and upgrading them leaves banks with fragmented, siloed platforms. This then leads to poor customer service and so the vicious cycle continues.

The problems of interoperability

To get bigger, banks built an international correspondent banking network. Linking their different domestic systems together may have been great in theory, in practice it’s hard to track payments, predict fees or guarantee execution times.

That’s a problem for NGOs who need to know where delayed or stuck payments are. Or need to know how much will arrive on account and when, as it directly impacts their work but also people’s lives.

Fixing this is hard because it’s as much a legacy problem as one of interoperability. Individual banks cannot change things themselves, precisely because they’re part of a global system.

Banks have invested so much in infrastructure, processes and the status quo, so they have two main fears. Firstly, getting a return on their investment. And secondly, disrupting the business they have.

The problems compound

At a certain point, the problems of bank size, age and interoperability compound, particularly when it comes to cross-border payments.

Correspondent banking relies on banks acting as intermediaries for each other. They pass payment messages between the sending and receiving banks, sometimes in long chains.

This system may well have worked 50 years ago – and still work for some customers. Big banks have built good businesses serving traditional customers with traditional needs.

But NGOs are not traditional, and their needs bespoke.