Features : Strategic Partners
TREASURY & CASH MANAGEMENT

Global Finance brought together some of the leading figures in the treasury and cash management field to discuss current and future trends in their industry.


GLOBAL FINANCE: Direct corporate access to SWIFT has been approved and is expected to be operational this year. What is the profile of corporates that will be able to use this connectivity? How will it affect their current systems and workstations? What impact will it have on their bank suppliers?

JULIE MONACO, senior vice president and core cash management executive for treasury services, JPMorgan Chase: I sit on the corporate access group within SWIFT, which has been very active in this initiative. The initial target will be the Fortune 1000, although 25,000 corporates will be eligible based on the admissions criteria. A lot of the targets within that group are going to be the customers who are on Member Administered Closed User Groups [MA-CUGs] today. We’re going to see the ERP providers jumping on board very quickly. SAP announced a SWIFT-enabled version of their ERP workstation. They’re going to make it very easy for corporates that are using their workstations to interface into SWIFT. Hopefully that will drive adoptability. In terms of how it will impact the banks as providers of services, I hope that in the long run we’re all going to spend a lot less on proprietary solutions, and we can take that funding and put it toward value-added products for the corporates and not have to waste a lot of money on connectivity and messaging, which should in my opinion be a collaborative space, not a competitive space.

DIANE REYES, managing director and global head of cash management sales, Citigroup: While there might be quite a number of eligible participants, the companies have to determine whether they need to buy extra hardware and software. Do they use a service bureau to provide some of what they might otherwise have had to do themselves? What will the monthly charges be to the service provider? There are a lot of decisions a corporation needs to weigh, which has been one of the challenges even given the existing access that corporates have. While there might be eligibility, we are not sure how fast the ramp-up will be.

MONACO: Perhaps SWIFT is going to have to change the pricing model. Currently, it’s very good for large multinationals that have a lot of wire transfers, but as soon as you get into low volume payments, it becomes less cost-effective.

AL BRIAND, managing director and head of product management for global payment and trade services, The Bank of New York: It’s a great solution for a corporate with the right profile such as a multinational with multiple bank relationships. The banks are ready now, and the ability to match the right bank with the right corporate file solution will be a tremendous advantage. Standardization is essential for business processes and competitiveness, and is here to stay. Corporates want real, meaningful improvements from their banks and standardization via SWIFT because it’s just much more efficient and is a key solution for them.

ANDREW YEATES, senior vice president, global payments and cash management sales executive, HSBC: The corporates are really going to have to look at the cost-benefit analysis. According to recent studies, on average a corporate is spending between $20,000 and $25,000 a year to keep a proprietary link with a bank up and running. They’ve also indicated that a large multinational corporation may have upwards of 12 links out there, so you’re talking about upwards of $300,000 a year in sunk cost for a global corporation to maintain proprietary links. While there’s certainly a cost of entry into SWIFT, there is an offset associated with closing those links. With the level of standardization and the financial payback you get from eliminating proprietary bank links, it is really going to be a win-win situation for them.

REYES: It would be helpful for corporates to actually have a cost-benefit analysis they could look at and see how it applies to their firm. Some of them do have hidden costs, and others don’t know what the real cost will be if they do decide to go through the process. It could be higher than you’ve just estimated.

MONACO: Actually, business cases have already been prepared that really focused on the economics associated with the SWIFT connections. We have a pilot going on right now with seven banks and seven corporates, and we’ve split the CAG working group into two to evaluate both the business model and the corporate message standards. We have really active engagement from European and US corporates on this initiative.

GLEN SOLIMINE, CEO, Speranza Systems: From the corporate side, the more non-standard interfaces they have, the greater the need to continuously test controls, and as a result the systems are less efficient and cost effective. If we can get down to that kind of true standard, savings would result not just from fewer keystrokes but also from easier maintenance across the board.


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Briand: “SEPA ultimately represents an effort to make cross-border, lowvalue payments even more efficient”

MONACO:
The problem we’re going to have is getting the corporates to go direct to SWIFT. It’s in the banks’ interest for corporates to start thinking of SWIFT as a software vendor, but as long as there’s no message standardization, end-to-end payment processing will not be straight through and will differ by bank. And we’re still going to have the inefficiency of doing all this translation between the different versions of SAP they’re running in their back office. That’s why we have to get to message standardization. In terms of sponsorship, there’s some debate about how much we want SWIFT to sell this directly to corporates. Currently, SWIFT will suggest a corporate goes to its bank to get information.

BRIAND: In the final analysis, what is important is the relationship that the corporate has with a financial institution. SWIFT is a part of the solution. All parties need to, and will, work together to achieve the most efficient way to use this expanded facility to best advantage.

JOHN FORSTER, assistant treasurer, BearingPoint: From a corporate perspective, we’re in the tail end of the Fortune 1000 so this is barely on our radar screen at the moment. However, given the discussion today, it sounds like it’s somewhat attractive for us to take a look at it, especially if we can get the costs in line or improved over what we have today. In addition, if it helps us in a SOX compliance environment so we only have to focus on one system rather than multiple systems, it becomes very attractive because SOX for us—as well as I’m sure for most companies—is overwhelming.


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Forster: “These new systems are allowing us to control every process within…all corporate functions”

MONACO:
ERP vendors are going to make this very easy. SAP, Oracle, all of them are jumping on the bandwagon, and SWIFT is working with them. Over the next year they will make it more turnkey for the corporates.

GF: Implementation dates for the single European payments area (SEPA) are getting closer. What are the latest developments a cash manager should be aware of?

YEATES: There are a lot of open issues still out there. All the countries involved are talking about taking their historic in-country payment systems and making them SEPA-compliant, but until now we have not seen any specific directive in terms of standards and technology for the direct debits and for credit transfers. The implementation date of January 1, 2008, is creeping up relatively quickly. Not to be too cautionary, but there’s a lot of work to be done.

REYES: In 2008 I believe it is optional, but a few years later everybody has to be compliant. In the US most companies are not really conscious of what it might mean, but European clients are much more in sync with this because it’s essential. It behooves the financial institutions to continue the education aspects of this.

BRIAND: As we continue that education process, particularly for corporates here in the US, the message that needs to be communicated is that there are evolving and better ways to make cross-border, low-value payments such as dividend payments, pension payments, benefit payments, payroll payments. But there are ways to make those cross-border payments today that banks can offer. And as an example, SEPA ultimately represents an effort to make cross-border, low-value payments even more efficient.

MONACO: We’re already starting to see banks developing products and services in anticipation of SEPA. They’re looking to shield corporate customers from having to maintain multiple structures within their systems. Enhancements are going to be built into the bank platforms that will help bridge the old and new product offerings during the transition.

REYES: Clients are addressing the technical aspects but also beginning to think strategically, considering whether they have an opportunity to consolidate bank accounts now. Everyone’s assuming in a SEPA environment you can shut down all your bank accounts, but that might not be the case. First, it is hard to keep proper accounts in different business lines with just one account in a particular currency. Second, you may need a presentment account in the event you get checks in different currencies.

BRIAND: There’s a lot of uncertainty around what SEPA will mean for corporates, and we as financial institutions can play a key role in the education process. We will need to track progress and actively communicate with our clients.


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Yeates: “We are actively working with clients to deliver comprehensive end-to-end solutions”

YEATES:
Large global corporations that have already set up shared service centers or payment factories have probably wrung out as much efficiency as they are going to get. They’re probably doing a good job already consolidating bank accounts down to major bank relationships and having single accounts per legal entity. For those that haven’t explored the shared service center, SEPA will certainly offer benefits, but it’s not going to be a silver bullet. You’ll get the best of all worlds in regards to local payment systems coming together. The standards established for SEPA-compliant clearing systems across the European arena may actually be slightly less efficient than the historic local in-country clearing systems.

GF: What are the latest developments in the switch to electronic checks, and how can corporations benefit?

MONACO: We’ve seen a lot of activity around electronifying the check on the front end, whether it’s a distributed capture environment in the client’s shop or us capturing the images at the first point of deposit. 2007 will be about image exchange creating efficiencies on the back end. We must eliminate IRDs to get the full benefit of electronic checks. Image technology can be used to limit check fraud. There’s going to be a lot more integration of check images, specifically using Internet platforms for presenting the checks back to the clients. This enables them to do “positive pay” with imaging and payee verification online, real time, and is going to be key to getting clients to protect themselves against check fraud in this new image environment.

BRIAND: We’re seeing a tremendous uptick in take-up of these products as clients integrate them into their treasury and cash management processes. As financial institutions, we can take more advantage of that efficiency by embracing image exchange. There has been a slower rate of investment into image exchange by banks across the country.

FORSTER: We’ve made a big effort to reduce the number of checks we write and to move to a more electronic payment environment. That said, we still write checks, and we still take advantage of all the fraud prevention services, such as positive pay and imaging. I don’t see any end in sight to writing checks even though we are greatly reducing the numbers.

REYES: The marketing aspect is extremely critical to ensuring adoption rates actually take off—the enrollment aspect. People often forget that end users—our clients’ customers—need to be sold on the merits and the benefits of electronic payments, too. On the receivables side we have a lot of volume, but it’s not as robust as what we would have expected. This year, though, 38% of companies over $500 million sales size intend to make a decision to move forward in this field. It may be a relatively good year for electronic check deposit [ECD] services.

YEATES: We’re seeing interest and uptake from the corporate side looking not only to convert a check to an image and clear it, specifically for items received outside of a traditional lockbox environment, but also to gain the efficiencies associated with lockbox processing, such as data entry that can be incorporated into a file transmission for automatic posting into your accounts receivable. This is accomplished by scanning the check at the point of origin in the client’s location and transmitting the image to your lockbox provider, at which time the image is integrated into the lockbox process for a comprehensive receivables solution. We are also seeing a great deal of interest in digitizing US dollar checks received in overseas client locations. Being able to scan checks and send them instantaneously to your US bank for collection speeds up cash flow, eliminating the traditional clean collection process that can take anywhere from days to weeks for a check to clear.

MONACO: There’s been so much investment in image processing that we’re now starting to see how we can use image technology to help automate and change the workflow of how corporations deal with other paper processes beyond the check. We’re seeing an accounts receivable outsourcing model where you’re scanning the invoices and matching them with payments for the company.

GF: What initiatives can corporates take to assure they are in compliance with regulations and at the same time not losing efficiencies in the operations? Is Sarbanes-Oxley less onerous than originally feared?

FORSTER: It’s definitely onerous; it’s definitely adding an entire new layer of reporting and controls and even headcount to get it all done. There are some parts that are truly beneficial, and others that are overkill. There are so many processes and controls—we’re in a dynamic environment—and it seems that as soon as we get it documented, something changes. If we just change one little thing, that changes the whole dynamic. We’re held accountable to every item in the flow chart. The auditors are definitely placing a lot more emphasis on treasury and on the flows and the control environment and trying to audit back to everything that’s on those charts. If there’s any inconsistency, you really feel it.

SOLIMINE: For most companies the initial current control environment has been documented. The issue now is maintenance: Do you forego making changes in your process to avoid having to re-document controls, or can you find tools that help you automate processes in a way that results in documented controls as a natural byproduct of implementation? So as part of the changing process, you automatically generate documentation and test the controls. Some of those tools are coming to light now: Business process management, identity management and digital rights tools have been available as general-purpose tools for a long time. Now vendors are applying these to specific applications and control needs for corporations.

FORSTER: We’ve had to move from a spreadsheet environment to a more robust system that can track everything—to have an audit trail built into everything we do. These new systems are allowing us to control every process within not only the treasury functions but all corporate functions.

REYES: Sarbanes-Oxley compliance has allowed the treasury function at the client’s office to become much more strategically important to the company. It provides them visibility and control into their bank accounts, and it allows them to partner with other departments and divisions, so it raised the treasury profile.


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Monaco: “We’re already starting to see banks developing products and services in anticipation of SEPA”

FORSTER:
One of the things it shook out, for us, is the fact that we have some signers on accounts who aren’t employees of the company. We have hundreds of accounts all over the world, and it’s hard to track them all, but now we’re pulling them all into one system that interfaces with our HR system to do an automated cross-check to ensure we don’t have signers who are not employed with us.

REYES: Years ago there were some capabilities on the market, but no one really knew what to do with them, such as the automated tracking of signers on an account. There are electronic tools that can make this process more efficient, but in the past people didn’t really see their importance. Now the market is ready for them. The next trend we see is the use of digital signatures to further manage bank accounts.

SOLIMINE: Taking such systems and making them real-time automated controls is how corporations will really benefit from the efficiencies of complying with these regulations.

BRIAND: Compliance will never go away. Because of the rapid technology changes, business changes, and because the regulations constantly change, we always have to keep examining our processes to ensure that we are current and efficient in our regulatory compliance. That needs to be embedded in the way we work and manage our various businesses and/or functions.

YEATES: It’s been incredibly onerous for a corporate to formalize and implement the appropriate process and procedures to comply with the regulations and deal with the current auditing drills, but the upside of that has been a catalyst to change promoting thought. If you have 1,000 bank accounts, well, why do you have them? Maybe the right number is 600. Corporations are waking up and driving efficiencies through their own organization to help make the auditing process and SOX as a whole more of a day-to-day management issue.

GF: Treasurers, particularly in the US, are interested in learning how to mitigate the disruptive impact of disasters. What advice do you have to offer them?

MONACO: One lesson from Hurricane Katrina is replacement: You have to prepare for losing the site of your office and for your bank to lose access to some of their sites. After Katrina, some corporate customers couldn’t do payroll, for example, because their banks didn’t have the right contingency in place. It forced a lot of our customers in the Louisiana area to re-evaluate their cash management processes—paper versus electronic. Check encashment was a big issue, and it focused a lot of attention on the benefits of prepaid cards in the public and the private sectors. The other thing they learned about was check printing. The increased demand for check print outsourcing was something that came out of that disaster.

REYES: A key reason for electronification is that in a disaster those payments go through. There are many lessons to be learned on the physical continuity end of things, too. Corporations have to go through the same process and analysis that financial institutions have, where you want to have your contingency sites so many miles away from your primary site, or maybe even in a different country. More important, you need to be sure you’ve tested your contingency site. Had more companies affected by Katrina thought that through in advance, they might have been better prepared.

BRIAND: We counsel our clients not only to have those plans tested but to document them and to continue to review them. The payments business demands sophisticated contingency planning, so our customers ask and learn a lot from us. For example, it’s not only testing within your proprietary realm, but it’s also testing with your providers, ensuring your telecommunications providers, as an example, are on board and that you understand what their backups are.


Solimine: “A big challenge for corporates is getting a holistic view of the bank relationship”

YEATES:
Recent disasters have been eye-opening for the corporates, realizing they really need to understand their banking partners—and their banking partners’ partners. They have to be sure that a banking partner they utilize not only covers their own services from a disaster recovery perspective but has well-documented plans for their own third-party service providers. Corporations should consider having a secondary bank and ensuring they are up and running with the secondary bank by running volume through the secondary bank on a regular basis. This way the corporation has a back-up plan if their primary provider cannot service them during this time.

FORSTER: We look for all our systems to be Web-based so we can operate the treasury from anywhere we have access to the Web. If we have a phone, whether it’s a cell phone or a landline, we can have access to the people we need to talk to. At my past employer, during 9/11 we were able to keep our shop running even though we didn’t come into the office. We had redundant banks. Most big multinationals ought to have more than one bank in order to have back-up systems set up and tested.

REYES: The notion of a backup provider really didn’t exist until a few years ago. People might have used multiple banks, but the concept of a backup processor—where they’re willing to set up the infrastructure, get your accounts set up and maybe pay some sort of maintenance fee just to have it available—is new.


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Reyes: SOX compliance “has allowed the treasury function to become much more strategically important”

FORSTER:
We also focused more on electronic transfers. It helped encourage us to push even harder to convert our payables to an electronic base and also to get our clients to try to pay electronically as well.

GF: How should a corporate assess the value of its banking relationships? And what can banks do to make it easier for companies to do business with them?

FORSTER: One of the top things is how much credit they give us. That’s one thing we value highly, and it’s the key to all the other services. We would look at the geographic footprint of the bank: how they can help us globally. Then we look at their product offering and their relationship management: Are they proactive? Do they have the ability to get things done? Do they add value? We want bankers who come to us with ideas that fit our corporate profile.

SOLIMINE: A big challenge for corporates is getting a holistic view of the bank relationship. Historically there’s been no one place to get a 360-degree view of your relationship with a bank. How do I rate their services in terms of collections or credit facilities or other services? The bank can look at a corporation on a risk-adjusted capital basis, but there’s no reciprocal view of the bank from the corporate standpoint. That’s something we are doing with our customers: giving them a tool that presents a picture of what a bank relationship is worth, to rate them on it, rank them and then look at the total value of the relationship. In essence it is similar to the way a CRM system enables a company to evaluate their customers.

BRIAND: We love it when our clients give us scorecards. Not only do we know where we stand, but we know what’s important to that client. That is a fantastic way to get aligned in terms of providing our clients with products and services that satisfy their needs and requirements. We find it to be of real value-add to our client relationship. The scorecard is a way to assess how we can respond to very specific issues that arise that are of critical importance to the client. The associated dialogue provides us with knowledge that allows us to make strategic decisions regarding how we mobilize our resources, our people, our expertise, our experience and the knowledge of what we could do to provide improved solutions for that client.

SOLIMINE: You have to take something that is extremely subjective and qualitative by definition and say, “How do we make this something that we can analyze and present as a basis for a meaningful discussion between my corporation and your bank?” The challenge corporations are struggling with—and we’re helping them with—is capturing that information, really quantifying it and pulling it together so they can analyze it.

YEATES: Banking services are becoming increasingly commoditized, so we are looking at opportunities to deliver a broader spectrum of services to the corporate population that at one time may have been viewed as non-traditional components to source from your banking partner. We are actively working with clients to deliver comprehensive end-to-end solutions that incorporate technology or applications that once may have been delivered to a client by several separate independent sources, be that the automation of the multiple components of invoice processing or the delivery of a comprehensive receivables solution that incorporates every conceivable collection vehicle into a consolidated STP accounts receivable update. If we can deliver services to our clients that are perceived as being value added, then we are on the right course.

FORSTER: Implementing a true end-to-end solution would require the bank to have very strong ties with the organization. It can happen, but it’s probably easier to chip away at it in little pieces than to try to implement an end-to-end solution.


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Giarraputo: “Direct corporate access to SWIFT has been approved and is expected to be operational this year"

REYES:
One of the things I’ve noticed is that customers who are considering outsourcing start small or where they feel there’s low risk. They might start on the payable side and then go to receivables last because they want to make sure they have contact with their customer. There are many flavors of this process, and it depends on the corporate’s risk attitude and how far they want to let their financial partner into their decision-making space.

MONACO: We’ve spent a lot of time making payment processing more efficient and helping corporates drive to common standards, which really benefits corporations by driving down the cost of payment processing. This leads to lower pricing—almost commoditized pricing on pure payment services. Now we’re offering an end-to-end value proposition that pieces together changing a corporate’s workflow and driving efficiency in the back office—beyond treasury, which requires maybe partnering with other units that treasury is supporting. The value has to be based on how we’re helping clients do that.

REYES: To evaluate your bank relationship, you have to assess both the bank and the individuals you deal with there. Your bank might have all the right products, but if it doesn’t have the right culture and attitude and doesn’t put the client first, all those capabilities may not be delivered to you. If we want to go beyond what we’ve been as a core provider, we first have to deliver existing core services well with the right treatment and culture. We also have to focus on taking an end-to-end approach and deliver tools that integrate local and global processes across treasury functions. Then we can move into the trusted adviser status.

FORSTER: Right. The global footprint is not always the issue. The bottom line is that it’s a balance between the relationship manager and the bank. They both have to be in alignment for it to work.

SOLIMINE: We as service providers need to take the time to understand the individual company, their objectives, and their priorities before we can put together adjoining services that can really help them solve the problems they face. If we spend the time to figure out the essence of a problem, then we are empowered to design the optimal solution.



Joseph Giarraputo
 

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