7 Oct 10
The spectre of Basel III is making many - particularly bankers - very nervous. What effect will the new capital and liquidity rules have on the way banks do business and how will this impact corporates?
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Even in the midst of an avalanche of new regulations, the proposed capital and liquidity rules under Basel III are attracting a lot of attention. The fear factor is palpable among banks, regulators and national governments - what no one wants is for these new regulations to sign the death warrant of a shaky global economic recovery, fostering a ‘double-dip’ disaster.
Basel III is the successor to the New Basel Capital Accord (better known as Basel II), drawn up by the Basel Committee on Banking Supervision, an international alliance of the central banks of the world’s economic powerhouses. The Basel II Accord set out guidelines for minimum capital adequacy requirements for banks to promote the financial health and stability of the financial sector. Obviously it did not do its job, resulting in the biggest global financial crisis since the Great Depression.
Consequently, this reform package is the Basel Committee's third attempt at getting it right. Gordon Burnes, vice president, marketing at OpenPages, a provider of integrated risk management solutions, points out that the main difference between the two is that Basel III has a system focus, rather than an entity focus. “Global regulators are thinking about the system as a whole, as opposed to individual financial institutions, because Basel II didn’t contemplate the knock-on effects of an individual entity’s failure on the overall system,” he says.
Basel III’s aims are fourfold:
1. Increase the quality, quantity, and international consistency of capital.
2. Strengthen liquidity standards.
3. Discourage excessive leverage and risk taking.
4. Reduce procyclicality, a serious weakness in the Basel II Accord.
Importantly, the fourth point includes proposals for ‘countercyclical capital buffers’, a tool for strengthening the global banking industry. Patrick Fell, director of the regulatory practice at PricewaterhouseCoopers (PwC), explains: “Basel III is intended to be more countercyclical than Basel II, which means that the regulators want banks to set aside more capital in good times to cover bad times. From the point of view of lending, in an ideal world this would mean that the global economy would be less susceptible to booms and busts.”
According to the Basel Committee, such a buffer would force banks to increase capital when excess credit was building up in the market, a move that would be a brake on lending and create a greater cushion to protect against financial difficulty. The Committee sees countercyclical buffers as a way to manage the flow of credit into the economy and expects for them to only be triggered every 10 to 20 years.
In a statement on 26 July 2010, Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, said that the Committee is on track to deliver a complete package of capital and liquidity reforms, stressing that it includes “design and calibration”, in time for the November 2010 G20 Leaders Summit in Seoul.
Critical Reaction from Financial Industry
But there is much concern across the financial industry that the cure will be worse than the disease, a point made by Gordon Nixon, president and chief executive officer (CEO), Royal Bank of Canada (RBC), speaking at the British Bankers’ Association (BBA) annual conference in July.
Nixon believes that these proposed rules, for all their good intentions, will negatively impact even the healthiest bank’s balance sheets in terms of capital, leverage ratios and liquidity, and as a result compromise economic growth. He said: “The proposals are so complex and onerous that we run the risk of an agreement that lacks transparency and integrity, or one that results in non-uniform implementation.”
Basel III has redefined capital and risk assets, effectively turning “swans into ugly ducklings”, according to Nixon. “Canadian banks, as an example, would be lifted from their position as well-capitalised, liquid financial institutions and recast as undercapitalised. Banks that passed the ‘real life’ stress test may fail the theoretical one - a pretty good indication of a flawed methodology.
“Basel III leverage rules use a very restrictive definition of capital and an overly expansive definition of risk assets,” continued Nixon. “The net result of doing so increases the leverage and would encourage banks to get rid of low-risk assets, such as insured mortgages, and replace them with higher-risk assets - hardly a way to reduce risk. Rational investment decisions made based on existing capital rules are, in some cases, now inconsistent with the proposed rules. And specific capital deductions in a host of areas will push banks to restructure in a way that could increase their risk profile.”
Although Nixon’s reaction may be more severe than some, the industry as a whole has voiced similar concerns. In mid-April, ratings agency Standard & Poor's (S&P) warned that if the Basel III proposals were adopted as proposed, they run the risk of creating unintended consequences for parts of the financial system, which could include constraining banks' lending activities and their ability to trade on derivative markets, hampering the inter-bank lending market causing displacements in markets for high-quality liquid securities, and encouraging banks to shift to short-term lending.
The transitioning period is also causing concern. Many industry experts and regulators believe that too fast a move to the new regime will have a detrimental effect on the global economy. S&P credit analyst, Richard Barnes, says: “There is still uncertainty about what the final shape of the rules will be and the transition period to them, but [the Basel Committee] is working to a fairly ambitious timetable to finalise things later this year. Although the timetable is solely for addressing the capital and liquidity situation, there are structural reforms such as resolution regimes, living wills, etc, which are going on in parallel.
“The transition period is such a hot topic because there’s a push from various quarters to allow quite a generous transition period so that the current fragile economic recovery doesn’t get derailed by banks having to adjust quickly to the new rules. Therefore, there is likely be a relatively long transition period which will enable banks to move to a new regime without having to adjust their balance sheets too sharply,” adds Barnes. The Basel Committee is making all the right noises on this issue, providing a protracted implementation timescale (see box).
Basel III: Transition to the Leverage Ratio
The Basel Committee has agreed to divide the transition period into the following milestones:
* The supervisory monitoring period commences 1 January 2011. The supervisory monitoring process will focus on developing templates to track in a consistent manner the underlying components of the agreed definition and the resulting ratio.
* The parallel run period commences 1 January 2013 and runs until 1 January 2017. During this period, the leverage ratio and its components will be tracked, including its behaviour relative to the risk-based requirement. Bank level disclosure of the leverage ratio and its components will start 1 January 2015. The Committee will closely monitor disclosure of the ratio.
Based on the results of the parallel run period, any final adjustments would be carried out in the first half of 2017 with a view to migrating to a Pillar 1 treatment on 1 January 2018 based on appropriate review and calibration. Pillar 1 deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk, operational risk, and market risk.
Figure 1. Basel II Pillars
Source: Basel Committee on Banking Supervision
Will Basel III Have an Impact on Corporates?
Although an extended transition period will lessen a ‘shock’ effect on the global economy, the result of banks having to hold back a certain amount of capital which cannot be used for anything else means that there is not as much liquidity in the system. As Openpages’ Burnes succinctly puts it: “If you drive up the cost of capital, you will drive up the cost of lending, which will have a knock-on effect on global growth.” He points to a report by the Institute of International Finance (IFF), a global association of financial institutions, released in May, which made the argument that higher capital requirements would significantly reduce global economic growth. But he is not entirely convinced by this argument.
“It is to be debated because one could also argue that investors may charge less to invest in a more stable financial system,” he says. “The impact on corporates is that this is one part of a global wave of increased oversight by regulators on systemically significant entities, and that it won’t just be in the areas of capital that regulators will focus their attention. They will also look at areas of other areas of risk management within a company, for instance how is it assessing risk on a regular basis, how is it reporting on risk, how is it managing that data, and is it complying with the rules and regulations.”
PwC’s Fell examines Basel III from a different perspective, picking out the rules that deal with liquidity - liquidity ratio, leverage ratio and net stable funding ratio - which he believes could have a more direct impact on corporates. “The leverage ratio is potentially very important because it says that a bank’s total balance sheet cannot exceed more than a multiple of its capital,” he explains. “The latest Basel proposal envisages that a bank’s sheet can’t be more than, say, 30 times its capital, which is potentially a squeeze on banks’ ability to lend.”
The other important area is the net stable funding ratio, which requires banks to have more stable funding on their balance sheet. So, rather than taking in ‘hot’ internet-based deposits, banks should look for longer-term deposits from stable customers. According to Fell: "The bank liquidity regime is relevant from a treasurer’s point of view because banks may need to push out the terms of their borrowing and deposits to meet their new liquidity constraints. Treasurers may have to rebalance the terms and rates of their assets if they are to take advantage of this bank demand for longer-term deposits.”
Olivier Berthier, solutions director, transaction banking at Misys, argues that an issue that cropped up in the initial Basel III consultative paper was with the treatment of trade finance instruments. “There was nothing that excluded very low risk trade finance instruments from the increased regulation and constraints of Basel III and its objective to tackle excessive leveraging. Because of their off-balance sheet treatment, these traditional instruments would now be subject to a flat 100% credit conversion factor, a much worse situation than even their treatment under the Standardised Approach with Basel II.
“As it was the case with Basel II, it may be possible to define something specific for trade finance - because of the relatively low risk profile of these transactions - to justify less than the 100% conversion under Basel III. But the extra effort of such an advanced approach will be again reserved for the biggest players that can afford it, which means that local banks, particularly in the emerging markets, will likely be forced to follow a standardised model. As a consequence, the price for these transactions, the fees, the risk, the collateral, and the deposit expected from the corporate treasurer, might end up being that much bigger.”
Harmonised Implementation is Key to Success
Although there is a universal consensus that banks need more capital set aside to avert a future catastrophe, the debate is over what amount is deemed sufficient and the period for transition. Another big issue is how these regulations will be rolled out across the globe. Coming back to a point made by RBC’s Nixon, these complex and onerous regulations may result in a “non-uniform implementation”.
In a 26 July 2010 letter to the G20 Ministers of Finance, the IFF voiced its concerns over what it saw as problems with recent national and regional actions that are “not fully consistent with the degree of co-ordination that is necessary to assure a real improvement in global stability”.
“Regulators need to make use of appropriate flexibility to assure general international consistency in application of new regulations,” wrote the IFF. “The IIF supports the finalisation in 2010 by the Basel Committee of a properly calibrated and evaluated package of capital and liquidity reforms, introduced with appropriate transition periods, phasing and grandfathering… In particular, it would avoid serious unintended consequences that would derive from inconsistent regulation, such as an uneven playing field, unfair competition among financial centres, and incentives to regulatory arbitrage.”
Susannah Hammond, editor, regulatory affairs, Complinet, a provider of connected risk and compliance solutions, said: “One of the overall drivers is the need for a globally consistent approach on capital, so that there aren’t strong banks, in capital terms, in half of the jurisdictions and then weak banks in the other half of the world. This is going to be a difficult thing for the regulators to do. Basel II, for example, was implemented at different times in different places, and the three pillars that underpin Basel II were interpreted slightly differently in each jurisdiction.”
There is already a lot of divergence and nations are reverting to focusing on their own domestic battles. At the height of the crisis, the G20 was very much together in terms of regulatory coherence, but 18 months later the playing field is fragmenting.
PwC’s Fell harks back to the heyday of Basel I, the first global attempt to standardise the levels of capital in 1988. “The strength of Basel I, in particular, was the international consensus. With Basel II, it was more difficult but there was still there some level of harmonisation. Now with Basel III, it’s important that that consensus continues so we get comparability and a level playing field; we cannot have arbitrage between financial centres.”
OpenPages’ Burnes emphasises the threat of arbitrage. “Although these regulations require global co-ordination, it is going to be very tricky because there is much disparity between different countries. In the US, in particular, we have seen the downside of regulatory arbitrage and that is a real problem we have to avoid. You can’t have one territory that has lax regulation and allows a large global financial services player to operate in a completely under-regulated fashion because that would be not healthy for the global economy.”
First published on www.gtnews.com
Global co-ordination is absolutely critical, however fraught with discussion and debate it is.
About Me
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- Joy Macknight
- Freelancer of the Year at Aviva Investors Sustainability Media Awards 2025. I am a former editor of The Banker, a Financial Times publication. I joined the publication in August 2015 as transaction banking and technology editor, was promoted to deputy editor in September 2016 and then to managing editor in April 2019. The crowning glory was my appointment as editor in March 2021, the first female editor in the publication's history. Previously I was features editor at Profit&Loss, editorial director of Treasury Today and editor of gtnews.com. I also worked on Banking Technology, Computer Weekly and IBM Computer Today. I have a BSc from the University of Victoria, Canada.
Thursday, 2 December 2010
gtnews Global Corporate Treasury Awards Names Outstanding Treasuries
27 Oct 10
The gtnews Global Corporate Treasury Awards 2010, sponsored by Bank of America Merrill Lynch, paid tribute to treasury innovation that has contributed to the success of a corporate's business.
Around 150 people attended the inaugural gtnews Global Corporate Treasury Awards, sponsored by Bank of America Merrill Lynch, to find out who had proved best practice in contributing to the success of a corporate's business. The ceremony was hosted at Sibos 2010 in Amsterdam, in association with SWIFT.
gtnews Global Corporate Treasury Awards Winners
The winners and highly commended were:
Treasury Technology Implementation Project of the Year
Winner: AkzoNobel Treasury Transformation Project - IT stream
AkzoNobel, a multinational manufacturing corporation, embarked on a major treasury transformation project following the acquisition of ICI in 2008, which included: optimisation of the global transaction banking infrastructure; redesigning treasury policies; and integrating, automating and standardising of treasury systems and processes.
Highly commended:
* British American Tobacco (BAT) Project ASARA.
* IBM Global Treasury Transformation.
Cash Management Project of the Year
Winner: Caterpillar Inc Bank Account Reduction
Caterpillar’s chief financial officer (CFO) set an objective to deliver world-class processes to reduce risk, complexity and cost, increase effectiveness, and improve reporting flexibility and timeliness. One of the measures for accomplishing this objective was aligning the number of bank accounts with Caterpillar revenue. Caterpillar’s starting point was 978 accounts with a goal of 840. Overall, Caterpillar closed 304 accounts.
Highly commended:
* East African Tea Sales Electronic Billboard - Kenya Tea Development Agency.
* Roche - Genentech Cash Management Integration.
Supply Chain Finance Project of the Year
Winner: General Mills Supply Chain Finance
Since going live in April, General Mills has several vendors representing over US$100m annual spend using its supply chain finance solution. In addition, it has other vendors who have agreed to extended terms. To date, the project has generated over US$20m in improved cash flow, with a goal of many times that in the current fiscal year. While General Mills started its cash efficiency journey in direct materials, it is now rolling out to other large areas of spend in logistics, contract pack and marketing.
Highly commended:
* Casino Group Trade Portal.
* Volvo Supply Chain Finance Programme.
Corporate Treasurer of the Year - Readers’ Choice Award
Winner: Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad Airways
Ricky Thirion formally created the Etihad Airways’ treasury in 2007 and has built up a unit that has supported the rapid growth of the airline, while implementing the entire corporate treasury infrastructure (people, policies, processes, systems and controls). It is now a fully-fledged corporate treasury function supported by a global base of banking partners.
Highly commended:
* Chris Berris, Group Treasurer, Hunting.
* Dennis Sweeney, Deputy Treasurer, GE.
Treasury Team of the Year
Winner: AkzoNobel Treasury Transformation
The AkzoNobel treasury team achieved a complete transformation of AkzoNobel's treasury function despite some of the most extreme circumstances imaginable. Its outstanding achievement has been the transformation of treasury in just two years from a reactive, transaction-oriented organisation to a highly dynamic cutting-edge function. While much of the transformation and delivery of multiple initiatives was achieved via parallel project execution, this was only feasible because of treasury teamwork.
Highly commended:
* Global Treasury Helps to Create SAP's Future.
* RTL Group Treasury Organisation Improvement Project.
Gold award
Winner: General Mills Supply Chain Finance
This award was given to the corporate treasury that received the highest marks across the other project categories. The judges said this about the General Mills Supply Chain Finance project:
* “I am really impressed. It appears that a clear objective was set by the CFO and a capable team set up to realise these objectives.”
* “The project was very well planned, including multiple disciplines with an understanding of the drivers for each.”
* “There were significant cash flow savings - as well as a purposeful path for moving forward.”
Carole Berndt, regional treasury executive for Europe the Middle East and Africa (EMEA) at Bank of America Merrill Lynch, said: “We would like to congratulate gtnews for hosting this event, which recognises excellence in treasury. In these difficult times, those that have embarked on transformation projects have shown much corporate courage. These awards pay tribute to treasuries that have created cash and operational efficiencies for their organisations.”
gtnews would like to thank its expert panel of judges, who worked through many detailed case studies in treasury success.
First published on www.gtnews.com
The gtnews Global Corporate Treasury Awards 2010, sponsored by Bank of America Merrill Lynch, paid tribute to treasury innovation that has contributed to the success of a corporate's business.
Around 150 people attended the inaugural gtnews Global Corporate Treasury Awards, sponsored by Bank of America Merrill Lynch, to find out who had proved best practice in contributing to the success of a corporate's business. The ceremony was hosted at Sibos 2010 in Amsterdam, in association with SWIFT.
gtnews Global Corporate Treasury Awards Winners
The winners and highly commended were:
Treasury Technology Implementation Project of the Year
Winner: AkzoNobel Treasury Transformation Project - IT stream
AkzoNobel, a multinational manufacturing corporation, embarked on a major treasury transformation project following the acquisition of ICI in 2008, which included: optimisation of the global transaction banking infrastructure; redesigning treasury policies; and integrating, automating and standardising of treasury systems and processes.
Highly commended:
* British American Tobacco (BAT) Project ASARA.
* IBM Global Treasury Transformation.
Cash Management Project of the Year
Winner: Caterpillar Inc Bank Account Reduction
Caterpillar’s chief financial officer (CFO) set an objective to deliver world-class processes to reduce risk, complexity and cost, increase effectiveness, and improve reporting flexibility and timeliness. One of the measures for accomplishing this objective was aligning the number of bank accounts with Caterpillar revenue. Caterpillar’s starting point was 978 accounts with a goal of 840. Overall, Caterpillar closed 304 accounts.
Highly commended:
* East African Tea Sales Electronic Billboard - Kenya Tea Development Agency.
* Roche - Genentech Cash Management Integration.
Supply Chain Finance Project of the Year
Winner: General Mills Supply Chain Finance
Since going live in April, General Mills has several vendors representing over US$100m annual spend using its supply chain finance solution. In addition, it has other vendors who have agreed to extended terms. To date, the project has generated over US$20m in improved cash flow, with a goal of many times that in the current fiscal year. While General Mills started its cash efficiency journey in direct materials, it is now rolling out to other large areas of spend in logistics, contract pack and marketing.
Highly commended:
* Casino Group Trade Portal.
* Volvo Supply Chain Finance Programme.
Corporate Treasurer of the Year - Readers’ Choice Award
Winner: Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad Airways
Ricky Thirion formally created the Etihad Airways’ treasury in 2007 and has built up a unit that has supported the rapid growth of the airline, while implementing the entire corporate treasury infrastructure (people, policies, processes, systems and controls). It is now a fully-fledged corporate treasury function supported by a global base of banking partners.
Highly commended:
* Chris Berris, Group Treasurer, Hunting.
* Dennis Sweeney, Deputy Treasurer, GE.
Treasury Team of the Year
Winner: AkzoNobel Treasury Transformation
The AkzoNobel treasury team achieved a complete transformation of AkzoNobel's treasury function despite some of the most extreme circumstances imaginable. Its outstanding achievement has been the transformation of treasury in just two years from a reactive, transaction-oriented organisation to a highly dynamic cutting-edge function. While much of the transformation and delivery of multiple initiatives was achieved via parallel project execution, this was only feasible because of treasury teamwork.
Highly commended:
* Global Treasury Helps to Create SAP's Future.
* RTL Group Treasury Organisation Improvement Project.
Gold award
Winner: General Mills Supply Chain Finance
This award was given to the corporate treasury that received the highest marks across the other project categories. The judges said this about the General Mills Supply Chain Finance project:
* “I am really impressed. It appears that a clear objective was set by the CFO and a capable team set up to realise these objectives.”
* “The project was very well planned, including multiple disciplines with an understanding of the drivers for each.”
* “There were significant cash flow savings - as well as a purposeful path for moving forward.”
Carole Berndt, regional treasury executive for Europe the Middle East and Africa (EMEA) at Bank of America Merrill Lynch, said: “We would like to congratulate gtnews for hosting this event, which recognises excellence in treasury. In these difficult times, those that have embarked on transformation projects have shown much corporate courage. These awards pay tribute to treasuries that have created cash and operational efficiencies for their organisations.”
gtnews would like to thank its expert panel of judges, who worked through many detailed case studies in treasury success.
First published on www.gtnews.com
Survey Reveals Increasing Uncertainty Around SEPA
13 Oct 10
A year after the transposition of the Payment Services Directive (PSD) and implementation of the single euro payments area (SEPA), European payments professionals are increasingly uncertain with regards to the progress in harmonising and regulating an integrated European payments market. Meanwhile, new competitors are registering rapidly as new payments institutions and are creating major challenges for traditional banks.
Although 85% say the PSD transposition process has been successful, 51% of bank respondents and 36% of non-banks believe that derogations actively hindered the transposition. Over two-thirds (68%) believe there will be a PSD Mark II to replace the deficiencies of the first. While on the other hand, over half (54%) of the respondents say that SEPA is not succeeding, compared to only 24% who think it is.
For the second year, the Financial Services Club ran a survey of payments professionals worldwide to see how successful the implementation of the PSD and SEPA have been since the PSD transposition in November 2009 and implementation of SEPA's programme of Credit Transfers (SCTs) and Direct Debits (SDDs) at that time.
This year's survey is sponsored by Dovetail, Earthport and Logica, and was completed by over 320 people covering all of the eurozone and more. Representatives of 42 nations took part during the summer of 2010.
PSD
The responses were supportive of the PSD process, with 85% of respondents saying that the process had been successful, with just a few issues related to the use of derogations in some countries.
For these reasons, many believe there will be a new PSD to replace the deficiencies of the first. However, they would rather have a continually adjusted directive rather than new directives drafted every few years.
Meanwhile, 66% of bank respondents had seen major change as a result of the PSD, compared to only 31% of the non-bank respondents. This is a reflection of the major change initiated by the PSD on banks internal systems and processes, and the launch of new competitors. For example, over 70 payments institutions (PIs) were cited by the survey's respondents as being created since the introduction of the PSD. These included regular suspects, such as PayPal and Western Union, and a few new entrants including Earthport and Voice Commerce.
SEPA
Respondents are less confident about their knowledge of SEPA this year. Only 55% felt that they understood SEPA well, compared to 62% last year.
The problem relates to a lack of benefits (17%), bank (18%) and corporate (16%) resistance to SEPA, limitation by countries through the use of derogations (17%) and, most importantly, the lack of an end-date (24%) meaning that there is no motivation to implement SEPA instruments.
This is why the majority of this year's respondents think that the SEPA vision for "all eurozone payments transactions to be processed as though they were domestic" will be achieved between 2014 and 2017 (43% of the vote). This is less optimistic than a year earlier, when 49% of respondents thought it would be achieved before 2014. Interestingly, only 11% of respondents a year ago thought that SEPA's vision would be realised after 2017, compared to 34% this year.
Chris Skinner, chairman of the FS Club and leader of the research project, said: "Last year's survey identified major cynicism about the implementation of the PSD, with many saying that derogations and optional services would cause confusion and a lack of parity. Unfortunately this has proven to be the case, as borne out by this year's survey, but what concerns me more this year is that the cynicism has spread to SEPA. Banks and corporates just don't get where it's heading, and this lack of direction is caused by the absence of an end-date. Even with the SEPA Council and the European Commission's consultation on an end-date, we still don't have one and, until we do, this headless chicken will remain just that."
First published on www.gtnews.com
A year after the transposition of the Payment Services Directive (PSD) and implementation of the single euro payments area (SEPA), European payments professionals are increasingly uncertain with regards to the progress in harmonising and regulating an integrated European payments market. Meanwhile, new competitors are registering rapidly as new payments institutions and are creating major challenges for traditional banks.
Although 85% say the PSD transposition process has been successful, 51% of bank respondents and 36% of non-banks believe that derogations actively hindered the transposition. Over two-thirds (68%) believe there will be a PSD Mark II to replace the deficiencies of the first. While on the other hand, over half (54%) of the respondents say that SEPA is not succeeding, compared to only 24% who think it is.
For the second year, the Financial Services Club ran a survey of payments professionals worldwide to see how successful the implementation of the PSD and SEPA have been since the PSD transposition in November 2009 and implementation of SEPA's programme of Credit Transfers (SCTs) and Direct Debits (SDDs) at that time.
This year's survey is sponsored by Dovetail, Earthport and Logica, and was completed by over 320 people covering all of the eurozone and more. Representatives of 42 nations took part during the summer of 2010.
PSD
The responses were supportive of the PSD process, with 85% of respondents saying that the process had been successful, with just a few issues related to the use of derogations in some countries.
For these reasons, many believe there will be a new PSD to replace the deficiencies of the first. However, they would rather have a continually adjusted directive rather than new directives drafted every few years.
Meanwhile, 66% of bank respondents had seen major change as a result of the PSD, compared to only 31% of the non-bank respondents. This is a reflection of the major change initiated by the PSD on banks internal systems and processes, and the launch of new competitors. For example, over 70 payments institutions (PIs) were cited by the survey's respondents as being created since the introduction of the PSD. These included regular suspects, such as PayPal and Western Union, and a few new entrants including Earthport and Voice Commerce.
SEPA
Respondents are less confident about their knowledge of SEPA this year. Only 55% felt that they understood SEPA well, compared to 62% last year.
The problem relates to a lack of benefits (17%), bank (18%) and corporate (16%) resistance to SEPA, limitation by countries through the use of derogations (17%) and, most importantly, the lack of an end-date (24%) meaning that there is no motivation to implement SEPA instruments.
This is why the majority of this year's respondents think that the SEPA vision for "all eurozone payments transactions to be processed as though they were domestic" will be achieved between 2014 and 2017 (43% of the vote). This is less optimistic than a year earlier, when 49% of respondents thought it would be achieved before 2014. Interestingly, only 11% of respondents a year ago thought that SEPA's vision would be realised after 2017, compared to 34% this year.
Chris Skinner, chairman of the FS Club and leader of the research project, said: "Last year's survey identified major cynicism about the implementation of the PSD, with many saying that derogations and optional services would cause confusion and a lack of parity. Unfortunately this has proven to be the case, as borne out by this year's survey, but what concerns me more this year is that the cynicism has spread to SEPA. Banks and corporates just don't get where it's heading, and this lack of direction is caused by the absence of an end-date. Even with the SEPA Council and the European Commission's consultation on an end-date, we still don't have one and, until we do, this headless chicken will remain just that."
First published on www.gtnews.com
gtnews Global Corporate Treasury Awards 2010 Shortlist
28 Sep 10
The gtnews Global Corporate Treasury Awards 2010, sponsored by Bank of America Merrill Lynch, pay tribute to treasury innovation that has contributed to the success of a corporate's business. The awards will be presented at a gala dinner at Sibos in Amsterdam on 26 October 2010.
Awards Shortlist
Treasury Technology Implementation Project of the Year
* AkzoNobel Treasury Transformation Project - IT stream
* British American Tobacco (BAT) Project ASARA
* IBM Global Treasury Transformation
Cash Management Project of the Year
* Caterpillar Inc Bank Account Reduction
* East African Tea Sales Electronic Billboard
* Roche - Genentech Cash Management Integration
Supply Chain Finance Project of the Year
* Casino Group Trade Portal
* General Mills Supply Chain Finance
* Volvo Supply Chain Finance Programme
Corporate Treasurer of the Year - Readers’ Choice Award
* Chris Berris, Group Treasurer, Hunting
* Dennis Sweeney, Deputy Treasurer, GE
* Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad
Treasury Team of the Year
* AkzoNobel Treasury Transformation
* RTL Group Treasury Organisation Improvement Project
* Global Treasury Helps to Create SAP's Future
Treasury Technology Implementation Project of the Year
This category covers any aspect of treasury technology, whether that is choosing a new treasury management system (TMS) or enterprise resource planning (ERP) system, an automation project, straight-through processing (STP), eBAM, bank connectivity, SWIFT implementation, risk management system, or electronic trading platform, etc. The award will be given to the corporate treasury that developed and implemented an innovative IT project which solved a specific problem or established best practice within the organisation.
AkzoNobel Treasury Transformation Project - IT stream
In 2008, multinational manufacturing corporation AkzoNobel embarked on major treasury transformation projects following the acquisition of ICI, which included: optimisation of the global transaction banking infrastructure; redesigning treasury policies; and integrating, automating and standardising treasury systems and processes.
One judge commented: “Well planned and executed - best in class by starting with business case approval and alignment across multiple lines of business/requirements. AkzoNobel overcame project complexities including SAP nuances, implementation of new organisation, foreign exchange (FX) and other moving parts simultaneously.”
British American Tobacco (BAT) Project ASARA
With Project ASARA, BAT wanted to create: an optimal account structure to consolidate cash; a transactional banking structure to facilitate the centralised accounts payable (A/P) and accounts receivable (A/R) managed by British American Shared Services in Africa & the Middle East; a solution that covered Turkey, Egypt, Dubai, Bahrain, Lebanon, Jordan and Algeria; and a technical solution to facilitate a seamless interface to SAP using a non-bank proprietary interface, and highly automated and STP of all transactions.
“I am impressed by the results of a project covering such diverse countries and am convinced there are significant benefits for the BAT group which can serve as an example elsewhere,” said a judge.
IBM Global Treasury Transformation
"State-of-the-art results,” one judge said about this project. In April 2010, IBM successfully rolled out its most intricate and invasive treasury transformation projects to date. Starting in 2007, the project team first identified the requirements versus current system gaps, performed a buy versus build analysis, decided on a vendor, determined the necessary process changes, and implemented a best-of-breed treasury work station (TWS).
Cash Management Project of the Year
The winner of this award will be the treasury that was best able to improve its cash management processes, whether in A/P, A/R, cash forecasting, netting/pooling, etc.
Caterpillar Inc Bank Account Reduction
At the April 2007 Worldwide Finance Managers meeting, Caterpillar’s chief financial officer (CFO) set an objective to deliver world-class processes to reduce risk, complexity and cost, increase effectiveness, and improve reporting flexibility and timeliness. One of the measures for accomplishing this objective was reducing the number of bank accounts. Metrics were established to align multi-generational process plans to achieve world-class grade by 2015. Caterpillar’s starting point was 978 accounts with a goal of 840. Overall, the company closed 304 net accounts (excluding accounts for mergers and acquisitions).
As one judge commented: “This is a good, practical cash management project that everyone can follow. Nothing fancy - just getting down to basics: preferred banks, fewer accounts and centralised control.”
East African Tea Sales Electronic Billboard
The East African Tea Trade Association (EATTA) is a voluntary organisation that brings together tea producers, buyers (exporters), brokers, tea packers and warehouses. The electronic billboard project achieved:
* 15-minute turnaround time on reconciliation and payment notification.
* 100% transparency across the industry.
* 100% bank guarantee for collection account inflows.
* Secure web-based, real-time billboard available to all stakeholders.
* Mitigation of broker liquidity and settlement risk.
* Separation of tea release and payment confirmation.
One judge observed that results were achieved with significant business impact on all parties involved: “Culture, common practices and technology were all potential obstacles very well resolved.”
Roche - Genentech Cash Management Integration
In March 2009, Roche completed the US$46.8bn acquisition of US firm Genentech. Roche wanted to integrate Genentech’s cash management business in the US and Singapore into Roche’s in-house bank and payment factory. The project covered 14 US accounts zero balancing into Roche’s overall US dollar liquidity structure with Citi. Intercompany and non-US dollar-payments, as well as FX-exposure hedging, became absorbed by Roche’s in-house bank and payment factory.
This project, according to one judge, showed “strong collaboration with internal and external teams - with treasury as leader”.
Supply Chain Finance Project of the Year
This award will be given to the corporate treasury that has overcome the challenges of developing a supply chain finance (SCF) programme and can exhibit best practice in rolling out the solution to its suppliers.
Casino Group Trade Portal
Casino Group, a leading food retailer, wanted to offer its suppliers tailor-made financial supply chain (FSC) services, such as early payment services. Using Misys Trade Portal, Crédit Agricole has provided Casino Group with an online portal through which it can develop strategic relationships with its suppliers. The solution put Casino in the driving seat - giving it visibility and control over their trade finance transactions and supplier relationships. It also allows Casino to give its suppliers financing quicker and more transparently than before.
“This project was clearly well construed and implemented. The benefits are evident and I also like the good collaboration between all partners,” commented a judge.
General Mills Supply Chain Finance
Each year, General Mills, Inc (GMI) benchmarks working capital metrics against its competitors. Recent analysis revealed that it had first or second quartile performance in days sales outstanding (DSO) and days of inventory metrics, but was in the fourth quartile in days payables outstanding (DPO). A large working group of key individuals from sourcing, finance, A/P, financial reporting, legal and IT began to implement the SCF solution, which included IT milestones, development of a sourcing vendor roll-out strategy, working with Orbian on securing bank financing and many internal stakeholder approvals from legal to A/P to accounting.
One judge commented: “Good planning and execution. Especially valuable was the inclusion in the project team of various corporate functions. I believe that the fact they were able to improve the efficiency of the A/P issue resolution process efficient additional value.”
Volvo Supply Chain Finance Programme
The Volvo Group launched a SCF programme in order to offer its suppliers a solution enabling them to get paid earlier at better rates of financing based on Volvo's strong credit rating. The programme alleviates the burden of long payment terms traditionally required by the automotive industry’s long production cycle and strengthens the financial viability of suppliers. Volvo selected the PrimeRevenue SCF Platform that offers suppliers the ability to sell their Volvo receivables any time they choose, as quickly as a few days after invoice receipt, and for any payments they choose.
“[The project exhibited] cost savings and cash flow stability along the supply chain. This really looks as if all objectives were met, even surpassed,” said a judge.
Corporate Treasurer of the Year - Readers’ Choice Award
The winner of this award will be recognised by their peers as an industry spokesperson and leader - a treasurer who has overcome the challenges posed by the financial crisis and made an outstanding contribution in treasury.
Chris Berris, Group Treasurer, Hunting
Chris Berris was promoted to the position of group treasurer at Hunting, an international energy services company, earlier this year. Since his appointment Chris has taken on and excelled at a number of challenges, including a major project that managing the successful introduction of SMA Financial’s SWIFT service bureau. His organisational skills, attention to detail and treasury knowledge has been evident throughout the project. It has had a measurable impact on Hunting’s ability to manage cash and liquidity, while gaining greater visibility and control over group-wide treasury activity.
Dennis Sweeney, Deputy Treasurer, General Electric
Dennis Sweeney is currently responsible for global cash management at GE Treasury. He and his team operate from their base in Connecticut and through regional treasury centres in Dublin, Delhi, Shanghai, Tokyo and Sao Paolo. Dennis is a highly regarded innovator in the field of treasury services. He has been a leading proponent of using improved communications between corporations and their banks to drive productivity and reduce costs. Earlier this decade, GE and its software vendor co-developed the first web-enabled treasury workstation.
Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad Airways
Ricky Thirion created Etihad Airways’ corporate treasury in 2007 and has supported the rapid growth of the airline while implementing the entire infrastructure. It is now a fully-fledged function with achievements including: leading role in the negotiation and execution of the largest-ever commercial aircraft order (totalling US$50bn at list prices); established a global cash management system covering 63 locations; and raised over US$1.5bn during the financial crisis to fund the expanding fleet and other assets of the airline.
Treasury Team of the Year
This award is for the corporate treasury team that can best demonstrate vision and innovation in terms of transforming their treasury department to meet future challenges. The winner will show excellence and resourcefulness across all treasury disciplines - working capital management, corporate finance and funding, liquidity and risk management, etc.
AkzoNobel Treasury Transformation
The AkzoNobel treasury team achieved a complete transformation of its treasury function despite some of the most extreme circumstances imaginable, including: £8bn acquisition of ICI just after the treasury transformation project began, necessitating the redesign of infrastructure and treasury processes; the need to refinance 60% (€2bn+) of the company's external debt and restructure internal capital allocation to unlock cash during the peak months of the 2008/9 financial crisis; and the need to radically cut costs (achieved -39% in two years), while simultaneously rebuilding a fragmented and marginalised treasury with limited grasp of contemporary treasury processes, resulting in a 31% reduction and 70% churn of staff.
“Dealing with both the expected and the unexpected in very difficult times has been challenging for all treasuries. AkzoNobel seems to thrive in such situations,” said one judge.
RTL Group Treasury Organisation Improvement Project
Three year ago, RTL Group’s treasury (GT) and Corporate Finance & ERM department (T&CF) launched a new treasury road map culminating in 2010 with an IT ‘big bang’: new FX platform, new information feeding tool, new treasury management system, payment factory via SWIFTNET and reorganisation of all banks, including connectivity.
This ambitious programme was a vast and comprehensive revamping of the whole treasury department. The aim was to create value while significantly reducing costs and improving quality of disclosures, reporting and services to subsidiaries. One judge commented: “The three year roadmap starting in 2007 - RTL treasury stayed on target with objectives while responding to the financial crisis.”
Global Treasury Helps to Create SAP's Future
Today, customers in more than 120 countries run SAP software. SAP’s global treasury department is a 17-person organisation with global responsibility. The team acts as trusted advisor to the executive board and ensures efficient financial risk and asset management. The organisation is divided into the traditional front-, middle- and back-office structure to assure a proper segregation of duty. The treasury team showed excellence and resourcefulness across all treasury disciplines - cash management, FX trading, risk management, corporate finance and funding.
“An expansive array of objectives were addressed and accomplished, with in-depth and comprehensive planning across several initiatives, as well as large successes in multiple components of the treasury role within the enterprise,” commented one judge.
Gold Award (Overall Winner)
This award recognises excellence in treasury management and honours the corporate treasury operating as a strategic partner to the business. The Gold Award winner will show a standard of best practices throughout a company’s treasury or on the groundbreaking nature of a particular project. It will be given to the corporate treasury with the overall highest score.
The gtnews Global Corporate Treasury Awards 2010, sponsored by Bank of America Merrill Lynch, pay tribute to treasury innovation that has contributed to the success of a corporate's business. The awards will be presented at a gala dinner at Sibos in Amsterdam on 26 October 2010.
Awards Shortlist
Treasury Technology Implementation Project of the Year
* AkzoNobel Treasury Transformation Project - IT stream
* British American Tobacco (BAT) Project ASARA
* IBM Global Treasury Transformation
Cash Management Project of the Year
* Caterpillar Inc Bank Account Reduction
* East African Tea Sales Electronic Billboard
* Roche - Genentech Cash Management Integration
Supply Chain Finance Project of the Year
* Casino Group Trade Portal
* General Mills Supply Chain Finance
* Volvo Supply Chain Finance Programme
Corporate Treasurer of the Year - Readers’ Choice Award
* Chris Berris, Group Treasurer, Hunting
* Dennis Sweeney, Deputy Treasurer, GE
* Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad
Treasury Team of the Year
* AkzoNobel Treasury Transformation
* RTL Group Treasury Organisation Improvement Project
* Global Treasury Helps to Create SAP's Future
Treasury Technology Implementation Project of the Year
This category covers any aspect of treasury technology, whether that is choosing a new treasury management system (TMS) or enterprise resource planning (ERP) system, an automation project, straight-through processing (STP), eBAM, bank connectivity, SWIFT implementation, risk management system, or electronic trading platform, etc. The award will be given to the corporate treasury that developed and implemented an innovative IT project which solved a specific problem or established best practice within the organisation.
AkzoNobel Treasury Transformation Project - IT stream
In 2008, multinational manufacturing corporation AkzoNobel embarked on major treasury transformation projects following the acquisition of ICI, which included: optimisation of the global transaction banking infrastructure; redesigning treasury policies; and integrating, automating and standardising treasury systems and processes.
One judge commented: “Well planned and executed - best in class by starting with business case approval and alignment across multiple lines of business/requirements. AkzoNobel overcame project complexities including SAP nuances, implementation of new organisation, foreign exchange (FX) and other moving parts simultaneously.”
British American Tobacco (BAT) Project ASARA
With Project ASARA, BAT wanted to create: an optimal account structure to consolidate cash; a transactional banking structure to facilitate the centralised accounts payable (A/P) and accounts receivable (A/R) managed by British American Shared Services in Africa & the Middle East; a solution that covered Turkey, Egypt, Dubai, Bahrain, Lebanon, Jordan and Algeria; and a technical solution to facilitate a seamless interface to SAP using a non-bank proprietary interface, and highly automated and STP of all transactions.
“I am impressed by the results of a project covering such diverse countries and am convinced there are significant benefits for the BAT group which can serve as an example elsewhere,” said a judge.
IBM Global Treasury Transformation
"State-of-the-art results,” one judge said about this project. In April 2010, IBM successfully rolled out its most intricate and invasive treasury transformation projects to date. Starting in 2007, the project team first identified the requirements versus current system gaps, performed a buy versus build analysis, decided on a vendor, determined the necessary process changes, and implemented a best-of-breed treasury work station (TWS).
Cash Management Project of the Year
The winner of this award will be the treasury that was best able to improve its cash management processes, whether in A/P, A/R, cash forecasting, netting/pooling, etc.
Caterpillar Inc Bank Account Reduction
At the April 2007 Worldwide Finance Managers meeting, Caterpillar’s chief financial officer (CFO) set an objective to deliver world-class processes to reduce risk, complexity and cost, increase effectiveness, and improve reporting flexibility and timeliness. One of the measures for accomplishing this objective was reducing the number of bank accounts. Metrics were established to align multi-generational process plans to achieve world-class grade by 2015. Caterpillar’s starting point was 978 accounts with a goal of 840. Overall, the company closed 304 net accounts (excluding accounts for mergers and acquisitions).
As one judge commented: “This is a good, practical cash management project that everyone can follow. Nothing fancy - just getting down to basics: preferred banks, fewer accounts and centralised control.”
East African Tea Sales Electronic Billboard
The East African Tea Trade Association (EATTA) is a voluntary organisation that brings together tea producers, buyers (exporters), brokers, tea packers and warehouses. The electronic billboard project achieved:
* 15-minute turnaround time on reconciliation and payment notification.
* 100% transparency across the industry.
* 100% bank guarantee for collection account inflows.
* Secure web-based, real-time billboard available to all stakeholders.
* Mitigation of broker liquidity and settlement risk.
* Separation of tea release and payment confirmation.
One judge observed that results were achieved with significant business impact on all parties involved: “Culture, common practices and technology were all potential obstacles very well resolved.”
Roche - Genentech Cash Management Integration
In March 2009, Roche completed the US$46.8bn acquisition of US firm Genentech. Roche wanted to integrate Genentech’s cash management business in the US and Singapore into Roche’s in-house bank and payment factory. The project covered 14 US accounts zero balancing into Roche’s overall US dollar liquidity structure with Citi. Intercompany and non-US dollar-payments, as well as FX-exposure hedging, became absorbed by Roche’s in-house bank and payment factory.
This project, according to one judge, showed “strong collaboration with internal and external teams - with treasury as leader”.
Supply Chain Finance Project of the Year
This award will be given to the corporate treasury that has overcome the challenges of developing a supply chain finance (SCF) programme and can exhibit best practice in rolling out the solution to its suppliers.
Casino Group Trade Portal
Casino Group, a leading food retailer, wanted to offer its suppliers tailor-made financial supply chain (FSC) services, such as early payment services. Using Misys Trade Portal, Crédit Agricole has provided Casino Group with an online portal through which it can develop strategic relationships with its suppliers. The solution put Casino in the driving seat - giving it visibility and control over their trade finance transactions and supplier relationships. It also allows Casino to give its suppliers financing quicker and more transparently than before.
“This project was clearly well construed and implemented. The benefits are evident and I also like the good collaboration between all partners,” commented a judge.
General Mills Supply Chain Finance
Each year, General Mills, Inc (GMI) benchmarks working capital metrics against its competitors. Recent analysis revealed that it had first or second quartile performance in days sales outstanding (DSO) and days of inventory metrics, but was in the fourth quartile in days payables outstanding (DPO). A large working group of key individuals from sourcing, finance, A/P, financial reporting, legal and IT began to implement the SCF solution, which included IT milestones, development of a sourcing vendor roll-out strategy, working with Orbian on securing bank financing and many internal stakeholder approvals from legal to A/P to accounting.
One judge commented: “Good planning and execution. Especially valuable was the inclusion in the project team of various corporate functions. I believe that the fact they were able to improve the efficiency of the A/P issue resolution process efficient additional value.”
Volvo Supply Chain Finance Programme
The Volvo Group launched a SCF programme in order to offer its suppliers a solution enabling them to get paid earlier at better rates of financing based on Volvo's strong credit rating. The programme alleviates the burden of long payment terms traditionally required by the automotive industry’s long production cycle and strengthens the financial viability of suppliers. Volvo selected the PrimeRevenue SCF Platform that offers suppliers the ability to sell their Volvo receivables any time they choose, as quickly as a few days after invoice receipt, and for any payments they choose.
“[The project exhibited] cost savings and cash flow stability along the supply chain. This really looks as if all objectives were met, even surpassed,” said a judge.
Corporate Treasurer of the Year - Readers’ Choice Award
The winner of this award will be recognised by their peers as an industry spokesperson and leader - a treasurer who has overcome the challenges posed by the financial crisis and made an outstanding contribution in treasury.
Chris Berris, Group Treasurer, Hunting
Chris Berris was promoted to the position of group treasurer at Hunting, an international energy services company, earlier this year. Since his appointment Chris has taken on and excelled at a number of challenges, including a major project that managing the successful introduction of SMA Financial’s SWIFT service bureau. His organisational skills, attention to detail and treasury knowledge has been evident throughout the project. It has had a measurable impact on Hunting’s ability to manage cash and liquidity, while gaining greater visibility and control over group-wide treasury activity.
Dennis Sweeney, Deputy Treasurer, General Electric
Dennis Sweeney is currently responsible for global cash management at GE Treasury. He and his team operate from their base in Connecticut and through regional treasury centres in Dublin, Delhi, Shanghai, Tokyo and Sao Paolo. Dennis is a highly regarded innovator in the field of treasury services. He has been a leading proponent of using improved communications between corporations and their banks to drive productivity and reduce costs. Earlier this decade, GE and its software vendor co-developed the first web-enabled treasury workstation.
Ricky Thirion, Senior Vice President - Corporate Treasury, Etihad Airways
Ricky Thirion created Etihad Airways’ corporate treasury in 2007 and has supported the rapid growth of the airline while implementing the entire infrastructure. It is now a fully-fledged function with achievements including: leading role in the negotiation and execution of the largest-ever commercial aircraft order (totalling US$50bn at list prices); established a global cash management system covering 63 locations; and raised over US$1.5bn during the financial crisis to fund the expanding fleet and other assets of the airline.
Treasury Team of the Year
This award is for the corporate treasury team that can best demonstrate vision and innovation in terms of transforming their treasury department to meet future challenges. The winner will show excellence and resourcefulness across all treasury disciplines - working capital management, corporate finance and funding, liquidity and risk management, etc.
AkzoNobel Treasury Transformation
The AkzoNobel treasury team achieved a complete transformation of its treasury function despite some of the most extreme circumstances imaginable, including: £8bn acquisition of ICI just after the treasury transformation project began, necessitating the redesign of infrastructure and treasury processes; the need to refinance 60% (€2bn+) of the company's external debt and restructure internal capital allocation to unlock cash during the peak months of the 2008/9 financial crisis; and the need to radically cut costs (achieved -39% in two years), while simultaneously rebuilding a fragmented and marginalised treasury with limited grasp of contemporary treasury processes, resulting in a 31% reduction and 70% churn of staff.
“Dealing with both the expected and the unexpected in very difficult times has been challenging for all treasuries. AkzoNobel seems to thrive in such situations,” said one judge.
RTL Group Treasury Organisation Improvement Project
Three year ago, RTL Group’s treasury (GT) and Corporate Finance & ERM department (T&CF) launched a new treasury road map culminating in 2010 with an IT ‘big bang’: new FX platform, new information feeding tool, new treasury management system, payment factory via SWIFTNET and reorganisation of all banks, including connectivity.
This ambitious programme was a vast and comprehensive revamping of the whole treasury department. The aim was to create value while significantly reducing costs and improving quality of disclosures, reporting and services to subsidiaries. One judge commented: “The three year roadmap starting in 2007 - RTL treasury stayed on target with objectives while responding to the financial crisis.”
Global Treasury Helps to Create SAP's Future
Today, customers in more than 120 countries run SAP software. SAP’s global treasury department is a 17-person organisation with global responsibility. The team acts as trusted advisor to the executive board and ensures efficient financial risk and asset management. The organisation is divided into the traditional front-, middle- and back-office structure to assure a proper segregation of duty. The treasury team showed excellence and resourcefulness across all treasury disciplines - cash management, FX trading, risk management, corporate finance and funding.
“An expansive array of objectives were addressed and accomplished, with in-depth and comprehensive planning across several initiatives, as well as large successes in multiple components of the treasury role within the enterprise,” commented one judge.
Gold Award (Overall Winner)
This award recognises excellence in treasury management and honours the corporate treasury operating as a strategic partner to the business. The Gold Award winner will show a standard of best practices throughout a company’s treasury or on the groundbreaking nature of a particular project. It will be given to the corporate treasury with the overall highest score.
Convergence 2010: What Does Real Time Mean in Transaction Banking?
21 Sep 10
Over 50 transaction banking and payments experts gathered in London at Polaris' Convergence 2010 event, co-hosted by the Financial Services Club, to discuss the meaning of real time in transaction banking. Operating under Chatham House Rules, the participants openly debated the relevance of real time payments for corporates.
The first panel, which focussed on the operational aspects of real-time payments and how the game has changed, said that for most corporates it wasn't so much the movement of cash but the movement of useful and useable information that was of greater importance.
However, a payments expert in the audience argued that "everyone" wants faster payments. "Corporates want faster payments to reduce the effect of foreign exchange fluctuations, for example, and enable them to use their cash better - I think that we in the industry underestimate the desire," he said.
Most agreed that the Faster Payments Scheme (FPS) in the UK has been a game changing initiative - particularly since the Faster Payments Direct Corporate Access (DCA) transaction value limit increased from £10,000 to £100,000 per transaction at the beginning of September, which makes FPS much more attractive to the corporate world. The bankers on the platform highlighted the operational challenges they were facing to process domestic and global payments intraday - or as one termed them 'martini payments': anytime, anywhere.
The second panel looked at the fraud and risk issues and opportunities of real-time transactions. A senior payments expert said that the prevalent perception that the more digital things are, the more fraud is committed is not true. But he believes that banks have been poor at resolving the issue mainly because there is no standardised approach to fraud protocols.
At the event, Polaris launched Intellect Global Universal Banking (GUB) M180, which is comprised of 95 modules that fit together in a service-oriented architecture (SOA) model to allow financial institutions to modernise at a low total cost of ownership (TCO). Arun Jain, chairman and chief executive officer (CEO) of Polaris, explained the concept where every module had a guaranteed design lifespan of 15 years - hence 180 months (M180).
Over 50 transaction banking and payments experts gathered in London at Polaris' Convergence 2010 event, co-hosted by the Financial Services Club, to discuss the meaning of real time in transaction banking. Operating under Chatham House Rules, the participants openly debated the relevance of real time payments for corporates.
The first panel, which focussed on the operational aspects of real-time payments and how the game has changed, said that for most corporates it wasn't so much the movement of cash but the movement of useful and useable information that was of greater importance.
However, a payments expert in the audience argued that "everyone" wants faster payments. "Corporates want faster payments to reduce the effect of foreign exchange fluctuations, for example, and enable them to use their cash better - I think that we in the industry underestimate the desire," he said.
Most agreed that the Faster Payments Scheme (FPS) in the UK has been a game changing initiative - particularly since the Faster Payments Direct Corporate Access (DCA) transaction value limit increased from £10,000 to £100,000 per transaction at the beginning of September, which makes FPS much more attractive to the corporate world. The bankers on the platform highlighted the operational challenges they were facing to process domestic and global payments intraday - or as one termed them 'martini payments': anytime, anywhere.
The second panel looked at the fraud and risk issues and opportunities of real-time transactions. A senior payments expert said that the prevalent perception that the more digital things are, the more fraud is committed is not true. But he believes that banks have been poor at resolving the issue mainly because there is no standardised approach to fraud protocols.
At the event, Polaris launched Intellect Global Universal Banking (GUB) M180, which is comprised of 95 modules that fit together in a service-oriented architecture (SOA) model to allow financial institutions to modernise at a low total cost of ownership (TCO). Arun Jain, chairman and chief executive officer (CEO) of Polaris, explained the concept where every module had a guaranteed design lifespan of 15 years - hence 180 months (M180).
E-payments Gather Pace as Cheque Usage Plummets, Finds Payments Council
10 Sep 10
The total value of payments in the UK economy fell 0.6% in the second quarter of 2010, according to the latest data from the Payments Council. Cheque usage dropped by £21.5bn, down 10% compared to the same period in 2009 as businesses and consumers switched to faster and more convenient electronic payments and cards. Every day of the quarter, on average 290,000 fewer cheques were written than the year before - over three fewer per second.
The use of debit cards (paying for goods and services) and Faster Payments (for transferring money between accounts) took up all the slack left by cheques. Debit card usage rose £7.9bn year over year, up 12.4%, while Faster Payments increased £16.9bn, a dramatic 67% rise as more banks made the service available to their customers, and consumers, and increasingly businesses, took advantage of being able to make instant transfers of their money.
Debit card usage also ate into cash payments. The amount of cash withdrawn from cash machines (a proxy for the amount of cash used for transactions) was £1.6bn lower than in the second quarter of 2009, a decline of 3.2%.
Credit card spending was also weak, rising just 3.9%, barely ahead of inflation. This reflects credit constraints and a continued migration to debit cards. Over the period, the amount spent on credit cards was matched by the amount paid off as consumers shied away from loading up on additional borrowing. Credit card repayments rose by over 7% when compared to 2Q09, averaging over 99% in terms of the amount of debt repaid.
The number of CHAPS payments, which are commonly used for large banking and commercial transactions including house purchases, is slowly increasing. The fall in values, now at an annual rate of 12%, is due to a partial return to normality for the financial markets after the banking crises of 2007-8, which caused a surge in value. A £70bn increase in Bacs, plus the growth in Faster Payments, can be seen to reflect a recovering economy.
Sandra Quinn, director of communications, Payments Council, said: "The payments revolution continues apace in the UK. Cheque usage is shrinking dramatically, while credit cards hold less appeal for consumers and businesses. We use cash less where there is an easy alternative, but we're years away from cash falling out of fashion. Debit cards are taking over our daily purchases, while Faster Payments are fast becoming how we transfer our money electronically."
In other news, the Faster Payments Direct Corporate Access (DCA) transaction value limit increased from £10,000 to £100,000 per transaction as of 6 September.
The limit increase could have significant benefits for corporates that are looking to improve their payments efficiency, according to Norman Taylor, product manager at Experian Payments.
"For instance, businesses providing loan facilities will now be able to use DCA for Faster Payments for funding borrowers' accounts with amounts of up to £100,000. In addition, Faster Payments is particularly attractive for corporates from a customer service point-of-view as it enables an almost real-time transfer of money into a customer's or supplier's account and can also be accompanied by an automated message, via SMS or email, for example, advising the beneficiary that the payment has been made," he said.
"However, simply increasing the value limit is unlikely to persuade corporates to flock to the channel," he added. "While there is still work to be done to educate businesses and banks around the benefits of using Faster Payments, businesses also still need more clarity before they make a payment on whether it is handled as a Faster Payment and when it will arrive in order to effectively manage their finances."
First published on www.gtnews.com
The total value of payments in the UK economy fell 0.6% in the second quarter of 2010, according to the latest data from the Payments Council. Cheque usage dropped by £21.5bn, down 10% compared to the same period in 2009 as businesses and consumers switched to faster and more convenient electronic payments and cards. Every day of the quarter, on average 290,000 fewer cheques were written than the year before - over three fewer per second.
The use of debit cards (paying for goods and services) and Faster Payments (for transferring money between accounts) took up all the slack left by cheques. Debit card usage rose £7.9bn year over year, up 12.4%, while Faster Payments increased £16.9bn, a dramatic 67% rise as more banks made the service available to their customers, and consumers, and increasingly businesses, took advantage of being able to make instant transfers of their money.
Debit card usage also ate into cash payments. The amount of cash withdrawn from cash machines (a proxy for the amount of cash used for transactions) was £1.6bn lower than in the second quarter of 2009, a decline of 3.2%.
Credit card spending was also weak, rising just 3.9%, barely ahead of inflation. This reflects credit constraints and a continued migration to debit cards. Over the period, the amount spent on credit cards was matched by the amount paid off as consumers shied away from loading up on additional borrowing. Credit card repayments rose by over 7% when compared to 2Q09, averaging over 99% in terms of the amount of debt repaid.
The number of CHAPS payments, which are commonly used for large banking and commercial transactions including house purchases, is slowly increasing. The fall in values, now at an annual rate of 12%, is due to a partial return to normality for the financial markets after the banking crises of 2007-8, which caused a surge in value. A £70bn increase in Bacs, plus the growth in Faster Payments, can be seen to reflect a recovering economy.
Sandra Quinn, director of communications, Payments Council, said: "The payments revolution continues apace in the UK. Cheque usage is shrinking dramatically, while credit cards hold less appeal for consumers and businesses. We use cash less where there is an easy alternative, but we're years away from cash falling out of fashion. Debit cards are taking over our daily purchases, while Faster Payments are fast becoming how we transfer our money electronically."
In other news, the Faster Payments Direct Corporate Access (DCA) transaction value limit increased from £10,000 to £100,000 per transaction as of 6 September.
The limit increase could have significant benefits for corporates that are looking to improve their payments efficiency, according to Norman Taylor, product manager at Experian Payments.
"For instance, businesses providing loan facilities will now be able to use DCA for Faster Payments for funding borrowers' accounts with amounts of up to £100,000. In addition, Faster Payments is particularly attractive for corporates from a customer service point-of-view as it enables an almost real-time transfer of money into a customer's or supplier's account and can also be accompanied by an automated message, via SMS or email, for example, advising the beneficiary that the payment has been made," he said.
"However, simply increasing the value limit is unlikely to persuade corporates to flock to the channel," he added. "While there is still work to be done to educate businesses and banks around the benefits of using Faster Payments, businesses also still need more clarity before they make a payment on whether it is handled as a Faster Payment and when it will arrive in order to effectively manage their finances."
First published on www.gtnews.com
Financial Professionals Lack Confidence in Risk and Performance Metrics
06 Aug 10
A recent survey found that the vast majority (85%) of financial services and IT professionals do not have performance management systems completely integrated with risk analysis systems, according to Oracle's 'European Confidence Report'. In addition, 41% of those that do not currently assess risk and performance together are not seeking to actively incorporate risk into decision-making. This means that decision-makers will continue to make critical business choices without accounting for the all challenges that their business face.
In an interview with gtnews, Nazif Mohammed, vice president Europe, Middle East and Africa (EMEA), finances services, Oracle said: "We are living through incredible times - [the crisis] is probably the most expensive training exercise in bank performance measurement. Even the layperson on the street is now aware of stress testing. The aim of the survey was to understand the 'new normal' and see if the banks are actively incorporating risk into their day-to-day decision-making."
The research, conducted by Vanson Bourne, surveyed 228 financial services professionals and 222 IT professionals in financial institutions across Europe, including the UK and Ireland, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and Switzerland.
The survey's key findings include:
* Almost half of all participating banks were not confident of the accuracy of their risk and counterparty related data. Alarmingly, more than one in seven (14%) admitted they are unable to monitor and respond to changing risk scenarios.
* Financial institutions are not leveraging integrated risk information in decision-making: 41% of financial institutions surveyed do not currently assess risk and performance together, and only 18% of respondents reported an ability to deliver performance and risk information to the business in real-time.
* Existing IT systems are unable to deliver what the business needs to react immediately to external events: only 26% of respondents are confident that their existing IT system is capable of using stored data to provide a full risk analysis across all business units.
* Almost two-thirds (64%) do not have confidence that IT is able to provide a 360-degree view of the entire business. For example, only 32% of the participating banks claimed they had access to vital data like counterparty information and 25% of the participating UK banks couldn't even produce this information.
Mohammed said: "Financial institutions understand how important it is to assess risk and performance management together, but have great difficulty in doing so for various reasons, such as data silos or legacy banking systems. The problem is also in the way businesses are structured, with a finance team that looks at profitability and a risk management team that solely looks at risk, and those shall not come together. Many times at our customer meetings these professionals exchange cards because they are meeting for the first time."
Across EMEA, only 24% see risk assessment and performance management as being tightly dependent, where both aspects are continuously assessed and reported on. Despite this, almost a third (29%) of respondents have an element of their remuneration package based on the accuracy of their information and in next three to five years, 58% will see risk actively be built into the process of pricing products. With these considerations it is surprising that more banks are not actively incorporating risk into business performance already.
Meeting the Compliance Challenge
The current business climate also means that financial institutions will continue to be subject to more regulations, making the need for integrated systems even more critical. Eighty six percent expect to see some or high levels of changes in the regulatory load on their organisation or in the financial services market. Compounding this problem is the fact that 40% believe that increasing compliance coupled with tougher deadlines will continue to hinder data accuracy.
"Financial institutions take regulatory pressures very seriously, but the challenge is in the approach," said Mohammed. "Do they add yet another system and continue trying to patch the holes to meet the requirements? This is a common approach - put a reporting system in place for liquidity management, another for pulling data for stress testing, etc. But this is done with very little co-ordination across the group. Financial institutions need to take a different approach where these systems are seen are part of an overall architecture of addressing the data, the transaction and the reporting capabilities."
First published on www.gtnews.com
A recent survey found that the vast majority (85%) of financial services and IT professionals do not have performance management systems completely integrated with risk analysis systems, according to Oracle's 'European Confidence Report'. In addition, 41% of those that do not currently assess risk and performance together are not seeking to actively incorporate risk into decision-making. This means that decision-makers will continue to make critical business choices without accounting for the all challenges that their business face.
In an interview with gtnews, Nazif Mohammed, vice president Europe, Middle East and Africa (EMEA), finances services, Oracle said: "We are living through incredible times - [the crisis] is probably the most expensive training exercise in bank performance measurement. Even the layperson on the street is now aware of stress testing. The aim of the survey was to understand the 'new normal' and see if the banks are actively incorporating risk into their day-to-day decision-making."
The research, conducted by Vanson Bourne, surveyed 228 financial services professionals and 222 IT professionals in financial institutions across Europe, including the UK and Ireland, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and Switzerland.
The survey's key findings include:
* Almost half of all participating banks were not confident of the accuracy of their risk and counterparty related data. Alarmingly, more than one in seven (14%) admitted they are unable to monitor and respond to changing risk scenarios.
* Financial institutions are not leveraging integrated risk information in decision-making: 41% of financial institutions surveyed do not currently assess risk and performance together, and only 18% of respondents reported an ability to deliver performance and risk information to the business in real-time.
* Existing IT systems are unable to deliver what the business needs to react immediately to external events: only 26% of respondents are confident that their existing IT system is capable of using stored data to provide a full risk analysis across all business units.
* Almost two-thirds (64%) do not have confidence that IT is able to provide a 360-degree view of the entire business. For example, only 32% of the participating banks claimed they had access to vital data like counterparty information and 25% of the participating UK banks couldn't even produce this information.
Mohammed said: "Financial institutions understand how important it is to assess risk and performance management together, but have great difficulty in doing so for various reasons, such as data silos or legacy banking systems. The problem is also in the way businesses are structured, with a finance team that looks at profitability and a risk management team that solely looks at risk, and those shall not come together. Many times at our customer meetings these professionals exchange cards because they are meeting for the first time."
Across EMEA, only 24% see risk assessment and performance management as being tightly dependent, where both aspects are continuously assessed and reported on. Despite this, almost a third (29%) of respondents have an element of their remuneration package based on the accuracy of their information and in next three to five years, 58% will see risk actively be built into the process of pricing products. With these considerations it is surprising that more banks are not actively incorporating risk into business performance already.
Meeting the Compliance Challenge
The current business climate also means that financial institutions will continue to be subject to more regulations, making the need for integrated systems even more critical. Eighty six percent expect to see some or high levels of changes in the regulatory load on their organisation or in the financial services market. Compounding this problem is the fact that 40% believe that increasing compliance coupled with tougher deadlines will continue to hinder data accuracy.
"Financial institutions take regulatory pressures very seriously, but the challenge is in the approach," said Mohammed. "Do they add yet another system and continue trying to patch the holes to meet the requirements? This is a common approach - put a reporting system in place for liquidity management, another for pulling data for stress testing, etc. But this is done with very little co-ordination across the group. Financial institutions need to take a different approach where these systems are seen are part of an overall architecture of addressing the data, the transaction and the reporting capabilities."
First published on www.gtnews.com
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