25 Jan 2011
On 9 September 2010, a new Nordic payment giant, Nets, was formed as a result of the merger between Norwegian Nordito, which is the parent company of BBS and Teller, and the holding company of the Danish company PBS.
Q (gtnews): Why did BBS and PBS merge to create Nets in September last year?
A (Susanne Brønnum, senior group vice president of cards, Nets): The Nets merger is symptomatic of the payments landscape across the world. There is increased consolidation because of the need to grow and absorb new costs from the Payment Services Directive (PSD) and the single euro payments area (SEPA), as well as new compliance initiatives from the Payment Card Industry (PCI). At the same time, the banks are trying to reduce their costs, due to some extent to the financial crisis. Therefore, they want to obtain economies of scale by outsourcing payments to large companies.
For all these reasons - the need to grow but also for the economies of scale that our clients desire - we decided to merge the two big processors in the Nordics: Norwegian Nordito, which is the parent company of BBS and Teller, and the holding company of the Danish company PBS. All together there were 10 different companies/subsidiaries as part of the merger, which made it a significant challenge and achievement. The merger gives us the leverage and size that will make us attractive to more international customers. In addition, existing customers and shareholders will also benefit.
Nets ownership structure:
* Nordea 20.0%.
* DnB NOR 18.2%.
* Danske Bank 16.1%.
* SpareBank 1-alliansen 11.7%.
* Danmarks Nationalbank 9.7%.
* Other banks in Denmark and Norway 24.3%.
Q (gtnews): In terms of the business strategy, will Nets remain focussed on the Nordics markets or look to expand into other regions?
A (Brønnum): We are based in all the Nordic markets - Sweden, Norway, Denmark, and Finland, as well as Estonia. We believe that there is room for expansion in our home markets, particularly Sweden and Finland. That is one ambition. The other is to expand with our customers into the northern European market.
In the payment card market, we have set ourselves the goal of becoming the second biggest processor in Europe - we are number five today. Therefore we plan to attract more international clients outside the Nordics market. It will be very challenging and exciting to move from being a Nordic - and, to some extent, a community - processor into being an international service provider. It is a journey we are currently undertaking.
Q (gtnews): What deadline are you working towards to accomplish this?
A (Brønnum): It is a three-year timeframe, so our goal of becoming the second biggest processor in Europe and number one in our home markets should be realised by 2014. Both are ambitious goals but I feel confident that we can achieve them. Although there are many complementary services because both PBS and BBS have been active in the payments and card space for more than 20 years, there are also products and services that are different in each market, so now we can cross-sell and sell into other markets as well. Part of the synergy is to be able to sell more services in various markets, as well as cross synergies in consolidating platforms, products and services.
Q (gtnews): How has the payments landscape changed with regards to SEPA and the PSD?
A (Brønnum): In the past few years we have seen a consolidation of processing companies due to the crisis and clients’ need for economies of scale. All sides are pushing for lower prices but in order to absorb costs of compliance - SEPA and PSD - such companies need to process a large number of transactions. On the other hand, an increasing number of banks and financial institutions want to outsource specific services, mainly because they want variable costs instead of fixed costs. In addition, some have realised that the types of services around payments and cards is not core business for them, so they would like to outsource these to a competent service provider to allow them to focus on their core competencies.
In the Nordic market, banks’ interest in cards is moving beyond them solely being a means of accessing a bank account towards them as a means of creating revenue. They are looking to differentiate themselves through developing cards as a specific area of the bank. We have already seen some new products being trialled in the marketplace, and there will be many more in the next few years from Nordic banks.
Q (gtnews): Is there a growing trend of integrating corporate cards into cash management and treasury? Are banks releasing products for this?
A (Brønnum): There is still a lot of work to do as banks have only begun to tap into the corporate procurement/purchasing market. Some banks are looking into the card market as a tool for attracting corporate clients, whereas most banks are using cards solely as part of a package. Banks need to see cards as business drivers - fundamentally as a credit limit and what client relationship opportunities that opens up. They need to plan how they can integrate cards into the corporate package much better than they have to date, by making specific cards for specific segments or size of business, etc.
On the purchasing side, there have been a few trials across the Nordic market and I believe that we will see much more in the next couple of years. Much of the drive is linked to electronic invoicing (e-invoicing). Governments also have a part to play - i.e. the Nordic governments have been engaged in initiatives such as digital signatures to make the interface between government and business much more digital. Governments could help the purchasing market by allowing all invoices on a purchasing card.
Q (gtnews): What were the hot topics in payments in 2010?
A (Brønnum): I think there was - and still is - a lot of SEPA fatigue. Everyone knows that SEPA is here to stay, and the whole debate is about the third debit product - will there be a third European scheme or not? This is quite an interesting topic but it is not being discussed at industry conferences.
The Nordic market has all four SEPA scenarios: Finland is a euro country and so by definition part of SEPA; Sweden is not a euro country but has opted into the scheme; Denmark is a EU country but not a euro country, so out of SEPA; and last is Norway, neither EU nor euro. Nets operates in all four countries and is able to support SEPA services in all the different markets for our banks.
The PSD, on the other hand, is a EU regulation and not a euro one - which is a bit confusing. The PSD has already been added into Danish and Norwegian legislation and came into force on 1 November 2009. Sweden transposed in August 2010. As you can see, there are many differences even in the small Nordic region.
There are some interesting developments in the card arena. For example, Finland is currently moving from its domestic brand, Pankkikortti, to Visa or Mastercard. That is a significant change in Finland. And Estonia has just migrated to the euro as of 1 January 2011, which was a significant project for Nets as it owns the Estonian card processor Pankade Kaardikeskus (PKK) - now Nets Estonia.
First published on www.gtnews.com
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.
Tuesday, 15 February 2011
Wednesday, 19 January 2011
Sibos 2010: Will SEPA Bloom in Amsterdam?
19 Oct 2010
The three themes of Sibos 2010 are regulation, rebuilding trust and recovery. But topics such as the SEPA end-dates, risk, cloud computing and social media will also be creating a buzz on the conference floor.
After much talk at the EuroFinance conference earlier this month about the need for the regulators to step in to set an end-date for the single euro payments area (SEPA), which would retire legacy payment instruments in favour of the SEPA Credit Transfer (SCT) and Direct Debit (SDD) schemes, the powers that be have taken a step forward. At a European Payments Council (EPC) meeting on 14 October, Gertrude Tumpel-Gugerell, a member of the executive board of the European Central Bank (ECB), made the bold statement that “not having a regulation is not an option” with regards to an end-date.
But with only 9.3% of all euro area credit transfers processed as SCTs, and well below 1% of all euro area direct debits processed as SDDs as of August 2010, there is a long way still to go. On the positive side, adherence will be ensured for the SDD scheme in November 2010, as banks will be legally obliged to be reachable.
Tumpel-Gugerell said that the ECB still has a preference for two different migration end dates for the SCT and SDD schemes: November 2012 for credit transfers and November 2013 for direct debits. However, it is the European Council and the European Parliament that will determine the actual end-date.
But this means that SEPA will again be a hot topic at Sibos, SWIFT’s user conference, in Amsterdam next week. Sean Fitzgerald, chief executive officer (CEO) at Sentenial, a specialist provider of SEPA payment solutions for banks and corporates, believes that this push to set an end-date will catalyse activity in the market. He highlights the impetus for corporates: “As soon as an end-date is published, then every day compounds corporates’ problems - every new mandate for direct debits that they set up in a legacy system will cost them in the future when they migrate to the SDD scheme. Through this process, corporates could possibly lose customers and will certainly incur costs, unless they start to act now.”
On the other hand, Amanda Gilmour, product director for anti-money laundering (AML) and straight-through processing (STP) at Temenos, believes that SEPA fatigue has set in. She is unconvinced that proposed end-dates will revive the subject. “It has been discussed, understood, and thrashed to death over the last few years,” she says. But she does think that other regulations will be topping the agenda, such as Basel III.
Regulation is one of the three ‘Rs’ that SWIFT has identified as the main themes of the Amsterdam conference, alongside rebuilding trust and recovery.
Sibos 2010: Big Debates
Sibos is recognised as a premier financial networking event, where the high-level decision-makers gather to do business. At Sibos in Hong Kong last year there were 5,782 attendees, according to SWIFT, with 24% at the managing director/director/executive vice president level. The primary market focus was payments, with 33% of the attendees, followed by cash management (21%) and securities and trade services (16%). The highest majority of participants were from commercial banks (36%), software supplier/consultancy (25%) and investment and central banks (5%). Corporates made up 7%, or 404 attendees. The majority of participants in Hong Kong were from Asia-Pacific (42%) and Europe (40%).
This year SWIFT is expecting 8000 attendees - similar to the number registered in Vienna in 2008.
The Sibos conference programme has been built around three themes:
Regulation
The conference will debate the industry’s collective response to regulation following the financial crisis and examine the operational impact of financial reform.
Basel III will be on the lips of many, as explained by Jamuna Ravi, vice president and delivery head, banking and capital markets, Infosys, in a pre-Sibos video interview with gtnews.
In addition, Temenos’ Gilmour picked out a debate centering on the conumdrum that if there had been tighter legislation three years ago, with stress tests, etc, would there have been a financial crisis? “That will be thought-provoking,” she says.
Rebuilding trust
The second big debate will examine how the industry should go about regaining the confidence of its customers, its counterparties and the public at large.
Recovery
There are differing opinions about when and how it will come about but the one thing everyone agrees on is that a recovery is coming. The conference will look at the uncertainty that prevails in the marketplace and discuss where to compete and where to collaborate.
In a video interview with gtnews, Andy Brown, payments expert at ACI Worldwide, looks at the theme of recovery from the perspective of the changing payments industry and how banks can survive in this new environment by implementing an agile payments solution.
The big issue debates have attracted many high calibre speakers such as Om Prakash Bhatt, chairman, State Bank of India; Charles Goodhart, professor, London School of Economics; Anna Edwards, anchor, CNBC; and William Cohan, best-selling author.
Another interesting debate will be the session ‘India and China: How do you choose?’. The two big emerging market power blocks in Asia are moving forward under distinct national strategies. Both have much to offer in securities, treasury, transaction banking and trade. The panel will address how to operate successfully in these markets. But - as pragmatically pointed out by Sri Sundar, head of banking and financial services, TCS North America - there is no need to choose between the two countries, as it is possible - and indeed strategic - to operate in both.
Corporate Forum: Trade and Supply Chain Tops the Agenda
Over 700 corporates are now on SWIFT, according to Marilyn Spearing, chairperson of the SWIFT corporate access group and global head of trade finance and cash management corporates, Deutsche Bank - which is an increase of almost 200 since last year. But, as many continually point out, this is just a drop in the ocean in terms of the number of corporates worldwide.
In the fourth year of the corporate forum - which is rumoured to be the make or break year - the main topics are around trade and supply chain, digital identity, working capital optimisation, electronic invoicing (e-invoicing), risk management, and electronic bank account management (eBAM). It boasts numerous case studies and speakers from the treasury departments of Ipsen Group, Airbus SAS, JT International, Unilever, Bayer AG, Stora Enso, Huawei, AkzoNobel, Procter & Gamble, Alcatel-Lucent, Swiss Re, and General Electric.
In addition, this year is the inaugural gtnews Global Corporate Treasury Awards, sponsored by Bank of America Merrill Lynch, which 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 at the end of the first day of the Corporate Forum on 26 October 2010. Visit the awards website to see the shortlist of high calibre entries.
Hot Topics: Risk, Cloud Computing and Social Media
The big debates will not be the only hot topics at the conference. TCS’ Sundar believes that risk will be significant aspect of discussion at Sibos. “A lot of spend that is happening in the industry is on risk and compliance and there is a huge amount of work to be dome to satisfy regulatory reporting in terms of collecting and analysing the data to ensure compliance,” he says.
Cloud technology is another topic on everyone’s lips. Jean Pierre Arens, director of global payments, Logica, says: “Everyone is talking about cloud - trying to understand what it is and what could it mean for their organisation. This is a hot topic but not because SWIFT has put it on the agenda.”
In a video interview with gtnews, Robin Crewe, chief technology officer (CTO) at Misys, defines cloud computing, and explains how corporate treasuries can benefit from this emerging technology.
In addition, Infosys’ Ravi thinks that social media will be a hot topic and highlights how many banks have taken up social media already, not just for communication among the banks’ employees but also their customers.
Conclusion
If you are attending Sibos for the first time, the advice from ‘old-timers’ is pretty straightforward: prior preparation is key. As TCS’ Sundar explains: “You need to have your objectives well defined before going to Sibos, otherwise you can be overloaded with information. Therefore you need to do your homework ahead of time, or you will end up with a lot of goodies but no real information to work with when you return to your office.”
Sentenial’s Fitzgerald agrees: “It is a great place for meeting all the players, but preparation is important because it is so big you could spend a lot of time wandering around.” He also makes the point that it is a long week and suggests that participants take it easy in the evenings, which is code for restricting the number of parties you attend.
Looking back on the past few years, one could draw the conclusion that Sibos can be a dangerous event to attend. In Vienna, the first day coincided with the disappearance of Lehman Brothers and a global economic crisis. In Hong Kong, Sibos opened during a Level 8 typhoon called Koppu. Therefore, as Amsterdam is 13 feet below sea level, my advice is to bring your water wings.
First published on www.gtnews.com
The three themes of Sibos 2010 are regulation, rebuilding trust and recovery. But topics such as the SEPA end-dates, risk, cloud computing and social media will also be creating a buzz on the conference floor.
After much talk at the EuroFinance conference earlier this month about the need for the regulators to step in to set an end-date for the single euro payments area (SEPA), which would retire legacy payment instruments in favour of the SEPA Credit Transfer (SCT) and Direct Debit (SDD) schemes, the powers that be have taken a step forward. At a European Payments Council (EPC) meeting on 14 October, Gertrude Tumpel-Gugerell, a member of the executive board of the European Central Bank (ECB), made the bold statement that “not having a regulation is not an option” with regards to an end-date.
But with only 9.3% of all euro area credit transfers processed as SCTs, and well below 1% of all euro area direct debits processed as SDDs as of August 2010, there is a long way still to go. On the positive side, adherence will be ensured for the SDD scheme in November 2010, as banks will be legally obliged to be reachable.
Tumpel-Gugerell said that the ECB still has a preference for two different migration end dates for the SCT and SDD schemes: November 2012 for credit transfers and November 2013 for direct debits. However, it is the European Council and the European Parliament that will determine the actual end-date.
But this means that SEPA will again be a hot topic at Sibos, SWIFT’s user conference, in Amsterdam next week. Sean Fitzgerald, chief executive officer (CEO) at Sentenial, a specialist provider of SEPA payment solutions for banks and corporates, believes that this push to set an end-date will catalyse activity in the market. He highlights the impetus for corporates: “As soon as an end-date is published, then every day compounds corporates’ problems - every new mandate for direct debits that they set up in a legacy system will cost them in the future when they migrate to the SDD scheme. Through this process, corporates could possibly lose customers and will certainly incur costs, unless they start to act now.”
On the other hand, Amanda Gilmour, product director for anti-money laundering (AML) and straight-through processing (STP) at Temenos, believes that SEPA fatigue has set in. She is unconvinced that proposed end-dates will revive the subject. “It has been discussed, understood, and thrashed to death over the last few years,” she says. But she does think that other regulations will be topping the agenda, such as Basel III.
Regulation is one of the three ‘Rs’ that SWIFT has identified as the main themes of the Amsterdam conference, alongside rebuilding trust and recovery.
Sibos 2010: Big Debates
Sibos is recognised as a premier financial networking event, where the high-level decision-makers gather to do business. At Sibos in Hong Kong last year there were 5,782 attendees, according to SWIFT, with 24% at the managing director/director/executive vice president level. The primary market focus was payments, with 33% of the attendees, followed by cash management (21%) and securities and trade services (16%). The highest majority of participants were from commercial banks (36%), software supplier/consultancy (25%) and investment and central banks (5%). Corporates made up 7%, or 404 attendees. The majority of participants in Hong Kong were from Asia-Pacific (42%) and Europe (40%).
This year SWIFT is expecting 8000 attendees - similar to the number registered in Vienna in 2008.
The Sibos conference programme has been built around three themes:
Regulation
The conference will debate the industry’s collective response to regulation following the financial crisis and examine the operational impact of financial reform.
Basel III will be on the lips of many, as explained by Jamuna Ravi, vice president and delivery head, banking and capital markets, Infosys, in a pre-Sibos video interview with gtnews.
In addition, Temenos’ Gilmour picked out a debate centering on the conumdrum that if there had been tighter legislation three years ago, with stress tests, etc, would there have been a financial crisis? “That will be thought-provoking,” she says.
Rebuilding trust
The second big debate will examine how the industry should go about regaining the confidence of its customers, its counterparties and the public at large.
Recovery
There are differing opinions about when and how it will come about but the one thing everyone agrees on is that a recovery is coming. The conference will look at the uncertainty that prevails in the marketplace and discuss where to compete and where to collaborate.
In a video interview with gtnews, Andy Brown, payments expert at ACI Worldwide, looks at the theme of recovery from the perspective of the changing payments industry and how banks can survive in this new environment by implementing an agile payments solution.
The big issue debates have attracted many high calibre speakers such as Om Prakash Bhatt, chairman, State Bank of India; Charles Goodhart, professor, London School of Economics; Anna Edwards, anchor, CNBC; and William Cohan, best-selling author.
Another interesting debate will be the session ‘India and China: How do you choose?’. The two big emerging market power blocks in Asia are moving forward under distinct national strategies. Both have much to offer in securities, treasury, transaction banking and trade. The panel will address how to operate successfully in these markets. But - as pragmatically pointed out by Sri Sundar, head of banking and financial services, TCS North America - there is no need to choose between the two countries, as it is possible - and indeed strategic - to operate in both.
Corporate Forum: Trade and Supply Chain Tops the Agenda
Over 700 corporates are now on SWIFT, according to Marilyn Spearing, chairperson of the SWIFT corporate access group and global head of trade finance and cash management corporates, Deutsche Bank - which is an increase of almost 200 since last year. But, as many continually point out, this is just a drop in the ocean in terms of the number of corporates worldwide.
In the fourth year of the corporate forum - which is rumoured to be the make or break year - the main topics are around trade and supply chain, digital identity, working capital optimisation, electronic invoicing (e-invoicing), risk management, and electronic bank account management (eBAM). It boasts numerous case studies and speakers from the treasury departments of Ipsen Group, Airbus SAS, JT International, Unilever, Bayer AG, Stora Enso, Huawei, AkzoNobel, Procter & Gamble, Alcatel-Lucent, Swiss Re, and General Electric.
In addition, this year is the inaugural gtnews Global Corporate Treasury Awards, sponsored by Bank of America Merrill Lynch, which 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 at the end of the first day of the Corporate Forum on 26 October 2010. Visit the awards website to see the shortlist of high calibre entries.
Hot Topics: Risk, Cloud Computing and Social Media
The big debates will not be the only hot topics at the conference. TCS’ Sundar believes that risk will be significant aspect of discussion at Sibos. “A lot of spend that is happening in the industry is on risk and compliance and there is a huge amount of work to be dome to satisfy regulatory reporting in terms of collecting and analysing the data to ensure compliance,” he says.
Cloud technology is another topic on everyone’s lips. Jean Pierre Arens, director of global payments, Logica, says: “Everyone is talking about cloud - trying to understand what it is and what could it mean for their organisation. This is a hot topic but not because SWIFT has put it on the agenda.”
In a video interview with gtnews, Robin Crewe, chief technology officer (CTO) at Misys, defines cloud computing, and explains how corporate treasuries can benefit from this emerging technology.
In addition, Infosys’ Ravi thinks that social media will be a hot topic and highlights how many banks have taken up social media already, not just for communication among the banks’ employees but also their customers.
Conclusion
If you are attending Sibos for the first time, the advice from ‘old-timers’ is pretty straightforward: prior preparation is key. As TCS’ Sundar explains: “You need to have your objectives well defined before going to Sibos, otherwise you can be overloaded with information. Therefore you need to do your homework ahead of time, or you will end up with a lot of goodies but no real information to work with when you return to your office.”
Sentenial’s Fitzgerald agrees: “It is a great place for meeting all the players, but preparation is important because it is so big you could spend a lot of time wandering around.” He also makes the point that it is a long week and suggests that participants take it easy in the evenings, which is code for restricting the number of parties you attend.
Looking back on the past few years, one could draw the conclusion that Sibos can be a dangerous event to attend. In Vienna, the first day coincided with the disappearance of Lehman Brothers and a global economic crisis. In Hong Kong, Sibos opened during a Level 8 typhoon called Koppu. Therefore, as Amsterdam is 13 feet below sea level, my advice is to bring your water wings.
First published on www.gtnews.com
Reval Moves into TMS Space with ecofinance Purchase
19 Jan 11
Reval, a provider of a single-version software-as-a-service (SaaS) solution for corporate financial risk management, has acquired ecofinance, a treasury management system (TMS) provider in central Europe. Established over 25 years ago, ecofinance has built development partnerships with clients and regional universities to deliver solutions mainly in its home markets of Germany, Austria and Switzerland.
In an interview with gtnews, Reval chief executive officer (CEO) and co-founder Jiro Okochi explained that the acquisition was in response to client demand: "As we moved across the functionality spectrum of what a corporate treasurer wants, our corporate clients began asking for a fully integrated TMS product." The company weighed the possibility of whether to build or buy the TMS functionality, and decided to buy when it came across ecofinance.
"ecofinance has a great cash and liquidity management platform and a robust payment factory and the product synergies are good. For example, ecofinance's ITS [Integrated Treasury System] web product is designed specifically to integrate with bank portals, so our product strategy works well because we can bring that into Reval's platform," he said.
The acquisition will give Reval a foothold in the Germanic market, which can be difficult for global vendors to establish due to the propensity of German companies to prefer to buy regionally and be supported in their language. ecofinance will continue to do business as 'ecofinance - a Reval company' and will operate from its headquarters in Graz, Austria.
First published on www.gtnews.com
Reval, a provider of a single-version software-as-a-service (SaaS) solution for corporate financial risk management, has acquired ecofinance, a treasury management system (TMS) provider in central Europe. Established over 25 years ago, ecofinance has built development partnerships with clients and regional universities to deliver solutions mainly in its home markets of Germany, Austria and Switzerland.
In an interview with gtnews, Reval chief executive officer (CEO) and co-founder Jiro Okochi explained that the acquisition was in response to client demand: "As we moved across the functionality spectrum of what a corporate treasurer wants, our corporate clients began asking for a fully integrated TMS product." The company weighed the possibility of whether to build or buy the TMS functionality, and decided to buy when it came across ecofinance.
"ecofinance has a great cash and liquidity management platform and a robust payment factory and the product synergies are good. For example, ecofinance's ITS [Integrated Treasury System] web product is designed specifically to integrate with bank portals, so our product strategy works well because we can bring that into Reval's platform," he said.
The acquisition will give Reval a foothold in the Germanic market, which can be difficult for global vendors to establish due to the propensity of German companies to prefer to buy regionally and be supported in their language. ecofinance will continue to do business as 'ecofinance - a Reval company' and will operate from its headquarters in Graz, Austria.
First published on www.gtnews.com
UK Banks Anticipate Strong Growth in Commercial Demand in 1Q11
10 JAN 11
Activity grew strongly in the UK financial services sector for the second quarter in a row, in the three months to December, reveals Confederation of British Industry (CBI)/PricewaterhouseCoopers (PwC) Financial Services Survey. However, profitability did not increase as fast as expected, growing at the slowest pace for 18 months, and numbers employed in the sector fell at the fastest pace for 17 years.
The banking sector reported little change in business volumes over the past three months. Income values declined sharply, and spreads were flat. Furthermore, costs were also unchanged following heavy falls over much of the past two years. Taken together, this led to a sharp fall in profitability, and a similar decline in profitability is expected for the coming quarter.
Although levels of business remain subdued, banking confidence has climbed rapidly and the banks are feeling more confident than at any time since 2005. A balance figure of almost two-thirds (63%) of bank respondents predict commercial demand to pick up in the coming quarter, offering some support for the impression that the UK manufacturing sector is enjoying an economic recovery. This is a significant increase compared with just 2% who believed that in September 2010.
Andrew Gray, UK banking leader at PwC, said: "This prediction is an overall expression of the anticipated economic recovery. We have seen a restocking in the industrial sector and companies are looking at growth plans and business restructuring. In many ways, we have reached a natural point in the economic cycle.
"It is also a response to the political environment. Banks are keen to lend more, particularly to the SME [small and medium-sized enterprise] market segment. Previously, the problem didn't lie with funds availability, but was a result of the businesses' limited borrowing capacity and the banks' stringent lending criteria. The banks are suggesting that the time is now for recovery," he added.
In supplementary questions, the proportion of firms believing the UK's competitiveness as a financial centre to have deteriorated has picked up - to 80% - after falling back over the past two surveys. This is largely due to an increase in the number of finance houses and investment managers believing competitiveness to have deteriorated.
In addition, concerns over the further worsening in the financial markets have become more acute. Seventy-two percent of respondents believe there to be a medium likelihood of another deterioration, the highest proportion since June 2009, and 18% cite a high likelihood (up from 10% in September).
The vast majority (95%) of respondents now believe that 'normal' financial market conditions will resume only beyond six months, which is an increase over the past two quarters.
First published on www.gtnews.com
Activity grew strongly in the UK financial services sector for the second quarter in a row, in the three months to December, reveals Confederation of British Industry (CBI)/PricewaterhouseCoopers (PwC) Financial Services Survey. However, profitability did not increase as fast as expected, growing at the slowest pace for 18 months, and numbers employed in the sector fell at the fastest pace for 17 years.
The banking sector reported little change in business volumes over the past three months. Income values declined sharply, and spreads were flat. Furthermore, costs were also unchanged following heavy falls over much of the past two years. Taken together, this led to a sharp fall in profitability, and a similar decline in profitability is expected for the coming quarter.
Although levels of business remain subdued, banking confidence has climbed rapidly and the banks are feeling more confident than at any time since 2005. A balance figure of almost two-thirds (63%) of bank respondents predict commercial demand to pick up in the coming quarter, offering some support for the impression that the UK manufacturing sector is enjoying an economic recovery. This is a significant increase compared with just 2% who believed that in September 2010.
Andrew Gray, UK banking leader at PwC, said: "This prediction is an overall expression of the anticipated economic recovery. We have seen a restocking in the industrial sector and companies are looking at growth plans and business restructuring. In many ways, we have reached a natural point in the economic cycle.
"It is also a response to the political environment. Banks are keen to lend more, particularly to the SME [small and medium-sized enterprise] market segment. Previously, the problem didn't lie with funds availability, but was a result of the businesses' limited borrowing capacity and the banks' stringent lending criteria. The banks are suggesting that the time is now for recovery," he added.
In supplementary questions, the proportion of firms believing the UK's competitiveness as a financial centre to have deteriorated has picked up - to 80% - after falling back over the past two surveys. This is largely due to an increase in the number of finance houses and investment managers believing competitiveness to have deteriorated.
In addition, concerns over the further worsening in the financial markets have become more acute. Seventy-two percent of respondents believe there to be a medium likelihood of another deterioration, the highest proportion since June 2009, and 18% cite a high likelihood (up from 10% in September).
The vast majority (95%) of respondents now believe that 'normal' financial market conditions will resume only beyond six months, which is an increase over the past two quarters.
First published on www.gtnews.com
2011: Challenges Facing Multinationals' Subsidiaries
18 JAN 11
In this Q&A, two treasury experts from Bank of America Merrill Lynch - Jennifer Boussuge and Ciaran Brady - discuss some of the risks subsidiaries face operating globally and in particular within the European emerging markets.
Q (gtnews): What are the biggest challenges facing multinationals’ subsidiaries operating in different regions across the globe?
A (Jennifer Boussuge, International Subsidiary Banking (ISB) treasury sales executive, Global Treasury Solutions, Europe, Middle East and Africa (EMEA), Bank of America Merrill Lynch): In response to what has happened over the few years since the banking crisis, chief financial officers (CFOs) are paying closer attention to how much cash they have, where it is located and invested and to which banks they are exposed. This has a direct impact on multinationals’ subsidiaries - they have faced challenges in sending detailed information to headquarters (HQ), producing accurate cashflow forecasts and creating structures to move liquidity back to HQ, which, in the past, they weren’t asked to do to such an extent. Those companies that haven’t implemented a global banking structure or treasury workstation tool have struggled with these demands, and a lack of control and visibility continue to be challenges.
A (Ciaran Brady, head of ISB, Global Corporate Banking EMEA, Bank of America Merrill Lynch): With the current levels of market uncertainty and disruption, many subsidiaries are faced with resourcing issues as a result of the small number of people on the ground in foreign regions. In many cases these companies have put in place ’business as usual’ transaction-focused shared services or centralised treasury structures. These companies are now faced with a turbulent economic environment that brings much uncertainty into the equation and requires new skill sets from their existing resources. HQ is heavily reliant on these resources to be its local eyes and ears.
A (Boussuge): I think that point is amplified as more companies move into emerging markets. They need to ensure that they have the appropriate information, language, cultural understanding, knowledge of local banking rules and regulations - and we see them looking to their banking providers to advise them and supply these resources and information.
Q (gtnews): What are the main risks facing subsidiaries in regional and local markets? Has this changed from two years ago?
A (Boussuge): Counterparty risk has come to the fore over the past two years. By counterparty risk, I mean two things: first, corporates’ banking partners in the various regions. This type of risk has never had as much attention as it has since the banking crisis. Corporates need to ask themselves whether they have the right banking partner from a risk profile perspective. The second counterparty risk relates to customers and suppliers. Will suppliers be able to continue delivering the goods? We have seen a reduction in open account trading and some suppliers are now requiring letters of credit (LCs) from longstanding customers, following a change in treasury policy usually issued at the HQ level. This can result in strained relations between the local subsidiaries and their suppliers.
A (Brady): In the past multinationals have made decisions around in which countries to locate their global facilities. Today, many of these countries - whether in western Europe or emerging economies - are undergoing significant economic pain. This might mean that some assumptions that the corporate made about that particular country, and the advantages of being located there, could face reassessment as these countries amend their economic policies. For example, will the EU seek to haromise taxation policy? Can Switzerland continue to maintain its low tax regime? How will eastern European economies evolve given the global economic situation?
Corporates are focused on their ability to move cash globally and upcoming opportunities to repatriate - this is certainly the case of US multinationals. There is also concern about market volatility around foreign exchange (FX) and interest rates. Today, we have a very low interest rate environment and therefore holding onto cash or investing it in traditional short term investment products isn’t giving companies much, if any, return. With increasing market risk and limited return possibilities, many companies are re-thinking their investment policies.
Finally, in terms of liquidity risk, which was high on the agenda at the beginning of the crisis, I think companies are now more used to the new environment and have changed their expectations of where they ought to be.
A (Boussuge): With regard to funding and liquidity, reduced levels of working capital have put greater strain on subsidiaries. In some cases, the regular funding from HQ that a subsidiary might have previously taken for granted has dried up as a result of HQ needing the money itself or giving it to a more ‘needy’ subsidiary elsewhere. Most companies have renegotiated their credit terms, requirements and lending with their banks, so much of the uncertainty with regard to funding has already been taken on and dealt with. On the liquidity side, we see companies holding onto their cash as a reaction to what they went through during the past few years. Although I agree with Ciaran that it is not as significant an issue - what I am hearing more is concerns around FX volatility, such as the future of the euro and fluctuations in the US dollar.
Q (gtnews): How important is payables and receivables management? Has the level of importance changed over the past two years?
A (Boussuge): We always say cash is king but it has become much more so over the past few years as funding became more difficult and expensive to secure. A number of subsidiaries have transformed their organisations to become more efficient in the areas of payments and collections.
Days sales outstanding (DSO) has been a challenge for corporates to manage and many have seen this ratio increase. There has also been an increase in supplier clients moving to collection methods such as direct debits as a way of helping them control their collections process. But a lack of credit and the reluctance of some customers to use that method have made this approach challenging. Conversely, on the days payable outstanding (DPO) side, where possible, many corporates are renegotiating their payment terms. With the limited funding available and many subsidiaries fighting for funding from HQ, working capital management (WCM) and cashflow forecasting are significant ongoing challenges. Therefore in answer to the question - absolutely important and even more so in recent times.
A (Brady): We see a discernible trend where our clients are willing to - and see the benefits of - entering into a supply chain finance (SCF) programme, thereby opening up the internal workings of their organisation to a significant partner. They want to secure critical suppliers, and in the current environment many of the large US multinationals for example, are less affected by the credit crisis fallout than their key suppliers. The cost differential between credit for those suppliers and credit for the large multinational client is a very interesting SCF proposition for those companies. Has the level of importance changed? Yes, for the reasons already covered. The focus is there and is expected to remain in place for the foreseeable future.
A (Boussuge): Receivables management is a major challenge - not to say that payables are easy, but they are the easier part. Banks are heavily investing in the quality of data because it is incredibly helpful to clients to standardise data and provide automated reconciliation, in order to apply those receivables more quickly and free up credit lines. In the card arena, more customers are looking at credit card solutions to gain efficiencies and transparency. Corporate HQs are driving this forward, in terms of building policies around global travel and expense management.
Q (gtnews): How can subsidiaries improve their working capital?
A (Boussuge): Maximising liquidity is much more in focus since the crisis with credit tightening. WCM can be improved by maximising liquidity within the company at the subsidiary level with enhanced pooling structures, such as multicurrency notional pooling. Interest optimisation is something that we at Bank of America Merrill Lynch have been discussing with clients to address the whole issue of trapped cash. Subsidiaries with funds in different legal jurisdictions struggle with the ability to realise the value of those funds, as well as not being able to move funds from one region to another. With more and more cross-border activity, companies are beginning to understand the flexibility and cost savings that these solutions can offer. In addition, centralising liquidity by pulling funds from third party banks into a centralised pool can improve WCM.
A (Brady): Because of what happened with certain in-country banks, there is a desire for MNCs to move strategic business to key credit supporting banks - effectively a flight to quality. Corporates want cash centralised because it is more important than ever before, but likewise there is a concern over who exactly their banking partners are and a need to ensure that risk is minimised.
Q (gtnews): Do you see the trend towards centralisation and regional treasury hubs continuing? Why or why not?
A (Boussuge): I see the trend continuing, but maybe not at an accelerated rate. The main reasons are what we have previously discussed - the need for cutting costs, finding efficiencies and leveraging the enterprise resource planning (ERP) system investment. Many clients are still rolling out ERP systems - some that you would have assumed already had them - and so are only now looking at how they can create more centralisation, or regional hubs. Others are looking at creating centres of excellence and are coming to their banks for advice on location and structure.
A (Brady): In our meetings with subsidiaries regarding regional treasury hubs or shared service centres (SSCs), some are raising ‘pain points’ around the complexities of navigating their own organisation in terms of the number of bank accounts and dealing with the associated documentation. However, I think new technology coming down the pipeline will assist in removing those pain points, for example electronic bank account management. Therefore, more clients are looking at regional hubs and asking: “Are there alternative ways to organise? Is the world easier to navigate? Is it possible to develop simpler structures? Have I over-engineered my current solution? Does simplification lead to global centres of excellence, as compared to the current regional set-ups?” Although I don’t think this has developed into a trend yet, I do believe that many corporates are starting to ask these questions.
First published on www.gtnews.com
In this Q&A, two treasury experts from Bank of America Merrill Lynch - Jennifer Boussuge and Ciaran Brady - discuss some of the risks subsidiaries face operating globally and in particular within the European emerging markets.
Q (gtnews): What are the biggest challenges facing multinationals’ subsidiaries operating in different regions across the globe?
A (Jennifer Boussuge, International Subsidiary Banking (ISB) treasury sales executive, Global Treasury Solutions, Europe, Middle East and Africa (EMEA), Bank of America Merrill Lynch): In response to what has happened over the few years since the banking crisis, chief financial officers (CFOs) are paying closer attention to how much cash they have, where it is located and invested and to which banks they are exposed. This has a direct impact on multinationals’ subsidiaries - they have faced challenges in sending detailed information to headquarters (HQ), producing accurate cashflow forecasts and creating structures to move liquidity back to HQ, which, in the past, they weren’t asked to do to such an extent. Those companies that haven’t implemented a global banking structure or treasury workstation tool have struggled with these demands, and a lack of control and visibility continue to be challenges.
A (Ciaran Brady, head of ISB, Global Corporate Banking EMEA, Bank of America Merrill Lynch): With the current levels of market uncertainty and disruption, many subsidiaries are faced with resourcing issues as a result of the small number of people on the ground in foreign regions. In many cases these companies have put in place ’business as usual’ transaction-focused shared services or centralised treasury structures. These companies are now faced with a turbulent economic environment that brings much uncertainty into the equation and requires new skill sets from their existing resources. HQ is heavily reliant on these resources to be its local eyes and ears.
A (Boussuge): I think that point is amplified as more companies move into emerging markets. They need to ensure that they have the appropriate information, language, cultural understanding, knowledge of local banking rules and regulations - and we see them looking to their banking providers to advise them and supply these resources and information.
Q (gtnews): What are the main risks facing subsidiaries in regional and local markets? Has this changed from two years ago?
A (Boussuge): Counterparty risk has come to the fore over the past two years. By counterparty risk, I mean two things: first, corporates’ banking partners in the various regions. This type of risk has never had as much attention as it has since the banking crisis. Corporates need to ask themselves whether they have the right banking partner from a risk profile perspective. The second counterparty risk relates to customers and suppliers. Will suppliers be able to continue delivering the goods? We have seen a reduction in open account trading and some suppliers are now requiring letters of credit (LCs) from longstanding customers, following a change in treasury policy usually issued at the HQ level. This can result in strained relations between the local subsidiaries and their suppliers.
A (Brady): In the past multinationals have made decisions around in which countries to locate their global facilities. Today, many of these countries - whether in western Europe or emerging economies - are undergoing significant economic pain. This might mean that some assumptions that the corporate made about that particular country, and the advantages of being located there, could face reassessment as these countries amend their economic policies. For example, will the EU seek to haromise taxation policy? Can Switzerland continue to maintain its low tax regime? How will eastern European economies evolve given the global economic situation?
Corporates are focused on their ability to move cash globally and upcoming opportunities to repatriate - this is certainly the case of US multinationals. There is also concern about market volatility around foreign exchange (FX) and interest rates. Today, we have a very low interest rate environment and therefore holding onto cash or investing it in traditional short term investment products isn’t giving companies much, if any, return. With increasing market risk and limited return possibilities, many companies are re-thinking their investment policies.
Finally, in terms of liquidity risk, which was high on the agenda at the beginning of the crisis, I think companies are now more used to the new environment and have changed their expectations of where they ought to be.
A (Boussuge): With regard to funding and liquidity, reduced levels of working capital have put greater strain on subsidiaries. In some cases, the regular funding from HQ that a subsidiary might have previously taken for granted has dried up as a result of HQ needing the money itself or giving it to a more ‘needy’ subsidiary elsewhere. Most companies have renegotiated their credit terms, requirements and lending with their banks, so much of the uncertainty with regard to funding has already been taken on and dealt with. On the liquidity side, we see companies holding onto their cash as a reaction to what they went through during the past few years. Although I agree with Ciaran that it is not as significant an issue - what I am hearing more is concerns around FX volatility, such as the future of the euro and fluctuations in the US dollar.
Q (gtnews): How important is payables and receivables management? Has the level of importance changed over the past two years?
A (Boussuge): We always say cash is king but it has become much more so over the past few years as funding became more difficult and expensive to secure. A number of subsidiaries have transformed their organisations to become more efficient in the areas of payments and collections.
Days sales outstanding (DSO) has been a challenge for corporates to manage and many have seen this ratio increase. There has also been an increase in supplier clients moving to collection methods such as direct debits as a way of helping them control their collections process. But a lack of credit and the reluctance of some customers to use that method have made this approach challenging. Conversely, on the days payable outstanding (DPO) side, where possible, many corporates are renegotiating their payment terms. With the limited funding available and many subsidiaries fighting for funding from HQ, working capital management (WCM) and cashflow forecasting are significant ongoing challenges. Therefore in answer to the question - absolutely important and even more so in recent times.
A (Brady): We see a discernible trend where our clients are willing to - and see the benefits of - entering into a supply chain finance (SCF) programme, thereby opening up the internal workings of their organisation to a significant partner. They want to secure critical suppliers, and in the current environment many of the large US multinationals for example, are less affected by the credit crisis fallout than their key suppliers. The cost differential between credit for those suppliers and credit for the large multinational client is a very interesting SCF proposition for those companies. Has the level of importance changed? Yes, for the reasons already covered. The focus is there and is expected to remain in place for the foreseeable future.
A (Boussuge): Receivables management is a major challenge - not to say that payables are easy, but they are the easier part. Banks are heavily investing in the quality of data because it is incredibly helpful to clients to standardise data and provide automated reconciliation, in order to apply those receivables more quickly and free up credit lines. In the card arena, more customers are looking at credit card solutions to gain efficiencies and transparency. Corporate HQs are driving this forward, in terms of building policies around global travel and expense management.
Q (gtnews): How can subsidiaries improve their working capital?
A (Boussuge): Maximising liquidity is much more in focus since the crisis with credit tightening. WCM can be improved by maximising liquidity within the company at the subsidiary level with enhanced pooling structures, such as multicurrency notional pooling. Interest optimisation is something that we at Bank of America Merrill Lynch have been discussing with clients to address the whole issue of trapped cash. Subsidiaries with funds in different legal jurisdictions struggle with the ability to realise the value of those funds, as well as not being able to move funds from one region to another. With more and more cross-border activity, companies are beginning to understand the flexibility and cost savings that these solutions can offer. In addition, centralising liquidity by pulling funds from third party banks into a centralised pool can improve WCM.
A (Brady): Because of what happened with certain in-country banks, there is a desire for MNCs to move strategic business to key credit supporting banks - effectively a flight to quality. Corporates want cash centralised because it is more important than ever before, but likewise there is a concern over who exactly their banking partners are and a need to ensure that risk is minimised.
Q (gtnews): Do you see the trend towards centralisation and regional treasury hubs continuing? Why or why not?
A (Boussuge): I see the trend continuing, but maybe not at an accelerated rate. The main reasons are what we have previously discussed - the need for cutting costs, finding efficiencies and leveraging the enterprise resource planning (ERP) system investment. Many clients are still rolling out ERP systems - some that you would have assumed already had them - and so are only now looking at how they can create more centralisation, or regional hubs. Others are looking at creating centres of excellence and are coming to their banks for advice on location and structure.
A (Brady): In our meetings with subsidiaries regarding regional treasury hubs or shared service centres (SSCs), some are raising ‘pain points’ around the complexities of navigating their own organisation in terms of the number of bank accounts and dealing with the associated documentation. However, I think new technology coming down the pipeline will assist in removing those pain points, for example electronic bank account management. Therefore, more clients are looking at regional hubs and asking: “Are there alternative ways to organise? Is the world easier to navigate? Is it possible to develop simpler structures? Have I over-engineered my current solution? Does simplification lead to global centres of excellence, as compared to the current regional set-ups?” Although I don’t think this has developed into a trend yet, I do believe that many corporates are starting to ask these questions.
First published on www.gtnews.com
UK Faster Payments: The End of the Beginning?
08 Dec 2010
Faster Payments, launched in the UK in May 2008, has received muted attention from corporates, mainly because of the lack of bank reachability and a £10,000 cap on transactions. Will the increase in transaction value to £100,000 make corporates sit up and take notice?
On 6 September 2010, the UK Faster Payments Service (FPS) took a significant step forward by increasing the transaction value limit for Direct Corporate Access (DCA) from £10,000 to £100,000 per transaction. In addition, Barclays - the only bank to offer DCA at present - and CHAPS Co, responsible for the day-to-day operations and management of the service, have entered into discussions to extend Faster Payments to 24/7 by early 2011. This will allow companies to make Faster Payments transactions at the weekend, as well as beyond the 3am-11pm window that they are presently restricted to. With these two developments, corporates may consider giving Faster Payments a second look.
Launched on 27 May 2008 without much fanfare, the FPS has gained little traction in the world of corporates. Much of that has to do with its origination: in May 2005, the Payment Systems Task Force, chaired by the Office of Fair Trading (OFT), announced that the banking industry had to reduce clearing times on phone, internet and standing order payments. The FPS went beyond the remit and delivered a real-time payments infrastructure for the UK.
Originally the OFT focus was on consumer payments, but the 13 founding banks and building societies quickly saw that there was also a business case for the corporate side and as a result developed DCA. DCA allows a company to generate a payments file out of its enterprise resource planning (ERP) system in the back office and send the file directly to the FPS, in a very similar way that Bacstel-IP provides access to Bacs.
But it was a faltering start, not least because FPS was launched just as the banks hit a rocky patch. Norman Taylor, product manager at Experian, says: “It is disappointing that not all banks sponsor DCA, which is direct connectivity to VocaLink [the FPS infrastructure provider]. Barclays went down the route planned for all banks, but has done it alone.” Despite this, Barclays is on target to hit its goal of having 100 companies on DCA by the end of this year.
But the inconsistent roll out has created patchiness in terms of reachability, which has been a major drawback for the banks attempting to market FPS, whether they are using DCA or their proprietary banking channel. As Mark Hale, director at PricewaterhouseCoopers (PwC) Consulting, explains: “Payments is a network business, where the ability to reach all participants in a universal scheme is an important part of the value of a proposition. Where reach is not universal in a market, it makes marketing a proposition much more difficult as well as weakening the service experience if caveats about reach need to be applied.” In 2009 PwC and VocaLink released a report, called ‘Tomorrow Happened Yesterday’ , which lays out business case from both the banks’ and corporates’ perspective.
Although he believes that increasing the cap makes it more amenable to corporate flows, in terms of the number of trade and transactions eligible by amount, it is widely known that the banks are managing much lower limits internally. “Upping the limits will make the scheme more attractive to the corproate market by making more transactions eligible for the scheme. However, the actual impact will vary by service provider since they currently competitively offer different limits as part of their individual market propositions,” he says.
The raising of the limit hasn’t had much effect for Barclays, according to Marcus Bateman, senior product manager, corporate payments product, cash and trade, Barclays Corporate. “The fact that we are receiving very few, if any, payments over £10,000 shows that other banks have not raised their internal channel limits. Therefore, there will be a muted reaction if other banks are not offering it.” He adds that it may take some time before the market sees the effect of the cap change, mainly because customers recruited to date are those working in expectation of a £10,000 limit.
But things may be changing quicker than expected. James Benson, head of market at Direct Debit Limited (DDL), reports that in the past five weeks DDL has onboarded three new customers - two in payroll and a franchise company - and they all approached DDL specifically because of its Faster Payments module. He believes that the increase in cap may be a driver because companies in the payroll space, for example, would gain competitive advantage over those that pay in a three-day clearing cycle.
Where is the Business Case?
The first movers onto the FPS are somewhat diverse - Barclays’ Bateman lists small building societies, merchant acquirers and payroll companies, particularly those that operate in the weekly payroll space - but demand for it has come primarily from those who see great benefit in reacting quickly and don’t want to pay the high price of CHAPS.
There is a lot of activity from companies where the immediate disbursement of funds is fundamental to their business models, for example Mazuma Mobile. The company gives cash for mobile phones: a customer sends the phone and the next day the Mazuma credits their account with Faster Payments. This is great customer service in an environment where there is still a lot of mistrust in conducting business online.
Nick Senechal, service line strategy director at VocaLink, agrees that right now Faster Payments are being used by a significant number of corporates that need to make a large number of payments immediately. “Payday loan companies, for example, are another segment that have moved to Faster Payments because their proposition is immediate financing,” he adds.
He believes that this situation will begin to change as more businesses start to operate more in a real-time environment. “Further down the line, the potential for a higher level of STP [straight-through processing] and automation can be realised with real-time payments. It can be integral to a form of delivery versus payment (DVP), or payment at the moment of delivery. In slow payment economies, companies obtain credit terms from suppliers and extend credit terms to customers. But there is a lot of pressure on that model and everyone can see the attractiveness of improving the efficiency of the economy. Faster Payments can also cut out huge administrative costs because there would be immediate invoice reconciliation.”
PwC’s Hale agrees with the proposition that Faster Payments is relevant to the corporate market and gives a concrete example: “Think of a construction firm that has run out of supplies - it rings up the merchant supplier but the merchant wants cash on delivery and therefore won’t deliver until it receives payment. With Faster Payments, this can be done immediately and the builders can get the supplies in a few hours. Faster Payments has the potential to take the risk out of traditional supply chains.”
The change in business processes can create huge benefits in STP, as mentioned by Senchal. Companies that are now operating with mainly internet transactions have seen vast improvements in trade and contract management, and they have optimised the workflow. What took two days or more to send over the contract, can now happen almost instantaneously. Companies are now asking: why shouldn’t the payment occur at the same moment?
On the flip side, companies are also facing up to the fact that changes in the way payments are made also have a knock-on effect in terms of business processes and procedures. Bateman explains: “In the old Bacs world, payments land in bulk at the start of the day but with Faster Payments they will trickle in 24/7. Therefore, the treasurer’s cash flow is much more linked to when customers are online. And they need to think of what the consequences are in an online world. If they get an instant payment, how long is it reasonable to wait for the balance to show on the customer’s account? In the old world, a company could cite batch and statement printing processes and could take couple of days. With Faster Payments, customers know that the money is moved instantaneously and won’t be as patient in waiting for the balance to show on their account.”
But the benefits outweigh the challenges, and DDL’s Benson believes that companies will want real-time payments. “With the economic uncertainty most companies are facing, getting better control of their cash flow is paramount. If a corporate is dealing in multimillion pounds in volumes of transactions, they can use the FPS to process up to the minute until the end of the day, just in case they had a rejection or needed to make a payment quickly,” he says.
Market Developments
In this age of regulatory overdrive, it would be surprising if there weren’t at least one regulation that had some impact on the adoption rate of Faster Payments. In this case there are two in the near future: the Payment Services Directive (PSD), which will see by 2012 all interbank transfers credited to the beneficiary within one day; and the end of central cheque clearing by 2018, which will see cheque payment processing via other mechanisms.
Experian’s Taylor argues that the big issue on cheque side is that it is not just an overnight job to switch from cheque payments to another mechanism. “It is a big deal because a company has to automate its business processes and applications and the result is a sizable project rather than a quick fix to change from cheques to electronic payments. Those waiting in the wings in terms of Faster Payments are developing a strategy for replacing cheques by 2018.”
He highlights the importance of producing electronic messages alongside the Faster Payment: “You need to tell people you have sent it. Printing and sending a letter through the post is fine with Bacs, but with Faster Payments the use of sms text messaging is coming on strong.”
Beyond regulations, VocaLink’s Senechal believes that a big driver in personal adoption will be mobile banking. “The Payments Council was looking at developing a mobile offering by 2012. Although that went off the boil for a bit, it is now very much back on the agenda,” he says.
Richard Sanders, solution consultant for northern region, wholesale solutions, ACI Worldwide, makes the point that many of ACI’s customers in other markets are very interested in the Faster Payments model. “Within SEPA [single euro payments area], the Middle East, South Africa and Australia - across the world people are developing Faster Payments initatives. We have to be prepared that these other models may also impact UK Faster Payments. They may do things better and smarter, and the UK may have to come back and revisit the scheme,” he says.
Most companies are not interested in a three-day clearing or instantaneous clearing - what they are interested in is certainty of when it leaves their account and when it arrives in the beneficiary’s account. They want to be sure they can manage cash more efficiently.
Craig Ramsay, wholesale solutions lead EMEA, ACI Worldwide, says: “I think we have reached end of the beginning of Faster Payments. It is clearly a network of the future, clearly has more to offer, and certainly has some of the things we need. Does it need more schemes to handle different types of payments? Yes. Does it need channels beyond internet and phone? Yes. Does it need to have more banks to support it? Of course it does.”
First published on www.gtnews.com
Faster Payments, launched in the UK in May 2008, has received muted attention from corporates, mainly because of the lack of bank reachability and a £10,000 cap on transactions. Will the increase in transaction value to £100,000 make corporates sit up and take notice?
On 6 September 2010, the UK Faster Payments Service (FPS) took a significant step forward by increasing the transaction value limit for Direct Corporate Access (DCA) from £10,000 to £100,000 per transaction. In addition, Barclays - the only bank to offer DCA at present - and CHAPS Co, responsible for the day-to-day operations and management of the service, have entered into discussions to extend Faster Payments to 24/7 by early 2011. This will allow companies to make Faster Payments transactions at the weekend, as well as beyond the 3am-11pm window that they are presently restricted to. With these two developments, corporates may consider giving Faster Payments a second look.
Launched on 27 May 2008 without much fanfare, the FPS has gained little traction in the world of corporates. Much of that has to do with its origination: in May 2005, the Payment Systems Task Force, chaired by the Office of Fair Trading (OFT), announced that the banking industry had to reduce clearing times on phone, internet and standing order payments. The FPS went beyond the remit and delivered a real-time payments infrastructure for the UK.
Originally the OFT focus was on consumer payments, but the 13 founding banks and building societies quickly saw that there was also a business case for the corporate side and as a result developed DCA. DCA allows a company to generate a payments file out of its enterprise resource planning (ERP) system in the back office and send the file directly to the FPS, in a very similar way that Bacstel-IP provides access to Bacs.
But it was a faltering start, not least because FPS was launched just as the banks hit a rocky patch. Norman Taylor, product manager at Experian, says: “It is disappointing that not all banks sponsor DCA, which is direct connectivity to VocaLink [the FPS infrastructure provider]. Barclays went down the route planned for all banks, but has done it alone.” Despite this, Barclays is on target to hit its goal of having 100 companies on DCA by the end of this year.
But the inconsistent roll out has created patchiness in terms of reachability, which has been a major drawback for the banks attempting to market FPS, whether they are using DCA or their proprietary banking channel. As Mark Hale, director at PricewaterhouseCoopers (PwC) Consulting, explains: “Payments is a network business, where the ability to reach all participants in a universal scheme is an important part of the value of a proposition. Where reach is not universal in a market, it makes marketing a proposition much more difficult as well as weakening the service experience if caveats about reach need to be applied.” In 2009 PwC and VocaLink released a report, called ‘Tomorrow Happened Yesterday’ , which lays out business case from both the banks’ and corporates’ perspective.
Although he believes that increasing the cap makes it more amenable to corporate flows, in terms of the number of trade and transactions eligible by amount, it is widely known that the banks are managing much lower limits internally. “Upping the limits will make the scheme more attractive to the corproate market by making more transactions eligible for the scheme. However, the actual impact will vary by service provider since they currently competitively offer different limits as part of their individual market propositions,” he says.
The raising of the limit hasn’t had much effect for Barclays, according to Marcus Bateman, senior product manager, corporate payments product, cash and trade, Barclays Corporate. “The fact that we are receiving very few, if any, payments over £10,000 shows that other banks have not raised their internal channel limits. Therefore, there will be a muted reaction if other banks are not offering it.” He adds that it may take some time before the market sees the effect of the cap change, mainly because customers recruited to date are those working in expectation of a £10,000 limit.
But things may be changing quicker than expected. James Benson, head of market at Direct Debit Limited (DDL), reports that in the past five weeks DDL has onboarded three new customers - two in payroll and a franchise company - and they all approached DDL specifically because of its Faster Payments module. He believes that the increase in cap may be a driver because companies in the payroll space, for example, would gain competitive advantage over those that pay in a three-day clearing cycle.
Where is the Business Case?
The first movers onto the FPS are somewhat diverse - Barclays’ Bateman lists small building societies, merchant acquirers and payroll companies, particularly those that operate in the weekly payroll space - but demand for it has come primarily from those who see great benefit in reacting quickly and don’t want to pay the high price of CHAPS.
There is a lot of activity from companies where the immediate disbursement of funds is fundamental to their business models, for example Mazuma Mobile. The company gives cash for mobile phones: a customer sends the phone and the next day the Mazuma credits their account with Faster Payments. This is great customer service in an environment where there is still a lot of mistrust in conducting business online.
Nick Senechal, service line strategy director at VocaLink, agrees that right now Faster Payments are being used by a significant number of corporates that need to make a large number of payments immediately. “Payday loan companies, for example, are another segment that have moved to Faster Payments because their proposition is immediate financing,” he adds.
He believes that this situation will begin to change as more businesses start to operate more in a real-time environment. “Further down the line, the potential for a higher level of STP [straight-through processing] and automation can be realised with real-time payments. It can be integral to a form of delivery versus payment (DVP), or payment at the moment of delivery. In slow payment economies, companies obtain credit terms from suppliers and extend credit terms to customers. But there is a lot of pressure on that model and everyone can see the attractiveness of improving the efficiency of the economy. Faster Payments can also cut out huge administrative costs because there would be immediate invoice reconciliation.”
PwC’s Hale agrees with the proposition that Faster Payments is relevant to the corporate market and gives a concrete example: “Think of a construction firm that has run out of supplies - it rings up the merchant supplier but the merchant wants cash on delivery and therefore won’t deliver until it receives payment. With Faster Payments, this can be done immediately and the builders can get the supplies in a few hours. Faster Payments has the potential to take the risk out of traditional supply chains.”
The change in business processes can create huge benefits in STP, as mentioned by Senchal. Companies that are now operating with mainly internet transactions have seen vast improvements in trade and contract management, and they have optimised the workflow. What took two days or more to send over the contract, can now happen almost instantaneously. Companies are now asking: why shouldn’t the payment occur at the same moment?
On the flip side, companies are also facing up to the fact that changes in the way payments are made also have a knock-on effect in terms of business processes and procedures. Bateman explains: “In the old Bacs world, payments land in bulk at the start of the day but with Faster Payments they will trickle in 24/7. Therefore, the treasurer’s cash flow is much more linked to when customers are online. And they need to think of what the consequences are in an online world. If they get an instant payment, how long is it reasonable to wait for the balance to show on the customer’s account? In the old world, a company could cite batch and statement printing processes and could take couple of days. With Faster Payments, customers know that the money is moved instantaneously and won’t be as patient in waiting for the balance to show on their account.”
But the benefits outweigh the challenges, and DDL’s Benson believes that companies will want real-time payments. “With the economic uncertainty most companies are facing, getting better control of their cash flow is paramount. If a corporate is dealing in multimillion pounds in volumes of transactions, they can use the FPS to process up to the minute until the end of the day, just in case they had a rejection or needed to make a payment quickly,” he says.
Market Developments
In this age of regulatory overdrive, it would be surprising if there weren’t at least one regulation that had some impact on the adoption rate of Faster Payments. In this case there are two in the near future: the Payment Services Directive (PSD), which will see by 2012 all interbank transfers credited to the beneficiary within one day; and the end of central cheque clearing by 2018, which will see cheque payment processing via other mechanisms.
Experian’s Taylor argues that the big issue on cheque side is that it is not just an overnight job to switch from cheque payments to another mechanism. “It is a big deal because a company has to automate its business processes and applications and the result is a sizable project rather than a quick fix to change from cheques to electronic payments. Those waiting in the wings in terms of Faster Payments are developing a strategy for replacing cheques by 2018.”
He highlights the importance of producing electronic messages alongside the Faster Payment: “You need to tell people you have sent it. Printing and sending a letter through the post is fine with Bacs, but with Faster Payments the use of sms text messaging is coming on strong.”
Beyond regulations, VocaLink’s Senechal believes that a big driver in personal adoption will be mobile banking. “The Payments Council was looking at developing a mobile offering by 2012. Although that went off the boil for a bit, it is now very much back on the agenda,” he says.
Richard Sanders, solution consultant for northern region, wholesale solutions, ACI Worldwide, makes the point that many of ACI’s customers in other markets are very interested in the Faster Payments model. “Within SEPA [single euro payments area], the Middle East, South Africa and Australia - across the world people are developing Faster Payments initatives. We have to be prepared that these other models may also impact UK Faster Payments. They may do things better and smarter, and the UK may have to come back and revisit the scheme,” he says.
Most companies are not interested in a three-day clearing or instantaneous clearing - what they are interested in is certainty of when it leaves their account and when it arrives in the beneficiary’s account. They want to be sure they can manage cash more efficiently.
Craig Ramsay, wholesale solutions lead EMEA, ACI Worldwide, says: “I think we have reached end of the beginning of Faster Payments. It is clearly a network of the future, clearly has more to offer, and certainly has some of the things we need. Does it need more schemes to handle different types of payments? Yes. Does it need channels beyond internet and phone? Yes. Does it need to have more banks to support it? Of course it does.”
First published on www.gtnews.com
Thursday, 2 December 2010
TMS Functionality: Risk, SWIFT and SaaS
26 Oct 10
Today, treasurers are leaning harder on their treasury management systems (TMS) to provide an accurate, global view of their business. This article looks at the new functionality on offer, in a quest for the all-singing, all-dancing TMS. Includes the gtnews buyer's guide to TMS as a free download.
The uncertainty in the global financial markets has caused corporate treasurers many headaches, particularly regarding credit availability, monitoring and managing counterparty risk, and incoming regulations that might affect banking, tax and accounting.
Corporate treasurers are increasingly kept awake at night worrying about a lack of cash visibility and accurate cash flow forecasting. Limited control and transparency makes it difficult for treasurers to view their global cash position and optimise working capital across all their banking relationships. They need to get meaningful and timely information across a multitude of systems.
Kevin Grant, chief executive officer (CEO) at IT2, says that recent treasury trends can be broken down into pre- and post-global financial crisis. “Before the crisis, the focus was quite diverse and included straight-through processing (STP) and process management, different aspects of risk management, such as scenario analysis and VaR [value-at-risk], SOX [Sarbanes-Oxley] compliance, and new accounting regulations such as FAS 133, FAS 157 and IAS 39. The reaction to the crisis provoked quite a dramatic change, with the emphasis shifting to functionality supporting the new priorities of enterprise-wide cash and counterparty exposure visibility, which are, arguably, a shift back to basics.
“This new focus has encouraged higher levels of treasury connectivity with banks and internal remote business units, for example via SWIFT and corporate intranets, to ensure that complete and up-to-date information is collected from around and beyond the corporate enterprise,” he adds.
In addition, the treasurer’s role is expanding to include oversight in areas not hitherto under a treasurer’s remit. Paul Bramwell, senior vice president of treasury solutions for SunGard’s AvantGard, says that while the workload is increasing, the number of people to do the job remains the same or diminishes. He believes that there is a desperate need for automation tools to manage the redundant manual processes.
This is where treasury management systems (TMS) step into the picture. As Justin Meadows, CEO of MyTreasury, an electronic trading platform, says: “The TMS should be the golden system - the driving centre for treasurers and everything that they do. It needs to be fully integrated and be able to provide an overview of all data that the treasurer would want, down to the most detailed level and up to dashboard level, with warning alerts, etc.”
And many TMS vendors are responding to the challenge. Over the past two or three years, according to Paul Wheeler, managing director for Wallstreet Treasury at Wall Street Systems, the level of functionality has become functionally rich and more stable, even down to the lower end of the mid-tier in terms of products.
Improved Functionality
Three areas of new functionality that have made an impact in the past few years include:
Business intelligence, risk and reporting capabilities
Alongside a general back-to-basics approach, there is a re-emergence of concerns about risk management and the ability to identify and control those risks. As a direct result of the economic climate, greater pressure has been put on corporates to embrace the treasury’s role in risk at a business level. Up-to-date information is now required on demand.
Bramwell says: “There is a more consolidated focus on being able to identify where risks lie and treasury is using technology to automate the process of highlighting and identifying the risk. The platforms are there to identify exposures, whether that’s cash, FX [foreign exchange], interest rate risk or credit risk.”
Wheeler believes that the industry is beginning to find ways to get closer to the overall risk cycle of a business: “TMS vendors are beginning to embrace the fact that the treasury function is needing to holistically manage exposure across the broader business than just treasury. We see treasury’s remit expanding and it comes down to having very solid information around the total business, not just what historically might have passed through treasury.”
SWIFT connectivity
The crisis brought counterparty risk, in terms of banking partners, to the fore and therefore the opening up of SWIFT to corporates has to some extent relieved the reliance on bank proprietary connectivity. Corporates can now join SWIFT directly through a Member Administered Closed User Group (MA-CUG), Standardised Corporate Environment (SCORE) or Alliance Lite, or outsource their connectivity to a SWIFT service bureau. Corporates want to become more bank independent/agnostic and gain the ability to switch banks more easily.
According to Joergen Jensen, director at Nasarius, a cash and treasury management consultancy in the Nordic region, SWIFT is now becoming a standard way of integrating to banks, not just for corporate TMS but all payment systems. This point hits on the second reason why corporates are changing their bank connectivity - to improve the visibility of their cash across all their banks.
That enhanced level of connectivity allows treasury to be able to provide an ‘as real-time as possible’ view on exactly where its cash lies within the business. “I suffered through that in my previous life in corporate treasury,” says SunGard’s Bramwell, “where I just didn’t have access to those kind of balances, despite having subsidiaries reporting cash balances and local debt. The moment you find out that that level of reporting is inaccurate is when there’s a disaster.” He believes that SWIFT has been part of an improvement in visibility and accuracy.
SunGard is exploring the idea of a bank aggregation portal, where it uses SWIFT connections to provide a global view of a firm’s cash, beyond just what sits inside the treasury application. “Many companies want their subsidiaries to be able to remotely check their balances, search for outstanding transactions, etc, but wouldn’t necessarily want to give them access to a treasury application,” says Bramwell. “Therefore an aggregation portal is something that can be useful. It’s outside the core treasury application and can be deployed as a service in the cloud that’s hosted and managed by SunGard, for example, and used by corporates as and when they need it.”
Delivering via SaaS or cloud
Bramwell touched on the latest trend in terms of technology: software-as-a-service (SaaS) or cloud technology, where the TMS is hosted by the vendor, effectively outsourcing the technology and maintenance.
Wallstreet’s Wheeler explains: “Because there’s been significant retraction of investments around internal IT focus in treasury, treasurers have been left a lot more to their own devices to manage IT - some have even become IT specialists, certainly in the mid-tier. Therefore, many are keen to lean on the vendors to begin to take that burden away from them.”
Wheeler believes that the SaaS offering has matured so much in the crisis period that it is no longer a fad - it has become the norm. “Treasury won’t subside back to installed solutions,” he says. “Clients are saying that they are going to adopt this approach even more now that their budgets are opening out. They are beginning to look to the future.”
Many look to SaaS solutions as a quick way to deploy solutions to gain greater control. Martin Bellin, general manager of BELLIN, a web-based integrated treasury management platform used by Virgin Atlantic and Semikron, says that BELLIN’s fastest roll out was four weeks, but usually it takes about two to three months. “The idea is a web-based TMS, which can be deployed quickly and doesn’t require expertise to use,” says Bellin. “One of our partners calls it ‘glocal’ because it’s global and local at the same time.”
On the Cusp - Emerging Functionality
eBAM and personal digital signatures
SWIFT has been developing electronic bank account management (eBAM) and, hand in hand, personal digital signatures or SWIFT Secure Signature Key (3SKey), which enables eBAM. eBAM is a way for corporates to take control of their bank accounts and know who their signatories are, where they are, etc, effectively having all the mandates under central control. SWIFT has been working with banks and corporates in pilot programmes and launched eBAM in April, while it plans to launch 3SKey in October.
Commodity hedging
Commodities are something that an increasing number of corporates want to hedge and are therefore asking their TMS supplier to deliver this functionality. Nasarius’ Jensen says: “This is something where maybe five years ago treasurers were content - either they did not do commodity hedging or they were trying to manage it in Excel or with workarounds in their treasury system using FX instruments. But this was not a good solution because of its limited functionality, particularly with regards to reporting.”
Due to new environmental legislation, many corporate now want to trade CO2 emissions. “More companies suddenly want to be able to trade emissions and are asking for support within the system, particularly if they want to do hedge accounting,” says Jensen. “I think the systems providers are now adding more functionality to commodities on the instrument side and also in terms of handling the hedge accounting functionality, which is quite complex.”
Areas of Improvement
Cash flow forecasting
One area where treasurers are calling out for help is the whole world of cash forecasting. Zanders consultant, Mark Taylor, explains that it is so difficult to do because it is still heavily dependent on human input: “Forecasting is not a specific science, is it? It’s an art which uses statistical techniques and models, but different industry sectors, companies and people use different inputs and techniques.”
Speaking from experience, SunGard’s Bramwell says: “In my day in corporate treasury, one of the things that we were insistent upon was that we needed useful information in terms of forecasts, so that we knew what we were hedging. Because without forecast information, you are just guessing what you’re hedging, and you may actually end up creating exposures instead of reducing them.”
IT2’s Grant believes that the role of a TMS in supporting easier cash flow forecasting is to offer a user-friendly, web-based solution, ideally reflecting local style and terminology so that the forecast process is easy to use - and is therefore more likely to be used more effectively.
“Forecasting entities should certainly receive analytical feedback on their performance, and perhaps receive some kind of pricing benefit from the in-house bank for good forecasting performance,” he says. With today’s web-based technology and connectivity, barriers are more likely to be behavioural as opposed to technical, so treasurers need to communicate sensitively and interactively when rolling out a forecasting solution.”
Integration/interoperability
Although previously treasurers might have had a transaction management package and then export data into a risk management system for valuations, for example, Jensen says that today treasurers expect everything in one package with integration across the whole group worldwide, as well as integration with the enterprise resource planning (ERP) systems.
But there is still work to be done in this area. Andrea Klein, vice president global financial services, Oracle, says: “TMS have been integrated with ERP applications, but this has been done through proprietary, custom integration. Thus, if a treasurer wants to change either the TMS or ERP on their side, or the bank wants to change payment applications or cash management systems on its side, the process is long and costly.”
Klein believes that building integration and ensuring data consistency across various systems has a worthwhile payback and return on investment (ROI) in terms of automation, controls, security, and better decision-making.
Trading
MyTreasury’s Meadows highlights that trading is a key part of what treasurers do - yet most TMS do not do multi-supplier trading. “They are more focused on the cash management side, trade booking, processing and confirmation matching, position reporting, etc. It is surprising that you can’t actually generate and execute a trade from a TMS, either through its own internal capability or by interfacing with a platform such as ours,” he says.
Today corporates set up trades within their TMS on the basis of the information there, and then simply export those to a trading platform where they are executed automatically. Once executed, they are inputted back into the TMS.
Some TMS vendors have integrated trading functionality. SunGard has its own SGN money market portal, for example, where a corporate can trade online for money market fund (MMF) investments. “As soon as you enter the trade, the transaction is brought into the system automatically; it’s confirmed, and settled automatically. And, of course, any balances are held within the TMS, as well as the trading portal,” says Bramwell.
The All Singing, All Dancing TMS
Zanders’ Taylor comments that vendors have long been racing towards an ‘all singing, all dancing’ TMS, which did everything that everybody wanted. This has been helped in some ways by consolidation in the marketplace; this year alone, Wall Street Systems bought both City Financials and Speranza Systems.
But the question remains, is a treasury better served by a vendor whose support team is covering multiple products, or is fully focused on one product? MyTreasury’s Meadows thinks that it is better to have specialist platforms and integrate them with TMS providers at the outset.
“If it is built in-house, then it will end up being the lowest common denominator and won’t address all the specialist needs. However, I can envisage a situation where the trading part is viewed as an integrated element of the whole treasury management function, and therefore is embedded within TMS. But I think it will have to be through the acquisition of a specialist supplier, and integration of that product into the overall product suite,” he says.
Should TMS providers look to be ‘all singing, all dancing’ or should they look more to interoperability and partnering? IT2’s Grant believes that the answer is both. “It is clearly desirable to have all necessary treasury management functionality available in a single system, and it is also necessary to integrate with complementary external systems,” he says. “Technically, the ideal may be pictured as a functionally complete TMS solution, based on a single central database that is updated in real time, robustly integrated with essential external systems. This approach minimises synchronisation and other technical, timing issues, and helps to assure that reporting is instantaneous, up-to-date and accurate, by eliminating unnecessary islands of technology.”
Oracle’s Klein reminds us that ERP vendors are expanding deeper into TMS territory: “ERP systems continue to take market share from legacy TMS providers as customers recognise that the ERP functionality improvements over the last 10 years now address most - if not all - of their core treasury requirements. In addition, they are starting to see that embedded integration offers tangible business benefits to both the treasury department and to IT. It makes sense to evaluate them as part of the TMS decision-making process.”
First published on www.gtnews.com
Today, treasurers are leaning harder on their treasury management systems (TMS) to provide an accurate, global view of their business. This article looks at the new functionality on offer, in a quest for the all-singing, all-dancing TMS. Includes the gtnews buyer's guide to TMS as a free download.
The uncertainty in the global financial markets has caused corporate treasurers many headaches, particularly regarding credit availability, monitoring and managing counterparty risk, and incoming regulations that might affect banking, tax and accounting.
Corporate treasurers are increasingly kept awake at night worrying about a lack of cash visibility and accurate cash flow forecasting. Limited control and transparency makes it difficult for treasurers to view their global cash position and optimise working capital across all their banking relationships. They need to get meaningful and timely information across a multitude of systems.
Kevin Grant, chief executive officer (CEO) at IT2, says that recent treasury trends can be broken down into pre- and post-global financial crisis. “Before the crisis, the focus was quite diverse and included straight-through processing (STP) and process management, different aspects of risk management, such as scenario analysis and VaR [value-at-risk], SOX [Sarbanes-Oxley] compliance, and new accounting regulations such as FAS 133, FAS 157 and IAS 39. The reaction to the crisis provoked quite a dramatic change, with the emphasis shifting to functionality supporting the new priorities of enterprise-wide cash and counterparty exposure visibility, which are, arguably, a shift back to basics.
“This new focus has encouraged higher levels of treasury connectivity with banks and internal remote business units, for example via SWIFT and corporate intranets, to ensure that complete and up-to-date information is collected from around and beyond the corporate enterprise,” he adds.
In addition, the treasurer’s role is expanding to include oversight in areas not hitherto under a treasurer’s remit. Paul Bramwell, senior vice president of treasury solutions for SunGard’s AvantGard, says that while the workload is increasing, the number of people to do the job remains the same or diminishes. He believes that there is a desperate need for automation tools to manage the redundant manual processes.
This is where treasury management systems (TMS) step into the picture. As Justin Meadows, CEO of MyTreasury, an electronic trading platform, says: “The TMS should be the golden system - the driving centre for treasurers and everything that they do. It needs to be fully integrated and be able to provide an overview of all data that the treasurer would want, down to the most detailed level and up to dashboard level, with warning alerts, etc.”
And many TMS vendors are responding to the challenge. Over the past two or three years, according to Paul Wheeler, managing director for Wallstreet Treasury at Wall Street Systems, the level of functionality has become functionally rich and more stable, even down to the lower end of the mid-tier in terms of products.
Improved Functionality
Three areas of new functionality that have made an impact in the past few years include:
Business intelligence, risk and reporting capabilities
Alongside a general back-to-basics approach, there is a re-emergence of concerns about risk management and the ability to identify and control those risks. As a direct result of the economic climate, greater pressure has been put on corporates to embrace the treasury’s role in risk at a business level. Up-to-date information is now required on demand.
Bramwell says: “There is a more consolidated focus on being able to identify where risks lie and treasury is using technology to automate the process of highlighting and identifying the risk. The platforms are there to identify exposures, whether that’s cash, FX [foreign exchange], interest rate risk or credit risk.”
Wheeler believes that the industry is beginning to find ways to get closer to the overall risk cycle of a business: “TMS vendors are beginning to embrace the fact that the treasury function is needing to holistically manage exposure across the broader business than just treasury. We see treasury’s remit expanding and it comes down to having very solid information around the total business, not just what historically might have passed through treasury.”
SWIFT connectivity
The crisis brought counterparty risk, in terms of banking partners, to the fore and therefore the opening up of SWIFT to corporates has to some extent relieved the reliance on bank proprietary connectivity. Corporates can now join SWIFT directly through a Member Administered Closed User Group (MA-CUG), Standardised Corporate Environment (SCORE) or Alliance Lite, or outsource their connectivity to a SWIFT service bureau. Corporates want to become more bank independent/agnostic and gain the ability to switch banks more easily.
According to Joergen Jensen, director at Nasarius, a cash and treasury management consultancy in the Nordic region, SWIFT is now becoming a standard way of integrating to banks, not just for corporate TMS but all payment systems. This point hits on the second reason why corporates are changing their bank connectivity - to improve the visibility of their cash across all their banks.
That enhanced level of connectivity allows treasury to be able to provide an ‘as real-time as possible’ view on exactly where its cash lies within the business. “I suffered through that in my previous life in corporate treasury,” says SunGard’s Bramwell, “where I just didn’t have access to those kind of balances, despite having subsidiaries reporting cash balances and local debt. The moment you find out that that level of reporting is inaccurate is when there’s a disaster.” He believes that SWIFT has been part of an improvement in visibility and accuracy.
SunGard is exploring the idea of a bank aggregation portal, where it uses SWIFT connections to provide a global view of a firm’s cash, beyond just what sits inside the treasury application. “Many companies want their subsidiaries to be able to remotely check their balances, search for outstanding transactions, etc, but wouldn’t necessarily want to give them access to a treasury application,” says Bramwell. “Therefore an aggregation portal is something that can be useful. It’s outside the core treasury application and can be deployed as a service in the cloud that’s hosted and managed by SunGard, for example, and used by corporates as and when they need it.”
Delivering via SaaS or cloud
Bramwell touched on the latest trend in terms of technology: software-as-a-service (SaaS) or cloud technology, where the TMS is hosted by the vendor, effectively outsourcing the technology and maintenance.
Wallstreet’s Wheeler explains: “Because there’s been significant retraction of investments around internal IT focus in treasury, treasurers have been left a lot more to their own devices to manage IT - some have even become IT specialists, certainly in the mid-tier. Therefore, many are keen to lean on the vendors to begin to take that burden away from them.”
Wheeler believes that the SaaS offering has matured so much in the crisis period that it is no longer a fad - it has become the norm. “Treasury won’t subside back to installed solutions,” he says. “Clients are saying that they are going to adopt this approach even more now that their budgets are opening out. They are beginning to look to the future.”
Many look to SaaS solutions as a quick way to deploy solutions to gain greater control. Martin Bellin, general manager of BELLIN, a web-based integrated treasury management platform used by Virgin Atlantic and Semikron, says that BELLIN’s fastest roll out was four weeks, but usually it takes about two to three months. “The idea is a web-based TMS, which can be deployed quickly and doesn’t require expertise to use,” says Bellin. “One of our partners calls it ‘glocal’ because it’s global and local at the same time.”
On the Cusp - Emerging Functionality
eBAM and personal digital signatures
SWIFT has been developing electronic bank account management (eBAM) and, hand in hand, personal digital signatures or SWIFT Secure Signature Key (3SKey), which enables eBAM. eBAM is a way for corporates to take control of their bank accounts and know who their signatories are, where they are, etc, effectively having all the mandates under central control. SWIFT has been working with banks and corporates in pilot programmes and launched eBAM in April, while it plans to launch 3SKey in October.
Commodity hedging
Commodities are something that an increasing number of corporates want to hedge and are therefore asking their TMS supplier to deliver this functionality. Nasarius’ Jensen says: “This is something where maybe five years ago treasurers were content - either they did not do commodity hedging or they were trying to manage it in Excel or with workarounds in their treasury system using FX instruments. But this was not a good solution because of its limited functionality, particularly with regards to reporting.”
Due to new environmental legislation, many corporate now want to trade CO2 emissions. “More companies suddenly want to be able to trade emissions and are asking for support within the system, particularly if they want to do hedge accounting,” says Jensen. “I think the systems providers are now adding more functionality to commodities on the instrument side and also in terms of handling the hedge accounting functionality, which is quite complex.”
Areas of Improvement
Cash flow forecasting
One area where treasurers are calling out for help is the whole world of cash forecasting. Zanders consultant, Mark Taylor, explains that it is so difficult to do because it is still heavily dependent on human input: “Forecasting is not a specific science, is it? It’s an art which uses statistical techniques and models, but different industry sectors, companies and people use different inputs and techniques.”
Speaking from experience, SunGard’s Bramwell says: “In my day in corporate treasury, one of the things that we were insistent upon was that we needed useful information in terms of forecasts, so that we knew what we were hedging. Because without forecast information, you are just guessing what you’re hedging, and you may actually end up creating exposures instead of reducing them.”
IT2’s Grant believes that the role of a TMS in supporting easier cash flow forecasting is to offer a user-friendly, web-based solution, ideally reflecting local style and terminology so that the forecast process is easy to use - and is therefore more likely to be used more effectively.
“Forecasting entities should certainly receive analytical feedback on their performance, and perhaps receive some kind of pricing benefit from the in-house bank for good forecasting performance,” he says. With today’s web-based technology and connectivity, barriers are more likely to be behavioural as opposed to technical, so treasurers need to communicate sensitively and interactively when rolling out a forecasting solution.”
Integration/interoperability
Although previously treasurers might have had a transaction management package and then export data into a risk management system for valuations, for example, Jensen says that today treasurers expect everything in one package with integration across the whole group worldwide, as well as integration with the enterprise resource planning (ERP) systems.
But there is still work to be done in this area. Andrea Klein, vice president global financial services, Oracle, says: “TMS have been integrated with ERP applications, but this has been done through proprietary, custom integration. Thus, if a treasurer wants to change either the TMS or ERP on their side, or the bank wants to change payment applications or cash management systems on its side, the process is long and costly.”
Klein believes that building integration and ensuring data consistency across various systems has a worthwhile payback and return on investment (ROI) in terms of automation, controls, security, and better decision-making.
Trading
MyTreasury’s Meadows highlights that trading is a key part of what treasurers do - yet most TMS do not do multi-supplier trading. “They are more focused on the cash management side, trade booking, processing and confirmation matching, position reporting, etc. It is surprising that you can’t actually generate and execute a trade from a TMS, either through its own internal capability or by interfacing with a platform such as ours,” he says.
Today corporates set up trades within their TMS on the basis of the information there, and then simply export those to a trading platform where they are executed automatically. Once executed, they are inputted back into the TMS.
Some TMS vendors have integrated trading functionality. SunGard has its own SGN money market portal, for example, where a corporate can trade online for money market fund (MMF) investments. “As soon as you enter the trade, the transaction is brought into the system automatically; it’s confirmed, and settled automatically. And, of course, any balances are held within the TMS, as well as the trading portal,” says Bramwell.
The All Singing, All Dancing TMS
Zanders’ Taylor comments that vendors have long been racing towards an ‘all singing, all dancing’ TMS, which did everything that everybody wanted. This has been helped in some ways by consolidation in the marketplace; this year alone, Wall Street Systems bought both City Financials and Speranza Systems.
But the question remains, is a treasury better served by a vendor whose support team is covering multiple products, or is fully focused on one product? MyTreasury’s Meadows thinks that it is better to have specialist platforms and integrate them with TMS providers at the outset.
“If it is built in-house, then it will end up being the lowest common denominator and won’t address all the specialist needs. However, I can envisage a situation where the trading part is viewed as an integrated element of the whole treasury management function, and therefore is embedded within TMS. But I think it will have to be through the acquisition of a specialist supplier, and integration of that product into the overall product suite,” he says.
Should TMS providers look to be ‘all singing, all dancing’ or should they look more to interoperability and partnering? IT2’s Grant believes that the answer is both. “It is clearly desirable to have all necessary treasury management functionality available in a single system, and it is also necessary to integrate with complementary external systems,” he says. “Technically, the ideal may be pictured as a functionally complete TMS solution, based on a single central database that is updated in real time, robustly integrated with essential external systems. This approach minimises synchronisation and other technical, timing issues, and helps to assure that reporting is instantaneous, up-to-date and accurate, by eliminating unnecessary islands of technology.”
Oracle’s Klein reminds us that ERP vendors are expanding deeper into TMS territory: “ERP systems continue to take market share from legacy TMS providers as customers recognise that the ERP functionality improvements over the last 10 years now address most - if not all - of their core treasury requirements. In addition, they are starting to see that embedded integration offers tangible business benefits to both the treasury department and to IT. It makes sense to evaluate them as part of the TMS decision-making process.”
First published on www.gtnews.com
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