Cash management debate: Show me the money
Cash management debate: Learn more about the panelists
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Executive summary
• The crisis has fundamentally altered the relationship between bank and customer with complex and conflicting results.
• Credit scarcity and pricing is a core driver of improvements in liquidity management.
• Clients may face reduced choice and higher pricing.
• Multi-bank not proprietary is key throughout the business, bringing with it increased emphasis on SWIFT, XML and the partner banking model.
• White-labelling will become increasingly common, with effects on the multi-bank model.
• Sepa is now becoming a real driver and benefit. |
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Jack Large The crisis has changed the relationship between customer and bank in a complex way. Credit scarcity gives banks that have balance sheet pricing power and the ability to demand profitable, sustainable business from customers regardless of their track record in the transaction services business. Economic conditions make banks warier about their own customers. But on the other hand, the possibility of bank failure makes customers less willing to concentrate their business on a few institutions. How do these conflicting forces get resolved and what are the effects?
RT, HSBC Post crisis, there are fewer banks able to deliver the services clients need on a regional or global basis. A key for us has been to enter into relationships with the right relationship return and where business is long-term and sustainable. Credit has been scarce and we need to manage that for the right returns. This is true of other banks. This implies an increasingly special relationship with existing and new clients and franker discussions about these things than before. There are fewer banks in lending groups and some previously core transaction banks have been replaced in those groups with banks with different strengths, and clients are having to apportion their business to this new group. That has been an increasing trend in the past year and a factor that corporate treasurers have had to deal with.
VP, FCC This is a big change. A key criterion for us now in choosing a bank is that we want to give our business to the banks that are able to put their balance sheets to work for us. The banking industry, in my opinion, is going to change in that respect and corporates have also to reallocate businesses or products to different banks in terms of the return on capital that the different banks derive from us. We understand that and we are measuring how much return we are offering to the bank in order for the bank to commit adequate balance sheet when we need it. This is going to be a key issue that changes client/bank relationships.
Jack Large So that is how it affects the customer in terms of price and choice. What about how the client reacts to a perceived increase in counterparty risk?
LW, RBS Clearly, if the clients’ emphasis is on counterparty risk, then the move towards single-bank models will slow – which it has – and so banks need to have delivery models – through liquidity structures or technology, for example, Swift connectivity – that can include multiple banks without losing efficiencies. If, for example, you wanted to bank with two banks in a country, or three to four banks across a region, you should not be prevented from leveraging the benefits you would achieve through a centralized model. Banks need to be more open and change their models to enable this.
This can have some remarkable effects. For example, RBS and Deutsche Bank share a big German customer’s cash management business. We are each other’s contingency plan. Therefore, the customer can very easily move to the other bank’s platform, through the tools and technology we use.
MK, Panalpina Our biggest issue was counterparty risk since we do a lot of business globally with one big bank. What happened if that bank was not able to execute our payments anymore? That was a big issue for us because we have to pay a lot up front in order that the plane takes off with all our cargo on it. So we needed a contingency plan and we didn’t get to a full solution. I was astonished to hear what RBS and Deutsche managed.
PF, BNP Paribas Yes. The increased emphasis on risk has changed the relationship. The model of a single global bank is no longer the goal it once was and instead corporates are seeking to diversify their banking relationships whilst maintaining cash management efficiency. These trends are resulting in corporate treasurers making more thoughtful decisions about their banking partners. Rather than seeking a single bank, which might require compromise in terms of coverage in certain regions, or access to services, or looking solely at risk as their bank selection criterion, treasurers are now looking at a range of factors including geographic coverage, access to products and services, technology and accessibility, cost effectiveness and quality of customer service. That said, as Robin points out, banks too have become more selective in the clients that they are able to support as their perception of risk has changed.
DG, Charter I don’t like the use of the term "counterparty risk" in isolation. I see it as part of supplier risk; no different, say, to the way we view our steel suppliers or other service providers. Counterparty risk alone can make people think narrowly on where they put cash but a bank is handling a key asset or providing an important service for me.
DM, Deutsche We are a vendor. I think that is a good way to think about it. That is increasingly how we try to think about it.
Jack Large Is this a big change?
DM, Deutsche I think so. Part of it has to do with understanding. We have been talking about shared service centres and payment factories for a long time, but banks were not comfortable with talking about factories and automation and that is exactly how we should think about it. If you look at our strategy around operations we absolutely treat this as if we were an automotive plant: we focus on this in terms of building efficiency, looking for light processes, putting them together; we have a global sourcing strategy so it is not just the race to India; we source from around the world and we do that both to get access to labour pools as well as to do labour cost arbitrage as well as for disaster recovery and this has accelerated a lot over the past five years.
