International cash management banks adapt to a tough new world

Laurence Neville
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Cash management banks are having to adapt their business models to face tough economic realities, regulatory imperatives, technological innovations and the ever-growing expectations of their clients, writes Laurence Neville.

Banks active in international cash management face numerous challenges. The moribund economic climate in much of the developed world means that uncertainty prevails: as a result, both clients and banks are cautious about investing. At the same time, the need for investment continues to grow: banking is in the middle of a profound – and costly – regulatory upheaval while the pace of technological innovation has accelerated.

“The background of continued economic uncertainty has brought many changes to transaction banks and the clients they serve,” says Karin Flinspach, EMEA head of payments and receivables at Citi Transaction Services. “The three years leading to 2012 were extremely tough,” agrees Carole Berndt, head of global transaction services at Bank of America Merrill Lynch. “Crisis became business as usual. At corporates and banks, our agility and ability to manage uncertainty increased exponentially and, by necessity, adapted and became more resilient.”

According to Michael Spiegel, global head of trade finance and cash management, corporates, global transaction banking at Deutsche Bank, treasurers are looking for three elements with respect to cash management. “These are greater visibility of global cash positions, improved cash control and easy access to a range of investment management options and solutions. The common theme is that they allow treasurers to optimize available resources and decrease dependency on external sources of funding. As market uncertainty continues, the need for visibility, control and alternative cash and liquidity management options will only intensify.” His colleague Shahrokh Moinian, global head, corporate cash management committee, global transaction banking, adds: “Corporate treasurers are eager to take the treasury function to the next level by adding value and increasing efficiencies.”

Berndt agrees that continued uncertainty means that corporates continue to take a back-to-basics approach to cash management. “There is a focus on transparent cash and risk management: knowing where money is; having the tools and processes in place that allow it to be moved quickly in different currencies and across different geographies; and monitoring day-to-day, or even hour-by-hour, positions,” she says. “Today’s treasurer has to do more with less, so technology that automates procedures and processes, and frees up precious time and resources, is essential.”

The uncertain economic backdrop is leading many corporates to increase their focus on internal efficiencies and cost reduction, with corporates pursuing standardization and centralization to achieve these aims, according to Flinspach,. “Clients operating centralized shared service centres (SSCs) are seeking to include additional functions within them,” she notes. In the past year there has been an increased focus by corporates with SSCs on incorporating procurement and human resources-related processes, such as payroll activities, into them. As centralization continues, the demand for standardized solutions across markets and products has increased. “Against this background, clients with decentralized operations are seeking to achieve efficiencies in cash management by rationalizing bank partners and technology infrastructures,” adds Flinspach.

According to George Nast, global head of products, transaction banking, at Standard Chartered, the concerns and behaviour of corporates differed markedly during different periods of 2012 and also differed according to the region in which companies where based. “In the earlier part of the year, corporates prepared for an uncertain economic outlook by shoring up their cash holdings,” he says. “This was especially the case for US and European treasurers who had risk management and the security of their cash as a top priority. Asia Pacific treasurers’ key considerations were liquidity and risk. Asia's growth, albeit slowing, was still stronger than the US and Europe. Therefore Asian corporates placed a stronger emphasis on having ready access to their cash for expansionary purposes. In the second half of the year, there was an increased focus on operational efficiency, such as optimizing liquidity, and a strategic review of corporates’ bank counterparty risk standing given the ratings changes of major cash management banks.”

Berndt says that the gradual improvement in the global economy – from the perspective of Western firms – over the past 12 months has shifted the focus of many corporate treasuries, with firms seeking opportunities to capitalize on their strengths and grow their businesses. “It’s a shift to a risk-aware rather than risk-averse approach, and this brought cash management into the spotlight in a new way,” she says. “Treasurers [have been] asked to support these development plans by having systems and processes in place that are scalable and efficient, to allow executives to take strategic decisions on how and where to deploy their cash.”

Regulatory change

Diane Reyes, global head of payments and cash management at HSBC, says that the regulatory landscape has changed forever. “Banks need to embrace the new world,” she notes. “The pace of regulatory change means that banks need not only to ensure swift compliance, but [also deliver] a seamless experience for clients. Regulation will also bring competitive pressures as regulators establish tougher operational risk, capital and liquidity requirements – a potential advantage to non-bank competitors.”