Transaction services guide 2014: Corporate clients demand more

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Transaction banks are under pressure to keep up with a growing list of client demands. Investing in technology is essential. By Ben Poole

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Over the past 10 years, the demands that corporate clients make of banks in global transaction services have changed dramatically. There are a number of drivers for this evolution. One key catalyst is the overall role of technology, which has been an enabler for changing corporate demands.

"From a treasury perspective you could say that the complexity and portfolio of responsibility of treasury has increased," says Michael Spiegel, global head, trade finance and cash management, at Deutsche Bank. "Companies have been growing while at the same time needing to become more efficient in terms of productivity, which is where technology has played a big role. This was also seen following the financial crisis when an enormous amount of transparency was required. This was particularly the case for multinationals, which needed to know where their cash was and what sort of exposures they had in terms of credit, banks and currencies."

Paul Simpson, head of global transaction services (GTS) at Bank of America Merrill Lynch, says: "Over the past 10 years, large corporates have become much more dependent on technology. A decade ago, even some of the largest companies were doing a lot of manual reconciliation and cashflow forecasting. As of five years ago, investment in automating processes and ERP standardization has really taken off, and this is allowing corporates to electronify and build their business in a way that is scalable."

Rajesh Mehta, Citi
 "It is important to continue investing in talent. As the business is always changing you have to continually review your talent profile according to the changed environment"
-Rajesh Mehta, Citi

Corporates are also leaning on technology to deal with the increased demands of regulation and risk management. "In the case of regulation, one example can be seen in US multinationals," says Deutsche Bank’s Spiegel. "They have to have a repository of the guaranteed exposures – the off-balance-sheet contingent liabilities – to prove where they have these. This requires a more efficient delivery mechanism. Also with risk mitigation, corporates have been looking to further enhance their risk mitigation in the overall flow business. They have always been good on credit monitoring, project monitoring, but now are increasingly focused on the visibility of where the cash sits and flows. They also require greater adaptability to respond better and more quickly to geopolitical challenges."

Rajesh Mehta, head of treasury and trade solutions, EMEA, at Citi, says: "Risk management has evolved from a client perspective. In terms of counterparty risk management, corporates have moved away from wanting all of their eggs in one bank basket. Then there is the need to visualize exposures, to mobilize based on this and then once mobilized to optimize what you have. This could be exposure to different countries – thinking back to Egypt and the Arab Spring or more recently Russia and Ukraine – or exposure to conditions such as the low interest rate environment."

Aside from the direct regulatory effects on corporates over the past 10 years, the indirect or unintended consequences of some new regulations have also changed the demands made on GTS banks.

"There are Basle III-induced concerns, such as what happens to the supply chain and suppliers that are in countries with a lesser rating," says Deutsche’s Spiegel. "The overall financial crisis sparked a consideration among larger companies to look at enterprise risk in an end-to-end manner, starting with where the raw materials and semi-finished products come from, what the position of their suppliers is, all the way through to who distributes their products and who the end users are. There is an emerging deeper value chain and financing chain that corporates are looking at from an end-to-end perspective."

The regulatory burden has an effect on the relationship between corporates and their GTS banking partners.

"Because of the increase in regulation and the way that banks have to approach this, if your bank doesn’t understand what you do and how you approach things, everything takes longer," says Neil Hannaford, group treasury manager at Merlin Entertainments. "We want to move forward quickly so we want to work with banks that understand what we do and can work with us to get us over the hurdles that we face when operating in new countries and territories."

Despite most banks claiming this is how they work, Hannaford is sceptical: "Some are adept at doing this, but some aren’t. That was the case 10 years ago and is still the case today. It can depend on the type of bank, what their approach is and how they are trying to position themselves. The ones that work best with us are the ones that work on that relationship basis and ask us what we do and what we want. It really helps us if they are prepared to get close to our business in that way."