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Cash management focuses on automation, centralization and a smarter treasury function

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Geopolitical and economic turmoil has taken its toll on cash management strategies during 2022. Leading transaction banks emphasize the value of investment in technology as they navigate a choppy market environment.

SURVEY RESULTS

With revenues running at levels not seen since the global financial crisis, the transaction banking sector is in rude health. Data from Coalition shows a year-on-year increase of more than a quarter in cash management income generated by the world’s 10 largest transaction banks for the first six months of 2022 as liquidity and balances benefited from interest rate hikes across the largest economies and continued growth in payables and receivables.

On the whole, corporates have also become more risk averse – further boosting deposits – with smaller firms expected to increase their cash balances as recession risks rise. Many of these enterprises are still feeling the impact of the pandemic on their supply chains. These factors have fed through to cash management over the last 12 months, impacting both banks and their corporate customers.

HSBC once again tops the corporate client segment of Euromoney's Cash Management Survey 2022. Manish Kohli, head of global payments solutions at HSBC, identifies three key themes – resilience, flexibility and digitalization – noting that the first of these is increasingly being translated into regulatory expectations.

“We have seen a focus on cost efficiencies,” he says. “Processes are now more flexible with the digitization of client onboarding as well as employee working practices such as hybrid working, which reflect a new and more robust operating model.”

Kohli says businesses are focused on connectivity tools such as application programming interfaces (APIs) to help them to manage their money and transactions as easily as if they were a retail customer.

In this context, corporate APIs catching up with their consumer-focused equivalents in terms of innovation is a welcome development.

Critical enablers

In a report published earlier this year, Celent referred to corporate-to-bank channel connectivity as a critical enabler for businesses as they expand globally and increase the number of banks and accounts needed to conduct business.

“Data is being used as an enabler to allow clients to better communicate with each other and with their banks, as well as to support them in transforming their business models,” says Kohli. “Treasury centralization and modernization is extremely popular, and we have made significant investments in real-time payments, APIs and cross-border payment solutions to provide our clients with the tools to operate their businesses better and improve their management of risk.”

We are seeing treasury models being re-imagined away from just being risk centric
Manish Kohli, HSBC
Manish Kohli, HSBC.jpg

He suggests that clients are going through a once-in-a-generation change and are transforming their business models to adapt to this.

“We are seeing treasury models being re-imagined away from just being risk centric to becoming the strong advocate for change in organizations,” adds Kohli. “There is a renewed focus on automation, centralization and a smarter treasury function. We are seeing an increase in platform companies looking to offer financial services as an extension to their core platform capabilities, and customers increasingly utilizing these services.”

Over the last 12 months, HSBC has refined its offering by expanding real-time payments coverage to 28 markets, expanding the Omni Collect digital invoice service and adding new capabilities including: acceptance of new wallets and the introduction of QR codes; launching working-capital payments in the UK; offering short-term lending to pay non-card accepting suppliers; introducing the Global Wallet multi-currency solution for commercial banking clients; and adding payment currencies, payment types and APIs to its cross-border FX solutions.

Strategic role

Citi and Deutsche Bank again rank second and third respectively in the survey.

Finance and treasury departments are now playing a strategic role in helping their firms deliver on environmental, social and governance (ESG)-related goals and become more sustainable businesses, observes Steve Elms, global head of corporate, commercial and public-sector sales at Citi treasury and trade solutions.

Earlier this year, Citi launched new deposit solutions designed to assist clients in investing excess cash as part of their sustainability agenda, including sustainable time deposits and sustainable minimum maturity time deposits based on the bank’s green and social bond frameworks.

“Funds invested into these deposits are allocated to finance or refinance assets in a portfolio of eligible green and/or social finance projects based on criteria set in our green bond, social finance and social bond for affordable housing frameworks,” says Elms.

Citi’s annual technology budget this year is around $1 billion for treasury and trade solutions. This investment will be put towards priorities including improving existing payment pipes, building out the bank’s instant payment infrastructure across the world and investing in APIs and front-end client connectivity.

We are thinking like a technology company rather than a traditional bank
Steve Elms, Citi
Steve Elms, Citi.jpg

An example of the latter is the redesigned login for CitiDirect. Biometric authentication utilizes the user’s unique physical traits and the built-in biometrics technology on their mobile device, while a mobile token generates dynamic pass codes without the need for network connectivity and leverages QR code solutions.

According to Elms, the mobile token has reduced activation processing time to less than two minutes. The process for making payments has been brought into a single screen where only required information (in order of relevance) is requested in order to complete the payment. Payment details are pre-populated where the user has paid the beneficiary before.

“We are thinking like a technology company rather than a traditional bank,” says Elms. “In treasury and trade solutions, we are working to build a new digital assets platform and capabilities that will support new and evolving financial market infrastructure.”

Historically, the treasury department has been primarily focused on financial risk management, yield optimization and operational efficiency and this is still the case to some extent.

However, with growing non-financial risks such as cybercrime and fraud, as well as opportunities to become more involved as a profit centre through complete business model transformation, the role of the treasurer – and the breadth of responsibilities and topics they have to tackle – has elevated the importance of a trusted advisory partner in cash management.

That is the view of Ole Matthiessen, global head of cash management at Deutsche, who says the bank has continued to expand its range of solutions and invest in innovation and advisory across industries and geographies.

“This year, for example, we introduced a new in-house banking-as-a-service solution and our digital payment gateway, a B2B [business-to-business] marketplace solution that is making payments cheaper, more efficient and more secure,” he says.

Matthiessen points to the provision of market expertise from in-country specialists as well as global scale and reach as key to growth in this business.

“Beyond market leadership, our service excellence continues to be recognized,” he adds.

Key trends

Fourth place in the corporate segment went again to DBS Bank, whose group head of product management, global transaction services, Sriram Muthukrishnan, identifies a number of key trends for corporate customers, including secure instant payments and settlements, and the rise of payment service providers and fintechs – especially for low-value payments.

The bank has seen regulators playing an increasingly active role in driving and enabling innovation, and a greater interest in resiliency planning in light of geopolitical tensions.

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Sriram Muthukrishnan, DBS

“In the rising interest rate environment, corporates are keen to talk a little bit more about how they might manage liquidity better and get a better yield,” he says. “Supply-chain resiliency and sustainability is also top of mind. When there was a spike in geopolitical tensions, I was concerned that there would be a decline in interest in the latter, but actually customers continue to be interested in digitization and sustainability.”

The bank recently extended a HK$800 million ($102 million) sustainability-linked loan to Xinyi Energy Holdings Limited, a leading non-state-owned solar farm owner and operator in China, and outlined interim decarbonization targets set for 2030, reinforcing its commitment to net-zero financed emissions by 2050.

In May, DBS announced that it would launch five new platform partnerships with integrated digital and supply-chain financing capabilities aimed at small and medium-sized enterprises across Singapore, Hong Kong, China, India and Indonesia by the end of this year.

“Another interesting development is smaller merchants and suppliers in Asia looking to benefit from digital and sustainability trends,” says Muthukrishnan.

In the rising interest rate environment, corporates are keen to talk a little bit more about how they might manage liquidity better and get a better yield
Sriram Muthukrishnan, DBS Bank

Looking ahead, he expects interest in solutions for low-value payments to increase over the next 12 months.

“Volumes are increasing rapidly on the back of growing affluence across the region and greater use of e-commerce," he says. "A lot of fintechs have entered this space with a focus on the customer experience, and this is an area where DBS stands out because we are able to leverage our APIs and have a cloud-based architecture to bring down costs.”

The other area where DBS sees particular potential for growth is blockchain-based technology.

“In addition to Partior, we are also involved in discussions on potentially experimenting with the use of stablecoins to enable real-time settlement and cross-border payments, as well as reconciliation,” adds Muthukrishnan.

Back to basics

The only upward mover in the survey’s top five was UniCredit, which rose one place from last year. Raphael Barisaac, global head of cash management at the Italian bank, observes that the war in Ukraine and sharp increases in interest rates mean that companies have less appetite for new projects.

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Raphael Barisaac, UniCredit

“In previous years, the dominant topics in corporate discourse have been around ESG – this year we have seen more of a focus on ‘back to basics’ and access to financial instruments,” he says.

UniCredit retained its market leadership in central and eastern Europe and was ranked second overall in western Europe again, while moving up to third (from fourth last year) for best service globally.

In terms of strategy, the bank clustered international payments as a business about 10 months ago as part of a multi-year initiative, and Barisaac says there are already signs of this strategy working in the form of increased payment flows.

UniCredit has extended its offering to clients looking to do payments in less liquid currencies and has completely re-factored its internal payment agents in relation to international payments.

“Given that corporates are going to be investing in back-to-basics activities next year, focusing on internal improvements and consolidation, we wanted to ensure that we are in the best possible position to support them,” he adds. “Therefore, building on investments made in previous years, we have taken steps to continue and replace some of our legacy applications.”

In previous years, the dominant topics in corporate discourse have been around ESG – this year we have seen more of a focus on ‘back to basics’ and access to financial instruments
Raphael Barisaac, UniCredit

The bank has also made a number of changes to its digital transaction services over the last 12 months, with three new client-facing channels.

The first of these is the PayFX front end, which allows clients to execute cross-border payments at pre-agreed wholesale spreads. The latest investments in the Italian service greatly expand its reach, providing seamless conversion for more than 100 currencies.

“We have introduced digital factoring in Italy, an initiative that includes a review of the current user experience while providing new front end tools and will lead to deployment of factoring services to a broader client base, including small and mid-sized corporates,” says Barisaac.

The third channel, UC Hedge, is a data-driven solution that offers risk-hedging options based on invoices and payments flows, allowing clients to execute FX hedging directly.

New entrants

Tenth-placed Santander was one of two new entrants in the top 10 alongside Itaú Unibanco, which moved up to sixth from 11th last year. The latter’s rise can be attributed to a global ranking of fourth for best service overall, although it was pipped to top spot in Latin America by HSBC.

Latin America is a key market for Santander, whose ranking was boosted by improved performance in western Europe and being rated 11th best service provider globally despite also dropping a place in Latin America.

Liquidity management has become a key concern of clients’ treasuries as they require more robust, real-time solutions, especially in a rising interest rates cycle, explains Eva Bueno, managing director and global head of cash management for Banco Santander.

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Eva Bueno, Banco Santander

"E-commerce requires new approaches with technology blurring physical borders," she says. "Merchant service providers are developing their offering and partnering with third parties providing a one-stop shop by going from the purely acquiring side of the business to the payment gateway offering.”

Santander is looking at how to capture the opportunities these trends create through Getnet, which is part of its payments company PagoNxt.

“We offer our corporate clients global API solutions so they can reach across our footprint in one go, speeding up the integration process,” says Bueno, who observes that climate change and sustainability performance targets are increasingly important across organizations, including the finance and treasury functions.

“This has increased demand for embedding sustainability across existing bank products, including products that support sustainability objectives across the supply chain, such as sustainability-linked supply-chain finance,” she adds.

As at many other transaction banks, digitslization is a focus. One example of this is Nexus global collections, part of the bank’s global cash-management product suite, which offers single connectivity that can be managed from anywhere with a centralized and unified collections management platform.

E-commerce requires new approaches with technology blurring physical borders. Merchant service providers are developing their offering and partnering with third parties providing a one-stop shop
Eva Bueno, Banco Santander

“We know that there are always difficulties in the customer receivables cycle and that it can be difficult for treasury to manage efficiently when operating internationally with different currencies and payment methods,” says Bueno.

Earlier this year Santander announced a global distribution agreement with Trovata, a fintech that specializes in automating cash workflows through multi-bank API data aggregation for corporate finance and treasury teams.

Through this partnership, Santander clients can access automated cash reporting, deeper insights into historical cash flows and a labelling mechanism that uses artificial intelligence to model out future cash flows.

“We have also formed a strategic partnership with SAP to boost digitization across global transaction banking services by co-innovating on ‘invisible’ banking solutions,” adds Bueno.

Financial institutions focus pays off at DBS


Yu Chenping of Bank of China (Hong Kong) says companies looking to expand globally need to enhance their internal cash and liquidity management efficiency

The results from the financial institutions segment of the cash management survey showed some interesting variations, with Standard Chartered, SMBC and Barclays all making the top 10. But this year’s big winner was DBS, which pushed HSBC from top spot.

There were several factors behind the Singaporean bank achieving the top ranking. It was rated first for US dollar, euro and Hong Kong dollar, renminbi and Singapore dollar transactions as well as being overall market leader in Asia Pacific and it was placed first in the best-service category globally.

According to group head of product management, global transaction services, Sriram Muthukrishnan, the results of the financial institution cash management survey reflect a strong focus on the business over the last few years.

“In addition to developing a number of new propositions aimed at this market, we have adapted to the changing business landscape,” he says. “For example, for low-value payments we offer bespoke solutions using APIs [application programming interfaces] to give these customers instantaneous fulfilment and reporting as well as tailored billing solutions.”

Muthukrishnan also refers to renewed interest in virtual accounts and interest optimization as rates started to rise.

“We have stayed close to changing market dynamics,” he says. “We understood that where there are high volumes of low-value payments to be made cross-border, cost and time are equally important.”

The fulfilment and settlement landscape has been changing rapidly in Asia, and DBS has been involved in a number of projects across the region including Project Ubin and the Partior joint venture.

It is important to understand the underlying payment rails, adds Muthukrishnan: “India, Singapore, Thailand and Hong Kong have developed real-time settlements infrastructure, and we have been working under the auspices of the regulators to link up these domestic instant payment rails.

"Thailand to Singapore is already operating, and we are currently working on Singapore to India and Singapore to Malaysia.”

The other interesting result from the financial institutions segment of the survey was Bank of China (Hong Kong) coming in at seventh, having not been ranked last year, on the back of a strong showing in Asia Pacific, which included a top-10 ranking for US dollar transactions and a global ranking of third for financial facilities.

Yu Chenping, deputy general manager of the transaction banking department at Bank of China (Hong Kong), says there are several factors that have driven clients to review their operations.

“Firstly, the Regional Comprehensive Economic Partnership Agreement (RCEP) eases trade barriers among Asean countries and provides opportunities for international trade settlement in renminbi, which can boost the effectiveness of centralized cash management through renminbi-denominated financial products,” he explains.

Given recent market fluctuations, globalization of business operations brings additional country and foreign exchange risks for corporates, raising demand for enhanced internal cash and liquidity management.

“New policies introduced by regulators (such as the State Administration of Foreign Exchange on the Chinese mainland) support and facilitate cross-border cash management, while financial innovation and infrastructure upgrades facilitate digital transformation for enterprises in areas including payment security and liquidity management,” adds Yu.

According to Yu, multinational corporations and companies planning to expand globally have an urgent requirement to enhance their internal cash and liquidity management efficiency. He suggests that setting up corporate treasury centres is key to helping them centralize their treasury functions, which effectively reduces overall financial and operational costs.

“We have always been committed to promoting cross-border finance between the Chinese mainland and Hong Kong, helping organizations in their overseas expansion,” says Yu. “We have extensive experience and successful examples of setting up corporate treasury centres and providing global cash management services.”

From a technology perspective, the bank has launched a ‘web-to-app’ faster payments service to allow merchants – including non-bank financial institutions – to collect payment via their website. An instant notification is sent to the merchant when the payment is made and a payment collection report is also provided for reconciliation.

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Paul Golden
Paul has written about finance since the early 2000s, with a particular emphasis on foreign exchange, treasury and wealth management. He is a regular contributor to several industry titles in addition to Euromoney.