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Banking

Cash management debate: Difficult choices for corporates

Turmoil in banking has changed transaction services. Just as it has become crucial to extract every last efficiency from treasury, clients face new choices and new uncertainties. How should they choose their banks? How can they manage their risks? What should their treasury look like?

Cash management debate: Show me the money
Cash management debate: Learn more about the panelists



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.

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?

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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.

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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?

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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.

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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.

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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.

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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.

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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?

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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.

Jack Large If you take all that together, then you imply a future in which customers want a decent-sized bank group and so therefore compatibility between their systems?

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DM, Deutsche Yes. Lesley’s point about embracing the multi-bank architecture is an important one. It is fair to say that Deutsche Bank’s position for example around Swift has changed. Our position initially was a bit agnostic – if we worked with corporates that wanted to go that way we were very happy to help them do it, but it wasn’t something we actively pushed and nor did other banks because that was seen as a threat to the billions invested in channel strategies and proprietary, sticky relationships. But now we and the customers understand that reliance on one supplier is irresponsible and clients want controlled, strategic multi-way relationships. They don’t want 20, but they might want four and they want to look at the pie chart of how to distribute the services they buy in a logical way.

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RM, Barclays I understand Daniel’s point that some banks have acted to protect past investment in proprietary channels. However for us at Barclays, we recognized at an early stage the growing trends towards non-proprietary channel solutions, particular at the upper end of the market. We were one of the first banks to offer Swift Corporate Access services in 2002 and have seen this grow in importance alongside the range of internet front end and host-to-host solutions.

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PL, Citi We are also seeing the drive towards interoperability, towards standardization and the multi-bank approach. I don’t think Swift is a panacea for that. It’s primarily a communication channel. What the banks put around that in terms of adding value, whether it is with analytics or through reducing those Swift costs by using their own global backbone, is going to be important.

The end of proprietary?

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RT, HSBC I see the concept of being bank-agnostic becoming more and more important; so, yes, we will see the opening up of Swift for corporates in a much bigger way. That is an increasing trend and it will eventually be mainstream – it might take five to 10 years and perhaps mean the end of bank proprietary systems at the large end of the market.

Jack Large What does proprietary mean? Does that mean in the delivery?

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RT, HSBC An HSBCnet as an example is a channel: will all the banks really need to spend tens of millions of dollars and up to a year on it when somebody says "I don’t need that; I’ll go down the Swift route."?

Jack Large You are predicting the death of bank portals?

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RT, HSBC You will start to see reduction at the very high end in the number of clients who will require sophisticated bank portals. Why would they need that? As a bank I don’t use them; I use Swift globally and I see corporates becoming much more like banks. Marcel mentioned he might go and buy his cash management in New York, and just choose best in class in the US. Well, that is just like what banks have done for years. Marcel is going to run corporate cash management like banks run it. You will choose a nostro provider, which the bank would do, which will be the best in class in that particular market and currency; you will be bank-agnostic in your channel, so you will just go to that bank via Swift and you will use standardized formats like XML; you won’t need to have all this mixture of formats and channels and you will start to see all this technology becoming much more important, particularly when you are linking in things like ERPs [enterprise resource planning systems].

Jack Large What about banks that have just spent a billion dollars on their portal?

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RT, HSBC That is fine; we spend a lot of money and I am sure Deutsche and RBS spend a huge amount of money on portals, but ultimately are we going to continue to keep doing this when our customers keep telling us that they want to be as bank-agnostic as possible?

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RM, Barclays I agree it is all about what the corporate wants. For some a portal might be sufficient for their needs, for others they might want to use Swift or simply want the ability to submit bulk files to their bank in the format produced by their own system. Swift is continually looking at enhancing the service it provides; for example automated enquiries and investigations, electronic bank account management services and digital signature capability and once these types of service are available, corporates will want to use them to their advantage.

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LW, RBS It depends on the value-added services the portal might bring outside of Swift. I totally agree with you that a couple of years ago the attitude of corporates towards Swift was "I’m not sure". Now Swift has its Alliance Lite package for the smaller corporate, although it is not such an obvious choice for the largest companies because there are issues with standards and XML and the cost benefit of moving away from the traditional portal.

Historically a portal’s core function was to provide integrated delivery of a bank’s services. Treasury would use the portal because of the value-added services around exporting that data. For me, the future function of portals will be based on continuing to deliver these value-added services – for example, cashflow forecasting – because clients don’t want us competing on channel and formats.

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DG, Charter  We don’t really need to differentiate on channel.



Jack Large
David is generally wary of being tied to bank portals!

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PF, BNP Paribas Yes, but one size does not fit all. Swift will be the right solution for some corporates, particularly larger, multi-banked corporates, but many companies will still rely on proprietary tools provided by their banks and these electronic banking systems will fulfil a different role than they have done in the past. The new BNP Paribas solution will allow clients access across the range of services that we provide, recognizing that treasurers do not divide their cash management, investment, debt and FX activities into silos, so why should the bank? It is as much a community portal as a transactional engine for our clients. Banks should not be using technology to lock in their clients. Rather, they should seek to differentiate themselves based on the quality of service, responsiveness and proximity to their clients. In addition, Swift corporate access offers corporates greater standardization in the way that they communicate with their banks, and increased bank independence as their business requirements change over time.

Jack Large And surely the new liquidity portals have a future?

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LW, RBS Exactly. For me it is about the liquidity piece. Look at what Marcel wants to do. With regional hubs in the US, Asia and Europe, how does he move that position from one region to the other? He needs liquidity tools. He needs a portal that allows him to invest in his bank’s products and with third parties and be able to monitor that in real time. We’ve also been working to address the shift towards more short-term liquidity investment. There is more demand for higher-yield liquidity accounts – high-yield current accounts or term deposit open accounts where the yield is decent, and the corporates can still draw on that without being penalized.

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DM, Deutsche I would take a slightly different view. While I agree with you that Swift for corporates is big and getting bigger, I can also tell you that in our FI cash business the proprietary tools are being used more and more. Whereas those initially were purely corporate, now increasingly we have banks using those tools. The ecosystem will be more complex. The portals are not going away, they will just be used for different things. The basics will be moved to Swift, but there will be lots of other pieces around the edges, some of which are very substantial, which will stay with the portals. That is on the channel side, or access side.

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PF, BNP Paribas In France, which is the best-developed country in terms of Swift adoption, we are seeing both large multinational companies and smaller organizations too adopting Swift. This is in part due to the migration from ETEBAC 5, but French companies are already accustomed to using non-proprietary technology to communicate with their banks, so it is easier to understand the value proposition and convince people internally. We expect the trend for Swift adoption among smaller companies to continue, particularly as new pricing and implementation models emerge.

How far to centralize?

Jack Large So a key question for the customer is, how many banks? How far should I centralize and how much do I need local and regional institutions?

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MK, Panalpina It’s a very good question. We used to have a regional set-up and we are now trying to centralize as much as possible. Why should I do a US dollar payment in Hong Kong, which is a cross-border payment? Why can’t I do it out of New York? Centralization makes complete sense and we have to maximize it because it really helps us in head office to steer the business; I am talking DPO [daily payments outstanding] especially, for example. How far can I go? Let us try to go as far as possible. We cannot just neglect local regulations and local needs; we will always need a local presence and local accounts and that is why I like the point about the partner banks; so we need our global banking partners to have this integration with these local suppliers/banks. We were doing an RFP for business in such countries as Cameroon, Gabon, Angola and Equatorial Guinea. Who wants to be in these countries as a global bank? No one really. So if there is a global bank able to integrate local banks into their global platform to provide a centralized solution then that would work well.

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RM, Barclays What really does matter is the ability to offer services in all countries where a corporate operates. In those countries where electronic payment and collection methods are well developed, this is relatively easy as bulk files of payments can be put into the local clearing systems via your own network or your partner. However, where cash and paper instruments are still key, as across large parts of Africa, that is more difficult because your customers need access to an extensive branch network. At Barclays for example, we are in the fortunate position of having good geographical coverage across much of Africa where we can offer a complete service. But Marcel is right, for less-developed countries there is less opportunity to build a business case to establish a new local banking operation.

Liquidity management, of course, is another key issue. You need to be aware of the local regulatory environment regarding the transfer of funds into or out of any country, which can result in trapped cash in a particular location.

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PF, BNP Paribas Centralization does not mean the same thing to every organization. Companies with very diverse business activities or which have extensive activities in highly regulated markets often find efforts to centralize every financial activity a distraction and an inappropriate use of resources. However, it is essential for every company to establish central visibility over cashflow globally in a timely and accurate way. Gaining this visibility will then inform the degree of centralization that is desirable. For example, if there are deficits being financed in one part of the business with surpluses in another, there are clear cost advantages to centralizing cash, and using intercompany financing. FX risks across the business can be another driver for centralization. Even in companies with a culture of decentralized activities, there are few that could not benefit from establishing a shared services approach to treasury, payments and collections.

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MK, Panalpina The question for us, though, is to what extent do you centralize?



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DG, Charter Exactly. I am going through the first phase of changes with that question in my mind to understand the implications.



Jack Large Well, you don’t just go to one bank.

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MK, Panalpina No. You need a basket of whatever – five/10 core banks, which you clearly identify with.



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RT, HSBC You need them tied in on both sides, on cash management and on credit; you need a full relationship. That is where we come from.



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RM, Barclays This link between the provision of credit facilities and the allocation of transactional banking services business has definitely become stronger during the recent financial crisis. Banks have for some time been increasing their focus on non-asset fee income where they have extended their balance sheet, but we are also seeing a greater emphasis from corporates on maintaining strong, balanced relationships with their core lending banks. This is now a highly influential factor in the awarding of cash management business.

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VP, FCC For us we see that it makes sense now to have three cash management banks, for example, instead of only one, even at slightly higher prices as long as all these three banks provide higher amounts of funding. On a daily basis we have improved access to internal funding sources across all the countries. We can see the need for online access to liquidity status for our global subsidiaries.

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PL, Citi Clients are evaluating their banks more than they have ever done before in terms of counterparty risk, to make sure they are not exposed to any systemic risk. That is important. In a partner bank set-up, the banks are doing this too because they clearly have an interest in their partners being around. During their reviews, clients should look at banks in terms of commitment to the business. For example, we invest a billion dollars in the transaction services business a year and we have continued to do that through the crisis.

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DG, Charter  If a customer came to you and you say: "We have a partner bank", would you stand behind that partner bank totally for the customer? From the risk perspective.


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PL, Citi Yes, we do. We have clients in, for example Latin America and Africa, and in those contracts there are penalties for us if the partner bank arrangement does not deliver. Clients don’t want that relationship with the partner bank, they want it with us.


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DM, Deutsche At the end of the day you are the bank’s client, so whether there is a subsidiary in some remote location that is owned by the bank, or whether it is a partner bank structure, the bank is highly incentivized to make sure that you are happy and feel good and get taken care of.

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DG, Charter  Yes, but where the risk lies and how it is shared is a contentious point when you give business out.



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PL, Citi You have to build that into a SLA [service level agreement]. We see a lot of that happening.


The rise of the partner bank

Jack Large HSBC is doing quite a bit more partner banking.

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RT, HSBC Yes, over the past couple of years we have started to see corporates look for the right mix of banks in the transactional banking group. Clients started with perhaps 60 or 70 banks; some then went to the other extreme and tried to have just one bank, which is not really possible in today’s complex world. Now the big corporates have started to realize the right mix is around five or six big, global institutions with whom, as they share out the pie, there is a natural fit. Those banks, even if they are indigenous to particular regions, still need partner banks in them, particularly on the receivables side. HSBC is obviously very strong in Asia; but we still need partner banks for, say, up-country collections in India – I don’t have a branch network that is that up-country and I have to use partner banks. Therefore our corporates need us to go out and forge those relationships for them. There will always be this mix of very global banks, local banks and partners sitting in the middle.

Jack Large David, do you mind if your banks use partner banks as well?

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DG, Charter  We haven’t come across that to date. I pick up on the points that Victor made; the reason why I use supplier as a term rather than counterparty is because we look for a full relationship with our banks. When we are making our choices, aside from our aim of reducing the number of banks, we look at pricing, service, presence, products that are relevant to us and, yes, credit. We want the full set of services in a decent, strong relationship.

Jack Large Does this strategy have a number? Are you only going to have one globally or two regionally?

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DG, Charter I inherited an inefficient structure with too many banks and the crisis reinforced our view that we should not put all our business with one bank for a whole territory, but instead pick and choose the best solutions for individual countries and regions.

My priority is to get around 70 banks worldwide down to something more manageable. I have to accept that in some far-flung countries you might go with local banks because they are the best fit. But for countries or regions elsewhere where six banks can be easily reduced to one, that is a central credit provider as well as supplying a local service.

After that, say two or three years in the future and keeping an eye on developments in technology, then I will be asking whether there is an opportunity to go further. Although in the past two years some fundamental ideas have been overturned as to how small a banking group can be, if in a first phase I got down to a dozen serious banks around the world doing cash handling and half of those are giving me credit centrally as well, then that would not be bad; it is manageable, it spreads the risk and I have fit for purpose everywhere.

Jack Large Lesley, you use partner banks and you are in banking clubs and so on. David says he has never seen a partner bank.

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DG, Charter  No, I have never come across it so far and we would want to understand how they work as we want good relationships locally.

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LW, RBS Your objectives are price, service, presence, and credit and you need those at local, regional and global levels. So you don’t need 70 banks, but you do need a way to operate at those three levels. If you are looking at banking in Romania, for example, and have needs such as cash handling, tax payments, or customs payments, you will need to have a local bank because in some cases you may have to physically take documents to the bank to make those payments. In certain jurisdictions, depending on your needs, you may require a local presence.

A global transaction bank can either provide that local support by having a presence on the ground or by integrating with a partner bank. Within the RBS structure, we use a mix of the two. There is a vast difference between having a partner bank and just a third-party multi-bank relationship. The partner bank relationship is an extension of your existing network with centralized client service, centralized documentation, billing, and everything else.

Technology can also help integrate local support with global visibility and control. If you need that on-the-ground presence, but all you want to do on perhaps a daily basis is sweep your liquidity into an overlay structure, you can do that through Swift and a multi-bank cash concentration model. What brings it all to you centrally is the technology, systems and platforms that banks provide to enable you to do that. The banks you choose have to be able to deliver that through their network and their infrastructure.

White labelling

Jack Large And there is another phenomenon – white-labelling or "wholesale solutions". Deutsche and Citi in particular are now starting to sell their services to other banks. Would it worry the corporates here that you buy something from a bank whose mechanics are run by and built by one of their competitor banks?

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DG, Charter The key would be the names and reputations of the ultimate providers. You would look for warranty from those banks on their systems. You could take comfort from that; if you are dealing with a national bank that is relying on a Citibank system, that would give you peace of mind on the integrity of the system, for example.

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RM, Barclays Provided any white-labelling has the support of a strong contract and SLAs around service, availability, contingency and functionality, such solutions are perfectly acceptable. And of course, the developer of a white-labelled solution might be more financially sound than if it is developed by a niche player, and might carry less systemic risk.

Jack Large Deutsche has quite a few big banks – are you allowed to say?

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DM, Deutsche Yes, we have 35 banks.



Jack Large
Names?

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DM, Deutsche In the majority of cases the names of the banks are subject to a confidentiality agreement.

There are three different levels of depth of wholesale solutions that we sell, the deepest being infrastructure solutions where we take the whole payment engine out of a bank and we run it for them. We also white-label the front end as well to assist in partner banking.

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PF, BNP Paribas Like other major banks, we also provide white-labelled products to other banks. In our experience, where a system originates is of no particular concern to corporate clients, so long as it is of high quality and supported successfully by the bank that provides it to them. In the end, it is the functionality they gain that is most important.

Jack Large Marcel, are you happy with that?

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MK, Panalpina Yes, why not? What is the alternative? If Deutsche Bank, for example, is providing a system to a smaller bank, do I prefer that or do I want the smaller bank to be using another IT platform which they bought from who else? I’m probably more comfortable with a global institution that understands the business and invests heavily in it.

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DM, Deutsche And that has lots of volume going across the pipes every day.



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VP, FCC We don’t see a problem either. We think that this is positive and can help in terms of better communication channels and better service.


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DG, Charter Are these banks able to sell themselves by saying "our payments engine is Deutsche"?



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DM, Deutsche Some want to and some don’t. Some like to keep it very quiet.


Jack Large Both these two banks have a huge payment engines and loads of banks use them.

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PL, Citi It is like "Intel inside" at the end of the day.



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DM, Deutsche Let’s just say there are institutions in this room that use parts of what we do and it is up to those institutions how they want to position that fact. For really small banks, it is a benefit. If you are a small, regional, Greek bank, to be able to say you have Deutsche’s payment engine and Deutsche runs 19% of the euros of the world through this engine every day, that is a benefit. For other banks it might be a point of embarrassment, or they might feel it looked as though they did not want to invest in a supposedly key area.

But the latter will go away in time because this kind of outsourcing is just a replication of similar trends in technology across many industries. Everybody tried to run their own PBX, their own private telephone exchange; now everybody uses a phone company; they wouldn’t even think about it. Everybody who goes from London to India finds it bizarre that all the companies run their own generators and produce their own electrical power, because nobody has done that in the western world for 100 years. This is just the same idea and it arises when some companies – in this case Citi and Deutsche – have the scale and knowledge to supply a service better and more cheaply to everyone than they can do it themselves.

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DG, Charter Is it a strategy designed to make banks so reliant on you that you take them over?



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DM, Deutsche That is not the strategy. Payments are a very difficult, expensive, scale business that requires hundreds of millions of dollars or euros of investment year after year after year. We already have a big position in the dollar and a dominant position in the euro – we are there already and so we have no choice: we are going to make this investment. There are lots of small banks, for which their principal business is mortgages, or car loans or small business lending or local project finance. They have to do payments, but payments is not their business – it is a service they have to provide; it makes all the sense in the world for them to buy that from us in the same way that they would buy a system from SAP rather than build their own.

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RT, HSBC Increasingly so in my view, as the rules and regulations around the amount of capital that banks have to put up in this particular space become even more severe, the cost of doing this business for those smaller-scale players will become prohibitive. It is going to be a scale play.

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PL, Citi I totally agree with Robin. Smaller players are challenged to sustain the technology investments required to keep pace with market and regulatory demands, while maintaining shareholder returns in the face of reducing core margins. These market forces will inevitably drive change in the industry-sourcing paradigm, trending away from the status quo where large and small players alike make duplicated investments in a multiplicity of owner-operated technology solutions, to an alternative model where global scale players such as Citi offer market-leading infrastructural solutions to a range of global and regional players, maximising synergies for all participants.

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RM, Barclays The scale of the investment is key and, as Peter said, it is not just about developing and enhancing our products and services. Our platforms also need to be compliant with existing regulatory requirements and of course, new requirements that may be introduced in the future. These costs will affect all banks and if investment in these systems by the larger banks can be leveraged by other smaller players through outsourcing their payments processing, this will ultimately be of benefit to corporates by keeping the overall cost of payments down.

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MK, Panalpina I fully agree, and for once it’s not corporates versus banks. It is the same for corporates: outsourcing treasury or not.


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LW, RBS I agree. Look how that trend has changed. Historically, banks have not found corporate outsourcing to be a profitable enterprise, and that is why they have closed all the old IFSCs. Six or seven years ago, the corporate choice was, in simple terms: "Do I spend a million dollars on a Wall Street system licence or do I rent it via an ASP?" At that time the corporate treasury was mostly against renting software via the web; that attitude is now changing. Now you see clients renting software via ASPs and the web. The current climate has obviously turned that around as well, because now you are outsourcing all your maintenance and the support and everything else; so there is a slightly different discussion around payments now.

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DG, Charter  I have just bought one, so I guess I’m counter-cyclical!


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RT, HSBC The model has evolved to pay as you go, pay as you grow.


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PF, BNP Paribas Absolutely, and we are seeing this model in all sorts of services, such as Swift Alliance Lite, service bureaux’ pricing models and the services offered by banks.

New developments in payments

Jack Large What new developments in payment systems can be used to improve working capital and improve overall efficiency? The big question is whether the technology makes any difference?

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MK, Panalpina Sepa is really helping a lot here. We are trying to replace our regional payment factory with a global one. Head office is then the trigger for when we release our payments, which means managing DPO more actively from head office. The technologies are there; it is now up to the corporates to implement them. And that means getting to understand systems, investing in IT resources, cleaning databases and so on. It is hard work.

Jack Large What can the banks do to help?

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RM, Barclays Picking up on Marcel’s point about managing DPO more actively, we are working with a number of corporates to leverage the benefits of the new Faster Payment scheme in the UK. This near real-time low-value payments system has the potential to change the business model in areas such as online trading, payroll services, short-term advances, to name but a few. This has been successful and I can envisage a similar scheme rolling out across Europe, particularly in view of the single currency. In addition, the Sepa direct debit scheme has just been launched and when this and the Sepa credit transfer achieve critical mass we can see local ACH [automated clearing house] systems across the eurozone being decommissioned, leading to overall lower transaction costs and reduction in the number of bank accounts required to make payments across Europe although this is likely to be a medium/longer term development.

Finally, we are also working on future developments; for example mobile payments have become common practice in countries such as Kenya from a C2B and C2C perspective and this technology is likely to spread to other regions, particularly with the proposed phasing out or reduction in cheque volumes globally.

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PL, Citi UK Faster Payments is a good example of the role technology can play and this will continue to gain relevance to corporates as value limits are increased this year. We have a number of different initiatives utilising our next generation platforms. For example, the use of prepaid cards can significantly reduce costs while enhancing the impact of a payment. We’ve been in the mobile commerce space for a number of years and are now looking to commercialise our research and investment, particularly across the emerging markets. Listening to our clients, we continue to focus on electronic bank account management. Technology plays an important role here.

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VP, FCC We have not seen, at least in the past two years, a substantial new development in terms of international cash management. Basically we think that international transfers are still a problem for many banks, I am not saying for the banks around this table, but for many banks. Certain functions that are important for us are still missing, for example cross-currency pooling.

Jack Large You are saying that Sepa doesn’t really offer you anything significant?

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VP, FCC Yes.



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PF, BNP Paribas Sepa is simply a facilitator and needs to be prioritized according to how it benefits a corporate treasurer’s strategy. For those operating on a pan-European basis, Sepa offers significant benefits, but it will not be an immediate priority for everyone. But we are seeing growing interest in Sepa as the immediate effects of the crisis ease.

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LW, RBS I think the payment services directive and Sepa together will bring a more level playing field and help reduce costs for our clients.


Jack Large
Yes, but these guys have annual budgets; they have to do something in the next 12 months/two years.

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LW, RBS Yes, but re-engineering payments processes, whether you are looking at streamlining ACH payments or cross-border payments, requires significant structural changes for the clients. Some companies that have already centralized will have an easier transition to Sepa, but perhaps see fewer benefits because they have already achieved many of the efficiencies of centralization.

If you are using an AP system or an ERP system like SAP, there will be process re-engineering, updating databases, translating IBAN and BIC services, and so on. To help clients make this transition, we have partnered with technology providers, such as Experian. PSD and Sepa bring more transparency and a more level playing field for corporates to play in, with regards to managing their DSO [days sales outstanding]. And Sepa direct debits standardize the way that you can collect direct debits for the future.

While we knew there would be a gradual transition, I don’t think we have seen much uptake of Sepa, even on the payment side, to be honest.

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DG, Charter  On Sepa, the cynical side of me thinks there will be a huge transfer of value in reduced costs from banks to customers and so it is no surprise there have been delays. The other point for me is the apparent lack of clarity or certainty on consistent standards or commonality across borders. In my mind Sepa is something to track, whilst our businesses focus on moving systems on to common platforms. This will be the big piece of work that will easily take two years to implement and bed in.

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RT, HSBC I think there is an issue in that in a lot of cases corporate treasurers and the businesses which the corporate treasurer represents are unprepared for significant changes in the landscape. They certainly don’t have the budgets or the management time to do a lot of this transformation; that has been the major problem with Sepa from the corporate perspective. Many companies are sitting there saying, "thank you very much banking institutions and the European community for bringing in these new payment systems; that is very good of you to do that, but if you think I am going to unwind what I have been doing for the last five years overnight and change it, then forget it. Perhaps when I am forced to do it, because I have no other way of making that payment then I will do it". That evolving landscape will come and it will change the face of the way that corporates in Europe do their business in the euro space. It has to change and it will change for the better.

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RM, Barclays And that change is starting to happen – maybe not at the top end where, as Robin says, many corporates already have centralized processes in place and connections to best-in-class local providers at fine rates, so they are not likely to see material benefits in the short term. However, we are seeing much more interest at the level below, where corporates operating in multiple countries within the Sepa area are exploring the benefits of centralizing their accounts payable processes by leveraging the benefits of Sepa CTs.

We are also in advanced discussions with several clients on how they could improve their operating models once Sepa direct debit becomes more of a reality. At present there is a lack of coverage but we expect that to develop during 2010 as the final compliance date to be able to accept Sepa direct debits draws near in November.

Future initiatives

Jack Large Finally, customers, talk as openly as you can about your strategies for future international cash management, however you define it.

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MK, Panalpina Something we are evaluating is putting in place a new company. As a Swiss company we always have an issue with being on the low side of the interest rates, so in our financial results we always have interest expenses based on the fact that we have to do a lot of FX swaps and so on. We are evaluating putting in place a new company based in Europe and then having one global cash pool with a global payment factory based in New York with the best bank for clearing dollars, perhaps the same in Europe. And we will look at that with our banks and perhaps with some large banks that are not core banks for us yet. We started our regional set-ups about seven years ago and now it is high time to review them.

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VP, FCC We will continue focusing on the issues I have mentioned. We need to develop cash pooling across all the countries where we operate. This is difficult in our case because we are not a standardized industry; we are not like an airline that is a standardized business, even if you operate in 50 countries. We have many partners and different kinds of businesses. By improving cash pooling across different industries and countries we will increase efficiency in our cash liquidity position. We expect also to develop truly global relationships with three to five banking partners across all the countries in which we operate. And we are implementing SAP across all our subsidiaries, which will improve risk management and give us the information we need to manage liquidity better.

Jack Large David, what is your vision?

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DG, Charter  Lots of hard work on the banking side, as I have said, and also analysing more the payments and cash in our operating businesses together with developments in the way we flow transactions, particularly across our European businesses. With changes in the next two or three years there will be an opportunity to have greater clarity – particularly on payments and the slicker routing of cash back to me. However, the big effort will be getting our bank group down and then I will be able to sit back and appreciate a bit more what banks are trying to sell as solutions.

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