Benoit Desserre, Eric Bayle and Bart De Boer
The process of managing cash in Europe is undergoing some significant changes. However, there are three issues that are particularly notable: developments in liquidity management; transaction management trends; and an increased focus on product development.
An increasing trend for banks to debit negative credit interest rates will force many corporates to split their cash between a number of different banks.
The selection of these bank partners should be based on key criteria such as the CDS, the bank’s rating, membership of deposit protection funds and the status of the bank within the corporate organisation.
Banks are often combining the guarantee of a minimum of zero interest on the credit side with increased transaction business. However, this offering is unlikely to remain sustainable.
Cash pooling (even in the eurozone) becomes less attractive in certain cases, but this has not been reflected in the attitude of the corporate community towards this product.
On the other hand, it has become more attractive to look for cash-pooling solutions in RUB and RMB, largely because of local instability. Notional pooling products have experienced an upturn in demand after several years of inertia.
EONIA’s drop lead banks to debit negative credit interest rates, forcing the treasurers’ to split their cash
Corporates have completed their SEPA activities – the next step (inclusion of countries outside the eurozone for SEPA payments and the introduction of COR1 direct debits as a standard across Europe) is not expected to have a major impact.
The focus has therefore shifted to the payment file format. A growing number of corporates are moving to global XML pain.001.001.03 for all types of payments (SEPA, urgent, cross border, HR, tax).
This usually entails a complicated process of collecting local information. Banks are offering single points of entry and the aforementioned unique file format, but it is still commonplace to convert these payments once or even twice before going into the local clearing.
The common global implementation (CGI) initiative aims to harmonise XML messaging across all banks, and corporates are increasingly using the CGI specifications to create messages and expecting their bank to accept them, explains Benoit Desserre.
“Société Générale has taken a blended approach – in some countries we are XML end-to-end, in others we convert XML into an MT101,” he says. “However, there is a project to move to end-to-end XML across all the countries we operate in.”
Detailed analysis is required before embarking on such a payment process. While it is the basis for a payment factory, a number of different approaches and formats are pursued, although the key drivers are the reduction in data transmission channels and the option to remove local bank accounts.
“Not all payment factories are using the ‘one account’ model with on-behalf payments for as many subsidiaries and countries as they can handle – the payments on-behalf-of (POBO) or collections on-behalf-of (COBO) model – due to centralisation (cost cutting) and the concept of offering such services to third parties via a shared service model,” says Eric Bayle.
The same checks that are made by banks regarding embargos and sanctions lists are more or less a prerequisite for the smooth operation of a payment factory and should be undertaken in conjunction with the respective bank partner wherever possible.
There is considerable support for eliminating the time-consuming task of checking the charge postings on bank accounts and ensuring a high standard of oversight on bank charges.
One of the motivations behind the creation of SEPA was an end-to-end file format for payment and reporting. The payment side is harmonised and the reporting side is proceeding with a file format break into the most common MT940.
However, the formats CAMT.53/54 exist, although they are not often requested by corporates and there is also no legal requirement to change. Corporates are mostly satisfied with the quality of the existing MT940 and they do not see a significant need to change over to another file format. The estimated benefits are not considered sufficient to justify such a large modification.
The introduction of the reporting side of SEPA is progressing at the same measured pace as payments and it will be interesting to see if a deadline for reporting migration is implemented.
There are also some intriguing developments in corporate payments. Paypal is increasingly playing the role of payment service provider, overseas credit-card usage is becoming harmonised and instant payments are on the horizon, all of which will have an impact on corporate flows.
Having stopped all float on incoming payments for banks within the Payment Services Directive, there is now increased discussion of removing the float on outgoing payments.
“In addition, there is always the opportunity to use SEPA urgent payment instruments (such as for treasury payments), which will have more favourable cut-off times than the standard offerings,” explains Bart De Boer.
“For example, in France, Société Générale offers accelerated SEPA payments, which is similar to an urgent payment.”
Another request – often seen in RFPs – is the dedicated and customer-specific margin on FX coming from payments in foreign currency. This is mostly a challenge for the respective bank since it again demands a manual intervention.
On the cash-pooling side, there is increased demand for notional-pooling services. The key driver here is ‘trapped cash’.
If zero-balancing services are in place, there is no further need to use indirect schemes with mirror accounts. Corporates are also making fewer requests to have the intercompany interest calculation and allocation made by the bank. Zero-balancing structures have become standard and the existing challenges are legal rather than technical.
Cash management remains the basis for successful relationships between corporates and banks. While margins are lower than they have been in the past, cash management remains a core service and one that Société Générale will continue to invest in to create innovative products and solutions.Visit Société Générale's website