Cash management poll 2003: Corporates push their banks hard

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THE CASH MANAGEMENT game is all about cut-throat competition. Several major global banks now have a presence in the same countries, offering similar services and using similar technology, so it is no easy task for any of the big players to win, or keep, a corporate's favour. And with non-bank providers pushing in on all parts of the traditional cash management business, regional and global cash management banks have their work cut out for them in holding on to market share.

Wise investment is the name of the game, and winning lucrative transaction business continues to be the great driver for most of the top-tier banks' expenditure since no other business can hope to provide the same returns. But competition for that business is stiff. To win and keep the transaction custom from big corporate names, cash management banks must offer a full range of complementary services, must continue to develop and implement top-tier technology, and provide it all at reasonable prices.

In addition to ever-increasing competition for traditional products, banks also face ever-changing demands from corporates themselves. After extensive spend on new developments throughout the late 1990s and into 2000, with the bursting of the internet bubble banks confronted corporates no longer willing to throw money at new developments and not interested in any but the most plain vanilla of cash management products.

Then there came such world-shaking events as Enron and the many corporate scandals that followed. This led, among other controls, to the Sarbanes-Oxley legislation on corporate accounting disclosure in the US. Events such as these changed the market completely.

Economic dampener Another big driver of change in the cash management marketplace is the economic downturn and its continued global effects. Consultancy firm Treasury Strategies, in its 2003 corporate treasury survey, cites the sluggish economy as the single-largest factor to influence corporate treasurers' ordering of priorities over the past year.

One of the many impacts of this was an increasing inward focus for corporates. Companies now want to have greater control of their processes and understand the flows of the business on a much deeper level. Richard Challinor, senior vice-president of global cash management sales at Bank of America, explains: "Sarbanes Oxley has probably had the biggest impact on our market, and that of course revolves around control. It adds a dimension to the scope of any particular corporate project, as that control element is always on the table."

Alan Verschoyle-King, head of corporate cash management EMEA at ABN Amro, says many corporates have viewed the business environment of the past few years as being one of permanent crisis. This has led to a change in focus across the market: "The key themes emerging from this environment for our clients have been greater cost-consciousness; improved transparency and simplicity in business processes; the integration of systems, processes and financial structures; and an increased focus on compliance-related issues."

All of this has created a global corporate base that is much more gun-shy about new projects. "Companies now put a lot of time into researching projects," says Paul Galant, global head of cash management at Citigroup. "They have to understand the return on investment before putting any money into it. They want to know the time and cost for implementation, what the risks are, how enduring the system or solution is likely to be, and what are the alternatives."

Peter Hazou, regional head of European cash management at HSBC, says: "Corporate clients have become much more focused on control of both liquidity and information. Their demands on banks have become both simpler and more difficult to provide." Corporates want uncomplicated solutions to complicated problems, and banks must have the technology and knowledge base to provide these with little disruption to the organization. If a bank cannot promise the goods, corporates can, and will, look elsewhere.

A corporate treasurer at a French multinational explains: "We now look at our overlay banks every three or four years, and we send out RFPs [requests for proposals] for our domestic bank business every three years on a rotational basis. We are always looking at who can provide us with the best solutions, and we are always looking to drive down costs."

And aside from requiring best-of-breed solutions, credit remains ever-important. Even many of the corporates at the top of the tree have felt some squeeze from the credit crunch. Basle II promises even more of the same for banks, so they must increasingly manage the balance sheet with an eye on all parts of the business - and all types of opportunities to cross-sell to wholesale clients. And corporates more often than not demand credit before they will contemplate using banks for any additional business.

The French corporate treasurer says: "We will not even consider services from banks that are not involved in our credit facilities - regardless of how good their technology may be. We send out RFPs first and foremost to our relationship banks and only if they all fail to provide reasonable options will we consider looking elsewhere."

But given the number of banks generally providing credit to the average blue chip, how can banks differentiate themselves? According to Frank Heerens, group treasurer at NEC Computers International, it is through service, reliability and pricing. "If I put in a transfer order I expect it will be submitted with 99.99% reliability. I want my cash management banks to provide quick processing and offer a range of services. I also, of course, expect them to keep up with technological advances and to be at least competitive in the realm of technology. But most important is service provision and reliability."

Streamlining dealings Corporates also want to deal with one single global contact for all their business dealings with a particular bank. That is one demand that banks have been listening to. In the past two years there have been significant shifts in the way that the sales forces are structured at a number of global banks, for example Citigroup.

It is no longer enough just to handle cash management and be top-tier in payments, so banks are now inserting themselves all along the financial supply chain. For example, in receivables business banks can act as the financial linkage between a multinational corporate and its suppliers and trade partners. This reduces risk for a corporate by speeding its ability to sell and distribute goods, as well as be supplied.

The more pieces of the puzzle that a bank can bring together for a client, the greater the competitive advantage when it comes to winning additional business. Challinor at Bank of America explains what this means for the banks. "Now you need to think along the whole financial supply chain," he says. "You are not just working with treasury but also with accounts payable and accounts receivable, shared service centres and so on, which is a much broader remit." This also means access to more contacts at a given company and theoretically more chances to sell.

Verschoyle-King at ABN Amro sees it as critical for the bank. He says: "The key focus areas for ABN Amro over the past few years have been, from a product perspective, the increased provision of integrated working capital solutions to clients and, from a relationship perspective, a greatly increased focus on our key corporate names."

Liquidity management is also increasingly a focus for corporates. This is a mixed blessing for the banks. If they can attract the business, it gives them not only the opportunity to provide regional or global solutions but also gives them much better access to their corporate clients. However, it is not the most lucrative business.

Fritz Philipps, head of corporate cash management sales Germany and Switzerland at Deutsche Bank, says: "Although it does not give margins like the transactional business, liquidity management is very important in terms of visibility. We could close a deal for a big corporate in receivables in Spain and it would be less of a splash than closing a euro cash concentration deal, even though the revenue would be much smaller.

"In addition, acting as an overlay bank always provides an advantage from an information perspective. You speak to your customer much more often having an overlay relationship and know much more about their business and their needs than if you only have local contact."

Although all of the major global and regional banks are building their presence in providing working capital management solutions and services, and many are making significant inroads despite competition from other banks and non-financial providers, none has yet presented a challenge to Citigroup in its domination of the Euromoney Cash Management Poll.

Galant sees Citigroup's greatest strength in its oft-touted global presence, and a strategy of setting up branches locally, rather than taking the partner-bank approach: "It is all about accountability, being there in good times and bad. With a partner-bank approach, if someone has an affiliate which is providing services to their client and the affiliate changes their mind about the service or the terms, there is no recourse, and generally the client suffers on some level." By contrast, he says: "I cannot give a client an excuse if something falls through. I am accountable and will take responsibility."

However, such a broad-ranging strategy does come at a rather high price. As much as the group hinges its brand on the local branch approach, it still has some weaknesses, including its north American and western European presence. But Galant says that will change: "We are growing in those areas organically and plan to grow through acquisition."

Catching up with Citi Although Citi is still the undisputed leader in cash management, the poll results indicate that it is losing ground against strong competition in areas once seen as its forte.

Deutsche Bank and JPMorgan Chase are leading the way, according to respondents, in effective use of new technology, and the two are considered to be the best suppliers of services in many parts of the foundational transactions business.

Another big change seen in the poll is that HSBC has finally made the leap over Deutsche Bank to take second place in the overall standing, up from third place for the past two years. ABN Amro also made a leap to third place - leaving Deutsche Bank two places down on last year, in fourth spot.

All in all, it was a year of change for corporates and for the banks that serve them. Once again it was characterized by earth-shaking events.

Corporates looked internally to shore up systems, create more efficiencies and increase automation. And cash management banks looked outside their usual borders to build out product lines and integrate existing solutions to provide full-service, holistic solutions for their existing and potential clients.

ING Group 83.33% 3= - Commerzbank 83.33% 5 5= Nordea 81.82% 6 - SEB 81.48% 7 3 Deutsche Bank 75.00% 8 5= Citigroup 72.73% 9 2 HSBC 71.84% 10 8 Standard Chartered 66.67% Industry expertise & knowledge 03 02 Bank Score 1 1 Standard Chartered 85.71% 2 5 JPMorgan Chase 77.78% 3 2 Deutsche Bank 76.25% 4 4 HSBC 73.79% 5 10 Nordea 72.73% 6 3 Citigroup 71.59% 7 - SEB 66.67% 8 - Barclays 62.% 9 8 ABN Amro 57.32% 10 - Société Générale 56.25% Quality of personnel 03 02 Bank Score 1 2 Deutsche Bank 83.75% 2 1 Standard Chartered 80.95% 3 5 HSBC 79.29% %0