Oct 5, 2015 - Sibos 2015 special edition. Euromoney 2015 cash management ... advertising codes of practice and are of go
October 2015
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Sibos 2015 special edition Euromoney 2015 cash management survey results
Editorial
Questions of cash
October 2015 Sibos special edition Chairman Richard Ensor Directors Sir Patrick Sergeant, The Viscount Rothermere, Christopher Fordham (managing director), Neil Osborn, John Botts, Colin Jones, Diane Alfano, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany, Andrew Ballingal, Tristan Hillgarth Group publisher Neil Osborn Managing director John Orchard Editor Clive Horwood Editorial director Peter Lee Deputy editor Louise Bowman Associate editor Sid Verma Private banking editor Helen Avery Transaction services editor Kimberley Long Africa editor Kanika Saigal Latin America editor Rob Dwyer Middle East editor Chris Wright Emerging Europe editor Lucy Fitzgeorge-Parker Contributors Eric Ellis, Philip Moore, Dominic O’Neill, Sara Webb, Elliot Wilson Managing production editor Tom Crispin Art director Rahul Singh Chief sub-editor Paul Crowney Sub-editor Julian Marshall Deputy publishers Soledad Contreras, William Powell Senior managers Marcus Langston, Lily Zhu Associate publishers Angelique Bevan, Melissa Roache Advertisement production manager Amy Poole Head of events Rahel Demetri Online publisher Chris Hunt Content manager Erica Jeffery Managing editor, data Tessa Wilkie Research editor Catherine Snowdon Technical analyst Ben Stevens Researcher/database development Kalin Trifonov Associate, ECR Chilli Wutte
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rom global universal banks to regional aspirants, transaction services have become a core part of their post-crisis offering. It is a sticky, low-capital, decentreturn business. It also offers a route to building relationships that pump other bank products and services through to clients, at a time when share of wallet is often the number one target for bank executives and a growing band of product-agnostic relationship managers. But how successful have banks been in building a broader business around cash management? Euromoney took the opportunity of its annual, industry-benchmark cash management survey (results begin on page 24 of this special Sibos report) to find out. With 23,000 corporates and 3,000 financial institutions taking part, it is by far the biggest study of the relationship between transaction services and other product areas. The results make for interesting reading. The
CONTENTS Sibos agenda
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ISO 20022 has the potential to bring considerable benefits Real-time payments raise issues of collaboration and fraud detection Regulators must tread carefully to not stifle innovation Securities need more transparency
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relationship between cash and payments is clear, but it’s perhaps surprising that not more than 80% of corporates use their cash managers for payments. The relationship between FX and cash is almost as close: 70% of corporates globally use their cash partner for some of their FX trades. The relationship between cash and lending needs some work: only 50% of corporates surveyed borrow from their transaction services partner. Risk management is also a low returner, with just 15% of corporates using these services. The most important lesson for banks, however, is that for all their talk of offering joinedup holistic solutions, their biggest clients are still dispensing their business more broadly then they would like. Companies with an annual turnover of more than $25 billion on average used a little more than three core products from their cash managers. There’s work to be done. We’ll see if the results change next year.
The eternal struggle of the bank treasurer
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Bank treasurers are trapped in a nightmare of never-ending regulatory challenges. From second-guessing capital treatment to understanding new rules on liquidity, their work is more important than ever to the overall health of the banks they serve. Louise Bowman
Transaction services
How to build a business around cash
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Many banks now say cash management is the heart of their business, not just for the returns it can generate in its own right but also to sell other products and services. Euromoney’s survey reveals they still have a lot of work to do. Kimberley Long
Transaction services
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The do’s (and don’ts) of winning a cash mandate
If only winning a transaction services mandate were as simple as filling in the RFP document. Success requires a full understanding of the business you are trying to win, and the soft skills to make the relationship work. Kimberley Long
Cash management survey HSBC retains global crown
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The yearly battle to be crowned the world’s leading cash management provider garnered votes from 23,000 corporates and 3,000 financial institutions. Check out the risers and fallers and winners in more than 70 countries around the globe
Regional focus
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Asia’s companies refine treasury Latin American banks answer the FX and legal catch-up call US banks face the next stage of tech development Western Europe sets the standards on payments
October 2015
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ISO 20022
On message ISO 20022 has the potential to bring considerable benefits to regulators and regulated institutions, although the integration challenge should not be underestimated By: Paul Golden
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s more financial institutions adopt ISO 20022, the goal of a common global standard for processing becomes a reality, enabling extensions of payment and remittance processing (including reporting). “Furthermore, where the standard has been implemented, customer transaction details are readily available,” observes David Dunmire, senior vice-president product solutions at iGTB. “When used in conjunction with centralised transaction processing systems such as transaction hubs, financial institutions have a powerful tool for meeting regulatory reporting requirements.”
“Many countries are planning to migrate automated clearing houses to ISO 20022, but this process will take many years” Fiona Hamilton, Volante Technologies ISO 20022 defines more data elements that regulators want access to, but it will take a lot of time and effort before financial institutions have the ability to integrate into a fully ISO 20022-compliant messaging system, suggests Tim Sloane, vice-president payments innovation at Mercator Advisory Group. “Most institutions will likely implement a data mapping exercise to convert data elements already being captured into the ISO 20022 format.” Compared with some payments standards, ISO 20022 defines very granular and complete structures for key data like name and address of ordering customer and beneficiary for payments, says Stephen Lindsay, head of standards at Swift. “Although regulators don’t necessarily
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require the use of structured data, it is clear that the motivation behind [Financial Action Task Force Recommendation 16] FATF R 16 (and its various interpretations that have been written into law) is to improve the transparency of payments and the industry’s ability to detect illegal activity. Better structured data would definitely help improve the efficiency and effectiveness of the detection process.” ISO 20022 customer payments messages also provide specific definitions for ultimate beneficiary and ordering customers, which are beginning to be required by some regulatory regimes. The industry needs a more flexible structure that allows information to pass end-to-end in a way that is easy to validate, says Simeon Parker, head of banking AccessPay, adding that priority must be placed on shaping the transformation of payment messaging standards in the migration from Swift FIN to ISO 20022 payment formats. When asked if the use of ISO 20022 has directly contributed to increased competition for banking services by making it easier for ‘new’ banks to access payment systems, Christophe Vergne, global payment centre of excellence leader at Capgemini, refers to common standards enabling the removal of country barriers for clearing services. “However, as the Payment Systems Regulator in the UK has stated, the ability to work with a certain message format is not the only consideration for a new entrant looking to participate in payment systems. Other initiatives are being looked at (such as a technical payment aggregation initiative) in the interests of introducing additional access options.” Before ISO 20022 can lower the cost of entry, there will need to be entire core banking systems that are designed around business process and data modelling principles embraced by the standard, adds Sloane. “While
some core systems utilise modelling tools for particular areas of business, I am unaware of any that orchestrate all aspects of a bank’s operation utilising these models.” According to Lindsay, ISO 20022 lowers the barriers to anyone’s participation in financial messaging because it uses standard and well-understood XML technology. “It is clear that regulators are keen to encourage competition in financial services and see new technology approaches such as public APIs [application program interfaces] and instant payment platforms as a way to achieve this. ISO 20022 is emerging strongly in the instant payments space, and it is therefore clear that mastering it will be key for any innovator or new entrant that wants to build value on top of these new industry platforms.” ISO 20022 it is especially useful in the ability to more completely include extended remittance information and many more creditor and debtor parties, although in its raw state it allows for much of this information to be conveyed in free format elements, warns Fiona Hamilton, vice-president Europe and Asia at Volante Technologies. “To really reap the benefits it is essential that jurisdictions impose market practice guidelines that forbid the usage of free format elements and instead mandate the use of codified content, thereby allowing for much easier monitoring and retrieval from archives and also automation of AML/KYC checks.” Hamilton also observes that ISO 20022 is a long way short of being implemented as the payload structure for all payments systems or banking channels. “Many countries are planning to migrate automated clearing houses to ISO 20022, but this process will take many years. In addition, many alternative payments channels such as Ripple are not based on ISO 20022 and, to complicate matters further, many of the back end systems responsible for payments processing do not natively support ISO 20022, so there is often a need for a transformation layer.” Considered solely as a global standard, ISO 20022 facilitates access to payment systems, but Dunmire says there are many other factors necessary to enter the realm of payment processing, including access to origination channels (such as central bank connectivity and various payment processing systems), support infrastructure and investment.
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Real time payments
Challenging times
The number of countries with real-time payment systems continues to rise, raising the importance of addressing issues such as fraud detection and prevention, and collaboration
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By: Paul Golden he pace of implementation of real-time payment systems has picked up in recent years: a new electronic funds transfer service that enables customers of participating banks to transfer Singapore dollar funds from one bank to another in Singapore almost instantly was introduced in March 2014; Australia has committed to launching its system by 2017; and the US Federal Reserve has created a faster payments taskforce. However, real-time payments can also mean real-time fraud, warns Craig Ramsey, principal product manager transaction banking at ACI Worldwide. He says the solution is to educate customers on the new payment methods and how to use them safely alongside implementing robust but customer-friendly authentication techniques, using tokenization or biometrics. “Furthermore, banks and credit card companies already have strong real-time protection for credit card transactions,” says Ramsey. “This should be extended to scoring and sophisticated rule strategies using stateof-the-art detection and monitoring software for real-time payments. In addition, the data banks will be able to gather and analyse will give them valuable insights into the business of their customers.” In many cases other data relevant to identifying fraudulent transactions may not yet be available to the fraud detection system, which can lead to false positives and false negatives, explains Aite Group retail banking senior analyst Ben Knieff. “Depending on the scheme, real-time payments could make reclamation challenging if the criminal has already cashed out the funds. Also, real-time payments can create a lot of pressure on operational teams – some high-risk transactions may need to
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be processed without review, while varying volumes throughout the day lead to staffing challenges.” The expected speed of transaction and its irrevocability do not leave much time for screening prior to or after executing the transaction, adds Christophe Vergne, global payment centre of excellence leader at Capgemini, while Celent senior analyst, Gareth Lodge, observes that shortening the end-to-end transaction time to a matter of seconds similarly reduces the time available for all the processes involved “let alone the fraud element, which means stronger authentication is required up front.” AccessPay’s head of banking, Simeon Parker, accepts that the shift from batch to real-time processing is likely to make a payment system more attractive to fraudsters. “Anti-fraud mechanisms such as multi-factor authentication, tokenization, analytics, rule changes and individual bank policies ensure the overall security and stability of a realtime payments system, but their use differs from bank to bank and by the status of a payment in the transaction chain.” However, Tristan Hugo-Webb, associate director of the global payments advisory service at Mercator Advisory Group, says the threat may have been overstated. “To limit potential fraud, systems have increased the number of times clearing occurs in a day to reduce the amount waiting, limiting the amount of potential fraud that can accumulate before being caught. In addition, when certain systems are not operating at full capacity or during business hours, there are lower transaction limits.” High processing volumes, coupled with customers’ expectations of faster payment processing, can be particularly challenging. The introduction of a risk-scoring system based on customer behaviour may slow the
overall processing experience, adds David Dunmire, senior vice-president product solutions iGTB. “In this case, banks must consider both their risk appetite and ability to implement controls at other points.” The increasing use of real-time payment technology does not require traditional payment providers such as banks to cooperate or even collaborate with new market entrants, but it is very likely to oblige them to do so due to the attention of the regulators, according to Jerry Norton, head of strategy UK financial services at CGI. “In the UK, for instance, the Payments Systems Regulator is encouraging direct access for new players and a transparent access regime by the larger banks to those who do not wish to go direct.” New technologies, such as blockchain and distributed ledgers, may facilitate the implementation of new payment systems in the medium to longer term, as open questions on latency, security and resiliency are being addressed by their respective providers, adds
“Banks and credit card companies already have strong real-time protection for credit card transactions” Craig Ramsey, ACI Worldwide
Carlo Palmers, head of real time payments at Swift. “Cooperation/collaboration with new market entrants will increase in any case and is not specifically driven by the introduction of real-time technology,” he says. “The revised Payment Services Directive mandates new payment service providers to get access to the payment infrastructures, irrespective of the type of technology.” Success for payment services resides in critical mass of users (both issuers and beneficiaries) and reach, concludes Teresa Connors, head of client engagement payment services at RBS. “To achieve this it is critical that payment service providers cooperate in defining the scheme (including technical standards) and build the interchange infrastructure in interoperable mode.”
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Regulation & innovation
Regulating innovation While banks continue to devote a lot of resources to compliance activity. There are signs that this investment is having less of a negative impact on service innovation By: Paul Golden
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he 2015 global regulatory outlook report published by Kinetic Partners suggests that regulators are devoting a lot of resources to surveillance of technological innovation. Regulatory consulting director, Malin Nilsson, refers to improved communication between industry and regulators and says that draft regulations are “being designed to make industry professionals think twice when it comes to risk without stifling innovation.” But Steve Young, CEO of Citisoft, says he would be surprised if regulators were building a capability to monitor technology
“Regulators are still taking a reactive approach to providing guidelines, principles and governance for the communities driving disruption” Bernd Richter, Capco changes as they emerge and react accordingly and suggests that European asset managers face particular challenges. “Our US clients are focused on strategy and innovation, whereas in Europe the emphasis over the last few years has been far more on regulation.” According to Young, the dependencies of many business functions and operations across the industry create a large and largely unnoticed risk. “Large parts of the backoffice value chain are still reliant on ageing, expensive and cumbersome technology.” Some clients cite an annual challenge to cut the IT operating cost for a given function by as much as 10%, observes Mike Payne, associate partner, Delta Capita. “With this in mind and assuming a convincing business case is made, real innovation should get
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funded. However, the internal pipeline of new ideas/funding for proving them may be restricted.” He suggests that maintenance costs still run at up to 80% of IT budgets in many banks, even after rationalization and outsourcing, which means that there is still plenty to do to change the balance between funding innovation for competitiveness and “keeping the lights on”. Over the last three or four years banks have done a lot of tactical, keeping-headsabove-water procurements, according to Noel Montaigue, senior business manager at OpenLink. They have been fixing shortcomings and overcoming immediate regulatory monitoring, reporting and data challenges without the time, budget or manpower to plan strategically and spend innovatively. However, he feels the tide has started to turn as profitability improves and that it is no longer considered acceptable or responsible for COOs and CTOs to bolt on ad-hoc solutions and isolated modules. The need for firms to scale their operations in the wake of increased regulation and data volumes is not going to go away anytime soon. That is the view of Neill Vanlint, managing director EMEA and Asia at GoldenSource, who believes that flexibility of data provision is at the heart of this issue. “Since the financial crisis, institutions have had to go through a long and laborious exercise of gathering, collecting and consolidating data to meet reporting requirements. Now it is time to get that data out of the many rabbit warrens and into the line of sight of those responsible for innovation and attestations.” Regulators are often behind the technology curve because their own systems are not up to date, suggests Venkataraman Bala, chief technology officer banking and capital
markets, at CSC. “Some of the regulatory regimes are waking up to this fact and attempting to modernise their infrastructure to better understand the impact of technology on operational risks of the banks they regulate.” According to Steve Grob, director of group strategy at Fidessa, regulation is forcing firms to innovate. “We are seeing a move to look at all areas of workflow and find creative alternatives. Another theme is that firms are reluctant to employ separate technologies discretely, which is too much of an overhead from both a risk and a cost perspective.” He also suggests that regulators could do more to engage directly with the independent software vendor community and that their interaction tends to be more focused on venues, broker dealers and the buy side.
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egulators will be confronted with much more technology disruption over the next few years and will need to be become more involved in monitoring, or even working with, the groups driving this change. That is the view of Capco partner Bernd Richter, who acknowledges that some regulators are already anticipating this trend. “However, they are still taking a reactive approach to providing guidelines, principles and governance for the communities driving disruption,” he adds. It can often be difficult for a regulator to understand real world applications, says Kieran Arigho, senior industry consultant financial services United Kingdom and Ireland at Lexmark. He believes a programme based around exchange or secondment would give regulators access to banks considering disruptive technologies and ultimately allow them to build regulations in line with evolving technology solutions. Regulators could do more to keep pace with changes in technology, but their job is to regulate and in doing so to become experts on the things that will impact either the prudential aspect of the financial markets or customer outcomes, concludes Travers Clarke-Walker, chief marketing officer international group at Fiserv.
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Securities transparency
Securities under the microscope Limited transparency in securities flows has been a concern for some time. The challenge facing regulators is to address issues around ownership without affecting legitimate transactions By: Paul Golden
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n the context of combatting money laundering and the financing of terrorism, while ensuring enforcement of economic sanctions, regulators recognise the need for transparency in securities flows and visibility of beneficial ownership of these securities. Regulators in Europe and the US are also continuing their efforts to gain transparency into the shadow banking market with a focus on transparency into secured financing transactions – repo and securities lending, says Michael Barrett, vice-president at Genpact Headstrong. “During the onset of the financial crisis and the Lehman bankruptcy, regulators felt that their limited view into the characteristics of the funding used in the repo market, the quality of the collateral and risk practices in securities lending hampered their ability to manage financial stability and control the risks associated with leverage and liquidity.” The result is the reporting of secured financing transactions into trade repositories in Europe, a move to central clearing of securities financing transactions and proposed minimum haircuts for non-centrally cleared transactions. Regulators are having to balance multiple agendas – on one hand, complying with the enhanced anti-money laundering and counter terrorism financing [AML/CTF] requirements around beneficial ownership promulgated by the Financial Action Task Force (FATF) 2012 revisions and on the other, the need to create a suitable regulatory environment in which markets can operate effectively. According to Neil Jeans, head of policy and standards at Thomson Reuters Org ID, the increased requirement to understand beneficial ownership in some markets is creating inertia and adversely impacting the ability to
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trade and settle transactions, which is affecting trading volumes. “The importance of knowing your customer, as well as who is behind your customer, is widely understood and accepted. However, AML/CTF legislation and regulation still has its basis predominately in retail financial services, which has resulted in interpretations and adaptations by practitioners operating in the securities and other wholesale markets that are contrary to market practices in order to achieve a level of compliance.” Jeans refers to increasing acknowledgement by regulators that the pursuit of one aspect of the regulatory agenda can have unintended consequences in other areas of the financial services industry. “More enlightened regulators address this with increased clarity and guidance as to what constitutes compliance across multiple industry sectors.” When asked how the fourth AML Directive will impact due diligence requirements for securities transactions, Barrett observes that it builds on the risk-based assessment requirements of its predecessor by adding requirements that the European supervisory authorities assess money laundering and terrorist financing risks faced by the EU as an entity itself, and that each member state conducts a risk assessment on a national level considering the assessment done by the European supervisory authorities. “The purpose of these requirements is to try to harmonise and make more consistent the KYC/AML due diligence rules across Europe. The results of these assessments will have to be incorporated into the internal risk assessments of the firms themselves.” The new Directive also attempts to provide greater clarity on how firms determine which customers qualify for simplified due diligence or need enhanced due diligence by specifying
the risk factors to be used in their determinations, Barrett continues. “As this is a new Directive, it is difficult to predict how big an impact it will have on the firms as there are dependencies on what the European supervisory authorities do and what the member states do to comply with it.” The Directive translates potentially into more work for financial institutions, increased time to open accounts and a requirement for more information from customers before they can trade, in what can be fast moving and dynamic markets, says Jeans. “However, it also creates an opportunity to address some of the issues faced by industry sectors, including the securities markets, in achieving compliance with AML/CTF obligations. While the Directive has the potential to create market inertia if not adopted in a pragmatic way for the securities industry, it also presents an opportunity whereby countries can create a regulatory environment in which financial institutions are able to leverage tech-
“To understand the contagion risk in the market, regulators need to be able to understand the interrelatedness of the transactions occurring within it” David Lewis, SunGard nological advances to mitigate the impacts of the increased requirements and enhance the management of risk.” David Lewis, senior vice-president at SunGard’s capital markets business, says the primary concern for regulators is the levels of exposure between organizations that are making collateralized loans between themselves. “Whilst this market is significantly smaller than it was pre-Lehman, it still amounts to multiple trillions of dollars of short-term funding liabilities each day. In order to understand the contagion risk in the market, regulators need to be able to understand the interrelatedness of the transactions occurring within it. They have now come to realise that in order to manage it, they must be able to measure it and that is where trade repositories may be brought in,” Lewis concludes.
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Cover story
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October 2015
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THE
ETERNAL STRUGGLE of the BANK TREASURER Bank treasurers are trapped in a nightmare of never-ending regulatory challenges. From second-guessing capital treatment to understanding new rules on liquidity, their work is more important than ever to the overall health of the banks they serve. The one bright spot: at least funding markets are open to them
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By: Louise Bowman
f Euromoney had sat down with a group of bank treasurers just after the markets crashed in 2008 and asked them to name their number one concern, it would have been new banking regulation. Seven years later, when the magazine did just that over the summer, their number one concern was… new banking regulation. It seems incredible that the regulatory environment is still so opaque. Spend any amount of time talking to bank treasurers and their exasperation that the dialogue has
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Illustration: Hit&Run not changed becomes all too clear. “One year ago we were at the beginning of the finalization of [Capital Requirements Regulation and Directive] CRD IV and we thought regulatory uncertainty was behind us, but it wasn’t,” says Stephane Landon, head of group ALM and treasury at Société Générale. “We have to deal with it.” Patience is wearing thin. “Regulatory changes complicate the job, both for us and for investors,” says Carlo Pellerani, group treasurer at UBS. “Not having absolute clarity affects the situation, but because there is
so much liquidity in the market this hasn’t been as damaging as it could have been. It is our hope that there will be regulatory clarity before this liquidity dries up.” The market volatility of 2015 makes such hopes increasingly remote. The extent to which this volatility barely makes it onto the radar of many treasury teams’ principal concerns is, however, quite striking. “I am more concerned about – and spend much more time on – regulation than I am about market volatility,” says one US commercial bank treasurer. “In the time that I have been in this role there has been a massive shift in focus to regulation. It has been all regulation, all of the time.” It is of little surprise that the strain is starting to show. “People are doing their jobs and then on top of that they are dealing with regulation,” he says. “There is therefore a big focus on keeping people motivated and keeping them energised. People can get discouraged and run out of gas.”
HAVING SPENT THE YEARS SINCE 2008 focusing on building up their capital buffers, banks are now faced with the dual headache of leverage rules and looming Total LossAbsorbing Capacity (TLAC) requirements, never mind further potential Basel IV changes in treatment to risk-weighted assets. In the US, the results of the Federal Reserve’s recent Comprehensive Capital Analysis and Review (CCAR) released in March this year show that the average common equity capital ratio of the 31 bank holding companies reviewed has risen from 5.5% in 2009 to 12.5% at the end of last year. That is an increase of more than $641 billion, which brings aggregate common equity capital at the banks to $1.1 trillion. But the job of raising capital is far from complete. In November this year the final TLAC rules are due to be announced at the G20 meeting, with the aim of ensuring that there is sufficient firepower available to resolve every globally significant banking entity from 2019 onwards. Loss absorption will be in the form of internal TLAC, which is subscribed by entities within the group, and external TLAC, which is sold to investors. Treasurers need to be involved in both efficiently allocating the former and opportunistically tapping appetite for the latter. The problem is that the rules
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Cover story
governing both are far from set in stone. “The challenge is that as soon as you have climbed one regulatory hill then the next one is already looming,” says Rogier Everwijn, head of capital and secured products, treasury at Rabobank Group. This presents bank treasury teams with a perennial dilemma: try to get ahead of the regulators and anticipate change, or err on the side of safety and take a wait-and-see approach, which could see you lagging your peers when regulations are eventually finalized.
of innovation in bank capital and first sold contingent capital bonds, or CoCos, in 2010. However, the threat of new rules meant that the 2012 plans had to be revisited. “Over the last year we have reformed the capital programme in reaction to TLAC and are now looking for mid-20% capital levels. We have doubled our capital base since 2009,” says Everwijn. According to Dealogic, Rabobank was one of the 10 most prolific global FIG issuers in the first half of this year, having issued $16.3 billion by July 21. It is
(phase-in) and 3.6% (fully applied). The Swiss National Bank has been demanding a tougher leverage ratio for Swiss global systematically important banks since 2013. In June this year it exhorted UBS and Credit Suisse to improve their leverage ratios – indicating a 5% target. The SNB is understood to be considering aligning the SRB leverage ratio with the Basel III leverage ratio, which will leave UBS with a far greater distance to cover to make that target. The Swiss banks are not alone in facing
“The treasurer used to be in the background… Now the job is strategic and you have to be very smart about financial resource management as this can be a competitive differentiator for the bank” Carlo Pellerani, UBS
Both seem fraught with pitfalls. The bestlaid plans of any bank treasury team may be sent back to the drawing board with each new utterance from the regulator. “In 2012 we formulated our capital structure in anticipation of bail-in regulations,” says Everwijn. “We thought that bail-in could be a threat to our funding and banking model. We wanted to operate at high capital ratios and minimal 20% to protect bondholders.” The Dutch bank has been at the forefront
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far from one of the 10 biggest global banks. UBS found itself caught in the crosshairs of regulatory inconsistency when it issued SFr9.5 billion ($9.7 billion) of tier-2 CoCos as part of its capital plan. These instruments are compliant with the Swiss systemically relevant bank leverage ratio but are not compliant for the BIS Basel III leverage ratio. The bank’s average Swiss SRB leverage ratio for the second half of 2015 was 5.4% (phase-in) and 4.7% (fully applied). But its BIS Basel III leverage ratio at June 30 this year was 4.3%
unforeseen capital and liquidity demands: in early August the ECB ruled that certain tier-2 instruments issued by Dutch bank ABN Amro should be excluded from its total capital calculation. The move follows a Dutch court ruling stemming from the nationalization of lender SNS Reaal in 2013. The ECB decided that the Dutch ruling enhanced the ranking of claims by tier-2 creditors, so these instruments are no longer compliant with CRD. It reduces ABN Amro’s total capital ratio of 20.2% (fully loaded
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“The toughest thing to deal with is the uncertainty around the required liquidity metrics both globally and locally. Amidst this uncertainty, we still need to develop a sound funding plan” Gina Orlins, Credit Suisse them. It must feel like stumbling around a dark room searching for the light switch. But for the treasurers that Euromoney spoke to, that search has most definitely moved from a search for capital to a search for liquidity. “Liquidity risk was on the back burner before and capital was a big deal until about three years ago,” says the head of group treasury at one US commercial bank. “Liquidity is now the focus from all regulators and within the bank.” The finalization of the liquidity coverage ratio (LCR) requirements for G-Sibs in September last year means that meeting liquidity requirements is most treasurers’ number-one concern. Under the rules, banks must hold enough high-quality liquid assets to cover potential net outflows over 30 days, and they must be fully complied with by 2017. “We bring in all parts of the firm that have the ability to influence our liquidity,” says David Wong, group treasurer at Credit Sui-
sse. “There has been a dramatic increase in the time spent on this in the last 12 months. We need to know which transactions drive liquidity benefit and which take it away.” This is particularly important given the potential increase in leverage-ratio targets for the Swiss banks. Until the rules are finalized, however, it remains a complicated judgement to make. “The toughest thing to deal with is the uncertainty around the required liquidity metrics, both globally and locally,” says Gina Orlins, head of long-term funding at Credit Suisse. “There are still rule interpretations that have to happen, rules that are not finalized and requirements that are several years out. And amidst this uncertainty, we still need to develop a sound funding plan.” The cost of getting the liquidity guessinggame wrong could be material. “The financial impact of being inefficient in managing liquidity is severe,” warns one US treasurer. “We need to make sure that we are passing that cost to the businesses that require that liquidity. We need to make sure that they factor that into their decision-making – the liquidity requirements of the business. We have doubled our staffing on liquidity management in just the last year.” Such concerns are the result of the now laser-like regulatory focus on bank resolution. The new resolution requirements are enshrined in Europe’s Bank Recovery and Resolution Directive (BRRD) and the
Global full year FIG bonds Top ten issuers by deal value
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JPMorgan Chase Bank of America Credit Suisse
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Goldman Sachs Deutsche Bank
80 $bln
19.5%) in the first quarter of this year to 18.8% (fully loaded 16.2%). Trying to second-guess developments can clearly be an expensive business: it is no surprise that ABN Amro announced its debut additional tier-1 issuance in September via Citi, Goldman Sachs, HSBC, Morgan Stanley and UBS. In an environment where the regulators frequently seem to be unsure which way to go themselves, bank issuers are often put in an impossible position. They have to issue something, and the decision about what is best for the bank’s own capital structure becomes overtaken by what the regulators’ next move might be. “There is always regulatory uncertainty around capital instruments,” says Everwijn. “There is obvious risk and you have to be very diligent in the way that you formulate your capital plan.” There is only so much that any group treasury can do. “We try to always be on the safe side and make sure we make assumptions only with what we think is stabilized,” says Landon at SG. “We don’t try to anticipate what the regulators are thinking.” For UBS and all Swiss banks, the proactive approach of Finma has forced them out of the gates ahead of many competitors. “The Swiss regulator has wanted to lead the charge in bank regulation, which has contributed to our organization being ahead of the game in terms of restructuring and being compliant with the new rules,” says Pellerani. But he adds that: “When you are an early adopter you just want a clear and stable set of rules as we have seen with our tier-2 issuance.” The Swiss bank started issuing AT1 in February this year. “The first thing we did was to organically accumulate common equity tier 1. We want to be the best-capitalized bank in our peer group – we are on 14.4% fully applied CET1,” Pellerani reveals. “Now we are trying to look ahead to address coming regulations early and decisively. We issued AT1 in February and July, and this will become a permanent feature in our regular funding plans. We will do more in the near future.”
Banco Santander BPCE
60
Morgan Stanley Rabobank Wells Fargo
40
UBS
20
FOR MANY BANKS, IT IS ENOUGH OF A struggle just to keep on top of the regulatory proposals, let alone try to get ahead of
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0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Dealogic
Sibos 2015
9
Cover story
Dodd-Frank Act in the US. Both embody the principle that no creditor should be worse off in resolution than they would be in insolvency. Bail-inable debt must account for at least 30% of the TLAC total and must be subordinated to excluded liabilities such as deposits. “Our regulators are very focused on preparedness around resolution,” explains Celeste Mellet Brown, treasurer at Morgan Stanley. “From a treasury perspective, they are focused on broad capabilities and planning and liquidity stress testing. The regulators are very organized, and there has been a constant dialogue with them on our resolution plan.” For large global banks structured with multiple points of entry in resolution the risk of trapped capital is a constant concern, and one that the treasury function is increasingly being drawn into. “Each location has an incentive to stockpile locally,” points out the treasurer at one such institution headquartered in the US. “This is not in the interests of everyone. You can only mitigate trapped capital and trapped liquidity to a certain extent. The emphasis around structure – whether the entity is subsidy or a branch – puts the onus on us, and we are very much involved in making these decisions.” Each global bank has a ‘regulatory college’ that liaises with the key regulators that oversee the different parts of the business to determine how much capital is needed and where. “We continuously make the point at college that we need to coordinate,” the treasurer continues. “We need enough for
“There has been a dramatic increase in the time spent on liquidity in the last 12 months. We need to know which transactions drive liquidity benefit and which take it away” David Wong, Credit Suisse
local markets but we need to be efficient. We are in the early innings of the TLAC game, but you can see the fear: there is the risk that it could be a high capital requirement. Discussions are ongoing at college – they are getting it.” Mindful of the fate of all that potentially leverage ratio-ineligible tier-2 issuance, any treasurer’s funding plan needs to take into account whether or not there are other costly instruments out there that could be redun-
TLAC preparedness
Fully phased-in Basel III tier 1 leverage ratios
G-Sibs, as of end 2014, June 30 2011=100
G-Sibs
160
5
150
4
140 130
3
120
%
110
2
100 90 80
1 2012 2013 2014 Tier 1 capital ratio RWAs Accounting total assets Leverage ratio exposure
Source: Basel Committee on Banking Supervision
10
Sibos 2015
0
2011
2012
2013
2014
Source: Basel Committee on Banking Supervision
dant for TLAC and leverage ratio purposes. A likely point of contention for US banks is the treatment of structured notes. Most large banks have big structured notes businesses, which form an important part of their institutional and retail activities: it is estimated to be a $6 trillion business globally. Structured notes can be principal-protected or not, but the initial TLAC proposals banned such instruments from counting towards capital due to the difficulty in accurately decoupling them from their derivative exposure. In June this year there were rumours that the Financial Stability Board might be weakening its objections and was exploring the option of allowing structured notes to the extent that the repayment of the principal at maturity would be unconditional and not contingent on any derivative-linked feature. However, a leaked FSB paper dated August 24 indicated that there was strong agreement at the FSB that structured notes should remain excluded liabilities for TLAC purposes. “The US regulators are far more open to structured notes than the FSB, and this is a large open spot,” says one US bank treasurer. “Structured notes could be ruled ineligible, and there is nothing I can do to mitigate this. If they are, the entire debt stack would be ineligible. But I am not going to go out and issue preemptively because of this.” It is, therefore, a waiting game until November. For Orlins at Credit Suisse, an adverse decision would not be too problematic, however. “There may be some capacity for TLAC to include principal-protected structured notes, but even if it doesn’t we still see structured notes as a useful tool to manage the diversification of our funding,” she says. G-Sibs are positioning themselves for the new guidelines and the task of meeting the 30% bail-inable debt target. Banks with holding companies, of which there are many in the US and the UK, can achieve structural subordination by issuing bail-inable debt at the holding-company level. Others will issue contractually subordinated, or tier-3, debt for which some regulators are already laying the groundwork. In Spain a draft law was introduced in May to enable banks to issue senior subordinated tier-3 notes that will rank ahead of pre-existing tier-2 notes in resolution. In Germany and Italy subordination will be achieved by statute: in March the German government released a draft
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“Our willingness and conviction is pretty strong that if we don’t want to lose investors, standardization is a key element. We try to be very flexible and opportunistic in finding the right funding windows” Stephane Landon, Société Générale
proposal that all existing German bank senior debt would be subordinated to other senior liabilities in insolvency. This was a gift to German bank treasurers, who would immediately find themselves TLAC-compliant. The draft proposal is viewed as highly political as it could be seen to be legislating in favour of one bank: Deutsche Bank. It would enable it to circumvent the massive liability management exercise that could see banks buying back non-TLAC compliant senior debt and re-issuing compliant – and more expensive – tier-3 senior subordinated debt in its place. Italy has also put forward a similar legislative proposal that would elevate depositors above senior bondholders in resolution. The impact of these moves has been clear to see in the performance of senior bank debt in both markets. After the German proposal was announced on March 10 Deutsche Bank’s 1.25% senior bonds due September 2021 moved swiftly from close to their highs of 103.4 on February 26 to trade
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at 101.5 little more than a week later. By mid-July they were trading at below 98. And when Commerzbank attempted to raise €750 million in September it had to scale the deal back to €500 million. Italy’s Banco Popolare similarly scaled back a €500 million three-year deal the same month. There is no doubt that senior debt is more expensive to issue. “A lot of investors have taken where holdco banks trade as the proxy,” observes one European bank-funding specialist. “These banks are repricing to Barclays and Credit Suisse.” Both of those banks have issued holdco debt that has widened a lot as concern over bail-in implementation grows. Keeping investors happy as they traverse the regulatory minefield is a top priority for treasury functions: every team that Euromoney spoke to for this article emphasised how much more time they spend talking to investors than they did before the crisis. Confusing and inconsistent proposals mean that holders can find themselves bumped down the creditor hierarchy and their bonds suddenly subject to savage repricing. Structural change at the institutions themselves also needs to be carefully transmitted to buyers of bank bonds – a process in which treasury plays a vital role. “We have benefitted from our focus on debt investors and they have reacted positively to the Morgan Stanley story,” claims Brown. “There has been a fundamental change in the way debt investors perceive Morgan Stanley as a credit.”
NOT EVERYONE IS SO FORTUNATE. Treasurers at banks with large liquidity needs are under pressure to deftly negotiate the current market volatility to satisfy their TLAC requirements. The most prolific issuer so far has been JPMorgan, with $25.7 billion from 46 deals by July 21. Credit Suisse raised $24.1 billion in the same period, and Goldman Sachs raised $23.1 billion from 101 deals. But even among the largest issuers there is little room for complacency. “Markets can change on any given day and the windows are not big,” observes
the group treasurer at one large US commercial bank issuer. “We have a 10-Q blackout, which reduces this further. But this is now business as usual and you have to be ready.” Being ready now involves the ability to launch a transaction almost instantaneously. By implication this means boilerplate documentation: the luxury of crafting each deal to the environment in which it will be launched seems to be something that banks are prepared to sacrifice in exchange for certainty of execution. “Our willingness and conviction is pretty strong that if we don’t want to lose investors, standardization is a key element,” says SG’s Landon. “We try to be very flexible and opportunistic in finding the right funding windows. The market has been shaky, so we try to have documentation ready to go so that if we find windows, we are ready to go. If you are organized, this is something you can deal with.” The extent to which many bank treasurers took advantage of market conditions at the beginning of this year to front-load their programmes is a clear indication of how they now have to grab funding when the opportunity arises. Deutsche Bank, whose rating was cut to triple-B by Standard & Poor’s in June, is more exposed than many to market turmoil, operating as it now does on the cusp of non-investment grade. The bank had issued $11.25 billion by late July, according to Dealogic, and plans to raise up to $35 billion in total for the year. “Volatility in the capital markets is obviously a concern, but generally a manageable one,” Jonathan Blake, global head of debt issuance at Deutsche Bank tells Euromoney. “Our funding plan is €30 billion to €35 billion, but only a relatively small proportion of that comes from public benchmark issuance. Private placements and retail-targeted funding account for between €20 billion and €25 billion of that total.” Credit Suisse is another FIG borrower that moved quickly to fill its coffers at the beginning of this year. “The first two quarters of this year were very different – the second quarter really brought
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Cover story
Samurai versus formosa: a tale of two bank funding markets The search for liquidity has driven many bank treasurers to explore greater diversification in their funding programmes. Gina Orlins, head of long-term funding at Credit Suisse, tells Euromoney that funding from non-US currencies at the bank has grown from between $1 billion to $2 billion pre-crisis to around $6 billion today. In the first half of 2015 many banks have turned to the samurai market in Japan and
the formosa market in Taiwan in search for funding diversification. But the difference in approach has been quite striking. Credit Suisse is one of a number of European banks to have tapped both markets this year, the others being Standard Chartered, Société Générale, Lloyds and Rabobank. However, bank issuance in the formosa market has swamped that in the much larger samurai market: $11.9
billion-equivalent to $7.4 billionequivalent, according to Dealogic. Some 17 banks issued in the former and nine in the latter – not one of the samurai issuers was from the US. Indeed, the relative activity of the large US banks in the two markets could hardly be more different. Five of the six largest issuers in the formosa market have been US banks, who between them have tapped the market for $5.8 billion this year
Bank issuance in formosa market Equivalent issuance, Jan 1 to Sept 10 2015
1,600 1,400
$mln
1,200 1,000 800 600 400
BBVA
Intesa Sanpaolo
Natixis
HSBC
Rabobank
Credit Suisse
Lloyds
Crédit Agricole Credit Suisse
UBS
Standard Chartered Société Générale BPCE
Citi
Morgan Stanley
JPMorgan
BAML
Deutsche Bank
0
Goldman Sachs
200
Source: Dealogic
Bank issuance in samurai market Equivalent issuance, Jan 1 to Sept 10 2015
1,400 1,200
$mln
1,000 800 600 400
Source: Dealogic
12
Sibos 2015
Société Générale
Svenska
Nordea
Lloyds
Rabobank
Crédit Agricole
0
Standard Chartered
200
– roughly half of all issuance. However, they have issued nothing at all in the samurai market. The complete absence of the US banks from the samurai market in the first half of 2015 is a clear sign of the differing need for funding diversification at US and European banks. The US players have a large and liquid dollar market to tap and have been building up their capital positions for years. Many European banks have a far greater need for diversity and are prepared to tap every investor pool available to them – despite the logistical challenges that this may entail. “Issuing in the samurai market is a lengthy process and there is a lot of documentation involved,” points out Stephane Landon, head of group ALM and treasury at Société Générale. “It doesn’t have the flexibility of other markets. You have to prep for something that will take place in six months time, which can be quite cumbersome.” However, for issuers prepared to negotiate this time-consuming and costly exercise the rewards are there in a growing and receptive investor base. “We feel that there are more and more investors in Japan interested in samurai issuance,” Landon adds. “The reach of the investor base is increasing. It used to be just Tokyo-based investors but now we see more and more interest from investors outside Tokyo as well. The dynamic is going in the right direction.”
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home the Greek situation, so there has been a delay in issuance since the end of May,” explains Sandeep Agarwal, co-head of the global markets solutions group at Credit Suisse. “We front-loaded our funding programme in good size, and more than 50% of it has been funded,” he told Euromoney in August. The lumpy nature of FIG issuance means that many treasury teams now look further afield to maximize the options available to them should conditions in core currencies be adverse. “The market has been more volatile recently and we do look to a more diversified set of currencies to issue,” says Orlins. “Of our $35 billion funding plan for the year roughly $6 billion will come from smaller currencies. Pre-crisis we were maybe issuing between $1 billion to $2 billion in non-US currencies, so there has been a meaningful change. We recently closed a $1 billion samurai trade just one week after the Greek referendum.” However, non-core currency trades are a lot more time-consuming and there is likely a limit to how far diversification will go at some borrowers. “There are longer lead times, depending which market you are looking at,” says the treasurer at a US bank. “We are looking at doing something in Japan but there is only about one week per quarter that you can issue in that market,” he grumbles. Others see this as just the cost of doing business in the new, unpredictable funding environment. “We have a significant programme of subordinated debt, so it is important to reach the largest investor base for this,” says Landon. “This is important in terms of security on our side even if it comes at a slight price. If you are more present in several markets, you can reach a deeper source of investors.” The ability to move quickly and fund in a range of currencies should arm bank treasurers against most of the unpredictability that the market can throw at them. But the less they have to issue, the happier they will be. UBS has issued $18.89 billion so far this year, a far cry from the volumes of funding it used to source in the FIG markets. “The strategic repositioning of UBS has had a big influence on issuance,” Pellerani explains. “We have moved from a very balance-sheet-intensive business model to a
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leaner, much more focused bank, and this has had a big impact on the quantum of funding required. When we restructured we found ourselves with surplus funding, so we have not been large issuers in the past couple of years in order to rebase ourselves.” Another bank that has seen its funding requirement shrink is Rabobank, which has benefitted from investor concerns over other lower-rated European lenders. “Liquidity has been less of an issue for us as we are seen as a safe haven,” says Robbert Muller, global head of funding, treasury. “Our programme is now far smaller than it was between 2009 and 2011, and there is less execution risk. We are targeting €20 billion of long-term funding this year.” For others it makes sense to move early on those rules that you know are set in stone. “The perspective of banks in Switzerland has been early implementation,” agrees Wong at Credit Suisse. “Credit Suisse has its holding company in place, and for us to implement TLAC, the path would be relatively clear. We have taken a market-leading approach and have already funded over $10 billion of holding company debt that will be TLACeligible.”
THE REGULATORY CHALLENGE THAT all banks face has forced their treasury teams to adopt a much larger and proactive role in the running of the bank. “The job of treasurer has changed completely since the crisis,” says Pellerani. “The treasurer used to be in the background making sure that there were sufficient and appropriately priced financial resources for the bank, but it was a second-order effect. Now the job is strategic and you have to be very smart about financial-resource management as this can be a competitive differentiator for the bank.” Treasury is now not only a far more important function in the bank than it was pre-crisis; it is also far more interconnected with the rest of the organization. Not only is it integrally involved in advising on the liquidity implications of many of the bank’s own activities, the treasury team is also responsible for managing far larger liquidity buffers within its own mandate. “We haven’t increased our headcount on managing the liquidity pool, but there are
a lot more connections in managing assets brought in as a result of business as usual,” says one US-based treasury executive. “We make sure that the secured funding teams are always looking at the assets that they have, and that rather than funding them short term they fund them longer term to satisfy our liquidity metrics.” But in many other institutions this has necessitated growing the treasury team. “Liquidity is a driver of the increase in treasury headcount,” confirms Wong. “There has been an increase in the number of individuals focused on liquidity planning and forecasting.” The demands of TLAC and its European equivalent, MREL (minimum requirement of own funds and eligible liabilities) have often necessitated the establishment of entirely new teams within treasury – at no small cost. “Treasury headcount is growing, and we have a whole team dedicated to resolution,” says Brown at Morgan Stanley. “We are investing heavily in technology, and will leverage this investment as a foundation for application elsewhere.” Even as banks staff up, not only to best equip themselves to deal with new regulation but also to lobby the regulators before its finalization, the establishment of stable capital and liquidity requirements looks further away than ever. “The biggest worry for us at the moment is the discussion around Basel IV and riskweighted assets,” says Rabobank’s Everwijn. “This is another climb up the hill, and we can’t predict what the outcome will be. It is not a fair assessment of the underlying risk on the balance sheet and could have very serious consequences for capital.” As long as the markets remain liquid and receptive to bank paper, the implications of the never-ending regulatory demands for capital and liquidity will be relatively manageable for treasury teams at most of the big banks. But even with TLAC due to be finalized in November, there is no end in sight for regulatory flux. “We want clarity of regulation and we don’t always have it,” says Pellerani. “We are still in the middle of reviews to leverage rules and at the beginning of the introduction of TLAC requirements. Until we know which way these things go, it will continue to be challenging for issuers and investors.”
Sibos 2015
13
Transaction services
How to build a banking business around cash
Many banks now say cash management is the heart of their business, not just for the returns it can generate in its own right but also for the opportunity to pump other products and services through their networks. Euromoney’s survey reveals banks still have a lot of work to do to turn aspiration into reality By: Kimberley Long
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W
hen it comes to banking propositions, one stands out more than any other over the past five years. Regardless of whether an institution is a big global bank, or an ambitious regional pretender, it is almost inevitable that the chief executive will have insisted at some point that transaction services lie firmly at the heart of the business. Take Deutsche Bank, whose new CEO John Cryan is trying to find a long-term plan for a bank mired in a low return-on-equity purdah. Everything at Deutsche appears to be in question – apart from transaction services. That’s no surprise: bank-wide ROE for the first quarter of 2015 was a measly 3.1%. But for full year 2014, Deutsche’s global transaction banking division delivered a more-thanhealthy 13%. Take Citi, just about the only bank still offering a truly global network to its clients. At the annual Sibos conference in 2014, a keynote speaker was Jamie Forese, president of the bank and a life-long capital markets and investment banker. He could not have been clearer that Citi’s transaction services business, which proudly transacts trillions of dollars a day for its clients, would be integral to the bank’s growth. Buzzwords flow off bankers tongues when they talk about transaction services: it’s sticky, it’s low-capital, it’s high return, it’s the bread and butter of the business, it’s in the DNA of the firm. That’s all true. But transaction services are attracting attention at the top of the financial industry’s C-suite for another reason: because being at the heart of a client’s daily operations, a close cash management relationship can pump business into other products and services that banks offer them. Michael Spiegel, head of trade finance and cash management for corporates at Deutsche Bank, says: “The bank has never looked at the transaction services business in isolation.” Frank-Oliver Wolf, head of transaction services Germany at Commerzbank, says: “Banks have been attracted by the stable revenues – the business does not have too many ups and downs. Cash management is a key element of banking. If you have a good cash management relationship, you will often pick up other parts of the business. You cannot do this unless you have deep communication with the client.”
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Lin Hong, director of corporate banking, Bank of China, says: “In recent years, we have seen the transaction banking services as the most important strategic business and taken an active part in bidding for transaction projects initiated by our strategic customers.” Any banks that haven’t got the point yet may be consigned to playing catch-up. Rajesh Mehta, head of treasury and trade solutions, EMEA, at Citi, says: “Many international banks are realising that they need to start improving their structures. Those that have already prioritized the development of the transaction banking business are ahead of the game.”
JUST HOW ADVANCED IS THE PUSH TO make cash management the hub for other revenue streams for banks that are desperate to increase their share of wallet with core clients? The results of the questions put to 20,000 corporates and 3,000-plus financial institutions in this year’s Euromoney cash management survey make for interesting analysis – and paint a mixed picture of achievement and opportunities begging for the banks involved (see charts on following page). First, the good news. If you have a cash management mandate, there’s almost an 80% chance that you will also carry out payments for your client, whether it’s a corporate or financial institution. The surprise, perhaps, is that the figure is not even higher, given the close relationship between cash and payments. Bankers often talk about the importance of relationships with treasury teams, given how much other business now flows from them. In terms of related products, none is more symbiotic than foreign exchange. Again, the numbers are good – if you’re a cash management provider, there’s roughly a 70% chance that you’ll also carry out FX trades for that client. For all that cash management is a core business, by tradition no single relationship between a bank and its clients is more important than the provision of credit. It’s perhaps surprising that the two do not go more hand in hand: among corporate respondents, less than 50% combine a lending with a cash management relationship. Unsurprisingly, given the nature of their business, the proportion for financial institutions is only a third.
Next we get into the high-margin business that banks desperately want, but often only the bigger clients need. Among corporates, one-fifth give mandates to their cash managers for capital markets business; among financial institutions, the figure is more than three in 10. Among both corporates and financial institutions, around one in seven employ their cash management banks for risk management. And just 7% of clients have used their cash managers for M&A, which is a much less frequent requirement for most. Of course, the bigger clients are more likely to use a greater number of these products and services. But our analysis shows that from a products per client point of view, banks can still do a lot more to leverage their relationships (see charts on final page). For companies with an annual turnover of more than $100 billion, the average number of products they use with their cash managers is just three. These, remember, are the biggest clients whom every international bank chases for business. The proportion rises for companies with turnovers of $25 billion to $50 billion, before falling away for smaller clients with fewer needs. There are a number of interesting discrepancies by region. Given it is the most developed financial market, you would expect North America to have the highest penetration of capital markets (37%), risk management (18%) and M&A (16%) business among corporates of any region. You might not expect that the region in which lending and cash management are most closely aligned for both corporates (62%) and financial institutions (56%) is Latin America – in both cases, these figures are almost double the percentage in Asia, which is arguably the most vibrant battleground for cash management and ancillary business.
THIS ANALYSIS SHOWS THAT BANKS have some way to go to reach their stated goals. What are they doing to get there? First, there’s an opportunity to win business. As Paul Taylor, EMEA head of sales for GTS at Bank of America Merrill Lynch, says: “We are starting to experience some shifts in the market. We’ve seen several GTS banks pulling out of geographies, or the market altogether. This is creating market concern as their departures in some regions leave a potential shortage of supply. No bank can
Sibos 2015
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Transaction services
avoid the regulation that is being introduced in some markets. At the same time, our clients need banks to be offering transaction banking in these markets because if the banks can’t offer the range of services that corporates need, then who will?” For every bank that withdraws from the market, there’s usually at least one bank attempting to grow its business. Carole Berndt is trying to do just that across Asia and beyond for ANZ. Before becoming managing director of global transaction banking at the Australian bank, she had a similar global role at RBS, which after her departure announced the closure of its international cash franchise. “I don’t have to fight for attention in this role as I have done in previous positions, where GTS wasn’t always the top priority,” says Berndt. She is enthusiastic about the opportunities she sees from her new base in Hong Kong. “Asia is a great place to play. It is constructive experimenting, trying things out in a fastchanging environment,” she says. “Over the last decade ANZ has pushed into the Asian market in a way that has been unmatched by other domestic banks. This needs a solid approach to the business, it is not possible to move out rapidly across a whole geography
without having aligned partners, resources and technology to support it.” Lum Yin Fong is global head of product management for cash management and trade finance at Singapore’s DBS Bank, another bank looking to expand its regional footprint through transaction services. Over the last five years, it has invested heavily in the business, which now accounts for 18% of group revenues. “As the contribution to the world’s economic output continues to pivot towards Asia, we’ll see an increasing number of Asian companies internationalising and seeking the requisite transaction banking solutions to support this,” says Lum. “Western MNCs, on the other hand, need to ensure that their core global bank relationships reflect the economic construct of the globe. As a result, banks, including DBS, are adjusting to the rising demand for transaction banking solutions in this region.” Berndt believes the rest of the world could benefit from seeing how Asian banks approach the business: “To see what corporate banks will look like tomorrow, think about markets and the investment banks playing along together, the way the Asian banks do in their markets,” she says.
Moving GTS forward is not as simple as pumping resources into the business. It requires encouraging various teams in the bank to break down silos and work together. ANZ has pushed to expand into the Asian market in a slow and controlled way. Berndt says: “The model we run in international and institutional banking is collectively managed. We work together on making decisions that are for the greater good of our customers and business.” The collaborative approach is being used elsewhere. Joanne Scheier, transaction services product manager for corporates at BNY Mellon, says: “Internally we have projects and structures in place to encourage collaboration. Teams will work with the sales people to identify opportunities in other lines of business and in other geographies.” It’s not just the bigger global banks from developed markets that are taking such an approach. DBS’s Lum says: “To comprehensively serve customers’ needs, we created a one-bank model. We built multiple linkages within the bank between customer segments (consumer, wealth, corporate and SME) and our product groups (treasury, transaction banking, capital markets and
Aside from cash management, what other banking services does your cash manager(s) provide? Global and regional responses from corporates and financial institutions
Corporates
7% 15%
20% 79% 45%
69%
Financial institutions
Global
WEurope
7%
Asia
CEE
NAmerica
LatAm
Mid East
16%
31%
78%
35% 71% Payments
FX
Lending
Capital markets
Risk management
M&A
Source: Euromoney Research Group
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Sibos 2015
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A EuromonEy magazinE sponsored statement
The clienT is aT The hearT of BNP PariBas’ BusiNess Transaction banking is evolving fast as technology improves the ability to manage cash efficiently and new entrants drive innovation. BNP Paribas combines the fresh thinking of a challenger with the reputation of an undisputed market leader in Europe and beyond BNP Paribas has positioned itself as a strong challenger to the more established players in transaction banking. It can be difficult to overcome the natural advantage of the incumbents, which enjoy sticky relationships with their clients. To win business, a bank needs a competitive edge, giving clients the incentive to move. To better understand what corporate treasurers want from their banks, BNP Paribas conducted a blind interview of clients through an intermediary, Boston Consulting Group. The results show treasurers across the world consider risk management as the number one priority. But there were some regional differences. In EMEA, treasurers are most concerned about security and productivity. In Asia, the focus is on cash optimization.
Chye Kin Wee, BNP Paribas
high-quality advisory business. This strategy will prove increasingly important as the role of the treasurer evolves, and with it the nature of the corporate’s relationship with its transaction bank. The role of the treasurer increasingly resembles that of the CFO, with less focus on the reporting function and more on decision-making and strategy.
Tailored solutions Creating solutions tailored to the needs of the client, not sold off the shelf, allows a bank to cater to these different priorities. There is a temptation to build standardized products, twisting the clients’ needs to suit the product, not the other way around, an approach that makes sense when competing on price. BNP Paribas believes its clientcentric approach will pay off in the medium to long term. It is already earning a reputation for quality. Greenwich Associates recently named BNP Paribas one of three 2015 Greenwich Quality Leaders for Asian Trade Finance, describing it as a solution-centric bank with a
Technology drivers Technology is driving this change. It helps treasurers optimize their cash balances, for example by centralizing the treasury operation in taxefficient locations. In supply chain management, the treasurer is always looking for ways to shorten the cash conversion cycle. New systems are emerging to better analyze and improve this cycle. BNP Paribas has been investing in modern systems designed to meet today’s challenges. Its supplychain platform is one of the most advanced and nimble in the industry. Another illustration of how BNP Paribas is gaining ground is
its agreement in July to act as the referral bank for RBS cash management and trade finance clients in EMEA and Asia. This follows the Scottish bank’s decision to retreat from much of its GTS business to focus on its home markets in the UK and Ireland. While former RBS clients are free to mandate whichever bank they choose, the agreement endorses the BNP Paribas platform, which offers comparable capabilities to RBS’s offering. The banks are working together to ensure a seamless and simplified migration for RBS clients to BNP Paribas, minimizing the disruption to their business. BNP Paribas offers the necessary geographical scale and coverage for the modern corporate, which conducts more business across national and continental borders than ever before. Such companies also need a bank that has global clients and an understanding of local customs and regulation.This is particularly true in Asia, where studies show treasurers place particular emphasis on responsiveness and frequent client visits. As a reputable European bank with a strong global outreach, BNP Paribas is well placed to assist its European clients doing business in Asia, as well as its Asian clients doing business in Europe.
Strong local roots With an uninterrupted presence since 1860, BNP Paribas is strongly rooted in Asia Pacific and is
constantly expanding its footprint in the region. It is present in 14 markets, including 12 with full banking licences. BNP Paribas currently ranks amongst the top foreign institutions in Asia. With consistent investment in product development and a focus on project implementation and client service, BNP Paribas has launched a global marketing and sales approach to build a strong regional transaction banking franchise. The Singapore and Hong Kong branches provide robust and dynamic regional hubs. The Asian market is evolving fast due to regulation changes. There are numerous restrictions placed on banking activities, guiding the product offering of all banks operating in Asia. Companies face challenges in this competitive environment, such as complex foreign currency control regulations, documentary requirements and separate clearing systems. BNP Paribas prides itself on helping its clients overcome the challenges of managing cash in a complex, highly regulated and diverse banking environment. As one of the leading global providers of financial services, with capabilities to design strategies and customize solutions for its clients, BNP Paribas continues to invest significantly in technologies and resources that seek to offer flexibility, efficiency and visibility to corporate treasurers of today. “We focus on product capabilities and quality of service, helping corporate treasurers to reduce process complexity and intensive administrative efforts, thereby contributing to cost savings. “We place great emphasis and attention on our clients’ evolving needs by engaging them constantly – knowing and understanding their challenges and what they need to overcome them. Delighting our client remains our key focus in our business,” stresses Chye Kin Wee, head of transaction banking, Asia Pacific, BNP Paribas.
Corporate Treasury Insights 2015 was developed based on a proprietary cross-industry survey of 500 corporate treasurers and CFOs from organizations around the world with consolidated annual revenues of more than $500 million. The survey was conducted by Expand Research (a wholly owned subsidiary of Boston Consulting Group) for BNP Paribas and Boston Consulting Group. For more details on the survey’s key findings, please refer to https://cashmanagement.bnpparibas.com
Transaction services
“The product-silo approach needs to be replaced with a more client-centric way of thinking, to improve the overall client experience” Rajesh Mehta, Citi
research). This enables us to offer the most relevant products and services to every customer. By breaking down product and customer segment silos, we are able to manage customer relationships holistically.” The potential for greater collaboration between businesses is possibly best represented by increasing collaboration with FX teams. Citi’s Mehta describes the rationale: “The move towards the FX team is extremely interesting. We are working closely with our counterparts in FX and in markets. It is at a stage where the product-silo approach needs to be replaced with a more client-centric way of thinking, to improve the overall client experience.” But banks would be mistaken in thinking there is a one-size-fits-all model to follow. Mladen Zaprianov, head of CEE trade finance and STEF in UniCredit Bank Austria, says: “All the banks are now claiming that transaction banking is important. But it comes down to the ability of each of the
players to recognise and think through their individual approaches. Each bank needs to find its own model.” Bringing the teams more closely together means pushing down the walls built up by old working methods. Alex Manson, global head of transaction banking at Standard Charted, says: “We orchestrate collaboration as a formal process and, for example, set up joint ventures with sales and product groups within the organisation.” Steve Everett, global transaction banking director at Lloyds Bank Commercial Banking, says: “To be successful, you need to ensure teams responsible for delivering these services to clients are aligned against strategic objectives.”
A CRUCIAL FACTOR IS THE NEED FOR banks to get their technology right. People might be working more closely together, but the impact of this will be limited if internal
Banks have some way to go on product penetration
Average number of products
Average number of products/services* used by companies’ annual sales/turnover
3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2
>$100
$25– $100
$10– $25
$5– $10
$2.5– $5
billion *Payments, FX, lending, capital markets, risk management, M&A Source: Euromoney Research Group
18
Sibos 2015
$1– $2.5
$500– $100– $50– $999.9 $500 $100 million
10
8%
7-10
7%
5-6
2-4
13%
58%
1
14%
Respondents: 3,264 Source: Euromoney Research Group
www.euromoney.com
A EuromonEy magazinE sponsored statement
How banks can benefit from automated fX conversion AutoFX lets banks offer more competitive rates to their underlying clients while realizing a new revenue stream Rosalie Fink, Director, Senior Product Manager of Foreign Exchange, Bank of America Merrill Lynch and Robert Foote, CTP, Director, Latin America Product Management, Bank of America Merrill Lynch When corporates look for growth, overseas markets are often high on the list of options. Accessing new customers in fast-growth economies, or sourcing suppliers in lower-cost areas, can make all the difference to growing revenues and profits. With the growth in international trade comes an increase in demand for cross-border USD payments and foreign exchange services. For banks, this should be an opportunity as corporations often turn to their local banking provider to execute those cross-border wire transfers. However, many smaller banks lack the infrastructure, the accounts and the mechanisms to handle the currency conversion of these payments themselves. Therefore, it is often the recipient bank that converts the transfer into the local currency of the beneficiary. In this scenario, the sender may lack transparency on what rate will be applied to the payment and how much will arrive at the beneficiary, which can lead to customer dissatisfaction. In addition, they are allowing the recipient bank to capture most of the FX spread revenue that goes with the transaction. Automated Foreign Exchange Conversion, or AutoFX, is an
increasingly popular practice whereby the sending bank uses a correspondent bank with FX trading and payment capabilities to automatically convert the payment into the local currency of the beneficiary. AutoFX provides a convenient way for the sending bank to offer competitive FX rates - improving the experience for their clients, while generating the revenue from cross-border wire payments that would otherwise be captured by the recipient bank. Most SWIFT MT202 or MT103 payments are converted automatically based on terms agreed in advance with the sending bank. For that sending bank, there is no
additional cost beyond the peritem fee they have agreed with the correspondent bank. Robert Foote, CTP, Director, Latin America Product Management at Bank of America Merrill Lynch says of the firm’s AutoFX service, “From a client bank’s point of view, they just pay the variable cost. If you’re a bank in Peru, for example, and you have a flow of dollars from your customers through your BofAML account, you can offer payment in 40 currencies, with no increase in your cost base, other than what you pay BofAML per item.” The service covers the most commonly traded currencies and can be applied to any transaction up to a
mutually agreed threshold, but it isn’t always appropriate to convert the payment before transmission – for example, when the recipient has a USD account of their own or when there is a pre-agreed exception for specific customers. Rosalie Fink, Director, Senior Product Manager of Foreign Exchange at BofAML, explains how the service deals with these exceptions. “We have invested in expanding our offering allowing us to help determine the currency of the payment to the beneficiary before it is sent. It’s an integral part of the service benefiting all parties involved in the payment chain.” As its name suggests, once set up AutoFX runs automatically, comparing each transaction to the database and converting those that are not filtered out. At the end of each month the client gets a report detailing the transactions converted, the FX spreads and the amount of the revenue that will be credited to a designated account. AutoFX is one part of a full suite of correspondent banking services we provide our bank clients. As corporations look overseas in their quest for growth, an ability to provide these services will become ever more essential to local and regional banks. Fink adds, “Bank of America Merrill Lynch is fully committed to providing best-in-class product offerings to our financial institution bank clients. As new technologies evolve and impact the global commerce landscape, cross-border payments must keep pace. In that context, we continue to roll out new developments like AutoFX – offering an expansive global reach with up to 96 countries and 44 corresponding currencies – to enhance the value chain to our financial institution clients’ clients.”
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC (www.sipc.org), and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2015 Bank of America CorporationInvestment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. © 2015 Bank of America Corporation.
Transaction services
available data. Using that dialogue they are able to create tailor-made solutions.” You might not have a track record with your potential client but, just like when applying for a job, references can be useful. Putting the team front and centre shows clients you have a thorough understanding of their business. What has the team achieved for similar clients in the past? Desserre: “When the corporate chooses the bank it comes down to your credentials. If you can offer the client 10 other client references and your competitors can only offer two you are more likely to win the RFP.” But don’t be boastful — as much as it’s important to make sure the client knows your credentials, show you’re offering them something unique. “A conversation which is ‘bank-product’ led is never as effective as one which is ‘customer-need’ led,” Batra says. “Banks can differentiate by providing insights and advice on trends and best practices.” And don’t forget the obvious stuff. With the banking industry under pressure, showing you’re strong and stable might make the difference in clinching the deal. Campbell at Over the next year, do you intend to change the number of ICM providers you use?
Corporates
5% Increase
9% No change
19%
67%
Respondents: 19,740
Financial institutions Decrease
12%
Increase
15%
No change
Don't know
19%
Respondents: 3,255 Source: Euromoney Research Group
22
Sibos 2015
ANZ says: “Having a strong credit rating can help to open the door. The clients get a sense of stability, and that stands you in good stead.”
Make the pitch memorable
Decrease
Don't know
“We were in the middle of an intense pitch for Coca-Cola when the refreshment trolley was brought in, and much to our horror was stacked with bottles of Pepsi. The most senior banker in the room carefully got up and wheeled it back out again before anyone could notice”
54%
If you’re on the shortlist you’ll be invited to present, and the pitches will be delivered on the same day, and often back-to-back. Banks need to look for a way that will make them stand out, and for the right reasons. Personalising the pitch goes further than putting the brand logo on the slides and learning the name of the CEO. Some creativity with the pitch documents will demonstrate that a presentation is more than just a standard package that is trotted out to any prospective client. It is also important to understand the corporate’s image and branding. Does it have specific language or phrases it uses as part of its branding? Kathryn Wyon, head of specialist services, GTB, at Lloyds Bank, says: “We tailor pitch documents to mirror the client’s corporate colours and vocabulary in order that sections that refer to them reflect their collateral and seem familiar.”
It is about more than just making a pitch look pretty. Creating something that the company can relate to will go a step towards forging the relationship. “For a post-delivery company we created collateral in the form of postcards and letters with our key messaging for how we would meet the client’s needs,” she says. “The more quirky, creative ideas can show that we are thinking about the client business and help to stand us apart visually.”
Use tech and data Once, having a strong technology offering could be the key element to winning a pitch. But some technology is now ubiquitous: for example, being able to offer a mobile app is no longer going to win you a mandate. The proposals need to take into account the sophistication of the clients. If they are looking to create a more streamlined internal process they will not want to be dealing with physical documents from their banks. “A certain amount of tech has become commoditized,” says Scheier. “If a client is looking at remittance processing, for example, they don’t expect to be receiving hard copies anymore; similarly, they’ll be looking
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for online tools for exception management.” Instead, the banks need to work out how they can provide a service to their corporates that uses their capabilities and the data available. Peter Jameson, head of trade & co-head of product management, GTS EMEA, at Bank of America Merrill Lynch, says: “Clients look to the banks for information. They want to know metrics and how they compared with others in their markets. They want to be able to benchmark against their peers to understand their business and the systems they should use.”
Be corporately responsible As well as knowing what the bank can deliver in terms of capabilities, corporates increasingly demand that their banks meet certain ethical criteria. This used to be a side issue but it is now a weighting factor in the decision making process. “The split in the decision for formal invitations to tender can be 40% to the products and services, 40% on price, and 20% on other elements that also include corporate responsibility,” says Wyon at Lloyds. “We want to go beyond the specified banking requirements and ensure the bank has an affinity on a relationship level
and demonstrate how we can support the client.” It does not have to relate to international projects or national campaigns. Even smaller projects in the area local to the business headquarters of a specific client could be a clincher. “For our mid-market clients we try to focus on their local area; articulating things that will hopefully resonate with them on a personal as well as professional level,” says Wyon.
Get the price right This remains the most important part of any pitch. A bank can be as good at all the other factors as it likes, but if it cannot compete on price, then the presentation team will come away empty handed every time. Indeed the price factor is becoming more important all the time, and some bankers aren’t very happy about it. Some industries are even changing their approach to how bids are accepted, putting all the emphasis on the price and removing the relationship aspect completely. “We are seeing more sealed bid approaches to RFPs, especially those led by procurement,” says Jameson. “In Europe some clients have moved towards sealed bids as a way to ensure objectivity and ac-
“We carried out a client pitch on WebEx and a lively discussion was going on between the bankers involved. It was only later we realised the entire content of the messages had been visible on the screen of the corporates” www.euromoney.com
When did you last reevaluate your cash manager relationships by issuing an RFP?
Corporates 12-30 months ago
22%
More than 30 months ago
Last 12 months
49%
29%
Respondents: 18,799
Financial institutions 12-30 months ago
19%
More than 30 months ago
20%
Last 12 months
61%
Respondents: 3,036 Source: Euromoney Research Group
countability for their decision-making.” Jameson is wary about the implications of this: “In my opinion, this can be a race to the bottom, as the cheapest wins. This approach means that the existing relationship isn’t considered.” It is the cost that will sometimes be the deciding factor. “It can come down to pricing. But for a bank, knowing the right pricing to offer is not always easy with a prospect,” says Desserre. “Indeed, if you have the perfect services, prices will still vary based upon expected side businesses. If they are too expensive they won’t choose them.” In these cases it could be important to factor in different elements. Is this corporate important for the bank? Could this business lead to more fees in other areas? “The bank needs to be flexible,” says SG’s Desserre. “For example, if a company has large daily deposits of $1 billion then you can be tempted to offer the services for free when for the same services with a company having very limited deposits, you would offer the services at a cost.”
Sibos 2015
23
Cash management survey 2015
Non-financial institutions Among non-financial institutions, which ICMs do you use most? Globally
7
Société Générale
362
8
8
Commerzbank
316
9
11
Garanti Bank
309
10
10
ING Group
243
North America
2015
2014
Bank
Score
1
1
HSBC
13,079
2015
2014
Bank
Score
2
2
Citi
8,690
1
1
Bank of America Merrill Lynch
1,031
3
3
Deutsche Bank
5,674
2
2
HSBC
893
4
5
BNP Paribas
4,186
3
3
Citi
579
5
4
Bank of America Merrill Lynch
3,927
4
4
JPMorgan
293
6
7
UniCredit
2,428
5
5
Wells Fargo
147
7
10
Standard Chartered
2,175
6
6
Deutsche Bank
116
8
8
JPMorgan
1,928
7
11
BNP Paribas
112
9
9
Commerzbank
1,530
8
10
Bank of Tokyo-Mitsubishi UFJ
83
10
15
Bank of Tokyo-Mitsubishi UFJ
1,417
9
27
Itaú
74
11
12
Société Générale
1,175
10
21
Standard Chartered
71
12
6
RBS
1,003
Latin America
13
11
Barclays
920
2015
2014
Bank
Score
14
13
Itaú
818
1
3
Citi
1,397
15
14
UBS
750
2
1
Itaú
1,151
16
17
ING Group
729
3
2
HSBC
591
17
24
Intesa Sanpaolo
641
4
4
Santander
497
18
16
Bank of China
628
5
6
BBVA
416
19
18
Santander
607
6
7
JPMorgan
182
20
22
Danske Bank
430
7
9
Banco do Brasil
115
8
5
Bank of America Merrill Lynch
87
9
8
Banco Bradesco
63
11=
Deutsche Bank
61
Best regional cash manager Western Europe 2015
2014
Bank
Score
10
1
1
Deutsche Bank
3,151
Asia
2
3
BNP Paribas
2,266
2015
2014
Bank
Score
3
4
Citi
2,255
1
1
HSBC
9,791
4
5
HSBC
1,962
2
5
Bank of China
4,908
5
8
UniCredit
1,354
3
2
Citi
2,945
6
6
Commerzbank
1,193
4
3
Deutsche Bank
2,416
7
7
Bank of America Merrill Lynch
869
5
4
Bank of America Merrill Lynch
1,870
8
9
UBS
785
6
6
BNP Paribas
1,753
9
2
RBS
602
7
7
Standard Chartered
1,473
10
12
Société Générale
516
8
12
ICBC
686
9
10
Bank of Tokyo-Mitsubishi UFJ
622
10
20
China Citic Bank
544
Nordics & Baltics 2015
2014
Bank
1
1
Danske Bank
68
Middle East
2
2
Nordea
66
2015
2014
Bank
Score
3
3
HSBC
43
1
1
HSBC
3,384
4
5
SEB
35
2
2
Citi
1,527
5
4
Citi
31
3
5
BNP Paribas
630
6
6
UniCredit
24
4
4
Standard Chartered
571
7
7
BNP Paribas
20
5
3
ADCB
428
8
14
Deutsche Bank
16
6
8
National Bank of Abu Dhabi
155
9
17
DnB NOR
14
7
10=
Barclays
116
Handelsbanken
12
8
18
National Bank of Kuwait
99
ING Group
12
9
12
Arab Bank
92
10
9
Deutsche Bank
91
10= 10=
13
Score
Central & Eastern Europe
24
7
2015
2014
Bank
Score
Africa
1
1
Citi
2,109
2015
2014
Bank
2
2
UniCredit
1,329
1
1
Citi
594
3
3
HSBC
843
2
2
Barclays
421
4
5
BNP Paribas
699
3
4
Standard Chartered
393
5
4
Deutsche Bank
679
4
3
HSBC
203
6
12
Yapi Kredi
386
5
6
Standard Bank
143
6
5
BNP Paribas
Sibos 2015
Score
98
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7
7
Société Générale
68
3
6
Bank of America Merrill Lynch
168
8
16
Deutsche Bank
43
4
3
ANZ Banking Group
109
9
8
Ecobank
40
5
5
BNP Paribas
77
10
19=
JPMorgan
34
6
4
Westpac
53
7
12
JPMorgan
48
Score
8
8=
Bank of China
41
Australasia 2015
2014
Bank
1
1
HSBC
745
9
13
Standard Chartered
39
2
2
Citi
217
10
8=
Deutsche Bank
26
Best cash manager in Algeria
Best cash manager in Cameroon
Best cash manager in Greece
2015
2014
Bank
2015
2014
Bank
2015
2014
Bank
1
1
Citi
1
1
Citi
1
1
Eurobank Ergasias
2
2
HSBC
2
3
Standard Chartered
2
3
Alpha Bank
3
4
Société Générale
3
2
Attijariwafa Bank
3
4
National Bank of Greece
Best cash manager in Argentina
Best cash manager in Chile
Best cash manager in Hong Kong
1
2
Citi
1
2
HSBC
1
1
HSBC
2
1
HSBC
2
1
Banco de Chile
2
3
Standard Chartered
3
3
Santander
3
3
Santander
3
2
Citi
Best cash manager in Australia
Best cash manager in China
Best cash manager in Hungary
1
1
HSBC
1
2
HSBC
1
1
UniCredit
2
2
ANZ Banking Group
2
1
Bank of China
2
2
Citi
3
4
Westpac
3
3
Bank of Nanjing
3
3
Commerzbank
Best cash manager in Austria
Best cash manager in Colombia
Best cash manager in India
1
1
UniCredit
1
1
BBVA
1
1
HSBC
2
2
Deutsche Bank
2
2
Bancolombia
2
3
BNP Paribas
3
4
Commerzbank
3
3
Citi
3
4
Deutsche Bank
Best cash manager in Bahrain 1
1
HSBC
Best cash manager in Côte d’Ivoire
1
1
HSBC
2
2
BNP Paribas
1
1
Citi
2
3
Deutsche Bank
3
6=
Citi
2
6=
Standard Chartered
3
2
Citi
Best cash manager in Bangladesh
3
3
Ecobank
Best cash manager in Italy
1
1
HSBC
Best cash manager in Croatia
1
1
Banca Nazionale del Lavoro
2
2
Standard Chartered
1
2
Zagrebacka Banka
2
3
Intesa Sanpaolo
3
3
Citi
2
1
Société Générale
3
2
UniCredit
Best cash manager in Belgium
3
3=
Intesa Sanpaolo
Best cash manager in Japan
1
1
BNP Paribas Fortis
1
HSBC
3
ING Group
Best cash manager in Czech Republic
1
2
2
3
Bank of Tokyo-Mitsubishi UFJ
3
4
Deutsche Bank
1
2
UniCredit
3
2
Sumitomo Mitsui Banking
Best cash manager in Botswana
2
1
Citi
1
1
Barclays
3
3
HSBC
2
2
Standard Chartered
Best cash manager in Egypt
1
2
Citi
3
3
First National Bank
1
1
HSBC
2
1
Barclays
Best cash manager in Brazil
2
2
Citi
3
3
Standard Chartered
1
1
Itaú
3
5
Barclays
Best cash manager in Kuwait
2
3
Santander
Best cash manager in France
1
1
HSBC
3
4
Banco Bradesco
1
1
BNP Paribas
2
2
BNP Paribas
Best cash manager in Brunei
2
2
Société Générale
3
3
National Bank of Kuwait
1
1
HSBC
3
4
HSBC
Best cash manager in Lebanon
2
2
Baiduri Bank
Best cash manager in Germany
1
1
HSBC
3
3
Standard Chartered
1
1
Deutsche Bank
2
2
Bank of Beirut
Best cash manager in Bulgaria
2
2
Commerzbank
3
6
Citi
1
2
Société Générale
3
3
UniCredit
Best cash manager in Malaysia
2
1
UniCredit Bulbank
Best cash manager in Ghana
1
1
HSBC
3
3
Citi
1
1
Barclays
2
2
Deutsche Bank
2
2
Standard Chartered
3
4
Maybank
3
3
Ecobank
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Best cash manager in Indonesia
Corporation
Best cash manager in Kenya
Sibos 2015
25
Cash management survey 2015
Best cash manager in Mauritius
Best cash manager in Russia
2015
2014
Bank
2015
2014
Bank
1
1
HSBC
1
1
Citi
2
2
Barclays
2
3
HSBC
3=
7
Deutsche Bank
3
2
Deutsche Bank
3=
3
Standard Chartered
Best cash manager in Mexico
Best cash manager in Saudi Arabia
1
1
HSBC
1
1
Saudi British Bank
2
3
Banamex
2
3
Samba
3
2
BBVA Bancomer
3
2
National Commercial Bank
Best cash manager in Morocco
Best cash manager in Senegal
1
1
Citi
1
1
Citi
2
2
Attijariwafa Bank
2
3
Attijariwafa Bank
3
4
BMCI
3
8
Ecobank
Best cash manager in New Zealand
Best cash manager in Serbia 1
2
UniCredit
1
1
HSBC
2
1
Société Générale
2
2
ANZ Banking Group
3
3
Intesa Sanpaolo
Bank of New Zealand
Best cash manager in Singapore
3
Best cash manager in Nigeria
1
1
HSBC
1
1
Citi
2
4
DBS Bank
2
4
Standard Chartered
3
10
Deutsche Bank
3
2
Zenith Bank
Best cash manager in Slovakia
Best cash manager in Oman
1
1
Citi
1
1
HSBC
2
2
UniCredit
2
2
Bank Muscat
3
3
Intesa Sanpaolo
3
3
National Bank of Oman
Best cash manager in Slovenia
Best cash manager in Pakistan
1
1
1
Citi
2
2
2
Standard Chartered
3
Deutsche Bank
Best cash manager in Peru
Best cash manager in South Africa
1
1
BBVA
1
2
HSBC
2
2
Banco de Crédito del Perú
2
1
Barclays Africa
3
4
Scotiabank
3
3
Standard Bank
3
Best cash manager in Philippines
26
1
UniCredit Sberbank
4
NLB
1
1
HSBC
Best cash manager in South Korea
2
3
Deutsche Bank
1
1
HSBC
3
2
Citi
2
2
Citi
Best cash manager in Poland
3
3
Deutsche Bank
1
1
Citi Handlowy
Best cash manager in Spain
2
2
Bank Pekao
1
1
Deutsche Bank
3
3
mBank
2
2
Santander
Best cash manager in Portugal
3
3
BBVA
1
1
Deutsche Bank
Best cash manager in Sri Lanka
2
2
Millennium BCP
1
1
HSBC
3
4
BBVA
2
2
Deutsche Bank
Best cash manager in Qatar
3
3
Standard Chartered
1
1
HSBC
Best cash manager in Switzerland
2
2
BNP Paribas
1
1
UBS
3
3
Doha Bank
2
3
Credit Suisse
Best cash manager in Romania
3
2
PostFinance
1
4
UniCredit Tiriac
Best cash manager in Taiwan
2
1
Citi
1
1
Citi
3
8
BCR
2
2
HSBC
3
3
Deutsche Bank
Sibos 2015
Best cash manager in Tanzania 2015
2014
Bank
1
3
National Bank of Commerce
2
1
Citi
3
6=
Barclays
Best cash manager in Thailand 1
1
HSBC
2
2
Citi
3
3
Deutsche Bank
Best cash manager in Turkey 1
2
Yapi Kredi
2
1
Garanti Bank
3
7
TEB
Best cash manager in Uganda 1
2
Barclays
2
3
Standard Bank
3
4
Standard Chartered
Best cash manager in Ukraine 1
1
Citi
2
2
Deutsche Bank
3
6
BNP Paribas
Best cash manager in United Arab Emirates 1
2
HSBC
2
1
ADCB
3
3
Citi
Best cash manager in United Kingdom 1
3
HSBC
2
1
Barclays
3
2
RBS
Best cash manager in United States of America 1
1
Bank of America Merrill Lynch
2
3
JPMorgan
3
4
HSBC
Best cash manager in Venezuela 1
1
BBVA
2
3
Banco Mercantil
3
2
Citi
Best cash manager in Vietnam 1
1
HSBC
2
4
ANZ Banking Group
3
2
HDBank
Best cash manager in Zambia 1
1
Barclays
2
2
Citi
3
4
Standard Chartered
Best cash manager in Zimbabwe 1
1
Barclays
2
4
Standard Chartered
3
3
Standard Bank
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For the full qualitative rankings, visit euromoney.com Financial institutions Among financial institutions, which ICMs do you use most? Global All transactions 2015 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
2014 2 1 4 3 5 6 10 7 11 12 8 14 13 15 9 16 18 19 20
20
Bank Deutsche Bank HSBC Citi Bank of America Merrill Lynch Commerzbank Standard Chartered Barclays JPMorgan Bank of Tokyo-Mitsubishi UFJ BNP Paribas Bank of China Wells Fargo Bank of New York Mellon Sumitomo Mitsui Banking Corporation RBS UniCredit RZB Mizuho Corporate Bank Société Générale Itaú
Score 18,769 15,403 7,719 6,436 4,584 4,386 3,076 2,972 2,568 2,125 2,103 1,841 1,829 1,403 1,371 1,357 921 847 751 713
Western Europe Euro transactions 1 2 3 4 5 6 7 8 9
1 2 3 4 7 5 8 10 14
Deutsche Bank Commerzbank HSBC Citi UniCredit BNP Paribas Standard Chartered Société Générale Barclays
10
11
RZB
2,675 1,211 633 379 294 271 245 223 196 194
Dollar transactions 1 2 3 4 5 6 7 8 9
1 3 2 5 4 6 7 9 8
Deutsche Bank Citi HSBC JPMorgan Bank of America Merrill Lynch Commerzbank Standard Chartered Wells Fargo Bank of New York Mellon
10
14
Barclays
1,815 713 636 483 425 356 298 297 273 137
Sterling transactions 1 2 3 4 5 6 7 8 9 10= 10=
1 3 4 2 6 5 9 7 8 13 10
HSBC Barclays Deutsche Bank RBS Standard Chartered Citi Commerzbank Bank of America Merrill Lynch JPMorgan UniCredit Lloyds Banking Group
815 659 583 536 280 250 138 111 88 72 72
Yen transactions 2015
2014
Bank
1
1
Bank of Tokyo-Mitsubishi UFJ
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Score
2 3= 3= 5 6 7 8 9 10
3 2 4 6 5 7= 7= 18 12
Deutsche Bank HSBC Sumitomo Mitsui Banking Corporation Mizuho Corporate Bank Citi Standard Chartered Bank of America Merrill Lynch Barclays Commerzbank
280 271 271 188 151 111 76 69 58
North America Euro transactions 1 2 3 4 5 6 7 8 9 10= 10=
1 3 4 2 5 7 6 8 9 17 14=
Deutsche Bank Commerzbank HSBC Bank of America Merrill Lynch Citi Standard Chartered JPMorgan Wells Fargo Bank of New York Mellon Barclays Société Générale
1,347 397 305 288 224 117 103 78 64 52 52
Dollar transactions 1 2 3 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 12
Deutsche Bank Bank of America Merrill Lynch Citi JPMorgan HSBC Wells Fargo Bank of New York Mellon Standard Chartered Commerzbank Itaú
1,637 1,545 824 675 501 425 411 293 62 54
Sterling transactions 1 2 3 4 5 6 7 8 9 10
1 4 3 5 2 6 7 8 11 14
HSBC Barclays Deutsche Bank RBS Bank of America Merrill Lynch Standard Chartered Citi JPMorgan BNP Paribas Commerzbank
406 281 279 159 154 140 97 34 30 29
Yen transactions 1 2 3 4 5= 5= 7 8 9 10
2 4 3 5 1 7 6 8 13 11
Bank of Tokyo-Mitsubishi UFJ Sumitomo Mitsui Banking Corporation HSBC Deutsche Bank Bank of America Merrill Lynch Mizuho Corporate Bank Citi Standard Chartered Bank of New York Mellon Wells Fargo
345 213 191 140 138 138 92 86 39 33
Asia Euro transactions 2015
2014
Bank
Score
1
1
HSBC
1,893
2
2
Deutsche Bank
1,614
3
6
Commerzbank
487
4
5
Citi
449
5
4
Bank of China
407
503
Sibos 2015
27
Cash management survey 2015
Dollar transactions
2
6
Standard Chartered
135
1
1
HSBC
2,949
3
3
Barclays
125
2
2
Bank of America Merrill Lynch
1,640
4
2
Deutsche Bank
122
3
4
Deutsche Bank
1,494
5
7
Citi
4
3
Citi
971
Yen transactions
5
5
Bank of China
560
1
1
HSBC
196
2
2
Bank of Tokyo-Mitsubishi UFJ
156
1,452
3
3
Deutsche Bank
105 103
Sterling transactions 1
1
HSBC
2
5
Deutsche Bank
348
4
5
Sumitomo Mitsui Banking Corporation
3
4
Barclays
298
5
11
BNP Paribas
4
3
Bank of China
296
5
7
Standard Chartered
281
Central & Eastern Europe Euro transactions
Yen transactions
48
1
1
Deutsche Bank
1,641
1,301
2
2
Commerzbank
720
Bank of Tokyo-Mitsubishi UFJ
768
3
4
Citi
400
5
Sumitomo Mitsui Banking Corporation
429
4
3
HSBC
372
4
4
Bank of China
291
5
5
UniCredit
330
5
7
Deutsche Bank
290
Dollar transactions
1
1
HSBC
2
3
3
Latin America Euro transactions
1
1
Deutsche Bank
2
2
Citi
1,238 559
1
1
Deutsche Bank
345
3
3
HSBC
367
2
2
HSBC
147
4
5
JPMorgan
224
3
4
Citi
133
5
6
Commerzbank
217
4
3
Commerzbank
130
Sterling transactions
5
12
Itaú
129
1
1
HSBC
385
2
2
Deutsche Bank
381
Score
3
4
Barclays
266
Dollar transactions 2015
2014
Bank
1
1
Deutsche Bank
382
4
5
Citi
198
2
2
Citi
326
5
6
Standard Chartered
128
3
10
Itaú
247
Yen transactions
4
4
Bank of America Merrill Lynch
245
2015
2014
Bank
5
3
HSBC
228
1
1
Bank of Tokyo-Mitsubishi UFJ
253
2
3
Deutsche Bank
189
127
3
2
HSBC
181
Sterling transactions
Score
1
1
HSBC
2
2
Deutsche Bank
63
4
5
Sumitomo Mitsui Banking Corporation
138
3
4
Barclays
60
5
4
Citi
123
4
5
Citi
52
5
6
Standard Chartered
50
Africa Euro transactions
Yen transactions
1
1
Deutsche Bank
281
1
2
HSBC
89
2
2
Citi
168
2
1
Bank of Tokyo-Mitsubishi UFJ
87
3
3
HSBC
121
3
4
Sumitomo Mitsui Banking Corporation
59
4
5
Barclays
103
4
3
Deutsche Bank
50
5
7
Standard Chartered
102
5
6
Bank of America Merrill Lynch
46
Dollar transactions
Middle East Euro transactions
1
1
Citi
303
2
2
Deutsche Bank
249
1
1
Deutsche Bank
635
3
3
HSBC
188
2
2
HSBC
479
4
7
Barclays
178
3
3
Commerzbank
253
5
4
Standard Chartered
157
4
5
Citi
175
Sterling transactions
5
7
Standard Chartered
112
1
2
Barclays
126
2
1
HSBC
116
Dollar transactions 1
1
HSBC
651
3
6
Standard Chartered
73
2
2
Deutsche Bank
498
4
3
Citi
65
3
3
Citi
384
5
4
RBS
59
4
5
Standard Chartered
203
Yen transactions
5
6
JPMorgan
194
1
1
Bank of Tokyo-Mitsubishi UFJ
83
2
3
Sumitomo Mitsui Banking Corporation
54
Score
3
4
HSBC
52
351
4
11=
Barclays
44
5
5
Deutsche Bank
39
Sterling transactions
28
76
2015
2014
Bank
1
1
HSBC
Sibos 2015
www.euromoney.com
Regional focus
Asia’s companies refine treasury Asia’s rapidly-changing corporate sector is becoming increasingly advanced in how it runs its treasury operations By: Kimberley Long
A
sia’s corporates are looking beyond their domestic bases for new opportunities. The emerging and established markets in the region offer a wide mixture of attractions for companies to grow their presence or find new supply chain partners. But they are not limiting their ambitions to their own continent. John Laurens, head of global transaction services at DBS, says the region’s corporate sector is changing rapidly. The biggest opportunities for banks can be found by looking at those companies that are on the verge of expanding. “The middle market is seeing a lot of growth,” says Laurens. “Companies do not need to be MNC [multinational companies] size to be global today. We are seeing the smaller businesses selling globally, but this means they have to be sophisticated from the very start.” China is setting the tone for how the other countries can expand. Its corporates are maturing and looking to how they can make the most of their treasury practices. Amol Gupte, regional head of treasury and trade solutions, Citi Asia Pacific, says: “Chinese companies are becoming smarter about using liquidity. They want to optimise their own balance sheets through pooling and intercompany lending.” Citi has assisted an Asian petroleum company in its long-term programme to update its treasury functions. The bank has implemented an integrated treasury system, enabling the company to reduce financial costs, improve liquidity management and enhance yields. The trend is likely to spread to the region’s other corporates. Their growing understanding of what capabilities are available to them
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is also stemming from the greater availability of data. Corporates have access to freelyavailable data on their rivals, as well as the proprietary information their banks can add. Citi has developed its data diagnostics programme to give clients an in-depth profile. It analyses three years’ worth of internal data and includes external information and credit ratings. The rolling programme refreshes the data each quarter to maintain a three-year analysis period. “The future will be built on big data, but what’s important is how you use it to create value for clients,” Gupte says. “We offer meaningful value to our clients by crunching and analysing their data, overlaying other important external data such as credit ratings, and then developing real-time or event-based insights that a corporate treasurer can use to quickly make informed decisions. We use our own proprietary software and analytical tools for this and constantly update the data.” DBS has a working capital advisory programme that uses big data and analytics to create industry benchmarks and perform deep-dive analytics on working capital. Through data analysis, the bank can advise clients on what to do with trapped cash and how best to make use of their available working capital. The possibilities are not limited to the companies within their own industry. There are opportunities for corporates to learn from what is being experienced by corporates of an equivalent size in a different industry. Laurens adds: “We give the clients the opportunity to benchmark their performance against their peers. They also have the chance to compare against companies outside obvious comparable industries.” Across Asia, China’s continued dominance sets the pace and the tone for the region. The
country is experiencing a turbulent time, but it still exerts a dominant influence beyond its own borders, as demonstrated by how renminbi for trade continues to grow. RMB is now the fifth largest currency, according to Swift and is starting to challenge its regional rival the Japanese yen. “The relevance of RMB has grown over the past four years from the trade settlement perspective,” says Gupte. “It will start to eat into the market share of other currencies in terms of the amount of trade settlement.” China can still do more to open up the currency further, which will lead to even greater use of its currency as it becomes more accessible. DBS, for example, advised European pharmaceuticals firm Roche on its implementation of the first automated RMB cross-border pooling structure. The company’s international cash pooling structure enables it to manage 90% of its global liquidity, pooled from 50 currencies. “We will likely see more deregulation around the capital convertibility of the RMB,” Gupte adds.
“Chinese companies are becoming smarter about using liquidity. They want to optimise their own balance sheets through pooling and intercompany lending” Amol Gupte, Citi Though China continues to be the driving force in the region, it is not the only story. Shariah banking products are growing steadily in use year-on-year. Malaysia’s Maybank has developed and expanded its product offering to meet the region’s increasing demand for Islamic banking products. In 2014 the bank launched its Islamic liquidity concentration services, the country’s first Shariah-compliant sweeping and pooling solution. The bank picked up 11 clients in its first month of launch, and the average size of deposits has increased 300% to the end of the year. The bank has seen strong demand for the products in Malaysia, and is now seeing that push into its neighbouring countries. The huge variations across the continent, from economics to populations, continue to create new opportunities.
Sibos 2015
29
Regional focus
Banks answer FX, legal catch-up calls in LatAm The sector has some catching up to do to meet the growing demands of corporate treasurers, both regional and international, who want to expand across Latin America’s varied markets By: Kimberley Long
C
orporates looking to grow their businesses across Latin America have tricky foreign exchange and legal hurdles to jump. They need their banks to help them navigate their way across the continent, by bringing their FX services up to date, and helping the companies to operate within the differing and complex legal systems. The founding of the Pacific Alliance in 2011 brought together Chile, Colombia, Mexico and Peru to help the flow of trade
“Latin America presents a high level of complexity for banks introducing products for global companies operating across the region” Steve Donovan, Citi
and greater co-operation between those countries. Across Latin America and the Caribbean region it accounts for 38% of the total GDP and 50% of total trade flows. The region’s largest economies of Mexico and Brazil still dominate but trade patterns are evolving. The increase in trade across Latin America is driving higher demand for transactions denominated in local currencies. For a region that has commonly used dollars to trade, a lot of work is needed to update payments and FX systems to meet the requirements. “While trade remains very US dollar-based there is an increasing need for banks to enable corporates to pay or receive cash in their local currency,” says Jon Richman, Deutsche Bank’s head of trade finance and financial supply chain, Americas. “We are increasingly embedding FX into our trade finance
30
Sibos 2015
solutions to accommodate this need of our clients, customers and suppliers.” The demand for simpler cross-border payment capabilities has come relatively late to Latin America. Only in the last few years has there been any traction from corporates and consumers alike for easier methods to transfer FX between countries. The banks have been scrambling to implement solutions that will meet these needs. This evolution is being helped by the arrival of new technology in a relatively underdeveloped continent. Banks can introduce systems that have worked in other regions and adapt them to this new market. Deutsche Bank has increased its product suite to meet the demand for more robust FX capabilities. It launched the FX4Cash Receivables in the Americas, which allows corporates to invoice in 35 currencies and receive payment in their chosen currency. As well as reducing risk in FX, it has mitigated the need for corporates to hold multiple bank accounts. In turn, this has created costs and time efficiencies. Bank of America Merrill Lynch (BAML) has harnessed the progress in technology to help develop its FX services by releasing digital signature capabilities for use in Brazil. Clients who need to give their approval on an FX contract can now give their consent electronically. To create the digital signature capabilities, BAML had to take into account the specific legal framework in Brazil, while the whole region is notorious for the complexity of local laws. The differences in the legal structures across Latin American countries present big challenges to develop systems that will work beyond the confines of one border. Dealing with different tax regimes also poses a difficult task. Corporates face federal,
state and municipal taxes that vary between jurisdictions. Furthermore, there are business taxes related to property, vehicles, customs, social security and VAT. “Latin America presents a high level of complexity for banks introducing products for global companies operating across the region,” says Steve Donovan, treasury and trade solutions head for Citi Latin America. “Each country has different regulations and market practices and the challenge is to create the connectivity among all countries for companies with centralized regional treasuries and shared service centres.” Citi’s virtual accounts system in Mexico enables corporates to identify and to reconcile all deposits, regardless of the method in which they were made. The region’s companies are looking at how differences in tax laws and regulation in their home continent will affect their plans to move into new countries. Richman says: “Local corporates are becoming very international, with activities increasingly spanning all the major regions.” Juan Pablo Cuevas, head of global transaction services in Latin America at BAML, says the role of the banks is vital in giving their clients knowledge of wider markets. “Corporates are looking to their banks for experience and advice,” he says. “They want to know what are the regulations and what impact will they have?” The bank needs to treat any relationship with a client as a partnership, he says. “Latin America has big populations and relevant markets. The corporates want to be able to centralise and concentrate their operations.” The shift to a homogenised way of operating across the whole region has brought treasury practices into sharper focus. The growing sophistication has also attracted the attention of senior executives. “Working capital has become an important measure of corporate operating efficiency and, as a result, trade and supply chain finance is capturing the attention of the Clevel,” says Deutsche’s Richman. “Many multinational companies started centralizing their payments function and initially established payments factories,” says Donovan. “They are now incorporating new functions including collections and some have set-up full regional treasury centres also managing the financing function centrally.”
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Regional focus
Modernising a mature market The North American banking and treasury market is highly evolved but technology offers many routes to further sophistication By: Kimberley Long
T
he transaction banking market in North America already offers sophisticated products and services. But clients and competition means there is a constant need for the next innovation and taking that next step means developing new platforms. The race is on to create a fully digitized method of corporate banking. Michael Fossaceca, head of Citi treasury and trade solutions, North America, says: “In the US, we are operating in a mature market. We work with our clients by providing core services but we also go beyond by providing them with data and analytics to help them make better-informed decisions.” Clients have an expectation of ever-more sophisticated ways of using technology. So providing an efficient tech onboarding process, or being able to offer them good mobile banking services, are no longer things that will set a bank apart. When competing banks can all offer equivalent services, corporates will start to look for some further proficiency that sets a particular provider apart from the crowd. Citi’s clients can now manage several accounts from one access point, through its CitiDirect BE platform, which was leveraged off the development of Electronic Bank Account Management (eBAM). Documents can be submitted electronically, so the process of opening and managing accounts is now paperless in Citi’s US and Canadian branches. The shift to a digital approach for making and receiving payments means banks now have a wealth of client data available for analysis, with a granular level of detail. The challenge lies in using that data to its full extent. Corporates are looking for benchmarking against their competitors, so Citi has estab-
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lished the treasury advisory group to help its treasury and trade clients to analyse flows, and identify opportunities to see best practice in their business and use of working capital. “We are using technology the way it is meant to be used, and this is an exciting time,” Fossaceca says. Clients have brought their internal enterprise resource planning (ERP) platforms up to the most modern structures. Now they want to leverage off those large investments that they have made in their tech infrastructures. And it is not only the multinational corporations that are now using globally-connected ERP systems and adopting internal payment structures. Companies further down the chain are looking to find even greater levels of efficiency. Jon Richman, head of trade finance and financial supply chain, Americas, Deutsche Bank, says: “In the supply chain finance space, the ability to structure large programmes and to provide extensive cross-border coverage with efficient supplier onboarding are becoming the key differentiators – more so than the technology platform.”
NEW ENTRANTS To ThE MARkET are pushing the pace of change in the tech space, innovating at a rate that banks find hard to replicate. What the banks can do, however, is step up to the table to assist them in their business development needs. Banks are approaching it as an opportunity both to access the newest developments in payments technology, and possibly to onboard the next multinational tech company while it is still at the incubator stage. “We are seeing the emergence of more fastgrowing technology companies,” says James Volkwein, Deutsche Bank’s head of trade
finance and cash management corporates, Americas. “What they all have in common is incredibly lean structures. What they need is transparent help and support with obtaining financing.” The move to a tech-based operating method brings with it a fresh set of challenges, most prominently the threat of cyber-attacks, alongside the older problems around foreign exchange risk and fraud. In the past, fraud would have related to individual transactions, but now the industry is learning to contend with the risk of entire databases being replicated. Any corporate looking to step up its tech provisions will talk to its bank for advice on how to prevent it from becoming the next Target or Sony. “We’re actively helping clients with cyber security by providing education so they understand where they could have gaps in their systems,” says Galen Robbins, head of global transaction services for commercial banking, business banking and small business, Bank of America Merrill Lynch (BAML). The bank has also been investing in building up its systems against the evolving threats by creating a client-centric online platform to help address concerns about the digital threat. “one highlight is our new fraud prevention portal, which provides clients with a library of helpful information and resources, including whitepapers, webcasts, a podcast series and videos,” says Robbins. As it develops new technology for corporates, the US is adapting its use of everyday technology, looking at ways to reduce the costly dependence on paper-based operations. “Businesses are looking to improve efficiency and security in their payments to other companies and to consumers,” says Dub Newman, head of North America global transaction services at BAML. “As an example, non-repetitive payments to consumers have been causing difficulties for companies in several industries.” BAML’s digital disbursements have taken a step to cutting the dependence on cheques. The mobile payments platform enables corporates to make payments direct to recipients, and without the need for detailed back account information. No longer having to send out or process cheques has brought about a 75% reduction in the cost of the payments.
Sibos 2015
31
Regional focus
Western Europe sets standard on payments The Single Euro Payments Area prompted a wholesale change in how European banking operates and set a precedent for other regions on the possibilities open to them By: Kimberley Long
C
ash management has experienced some big changes in recent times, none more so than in Europe with the implementation of Sepa. The arrival of the Single Euro Payments Area in 2014, in combination with the adoption of the ISO 20022 payment standard, has shown other diverse regions how to establish a holistic payments landscape. “Last year was one of the most active we have seen in some time,” says Matthew Davies, co-head of product management, GTS EMEA at Bank of America Merrill Lynch. “Sepa enabled treasurers to change and consolidate their systems whilst reconsidering their operating models, taking full advantage of the opportunities that Sepa can offer.” Despite the delay in the implementation, the arrival of the final deadline of August 1, 2014, heralded a relatively seamless transfer to the single payment format. The implementation has changed how corporate treasury can be managed across Europe. It is opening up new opportunities to make the region’s corporate treasury functionality the most unified in the world. Andy Reid, managing director, head of corporate cash management EMEA, Deutsche Bank, says: “Sepa has been a strategic opportunity.” The challenge, now that it has been implemented, is to leverage the benefits of the new infrastructure across the whole region. A key change was the arrival of the XML ISO 200022 messaging standard. As other regions look on it as a strategic differentiator, in Europe it is now the only accepted messaging platform. “Where previously standards varied by country, Sepa has helped to push the standard
32
Sibos 2015
to XML,” says Davies. The implementation superseded the region’s previously disparate payments methods, bringing the first step towards full standardisation of payments platforms. Another layer of standardisation came with the introduction of electronic bank account management (eBAM). The eBAM system allows for the further automation of the process, enabling corporates to open, close and manage their accounts electronically. The system is most commonly facilitated through the implementation of the ISO 20022 platform. Sepa has also enabled the corporates to dramatically reduce the number of bank accounts they hold, as it is no longer necessary to open an account in each new country. Numbers could be cut from dozens of accounts across the region, to just one or two, which could be managed remotely. The next goal is to deliver actual business benefits of this homogenization, via time and financial efficiencies. “Many clients are now looking at virtual accounts. In a centralised treasury, these give the treasurer a greater level of oversight and flexibility and can significantly reduce the number of physical bank accounts that they need to maintain,” says Davies. The ability to move payments is enabling treasurers to attempt more sophisticated methods of treasury management. Paymentson-behalf-of (POBO) is emerging off the back of the change. “Sepa has been the catalyst for centralisation and defining standards. It has created more options for corporates, opening up the chance to use in-house banks and virtual accounts,” says Reid. The developments have allowed banks to work on creating tools specifically to educate their corporate clients on the greater pos-
sibilities to manage their businesses. Commerzbank has developed its Treasury Tools app. Treasurers are still working towards how to make the most of the harmonisation of payments processes that Sepa has enabled. Commerzbank’s Treasury Tool suggests to a corporate how much they could save through implementing different functions, such as consolidating their accounts or establishing payments factories. The tool is specifically pointed towards the small and medium-sized enterprise (SME) sector, as those companies may not realise the full capabilities open to them. “The treasury tool has been made to stimulate awareness for the customer of points in their business they need to consider to make their operations efficient. There are often small details they overlook which can have an impact on their business,” says Klaus Müller, head of product management, cash transaction services, Commerzbank.
T
he flow of business has become more efficient as all of the separate functions have come together, giving banks the scope to look at what other technology can be developed and implemented off the back of the success. Reid at Deutsche Bank says the use of more in-house treasury processes is starting to become more popular for corporates, to the point that they are starting to ask for help in setting up the services. “Payments-on-behalf-of is starting to pick up pace,” he says. “For a long time it was just something that was discussed at conferences but now we are seeing RFPs that are looking for ways to implement it,” This greater understanding and digitisation of the banking space is opening up exploration of what else can be implemented. Some banks, like Commerzbank, have created divisions specifically to look into how their business can work more closely with the emerging fintech companies, and develop a reciprocally beneficial service. Christian Hoppe, CEO of Commerzbank’s main incubator division which is working on banking sector innovation, says: “We invest strongly in fintech. We look at every segment within the fintech universe, eg payments, big data. We also analyse the developments in the cryptocurrencies space.”
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