2010 in Review: Mounting Challenges for Treasurers

Publication: gtnews.com

This year has seen treasurers face challenges on several fronts. This review of 2010 examines industry trends and reveals the top 10 most read topics on gtnews this year. 

Looking back at 2010, it is fair to say that, thankfully, it has been less tumultuous than the couple of preceding years. This was the year that many economies around the world emerged from recession and, while not exactly sprinting into growth, the widely predicted doubledip recession has failed to materialise. So far, so good? 

Perhaps not - looking beneath the surface, there are clearly still many structural cracks in the global economy that could derail future stability. In Europe, the sovereign debt crisis threatens to catch up with many more countries in 2011, while the euro itself is under the most intense pressure of its short history. How long will German taxpayers be content to lead the bailout of other nations? 

In the US, the Dodd-Frank Act became law, creating huge changes for both banks and corporates in their accounting and reporting processes, while ‘QE2’ showed a marked difference in approach to deficit management compared with most European countries. Even China, seen by many in the west as the saviour of the global economy, has been struggling with a number of economic issues of its own. Under fire from the US and Asian neighbours for manipulating the value of the renminbi (RMB), the spectre of inflation also looms large in China. 

With considerations such as these, the role of the treasurer is not getting any easier. The rise in profile of the treasury department over the course of the credit crisis has been well documented, but in many cases this has not been matched by a similar rise in resources. So in a situation of having to do more with less, what have been the topics that gtnews subscribers have been reading the most this year?

Cash Management Concerns to the Fore 

Perhaps unsurprisingly, cash management issues dominate the ‘most read’ list for 2010. But within this broad umbrella description, a number of issues emerge, including cashflow forecasting, cash management systems and the centralisation of cash management processes. 

Forecasting 

Looking at cashflow forecasting, the gtnews Treasury Insider’s blog on the topic had the rather provocative title “Cash Forecasting: Is It Really Worth It?” In the post, the gtnews Treasury Insider explains that, while they don’t need convincing of the importance of cashflow forecasting, there are a couple of major challenges they face in their organisation: 

1. I need to encourage the subsidiaries to get into the habit of forecasting regularly, by which I mean once per week, with updates when necessary. 
2. I need to improve the accuracy of these forecasts. I am keenly aware that the nature of our business dictates the frequency required for forecasting. 

The Treasury Insider sees the issue for their company as being an internal personnel issue rather than a system issue. And the blog post gained a large response from the gtnews readers. Selected reader comments include: 

• “I can only support the absolute MUST of cashflow forecasting and also the need to have a at least three months outlook especially when you have to plan out your short-term financing needs, like we are having to do in my company.” 
• “We went from a loose two-week forecast model in 2008 to a very rigidly enforced 13 week model in early 2009 in response to the economic crisis. The outcome played a large part in ensuring that our company avoided any breach of financial limits or covenants - its simply that important.” 
• “Regarding your issue no 1, the best way to solve this is from the top down. Your CFO [chief financial officer] needs to be behind you. Anything less than that will get short-term attention.” 
• “Better cash forecasting will not occur until the link between profitability and liquidity is measured more precisely, and those involved are rewarded for meeting their goals.” 
• “... treasury needs to take the lead not only by owning the cashflow forecast process, but by clearly articulating the benefits across the organisation.” 
• “Technology also helps complete the information loop by quickly communicating back forecasting effectiveness at a level of detail that is actually useful to the remote user.” 

Clearly the optimum forecasting rate - daily, weekly or monthly - varies from company to company, and there were different views on this from the readers who commented. Common themes surrounded the importance of getting senior management onboard with the forecasting process, and also educating business units as to the importance of accurate and timely cashflow reports. To get a successful cashflow forecasting project off the ground, treasurers need to be adept at communicating the benefits to all invested parties. 

A centralised approach to cash management 

In their article that looks at centralising the cash management function, Diejana van der Wal and Heijmert Rijken from Rabobank acknowledge the role that cashflow forecasting can play as part of a centralisation programme. Integrated with cash pooling, it can be an important tool for improving cash management as it lets the treasurer have visibility of their company’s cash, no matter which country or currency the account is held in. 

In terms of pooling, one example of this helping to centralise liquidity management that is given is this article is the end-of-day sweep. This process makes it possible to transfer balances from local accounts to one central account or to centrally maintained accounts in the name of the local subsidiaries. It is also possible to automatically move the balances back to local subsidiaries, while profiting from the advantages of a central interest pool. 

Van der Wal and Rijken explain that this allows the treasurer to have better control over their cash, while they can also view it as a corporate asset within the organisation. 

System choices 

The most read piece of content on gtnews in 2010 was an article from Joergen Jensen at Nasarius, who provided a guide to cash management systems in Europe. In the article, Jensen examines a variety of areas related to cash management systems, such as the type of vendors (banks, enterprise resource planning (ERP) providers and specialist vendors), what you should look for in a system to suit your organisation, and how to approach the selection process. Jensen also takes a look at some of the specific offerings from the different types of vendors that are available, and offers some advice as to which types of systems may better suit which types of organisations. 

This year, gtnews also published a buyers guide to treasury management systems (TMS), providing a comprehensive report on the various issues that treasurers face when selecting and operating a TMS, featuring interviews and case studies from a variety of treasury professionals and a TMS matrix comparing the functionality of a large range of systems. You can download the TMS buyer's guide free of charge. 

SWIFT Success? 

Articles related to SWIFT take up two of the top four places in the most read chart on gtnews this year, demonstrating the demand for information that exists when it comes to the role that SWIFT can play in making corporate bank communication more efficient and secure. The content with most relevance to corporates in this list is Debunking the SWIFT Myth, written by Joy Macknight and published in July this year. In this feature, Macknight asked the question why, despite the benefits that SWIFTNet offered corporates by providing a single, standardised and secure channel, had not a greater number signed up to use the service? It certainly seems that preconceptions about the accessibility of the SWIFT network had played a role in the slow take-up, with many corporates questioning whether they have the volume of payment information necessary to justify the cost of gaining SWIFT connectivity. 

To combat this perception, SWIFT has launched a variety of different connection methods for corporates - from plugging in a USB stick to gain off-the-shelf connectivity through Alliance Lite, through to outsourcing connectivity to a SWIFT service bureau (SSB). The additional services that SWIFT is now looking to offer as part of an overall package is also helping to gain traction, through innovations such as: 

• Exceptions and investigations. 
• Trade finance. 
• Secure e-mail. 
• SWIFT Secure Signature Key (3SKey). 
• Electronic bank account management (eBAM). 
• Electronic invoicing (e-invoicing). 

As Marilyn Spearing, global head of trade finance and cash management corporates, Deutsche Bank, and chair of SWIFT’s Corporate Access Group, says in the feature: “Everybody is talking about electronic bank account management and e-invoicing - in other words really expanding what can be done through the same channel.” While SWIFT connectivity is still not going to be high on the agenda for some corporates, these value-added offerings look likely to give a welcome boost to SWIFT’s corporate numbers. 

To compare and contrast a selection of the SSBs available for corporates, download the buyer’s guide to SWIFT service bureaus that gtnews published this year. 

Evolution of corporate payments 

But there was a lot more going on in the world of corporate payments during 2010 than just debate over SWIFT. An article from Nigel McCook of Edgar Dunn & Company discusses the possibilities for future trends in payment systems. Analysing survey results, the article focusses on understanding the importance, both today and in the future, of individual payment products, as well as the key industry events that are expected to shape the payments markets over the coming five years. Some of the key findings discussed include: 

• Credit cards were the payment product given the highest rating in terms of current importance, followed by domestic debit cards. 
• Respondents from Asia gave comparatively higher ratings of importance to cash, mobile SMS, remote payments and remittance. 
• The top four payment products, in terms of their expected growth in importance over the next five years, are: 

1. Contactless cards. 
2. Mobile SMS/remote payments. 
3. Prepaid cards. 
4. Mobile NFC. 

These were among the payment topics under discussion at this year’s Sibos conference in Amsterdam. Following the past couple of years of battering this conference has taken - both from the Lehman Brothers’ collapse in 2008 and typhoon Koppu in 2009 - this year saw delegates and exhibitors alike emerge from their emergency shelters and hit the conference ready to do business and network. You can find full gtnews coverage of the conference here, including both the Corporate Blog and Banking Blog and a wealth of video interviews with perspectives from a number of industry experts. 

Risk Management Issues Rise 

One of the more blatant legacies of the credit crisis has been the rise of risk management and mitigation that treasurers are responsible for. A glaring example of this is the fact that corporates now actively need to carry out counterparty risk analysis of their banking partners - something completely at odds with the ‘one global bank’ policy that many corporates were actively pursuing when credit was both plentiful and affordable. 

A key area of risk management this year has been foreign exchange (FX) - from currency volatility in Europe and South America to concerns over ‘currency wars’ in Asia, corporate treasurers have had to be increasingly mindful of their FX exposures. As such, it is no surprise to find the article from SunGard’s Ryan Heaslip in the top 10 content list. Entitled Cost-effective Foreign Exchange Risk Management, the article looks at steps corporates can take to ensure they have an efficient FX risk management strategy in place. Some questions Heaslip suggests treasurers start by asking include: 

• Are you currently able to gather a complete dataset of exposures?
• Is exposure information provided in a timely, detailed and accurate manner? 
• Is there an operational focus on reducing exposure? 
• Are risk factors used to rank exposures? 
• Is there a strategy that prioritises the types of risk to hedge (e.g. balance sheet, short-term forecast, long-term forecast)? 
• What type of derivative strategies will be used to hedge, after operational considerations? 

The topic of FX risk management was also high on the agenda at the inaugural Global Corporate Treasurers Forum Europe that gtnews hosted at the Grosvenor House Hotel in London in June. The event is an annual independent forum bringing together European corporate treasurers to meet face-to-face, listen to leading speakers and network with industry peers in a high level and exclusive environment. 

Discussion at one session of the forum turned specifically to the transaction risk element of FX risk - where the risk of value changes depending on where the transaction is. Some transaction exposure is not shown in the profit and loss (P&L) because it has not yet been recognised, or the contract is anticipated rather than committed to. A couple of the questions raised at the forum referred to a) whether transaction exposure should be hedged; and b) if it was hedged, whose responsibility within the organisational structure was this? 

One group treasurer explained that their company had decided not to hedge its transaction exposure as they would have had to involve all of its investors, which would have added complexity. It has an impact on reporting - the company would have had to have shown like-forlike figures, and they wanted to protect this information. The factors involved in weighing up whether or not to hedge this risk requires a full evaluation by corporates. 

If you are a treasurer or group treasurer, and would like to find out more about the Global Corporate Treasurers Forum Europe and register your interest in attending the 2011 forum at the Ritz Hotel in Paris, click here. 

Growth in Supply Chain Finance 

Another area of interest to corporates that received a ‘boost’ from the credit crisis is supply chain finance (SCF). The contraction of available credit in the market led to an increased need for bank financing. With a dearth of liquidity solutions available, SCF solutions gained a much greater global popularity. Picking up this trend, Alexander Mutter from Deutsche Bank examined what the future may hold for SCF offerings in his article that rounds out our top 10 for 2010. 

Mutter sees the growth of SCF leading to more diversified and bespoke solutions emerging, driven by banks. He uses the example of a supplier portfolio where there are large, mid-sized and smaller enterprises involved. “Today, a similar supply chain finance solution will be offered to all of them. In the future, the offering to the individual supplier will be customised according to their balance sheet objective, based on the need analysis of this portfolio and risk policies, as well as financial needs,” suggests Mutter. By taking this approach, the SCF offering will be more flexible and tailored to suit the individual customer profile. 

Responding to the growth in popularity of SCF as a topic among corporate treasurers, this year gtnews has worked with Enrico Camerinelli, a senior analyst at Aite Group and SCF expert, to publish a monthly blog on key SCF issues. Topics covered in 2010 include the return on investment in SCF, the importance of sustainable supply chains and the need for an industry standard taxonomy in SCF. You can find every blog post on the topic here. 

Looking Ahead 

2010 proved that, while the role of the treasurer has grown in stature, the demands this places on the treasurer are fierce and come in many forms. The economic world can still be paranoid and reactionary in the aftermath of the credit crisis and, as many corporates stockpile cash, perhaps some treasurers could be accused of fuelling the fire in this regard. It seems that this year has answered a number of questions - regarding global recession and the credit crisis - but thrown up several more challenges. 

Despite this, there are excellent examples of corporate treasury departments and individual treasurers demonstrating best practice across the myriad different disciplines mentioned above. We were lucky enough to witness this first-hand at gtnews in 2010 through the quality and quantity of entries we received for our first annual Global Corporate Treasury Awards, which was this year held in Amsterdam alongside the Sibos Corporate Forum. As you can see from the winning projects, teams and treasurers, innovation is alive and well in treasury departments around the world. 

Coming up on 4 January in our first upload of 2011, we’ll be publishing a series of articles offering perspectives and predictions for the year ahead and mulling over the challenges that are likely to come the way of the treasurer. Until then, best wishes for the holidays from everyone here at gtnews.

Home and Away: Making Your Cash Work

Publication: gtnews.com

BNP Paribas' fourth annual Cash Management University looks at how corporates can optimise their working capital, post credit-crisis. 

The fourth annual BNP Paribas Cash Management University began today at the grand location of Le Pré Catelan in leafy Paris. Matching the ambition of the venue was the line-up of speakers for the morning of the event. Delivering the welcome address was Baudouin Prot, the chief executive officer (CEO) of BNP Paribas, and it was an impressive sign of how the bank view their cash management business that the CEO was in attendance. 

Prot emphasised the fact that he views cash management as not being an ancillary business, but rather that the management of flows on time is a high value, high stakes business. He said that the bank wants to continue developing and improving its cash management offerings, particularly throughout Europe and Asia. 

Looking at the recent financial crisis, Prot explained how BNP Paribas had ridden out the downturn in good shape, having been profitable in every year of the crisis and, since 4Q08, increased both the number of clients it works with and the share of the wallet of these clients. This is emphasised by the fact that, since the Fortis acquisition, BNP Paribas now has a global network with a local presence in a large array of countries. Given this premise, it was interesting to hear his thoughts on the proposed reform and regulation of the banking system, triggered by the collapse of other financial institutions. Prot explained to the delegates that he broadly supported the reforms, but that he believed the emphasis should be placed on better and stronger supervision, rather than the focus favoured by the Basel Committee of increasing capital ratios. The 7% capital ratio requirement (10% in the old terms) is five times higher than previously, something that Prot is wary of. He made the point that if capital ratios are set too high, the price of credit to corporate clients will inevitably be affected. 

Earlier in the morning, Prot hosted an executive breakfast, where he spoke a little more about responses to the credit crisis, as well as the ongoing problems in the eurozone. Regarding the euro, he brought in an outside perspective, citing a recent visit he had made to China. Prot told the assembled breakfast audience that China is not so worried about the future of the euro - they see the difficulties that EU members are facing, but also see that in Europe actions are being taken to tackle these issues. Living and working in Europe, it is perhaps easy for some to think that everything to do with the euro is doom and gloom, so it was interesting to hear this perspective. 

Coming back to the theme of regulation and during the executive breakfast, I did detect a slight tone of concern from Prot regarding how some are tackling what needs to be done. He cited examples of countries where banks had failed and that, despite this, the regulators that oversaw the banking collapse were still in the same role and were very vocal on what additional regulation is required for the banking industry. He couldn’t really see how these regulators could tell countries such as Canada and France (whose banking sectors emerged from the crisis in much better health) what they should be doing to regulate their banking industry better. I have to say, this is quite a persuasive argument. 

Making Cash Work 

Following the welcome address from Prot, two senior treasury professionals from large global corporates provided examples of their approaches to cash management, in a panel moderated by Jack Large, partner at J&W Associates. First up was Yves Gimbert, group treasurer of GDF Suez. GDF is a huge global utility - in 2009 the company had €79.9bn in revenues - and invested around €30bn net between 2008 and 2010. 

Gimbert began with a truth - that cash management is the least ‘sexy’ part of the treasury function. It’s administration and project management, and as such it can be hard to justify budgets. This can particularly be the case with long-term projects and implementations. But today treasury is operating in a fast-moving business world that demands returns, so he advised that projects which take years to accomplish need a lot of drive, consistently over their life cycle. 

GDF is a mix of large business to consumer (B2C) entities. Regarding project times, Gimbert explained that long-term projects in large companies could actually be simpler than working with smaller companies. One of the reasons for this is that global costs tend to rise when the size of the company decreases. 

In Gimbert’s treasury, there is a culture of internalising strategy, IT architecture and project management. He said that an upstream investment is necessary to save time, control projects and make sure that all parties involved in a project are coordinated. He was also able to justify having his team in-house, as the projects they are interested in are defined by having a long-term evolution. 

Thinking philosophically about treasury management, Gimbert explained that cash pooling and other cash management techniques are only tools, not objectives. They are not fashion items in this way - just because another global utility might be pooling in a certain way, this does not mean that GDF will suddenly start copying this method. Gimbert said that it is important not to forget the basic needs that your company has in this area, including: 

• Cash concentration and short-term funding - looking for improved liquidity and funding or investment costs. 
• Communication with banks - standardisation, automation and processes under scrutiny, particularly with regard to costs and security. 

Gimbert advised the assembled delegates to think of solutions first, and products only as a tool. As he said, “a product without an optimised process is not a solution.” 

International Cash Management Evolution 

Following Gimbert, Ernie Caballero, vice president (VP), Eurasia treasury and mergers and acquisitions (M&A) for UPS, presented a case study of his work at the company, the decision to move to a centralised treasury in 2002, and how he and his team had gone about achieving this. Considering the confusing, unstructured picture that treasury had over the company’s cash in 2002, it is remarkable that UPS had US$45.3bn revenue in 2009, and US$3.7bn free cash flow that year. Due to its international shipping network, the company is also the world’s seventh largest airline, which underlines its global scale. 

It takes a good level of cash management to keep this sort of operation in check. Caballero explained how cash is a corporate asset at UPS and that treasury’s job is to protect this asset and enhance shareholder value. He described how there is a centralised approach but decentralised execution for the company’s treasury operations, with strategic direction coming from corporate treasury, with tactical execution coming via one of the company’s three regional treasury centres (RTCs). Below the RTCs sit the operating business units, managing day-to-day issues. 

For its cash management strategy, Caballero described how UPS has what he called ‘four pillars of operational success’. These are: 

1. Visibility and transparency. 
2. Sound control structure. 
3. Centralised liquidity management. 
4. Information technology. 

Picking up on a theme from Gimbert, Caballero explained how it is impossible to do the ‘sexy’ stuff in treasury without these four bases covered, likening it to what would happen if you tried to put the chassis of a Formula 1 car onto the body of a Renault Clio - you’re not going to win any races. 

UPS began developing its global treasury intranet portal in 2002, and today is rightly proud of its global treasury management system (TMS). Developed initially by Caballero and an intern, MT940 SWIFT messages are loaded onto the platform every day that provides treasury with cash balance visibility. Every business unit that has access to the company’s global notional cash pool report their daily cash needs in this way, and are then serviced by the TMS. 

Turning to liquidity, and Caballero explained how the UPS international liquidity is self-contained. The objective is to maximise returning funds to the US while maintaining working capital requirements. So he is able to use money from the global cash pool, when not investing, to buy things - giving his treasury the ability to grow organically. 

Looking to the future, Caballero outlined the main points that his team is focussed on: 

• Extending the use of technology to drive processing efficiencies. 
• Simplifying account structures as payment systems become more standardised. 
• Consolidating banking relationships into regional banks. 
• Leveraging the UPS network and banking relationships to drive global trade finance solutions for UPS customers. 

These are an aggressive set of goals, but as Caballero has proved over the past eight years, his team are capable of achieving success on a large scale. 

Conclusion 

Overall the first morning of the 4th annual BNP Paribas Cash Management University has given the delegates plenty to think about. The two case studies provided examples of what treasury can achieve within the organisational structure, becoming a driver of business change and best practice, at a time of economic uncertainty, which Baudouin Prot gave a fresh perspective to in his addresses. Still to come today are panel discussions around key issues such as best practice while operating in a low interest rate environment, optimising liquidity through cash flow forecasting, a look ahead at the next 12 months for SEPA, and to manage operational and compliance risks. The range of topics here prove that these are busy times for treasury departments around the world, but that there are also a number of opportunities for treasurers to make their mark.

2010 AFP Annual Conference: Blog

Publication: gtnews.com

Post 1: Multichannel Bank Account Management (9 November 2010)
Electronic bank account management (eBAM) was in the spotlight at a session during the first day of the AFP Annual Conference 2010, with a panel discussion providing corporate, bank, and standards association perspectives.

One of the most compelling sessions on the first day of the AFP Annual Conference 2010 in San Antonio looked at the topic of electronic bank account management (eBAM). A buzzword of the past 18 months, eBAM can be a confusing topic due to the large number of players in the market and the fact that the concept itself is evolving. This session provided a corporate perspective from Barbara Quiroga, director, cash operations, lead, Delta Airlines; a bank view courtesy of Hilary Ward, certified cash manager (CCM) global product manager, global transaction services, Citi; and the thoughts of an international standards organisation thanks to Stacy Rosenthal, head of corporate and payments strategy, SWIFT. 

The session set out to demonstrate how the use of eBAM can help corporates be more efficient in their global banking relationships, particularly in areas where paper and manually intensive processes exist. 

Corporate Approach 

Quiroga began the session by illustrating the challenge that Delta faces in managing over 100 banks, operating in 80 countries and dealing with around 20 legal entities. Managing this number of relationships can be time consuming and challenging, and so the prospect of simplifying processes through eBAM was appealing to the Delta, particularly as their treasury structure is heavily centralised. To start the process, Quiroga explained the eight-point checklist that Delta drew up, listing what the company wanted out of any eBAM process that it entered into. These were: 

1. To eliminate paper. 
2. Control bank accounts in a centralised way. 
3. Track the progress of bank account requests internally and across the company’s banks. 
4. Search for and request changes to a single signatory across all applicable bank accounts. 
5. Use search capabilities to generate reports. 
6. Update the corporate address, contact data, legal structure and any other data and/or information associated with a bank account. 
7. Create a virtual signature card for each signatory that is legally binding and regulatory compliant. 
8. Provide authoritative reporting for corporate compliance needs. 

Quiroga reported that Delta had started implementing their eBAM programme in February of this year, and that it is ahead of schedule. The Delta case study is a great example of how corporates should approach eBAM - by having a clear idea of what they want to achieve with the implementation of eBAM and using these points as a way of measuring progress and the success of an implementation. However, it is worth noting that an eBAM project will only truly be successful - and indeed worthwhile - if the corporate implementing it already has a firm grip on their existing bank account management programme. This was a point emphasised by Citi’s Ward in her presentation. 

Bank Perspective 

Ward described how traditional bank account management was limited by issues such as: 

• A reliance on paper. 
• Manual processes. 
• Long cycle times. 
• Unreconciled records. 
• Embedded risk, such as numerous hand-offs and resolutions subject to interpretation. 
• Country- and bank-specific processes. 

The positive news surrounding eBAM is that the electronic processes involved have the potential to yield a number of benefits to bank account management, including visibility and control, security - with identity automatically built in to processes - and efficiency. However, Ward continued, “if you don’t know where the ‘BAM’ is, how are you going to get to the ‘e’?” In other words, eBAM isn’t going to fix a mismanaged bank account management programme. 

Standards are Needed 

SWIFT’s Rosenthal also agreed with the point that corporates need a solid foundation from their existing bank account management structure before embarking on an eBAM project. But looking at wider trends in eBAM, she argued that it is necessary for all stakeholders in the eBAM project to collaborate and define ‘common’ market practices. Rosenthal pointed out that standards in this area are evolving and will continue to evolve based on market adoption and feedback. 

The need for common standards is seen in the amount of banks and vendors offering solutions that are being marketed as eBAM. This was picked up by a delegate attending the session, who asked the panel who the ‘real’ vendors for eBAM are. 

In response, Delta’s Quiroga suggested that it depends on the process that the individual company operates internally, and that those tasked with selecting eBAM partners should find the best fit for their company. She also pointed out that there are lots of things that corporates can be doing while waiting for their bank to offer the desired level of eBAM support - the primary of which would be focusing on their current bank account management practice. 

Answering the same question, Rosenthal advised the delegates present to speak with the banks and vendors that they currently work with today, in order to help develop and shape the eBAM offerings of the future. There are around 12-15 vendors in the eBAM landscape at various stages of development, she advised. Looking to the future, it will be interesting to see how this market plays out, in terms of competitors falling away or partnering up.

Post 2: Closing the Gap Between Bank Cash Management Offerings and Corporate Needs (10 November 2010)
A session on the second day of the AFP Annual Conference 2010 examined how to close the gap between corporate expectations and bank solutions in the area of cash management. 

A theme of the AFP Annual Conference 2010 that came up in a session yesterday was the idea that corporates and banks need to work much closer together when developing appropriate treasury offerings and tools. This theme was reiterated in a session featuring representatives from Citi and AT&T, as well as Aite Group who announced findings from a recent corporate survey. 

According to the Aite Group survey, over 50% of the large corporates they polled had business with more than 20 banks. So it would be fair to say that corporate banking relationships are complex, overlapping and also fluid. Within these myriad relations, corporates are hungry for information on issues such as cash and liquidity visibility, risk factors and working capital automation. For the latter topic, many treasurers I’ve spoken to at the conference are particularly keen on learning how to move to straight-through processing (STP) and to eliminate both paper and silos from their organisational processes. 

Returning to the Aite Group research, but this time on the financial institution side, the survey found that one-third of banks described the credit crisis as being a ‘near disaster’ for them. However, as Christine Barry, research director at Aite Group, explained, those banks that had survived the credit crisis in better shape are now finding opportunities in the market through a variety of value-added tools they can offer their corporate clients. These include areas such as fraud prevention tools, more advanced liquidity and cash management tools, account receivables and payables management - an area where corporates are keen for more automation. All of these areas are being driven by new technology, and Barry made the point that technology is critical to future bank success. Technology helps to measure risk, promote accessible data and allow financial institutions to provide strong product offerings. 

Another interesting area of the research looked at the customer service experience corporates had when dealing with their banks. Asked whether they had ever switched banks because of poor customer service, 76% of corporates said they would, which backs up the idea of corporate banking relationships being fluid, as mentioned earlier. Numbers like these mean that banks are placing an ever-increasing emphasis on the client experience, and new technology is allowing banks to respond in, for example, some of the following ways: 

• Customer-driven dashboards. 
• Multibank reporting. 
• Strategic tools for better liquidity management. 
• More granular entitlements. 
• Real-time information. 

And corporates are ready and willing to invest in these new products if they are a good fit for their company. Sherri Bazan, corporate manager, domestic cash management, AT&T, explained that they have been developing a number of different treasury initiatives in the quest for greater automation and efficiencies. Some of the AT&T projects include: 

• Simple IBAN redirection solution. 
• Move from cheque to electronic payments. 
• Counterparty risk project. 
• Future improvements - electronic bank account management (eBAM) and automated clearing house (ACH). 

The overall feeling from this panel, and from the mood of the conference overall, is that corporates are keen to embrace technologies and systems that create financial and time-management efficiencies, but they have to be solutions that are created with the corporate in mind. Corporates are looking for end-to-end visibility and reachability in their treasury management processes, and solutions providers that understand how they can fit into this world will surely be successful in the years to come. However, that understanding can only come through detailed dialogue with their corporate clients.

Making the Business Case for a New TMS

Publication: gtnews Buyer's Guide to Treasury Management Systems 2010

‘Expense management’ and ‘corporate streamlining’ are two phrases that have stalked the corridors of treasury departments around the world since the credit crisis hit. Against this backdrop, Ben Poole examines how treasurers can make the business case for a new TMS. 

While the recent financial crisis did much to elevate the role of the treasurer, it also resulted in widespread cost cutting and expense control in the corporate world. The new financial environment has seen treasurers taking on greater responsibility and a larger work portfolio, while finding that their resources – in terms of budget and staff - have been frozen or reduced. Against this environment, all spending will be thoroughly scrutinized and treasurers may find themselves in for a challenging time when trying to justify new purchases, particularly for something as comprehensive and expensive as a treasury management system (TMS). How can treasurers address this challenge, and what are the main business points that can support a treasurer when pitching to senior management and IT purchasing managers?

Where is the Cash?

Cash flow is the main cause of financial risk within a business, so it is vital that treasury has an accurate, timely and transparent view of the company’s cash position. This needs to cover areas such as accounts payable (A/P) and accounts receivable (A/R), between treasury centres in different countries and the various foreign exchange (FX) exposures that these generate, as well as across banking relationships, covering account fees, interest rates, etc. As TMS can seamlessly integrate a variety of areas of treasury activity, from electronic dealing (e-dealing) to reporting, confirmation matching to cash forecasting, they can provide an accurate view of enterprise-wide cash flows to help effectively manage the liquidity and improve investment returns. In addition, the transparency allows treasurers to compare lending rates between different banks and move away from expensive borrowing.

But getting control over cash visibility is not simply a case of plugging in a TMS and finding that all your treasury worries are over. Quite often, the implementation of a new TMS goes hand-in-hand with a restructuring of the treasury function along more centralised lines as treasurers follow an ongoing quest for efficiency. If you want to streamline the way that you process your A/P and A/R, the chances are that a centralised approach to treasury management is the best way to achieve this and then gain the benefits of cash visibility already mentioned. A centralised approach, together with a TMS, helps strip out the ‘dead wood’ from many processes, and instead puts the focus on a treasury management structure that receives automated updates from the various business units and banking relationships, rather than trying to collect disparate data on myriad spreadsheets. In turn, the enhanced quality of data will benefit overall cash and liquidity management, while merger and acquisition (M&A)-related integration will be simplified against this backdrop.

Senior management, including those as high as board level, have been particularly keen on timely and accurate cash and liquidity information since the credit crisis first struck. These parts of the business have since been educating themselves on every nuance of liquidity management, corporate financial compliance issues and banking relationships, and require real-time information on these topics at a moment’s notice. Companies that were operating largely decentralised organisational structures, especially if the majority of treasury work was being conducted manually on spreadsheets, will have been particularly hardpressed to provide the relevant information quickly and accurately. By contrast, a centrally-managed treasury with a TMS is ideally positioned to provide this information.

Rise of Risk Management 

The variety and depth of risks that treasurers have to manage today is far in excess of that which existed before the credit crisis. Large corporates can find that they don’t have an overall view of risk, which can lead to risks being missed or mismanaged. A good TMS will provide a wide range of functionality to help treasures measure and manage financial risk. In addition to providing monitoring capabilities for limits, TMS can also provide scenarios analysis and modelling capabilities to model the effects of cash flows and guide risk management decisions. A treasury that relies on spreadsheets will have no way of finding out its real-time cash positions, and indeed this is also not always an option with enterprise resource planning (ERP) systems.

Take counterparty risk as an example. Before the credit crisis, it is fair to say that, for many companies, the scope of their counterparty risk measurement began and ended with the ups and downs of their derivative portfolio against counterparties. Today, corporates are looking to add their balance position, credit facilities and bank exposure to this mix, highlighting how just one risk has escalated postcredit crisis. In this area, a TMS can assist the treasurer by allowing them easily to set the risk parameters in line with their counterparty risk policy, as well as producing customised reports to that effect.

As is clear from the first two topics in this article, visibility over a corporate’s cash position and the management of financial risk are intrinsically linked. The constantly shifting sands of a corporate’s cash position across the organisation need to tracked accurately and in real time in order for a treasury department to maximise the company’s liquidity and ensure best practice in risk mitigation. Today, TMS offer enhanced functionality in areas such as bank account administration and treasury reporting, in addition to corporate connectivity to SWIFT, as a way successfully managing these two large challenges. This is not something that a treasury operating largely on spreadsheets will be able to get a handle on. While spreadsheets can be a cheap and available short-term solution, these corporates will be potentially missing crucial risk exposures and losing money through poor cash management. The business case for a TMS here is clear.

Maximising Banking Relationships

TMS can help corporates to integrate with financial services providers’ systems, enabling them to have realtime access to data from banks. For example, banks have invested in up-to-the-minute balance reporting capabilities that a TMS can give you access to. In the payment hub space, payments and cash movements can be tracked through the TMS, just as you’d track a package on a courier’s website. It can also help in better managing the fees and aggressively managing compensation.

The possibility of integrating electronic bank account management (eBAM) with a TMS is intriguing at this point. This is surely the next logical step for both of these two products, enabling a treasurer to centrally manage cash flows and risk across the organisation, while simultaneously having the ability to open, move and close bank accounts, for example. TMS vendors will have to keep up to speed with the standardised message types that SWIFT are developing in their eBAM programme, but this is a concern that they should be able to address easily, leaving corporates with a powerful bank relationship tool as part of their integrated TMS.

Information Reporting 

When it comes to information reporting, TMS can offer a number of advantages for corporates. One of the main challenges that treasurers face when using spreadsheets or ERP systems for this function is the lack of real time information available in areas such as payables and receivables. A welldeployed TMS can provide right data to the right people at the right time to improve control, decision making and reducing expenses. Banks have portals that are capable of directly sending the reporting information that corporates need directly to their system in a seamless manner. ERP systems can do this integration, but TMS tend to be more versatile and flexible because of their specific focus on treasury processes.

The benefit of having this real-time view is that the treasurer has greater freedom to make key decisions over whether they should look at investing or borrowing, safe in the knowledge that they have up-to-date and accurate information. In addition, as this process is automated, it reduces the workload on an already-stressed treasury department.

Enhanced Efficiency

As with any system, the automation that a TMS brings can improve efficiency and productivity by removing manual processes and improving accuracy. In a situation where you have multiple users in multiple areas of the company, a TMS can define workflows, meaning that the right people have the right access to the right information. This identity and access management (IAM) role lets the system do the work for the treasurer once the entitlements have been set up and the workflow established.

This also adds a very important level of security to treasury operations. Spreadsheets by their very nature are insecure and open to abuse. With a TMS, access to all data can be set by treasury and access privileges managed depending on whether staff move departments or leave the company. This should drastically reduce the prospect of data theft or manipulation. In addition, the TMS can provide a ‘paper trail’, detailing which user has accessed or input which data at which time, which can be vital for internal auditing purposes.

An end-to-end TMS can replace multiple spreadsheets that rely on the manual keying in of data, and therefore removes the prospect of human error that exists here. In addition, this frees up treasury staff from having to deal with timeconsuming and repetitive data entry, and they can instead focus on the role of treasury analyst and become more productive this way.

Conclusion 

TMS offer clear business benefits over the use of spreadsheets and some ERP modules in a number of areas. They allow visibility over a company’s cash position, leading to more accurate cash forecasting and the liquidity and working capital advantages this permits. In addition, the variety and depth of financial risks that corporates face in the postcredit crisis world are far easier to make sense of and manage through the use of a TMS than other options. When it comes to interacting with banking partners, a TMS can enable corporates to get real-time account information at the click of a button. They are also able to provide a wide array of reporting information when called upon.

And last, but not least, the efficiency that a TMS can bring to a treasury department cuts across several areas - by removing manual input, the system reduces the potential for human error, allows a small treasury team to achieve an exponentially large amount of accurate work, and provides for a security of data that can help treasurers sleep at night. In terms of making the business case to senior management or IT purchasers, these points should help to make a positive impact.

In addition to these points, the treasurer has additional resources available that they can draw on when putting together the business case for a TMS. Get close to the business, understand why business units operate in the way they do, and have a two-way, open conversation about how a TMS can improve financial management across the organisation. Not only will this help build the business case, but it will also be invaluable when it comes to choosing the best fit TMS for your company.

Advice on how to put together the business case can also be sought from your main relationship banks. After all many of the main banks have TMS offerings of their own in some shape or form. By speaking to your main bank, you can hopefully get valuable advice to help in building a solid business case.

2009: Treasury Management Under an Economic Shadow

Publication: gtnews.com

2009 has been a tough year for many in the financial industry, as repercussions of events from the preceding 18 months continued to resonate throughout the year. This commentary looks back over the most-read gtnews content over the past year, with comment from industry experts. 

Comparing the beginning with the end of 2009, you could use the cliché that the global economy has been involved in a game of two halves. The problem is that it can’t be said that the financial services industry ‘won’ either half. However, I think it’s safe to say that most would prefer the current economic conditions to those of January. The year began with terrible news and results almost everywhere - annual performance data from the major stock markets showed substantial falls, with Germany’s Xetra Dax, Japan’s Kikkei 225 and the UK’s FTSE 100 recording the worst performances in their history; bank stocks at major institutions continued to slump, leading to a shift in global power evidenced by both UBS and the Royal Bank of Scotland (RBS) selling their stakes in the Bank of China; while governments around the world implemented stimulus packages to bail-out their economies, failing banks and other major industries, at the taxpayers’ expense. According to Thomson Reuters, the amount of money pledged to economic stimulus around the world, as of 21 December 2009, stands at an eye-watering US$7,199,037,381,538. To follow how events have unfolded throughout the year, take a look at parts 1 and 2 of gtnews’ regularly updated Credit Crisis Timeline. 

All the time that the global economy was charging towards apparent meltdown, corporate treasurers across the world were fighting hard to ensure that their organisations were in the best position to survive, or even prosper in, the storm. Before the credit crisis hit, the role of the treasurer was rather low profile, and had already begun to expand into a number of different areas beyond core treasury competencies, such as cash management. But the credit crisis has brought the role of the treasurer front and centre. As Dub Newman, global treasury executive at Bank of America Merrill Lynch, pointed out to gtnews: “There’s now a treasurer-level focus in the C-Suite business.” Treasurers have never engaged with their chief financial officers (CFOs) and chief executive officers (CEOs) as much as now. And judging by the content that gtnews readers have been reading this year, the focus for treasury has now clearly shifted back to basics - managing cash, liquidity and payments.

Best Practice in Cash Management Crucial 

Renewed focus on pooling techniques 

With the credit crisis biting hard in 2009, the main focus for corporate treasurers has been on their cash and liquidity management strategies. Topics such as netting and pooling, for a long time thought of as dull, dusty topics, have suddenly found themselves back in vogue as treasurers are forced to examine every possible avenue in their quest to achieve best practice in cash management. This is one example of the ‘back-to-basics’ approach to treasury management that has grown out of the credit crisis. 

Two of the top three most-read features on gtnews look at the subject of notional pooling - although from fairly different perspectives. In Evolution of the Global Notional Cash Pool, Karen Kombrink, executive vice president, and Greet van der Steen, managing director, from Bank Mendes Gans looks at the evolving uses of the global notional cash pool. 

To understand the potential benefits of global notional cash pooling, it is important to understand what it is and how it works. In a traditional notional pool, credit and debit positions are offset, which reduces the expense of paying interest on overdrafts, and there is no physical movement of funds. A global notional cash pool uses a global overlay structure based on either a notional or inter-company loan cash pool (physical or zero balance cash pooling); in both cases the need to perform FX and/or swap transactions is eliminated. Again, no funds are physically moved. This offsetting process results in a total consolidated cash position, which is used to apply proper interest conditions to all of the cash pool accounts. The cash pool bank re-allocates the cash pool interest margins, which is effectively an intercompany margin, to its customers on compensated balances in the cash pool. The global notional cash pool is supported by a suite of applications on the internet. These should include bank account reporting, third-party payment abilities, and full integration of data into treasury workstations, enterprise resource planning (ERP) systems and proprietary bank systems. 

Figure 1: Global Overlay Cash Pooling at BMG 

The case that BMG makes for notional pooling is convincing - however, as with all corporate-bank relationships, there are areas that treasurers need to pay close attention to in order to ensure the process fits their needs. The Treasury Insider, featuring gtnews’s own treasury professional blogger, drew attention to these points in their post Are the Days of Notional Pooling Numbered?. The top three points from this blog are: 

1. For a bank to have even a chance at meeting a Basel II partial offset possibility, it will have to have credit facilities in place for the overdrafts and documentation to ensure full right of set-off in an insolvency. The documentation will probably encompass crossguarantees that may affect negative pledge clauses in other bank documentation. Ask any corporate that has recently put a notional pooling agreement in place what the major headache was and documentation often comes out on top. 
2. There is more attention being given now to thin capitalisation rules. Whereas in a company-wide group, consolidation may be adequately capitalised, notional pooling arrangements (just like intercompany lending) may mean individual companies are inadequately capitalised. 
3. There is the possible tax impact with notional pooling. Unless notional interest costs and revenues are charged based on the usual arm’s length principles, the tax authorities may not look favourably on the profit transfer effect of pooling. 

These are all valid points that treasurers should explore before entering such a banking relationship. However, when it works, companies do find benefits. For example, Stacy Cordier, assistant treasurer at Thermo Fisher Scientific, found that their global notional cash pool gave the company “much better visibility of our cash around the globe.” The company is now also self-reliant in terms of working capital requirements. Cordier adds: “Where we have excess cash, we can move that into money markets to increase the return a little bit - even though, in today's markets, excess cash does not generate much return.” Another of BMG’s clients, PSA Peugeot Citroën’s treasurer, Benoit Mulsant, explains how its two global notional cash pools proved their worth during the credit crisis, with reference to the company’s subsidiaries in eastern Europe. “The money markets were so disrupted that liquidity management would have been just unaffordable on these markets. With [our global notional cash pools], we were still able to manage our cash at money market rates without extra spreads. It has provided considerable protection for us,” explains Mulsant. 

Accounts receivable takes centre stage 

In 2009, the gtnews Fourth Annual Cash Management Survey, in association with SEB, produced interesting findings pertaining to how corporates were managing their cash in the credit crisis. In particular, when asked about which cash management process has the greatest potential to improve, our survey respondents did not disappoint. Over the past four years, survey respondents have provided different responses - reflecting the changing dynamics of the cash management environment. In 2006 and 2007, cash flow forecasting was highlighted as the cash management process with the greatest potential for improvement; last year, liquidity management topped the survey. In 2009, the priority has shifted once more, with 33% of the respondents agreeing that accounts receivable (A/R) is now the process with the greatest potential for improving cash management. 

“Working capital management has been elevated on the corporate agenda and for companies assessing their internal operations, A/R is a logical starting point to improve working capital management from a process-orientated angle,” explains Niclas Osmund, head of cash management advisory, at SEB. 

Osmund adds: “The current concern for corporates is not when they will get paid but whether they will get paid at all by some of their customers. As with any balancing act, there are two sides. It is very easy for corporates to get stuck between customers prolonging payment terms and suppliers requesting early payment in order to survive today. If this is the case, it is time for them to consider different options for discounting their cash flow.” One respondent, a senior manager at a western European company with revenues of US$500m- 1bn, commented: “Decreasing margins in the business and longer payment terms demanded by our clients means that we carry the working capital burden. This is coupled with shorter payment terms from suppliers as a result of high insecurity in the current economic climate.” Another, an executive/director at a North American company with revenues of US$500m-1bn, said: “Maintaining current payment terms with customers can be difficult, as they look for longer terms to aid their own working capital.” 

The important thing to remember during this potential squeeze between customers and suppliers is that, by and large, everyone is experiencing the same problems. The key is not to alienate either side of this problem, as in the long-term this could lose your organisation important ongoing business. It is certainly a time for the arts of negotiation and diplomacy to take centre stage - for example, if you can work with your suppliers on payment terms that help them avoid bankruptcy, they may well be willing to provide more beneficial terms for you later on. 

Trade Finance Best Practice to Manage Cash and Counterparty Risk 

Treasurers can use trade finance techniques to help optimise their working capital position, but another gtnews survey in 2009 found that there is still a knowledge gap on this subject in some treasury departments. The gtnews Trade Finance Survey 2009, in association with SEB, highlighted a ‘blind spot’ between how corporates manage their trade finance activity and the way they manage and monitor other cash flows. Only 20% of those surveyed manage their trade finance operations on a global basis, compared to approximately 75% that have global control over their cash management. By centralising the trade finance function, treasurers can claim control over a process that has a significant impact on their company’s working capital position. 

The credit crisis drove corporates to leverage their trade flows, but this in turn has, in some cases, exposed weaknesses in both the physical and financial supply chain processes. This comes back to a company’s governance models for trade finance processing, for example identifying who takes responsibility for trade flows. Corporate treasurers need to examine many internal issues before they can truly leverage their trade flows. For example: 

• How efficient and accurate are the invoicing/trade document procedures? 
• What proportion of the trade flows is included in the forecasting? 
• What are the payment conditions, for example, for a Chinese supplier? 
• Is the buyer fundamentally financing their operation as well? 
• How much political risk is the purchaser covering and has the new risk factor in the Organisation for Economic Co-operation and Development (OECD) countries horizon been strategically evaluated and a procedure developed for how to handle this risk (given the fact that many corporates lack a risk management strategy for the emerging market)? 

The focus on counterparty risk that currently exists among corporates has spilled out into trade finance, with the previous trend towards open account trade finance now actually falling away as many see it as increasing counterparty risk. To mitigate this perceived risk, instruments such as guarantees, documentary collections and letters of credit (LCs) are back in fashion again. LCs are being pushed by suppliers as they give them stronger contracts with the buyer, and also by the buyer themselves, who are seeing the free provision of funded credit facilities from banks, such as overdraft facilities, dry up. Instruments that were being faded out are now fashionable again - another example of the ‘back-to-basics’ approach to treasury management that has come out of the reaction to the credit crisis. 

Payments Automation and Standards 

Managing payments has been one of the other key treasury issues in 2009. The credit crisis has pressured treasurers into finding the most efficient ways to run their operations, and in the world of payments one of the best ways to achieve this is to automate the process and remove paper as much as possible. However, treasurers may also find that, due to the economic uncertainty, their company is less willing to provide the funds needed in the short term to aid the move from paper to electronic processes. To overcome this resistance, treasury departments need to build a convincing business case for the expenditure, something that Chris Bozek, integrated debt and treasury solutions manager at Bank of America Global Treasury Services, highlights in his well-read 2009 article, Payments Automation: Building the Business Case. Bozek argues that corporates need to have the ability to construct a compelling business case and financial model with all the relevant components, and that accounts payable (A/P) departments not aligned with finance, procurement, and technology groups need to agree on and drive forward a change process. His four-point plan to achieve this is: 

1. Conduct a high-level enterprise to enterprise audit by key payment types. 
2. Build a financial benefits model focusing on revenue and potential cost savings. 
3. Form a comprehensive plan to internally sell the business case. 
4. Construct a framework to evaluate solutions in the marketplace to support your organisation's specific goals. 

Automation can help corporates quickly improve their bottom line. However, the increasing number of choices combined with the process to drive change can be daunting. Treasurers should engage their banks and technology providers for help and advice about what is available to them and which solutions suit their specific needs. 

SEPA deadlines pass to mixed responses 

One of the largest ongoing payments projects in 2009 was the continued implementation of the single euro payments area (SEPA). November 2009 was the key implementation month for SEPA, with both the Payment Services Directive (PSD) and the SEPA Direct Debit (SDD) scheme coming into being. Well, sort of. Implementation of the PSD has not yet been universal across all participating countries, banks don’t have to accept SDDs until November 2010, and some countries are culturally opposed to any kind of direct debit at all. Speaking to gtnews, Jonathan Williams, director of strategic development at Experian Payments, sums up the problems SEPA implementation has faced in 2009: “While French banks earlier this year declared that they were planning to make SDD available only from November 2010, German retailers have now stated that they don’t see any direct benefits from SDDs in the first place. For retailers in Germany, the current ELV system works perfectly fine, so why would they want to make changes? Furthermore, a band of consumer and industry groups suggested that SDDs could be in danger of failure if issues on pricing, security and migration are not resolved.” 

Additionally, as Tony Richter, director, global transaction banking from HSBC Global Transaction Banking points out in Part 1 of our Guide to European Payments, on 24 April 2009, the European Parliament revised Regulation 2560/2001, stipulating that it will be mandatory for banks in the eurozone to be reachable for SDDs by 1 November 2010 onwards. For banks that operate outside the eurozone, the deadline is no later than 2014. While this has been a frustration for those that wish to see SEPA up and running as soon as possible, it does at least hold the tantalising possibility of 2010 being the year that SEPA gets one step closer to an end date. Speaking to gtnews, Richard Davies, director of global payments at Logica, agrees: “A mandated end-date for SEPA is needed for it to progress, of course. 2010 has to be better than 2009, so for example the end date of November 2010 for banks to be compliant for the SDD scheme will help.” Despite this, the way that implementation of SEPA seems to be so disjointed is a concern. “It is a shame that SEPA Credit Transfers (SCTs) went live before SDDs, as this led some banks to implement short-term fixes for SCTs, rather than taking an overall approach to SEPA,” notes Davies. 

But in the meantime, what are the potential issues for countries that are delayed in implementing the PSD or the SDD scheme? Ruth Wandhöfer, head of payment strategy and market policy, EMEA, Citi, asks the question as to how these delays will affect the rollout of services from payment services providers in the first part of our Guide to SEPA and the Changing Payments Landscape, which provides a first assessment of the live state of the PSD. 

The positive news on this matter is that the EC recently issued a statement that "Swedish PSPs will still be able to adhere to the SDD scheme if they wish to do so, as long as the scheme rules do not conflict with existing laws in Sweden. SDDs may therefore be offered in Sweden and cross-border on a temporary contractual basis, before the directive is implemented.” This sets a precedent that should apply to the other Member States that have also failed to transpose the PSD. 

One positive view of SEPA is to see the process as a catalyst to develop harmonised solutions across Europe. This is the view put forward by Vincenzo Calla, global head of CIB international cash management at BNP Paribas, in his article, Latest Techniques for Pan- European Cash and Liquidity Management, for the following reasons: 

1. The EU opted for three SEPA means of payments: 

• SEPA Credit Transfer (SCT) - From January 2008. 
• SEPA Direct Debit (SDD) - From November 2009. 
• SEPA Card Framework (SCF) - From January 2008. 

2. SEPA will promote homogenous means of payments across the eurozone and reduce cross-border charges. 

3. It will be based on one common standard (ISO UNIFI 20022 XML), which will facilitate end-to-end automation and facilitate payment reconciliation data. 

4. SEPA will lead to the introduction of additional optional services (AOS), such as electronic reconciliation, electronic invoicing (einvoicing), improved straight-through processing (STP), cost reductions, better cash flow forecasting and compliance. 

5. SEPA will also lead to the development of new solutions such as electronic bank account management (EBAM) standardisation, i.e. one public standard for interoperability and dematerialisation of the account management process as developed by SWIFT. 

Clearly for these benefits to come online for corporates, banks, PSPs and, indeed, governments need to provide consistency of implementation and service. But while this is lacking at the moment, treasurers can still prepare for how to efficiently use SEPA services as part of their overall treasury operations. Patrick Villers, managing director, global business services, corporate treasury at General Electric (GE) advocates that a company's SEPA strategy game plan is also an important project to consider right now in terms of pan- European liquidity management: "A SEPA review must be consistent with other internal strategic initiatives, such as centralisation, automation and standardisation through SWIFT and XML," Villers says. "There is no right and wrong blueprint but it helps to use a structured approach to evaluate what is best for your business." 

This year, ISO 20022 has emerged from the bank-to-bank space, and it is not just in Europe that this has been the case. As Experian’s Williams explains to gtnews: “For US banks, this development has provided a reason to join in with international bank account numbers (IBANs), as it reduces the number of standards that have to be maintained - one of the wider benefits Europe is already experiencing as part of the migration to SEPA. However, given the hesitations corporates have had in migrating to SEPA, especially around the conversion to IBAN and bank indicator code (BIC) formats, the US can learn a valuable lesson when it comes to standardising formats. 

“While a single, global payment initiation format is still some time away, the US should be looking at converting its data in time, setting clear guidelines and communicating the benefits to avoid wide-spread confusion among the corporates and the banks,” Williams adds. 

Banks Buffeted by Post-crisis Winds of Criticism 

The banking industry has clearly emerged from the credit crisis showing the most damage. The huge bank failures of 2008 were followed in 2009 by some vast restructuring programmes - swathes of staff laid off, take-overs and mergers, as some previously large players found they were unable to protect themselves, and of course, ultimately, the (part-) nationalisation of some of the largest financial institutions in the world in order to prevent their certain collapse. Such all-permeating failure of management among the world’s largest financial institutions led to a collapse of corporate confidence. Because of this, banks are now desperately trying to win back the confidence of disaffected customers, mainly by attempting to prove how great the value-added services that they offer are. But while attention is on innovative new technologies, such as contactless and mobile payments, the number of transactions generated by these emerging channels is still low. It is the traditional card-based payments that continue to generate significant transaction volumes and revenues. Speaking to gtnews, Paul Love, business solutions consultant at ACI Worldwide, comments: “While it is important that banks are ready to adopt new products when they reach critical mass, they must also ensure that their current card products remain competitive so that they bring in that important core payments revenue.” 

Love added: “The biggest innovation a bank should make is to equip itself with a stable, reliable and flexible platform to drive its current payments products and to facilitate smaller-scale innovation, where new products are configured, rather than coded, and then tested on selected customer segments. If a bank’s core platform can deliver this without the need for additional development or capital spending, it reinforces the business case and encourages innovation. When approached in this way, innovation can be very quick to market and can carry much lower operational and reputational risk than usually associated with the introduction of new products.” 

Looking globally, and while the large banks from Europe and North America continued to suffer in 2009, there were some strong signs of life in Asia and the Middle East. Chinese banks found themselves in a position to buy back stakes that overseas banks held in them, and the renminbi (RMB) is now being offered as a trade settlement currency outside of China. 

The Middle East has also seen a growth in its banking business, something that has meant financial institutions in the region have had to pay close attention to compliance issues in the new markets they are entering. Speaking to gtnews, Nolan Gesher, senior product manager at Fiserv, pointed out that banks in the region are putting more emphasis on controls, “especially with automating transaction matching and accounts reconciliation.” 

Regulatory Response to the Credit Crisis 

2008 cast the largest shadow over the regulatory world in 2009. How had such huge failures been allowed to happen? How can similar catastrophes be prevented in the future? Speaking to gtnews, Selwyn Blair-Ford, senior domain expert at FRSGlobal, points out that acceptance in the financial community that the regulatory environment has to change has occurred inf four phases: 

1. The aftermath of the Lehmans collapse - banks realised that, in this financial crisis, anyone can go. 
2. Passive acceptance of change. 
3. Denial from the financial services industry (some of which is still around). 
4. Arrival of the new liquidity regime, and other regulatory policy initiatives - change can now happen. 

The early part of 2009 saw a series of regulatory reports published, such as the Financial Services Authority (FSA) papers and the Turner review in the UK and the Geithner review in the US. Reports and reviews of this kind were all designed to tackle the both the problems caused by the credit crisis and address the underlying factors that created the crisis in the first place. 

When it comes to looking at how the implementation of the reports has gone, Blair-Ford says that we are currently in a dangerous place: “ The issue is now in the political arena, where they’re used to having a year or two to debate these issues. It is important that the political will around post-credit crisis regulation does not lose impetus.” 

While the recommended regulatory change will happen, it may take six to 12 months to really start achieving this implementation. With this time lag, it’s possible that these changes will no longer be at the top of the agenda for the financial services industry and it may be caught out by the changes when they are implemented. Political will may also fade and the regulators need to be wary of this happening. It is possible that, rather than all of the regulatory changes being made, some may not be implemented because of the lack of political will. There’s a real danger that if this happens - if not all of the issues are tackled and changes implemented - financial services could sleepwalk into another financial crisis of a comparable magnitude. 

Focussing on the UK, FRSGlobal’s Blair-Ford sees that the parliamentary election next year could potentially have a disastrous effect on the new regulatory regime. The policy being promoted by the opposition party, the Conservatives, of abolishing the FSA is clearly votedriven and short-termist. " In fact, their pledge to abolish the FSA if the Conservatives win the next UK election would set the UK's regulatory landscape back by seven years. The FSA is little more than ten years old and it has taken the best part of the last decade for the financial industry to adjust to them as regulator," he adds. 

Signing Off in a Stronger Position - but it is all Relative 

The economic conditions that treasurers operate in are, by and large, more positive than they were this time 12 months ago. Whereas at the turn of the year, treasurers could have been forgiven for feeling uncertain that all of their banking partners would still be standing the following week, today you can be fairly sure that they will be, thanks to the M&As and unprecedented government action. Credit can still be hard to come by, but there is a general acceptance that it is available (if not necessarily at the exact time you want it and for an inflated price). This level of certainty means that corporate treasurers can get on with the business at hand - managing their company’s cash and liquidity to the best of their ability. The re-evaluation of old methods of cash management and trade finance, for example, have seen treasurers find new and innovative ways of adapting to the poor economic climate. And as well as merely going ‘back to the future’, treasurers have also shown a great appetite for the latest technological breakthroughs that can add efficiency to their department - for example, EBAM and SWIFT connectivity are both issues that have appeared in the most read gtnews content this year. This flexibility of combining the best of traditional methods with the latest technological developments is something that treasurers can rightly be proud of as 2009 comes to a close.