The pursuit of opportunities for companies to maintain and grow their businesses is relentless, whether nationally or internationally, through acquisitions or organic growth. However, given that we are just beginning to emerge from a global recession, the worst for generations, this is a particularly pertinent issue today. The financial crisis materially impacted economies and businesses in the US, Europe and Japan more than it did in countries such as China and India.
Post-crisis, the competitive landscape looks very different, not least through the rise of emerging market countries as serious contenders in world trade that offer new and exciting opportunities for growth. The increasing catalogue of different nations taking their place is creating the impetus for a drive towards efficiency for treasurers around the world. Many companies are looking at where growth will come from over the next 10 years and are orienting their business strategies to take advantage of this. As a result, we are finding that clients are deepening their links with emerging and ‘emerging emerging’ markets, several of which continued to expand in gross domestic product (GDP) terms during the recession.
One of the key challenges they face, however, is how to expand and maintain a cross-border business while simultaneously keeping control and visibility over the location of their cash. The financial crisis has rightly focused attention on risk management rather than risk taking, and issues such as a business’s ongoing cash position, counterparty exposure and financing facilities have moved from the treasury department to boardroom level.
No longer is there a place for models that cannot serve a client globally or operate in silos. Today, the drive for efficiency is all about stable, global banking relationships that support a company’s global corporate treasury needs to put them firmly in line with their client’s profits. The pace of business, along with the unprecedented geographical footprint, challenges the traditional mechanisms that are no longer fit for purpose.
This demands a change in approach for today’s corporate treasurer towards faster, more accurate and transparent processes – a call to arms to explore the possibilities of electronic bank account management (eBAM) derived from new web-based technologies that help treasurers ensure their underlying systems operate as fast as their business, 24/7.
The Electronic Age
eBAM is an integral piece of successful international business operations. It is such a simple concept and it inevitably draws comparisons with the ways in which we transact in other areas of our professional and personal lives.
Internet banking for personal accounts, for example, has become the norm. Actions such as transferring money, paying bills and closing accounts can be carried out online; cheques are being phased out and, in 2018, are expected to become obsolete in the UK. In the treasury world, however, many financial executives are still opening and closing bank accounts and changing details by letter, fax and phone.
It is important to remember that transaction banking is without doubt more efficient than it was five or even 10 years ago, and there are areas where the industry has employed technology to reap true benefits for the corporate treasurer and for their business as a whole.
A Changing Industry Model
The globalisation of banking is the key reason that eBAM is such a central and significant development for the industry, and corporates are right to demand advances in it. The idea of the ‘one-stop shop’ with a bank providing its clients with all its transaction and treasury needs is no longer a realistic situation. Today, corporates either work with multiple transaction banking partnerships around the world; or with their ‘core bank’, which delivers a centralised service through partnerships with best-in-breed local banks that provide physical local presence through offices and branches, and local knowledge around regulations and best practice. Sometimes there is an entire network of banking providers, especially where the business and its subsidiaries have complex legacy arrangements in place that have not been streamlined.
Consequently, systems are not aligned and records are heavily paper-based. This increases the need for extensive human intervention, opening up opportunities for error, compromising the efficiency, transparency and risk management. Not only this, but external factors such as differing regulatory requirements in every jurisdiction where the company operates only serve to hamper treasury’s depleted resources as it grapples with global demands. While banks have sought to address this, documentation has become more streamlined and harmonised, but there is still a way to go to overcome this challenge.
The Benefits of eBAM
Against this backdrop, there is a critical need for automated, electronic processes for opening, closing, modifying and maintaining bank accounts across the world, in order to give corporates an holistic view of their positions and commitments across and between their banking providers on an international basis.
The benefits of greater automation are clear. Managing bank accounts electronically gives corporates better consistency around their international processes, and greater transacting banking speed, which is particularly beneficial when working with teams based around the world in different time zones.
In terms of minimising risk, eBAM brings some specific advantages. Where there is manual data entry, or where a corporate is relying on the correct piece of paper reaching the right person and being actioned on time, errors inevitably creep in – these can be both costly and time-consuming. There is also the risk of fraud when bank account instructions have the potential to be viewed by non-authorised participants. Both these scenarios can be avoided through an electronic system.
eBAM is also crucial in the quest to provide greater transparency, by providing an audit trail and the ability to produce reports which can be supplied to executives. This in turn helps corporates demonstrate compliance with regulators, which is especially important in today’s environment in which regulators scrutinise the market for potential risk points and demand greater transparency across industries and processes.
It is well recognised that the importance of the treasury function has increased as companies focus on core issues such as solvency, stability and cash flow. With a successful electronic account management system in place, treasurers have more time to take on these strategic functions. eBAM means that the time taken to implement decisions and changes is cut dramatically, processes are streamlined, and cash comes back under control.
Lifting the Bonnet
What does best practice in eBAM look like? At a basic level, eBAM requires standardised message formats, which can integrate with and speak to other systems and services around the world or the entity from which they originate, and new standards developed by SWIFT are important to defining industry-wide practice. This is helping to alleviate the issues arising from anomalies between countries, leading to a more streamlined approach that can be implemented around the world.
Best practice also means message encryption, a far cry from a message delivered by a fax machine. Real-time request tracking is also something that is only possible with electronic and automated systems and is vital to providing the audit trail and real time transparency and visibility that is vital to supporting business functions. Features like digital signing, which can be efficiently passed between signatories, are also key to creating auditable sign off.
This is not to say that eBAM is entirely about what the transaction banking provider can develop and implement. As an initiative, it requires a large degree of collaboration and effort on both sides in order to be successful. Corporates need to phase out their legacy paper mountains and be able to originate eBAM messages and engage with the entire system, which will undoubtedly change the way many have been working.
It is, however, a shared goal and the rewards can be felt on both sides, with clients improving their efficiency and maximising their oversight and control, while banks will enhance their client relationships by providing a higher quality service that fundamentally helps those businesses operate more efficiently and effectively.
eBAM is on its way
In straitened times, investment in technology is not always forthcoming. But something that so directly helps and expedites a business’s growth is surely a high priority in times such as these. Banks should be, and in our experience are, making eBAM a priority technology initiative. In order to maintain their relevance to clients who are expanding their footprints, banks need to be able to deliver scalable, robust and cutting-edge services that match clients’ expanding needs. eBAM has been several years in the making, but the reality is moving closer every day. Ultimately, a successful move to eBAM will require the BAM process to be working efficiently first and this process refinement work can begin now.
Corporate treasurers are under increasing pressure to meet the demands of today’s global business agenda, and post-crisis, the challenges have intensified as the lessons of the last few years are learned. While implementation is a hurdle in itself, the benefits of the next generation in online banking services speak for themselves. Not only do corporate treasurers have increased visibility through superior processes, but they will enhance their ability to predict trends, freeing them from onerous process management to address more strategic business planning initiatives.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?