In the opening session of the second day of the Corporate Forum at Sibos, a panel of corporates and bankers looked at how to manage shared service centres (SSCs) more effectively. Corporate Treasurer editor Daniel Flatt moderated a panel comprised of Mizuho Bank general manager, Shunsuke Araki; Citi global head of channel and enterprise services, JP Jolly; Coca-Cola assistant treasurer, Sharon Petrey; and International SOS group finance general manager, Lee Thong Tan.
Petrey said Coca-Cola’s SSC has over 1,000 employees, who handle traditional finance functions as well as facilities management and other activities supporting the company’s many brands. Tan said his SSC is still in the infancy stage after three years, with 200 staff split between Singapore and Prague. Jolly commented that SSCs need at least 500 staff to run an efficient global operation.
Jolly quoted a recent survey showing that 43% of companies have SSCs that handle only one country, 31% handle a region and only 8% have an SSC that handles all of the company’s global support. Citi takes a multi-regional approach so it can better handle language and time zones. Petrey said that as it consolidated 24 centres into one, Coca-Cola was especially careful about where and how it located customer-facing roles. Back office roles may be easier to locate, she said, and the group has technical accounting in Poland and its largest retail finance centre in Ireland. Tan said SOS has centres in Singapore and Poland so that there is regional expertise; for example Poland handles value added tax (VAT) since it understands the concept better.
In considering whether to outsource, Araki said that simple operations requiring a lot of resources are likely to be outsourced. Japanese companies keep staff handling highly confidential information within the company structures. Jolly added that it’s worth looking at outsourcing functions that vendors can do better. When companies do outsource, Petrie said, they need to manage it well because the outsource vendor is only following directions and is not going to improve functions. To find a service provider, Jolly said, companies can talk to trusted partners like their bank, fellow corporates and technology vendors about which vendors have worked well.
Araki said that about 5,000 Japanese corporates have set up SSCs in Dalian, China, due in part to part the Japanese language skills available there.
Getting Paid on Time Using BPO
SWIFT’s market research manager, Marie-Christine Diaz, led presentations and a discussion with Standard Chartered Bank global head and letter of credit (L/C) product and receivables, Vinod Madhavan, and BP Chemicals global credit manager, David Vermylen, about how to get paid on time using bank payment obligations (BPO). The key values of BPOs are timeliness and efficiency, said Diaz, and the session was designed to provide insights about how to achieve those benefits.
Madhavan explained that a BPO is an irrevocable undertaking that payment will be made at a specified date, although admittedly the payment rules are still being developed by SWIFT and the International Chamber of Commerce (ICC). While BPOs are bank-to-bank obligations, there will also be an agreement between the corporates and the banks on both sides.
BPOs aim to combine the elements of both L/Cs and open account. While BPOs won’t replace L/Cs, they will help as an intermediate step in the evolution of trust between buyer and seller as they move from L/Cs to open account.
BPOs change the landscape, Madhavan added, by shifting away from physical documents and extracting the data. One of the biggest benefits for banks is that BPOs use data matching and there is no ambiguity.
For corporates the benefits include risk management, lower transaction costs, improved efficiency and enhanced verification. The seller gets payment assurance and is paid on time, while the buyer gets quicker assurance of supply, an easy tool for liquidity and funding flexibility.
Vermylen said that 50% of BP Chemicals’ business is on L/Cs. Among the key challenges in using LCs are the time it takes – often 26 or 27 days for shipments from Asia to the Middle East even if everything goes well – and fixing non-compliant L/Cs. The BPO is one of the strongest ways to avoid problems, he said.
BP’s customers who have started using BPOs like the fact that they will get the product on time. They can adjust their production planning better, reduce their stock, and trim costs.
The buyer and seller input the data set and data is matched within 20 minutes. The BPO is irrevocable but conditional on delivery, Vermylen said. The buyer knows when the shipment will arrive and can reduce stocks accordingly. He expects fees to drop too, because there will be increased competition as more banks start to offer BPOs.
Diaz provided tips on implementation, suggesting that the first thing to do is arrange the conditions and terms between the buyer and the seller. Internal processes then need to be documented clearly. Both parties need to communicate with their banks, and the banks have to register on the SWIFT Trade Service Utility (TSU) platform.
The key benefits she identified were a reduction in the opening time for BPOs, reduced shipment delivery delays, fewer amendments, lower risk coverage needs and a shorter sales cycle. Experience showed that documents can go from the seller to the buyer in three to four days, collections drop by 50-60%, there are 10-30% savings in full-time equivalents (FTE) and it releases liquidity. For buyers, the turnaround is three times faster and fees are reduced by up to 60%.
Strategies for Achieving Efficient Global Cash Management
Sumitomo Mitsui Bank vice president Tatsuya Nishimura led a discussion of a case study on Panasonic, with Panasonic team leader, Kenji Yamashita, and Panasonic councilor, Nobuyuki Kishikawa, offering advice on how to redesign the organisation structure for more effective cash management.
As corporates expand globally, Nishimura said, they have more challenges in cash management, particularly around visibility and risk management. As a result, treasurers have been trying to centralise and automate operations.
He has observed that corporates go through a series of stages as they move towards global cash management. Initially cash management is often taken care of by each entity, although multiple entities in a single country may use pooling. The next step is regional cash management, which may include a regional treasury centre. The ultimate objective and final stage is global cash management, with visibility and efficient use of funds.
Yamashita said that Panasonic has 578 consolidated companies, annual sales of about ¥7.8 trillion, over 330,000 employees and nine domain operating companies. In the past, the finance section supported regional operations from the Panasonic head office. Over time, the conventional country-by-country and region-by-region approach reached the point where it no longer provided the global governance and efficiency that Panasonic needed. A global treasury structure to promote cash flow management then became vital.
Panasonic took three main steps in establishing a regional treasury centre. In 2004, it launched the project to centralise money market and foreign exchange (FX) and internal settlement. It then developed shared standard operations to create a global treasury management system. Finally, it created a consolidated management. They found it difficult, however, to control nearly 600 entities and to get them all on board. The goal for the project was to restructure treasury management, reduce costs and reduce risks.
Ishikawa said that Panasonic set up its global treasury centre in 2006, selecting the Netherlands as it is central between Asia and the US, has timezone advantages for communications and has tax treaties with many countries. Over time, they have centralised yen, US dollar and euro cash management. Each regional operation takes care of other currencies.
The two biggest challenges Panasonic found along the way were in creating an in-house treasury system with standardised operations and in introducing direct SWIFT connectivity with its banks. They found that each bank’s internet banking had its own proprietary format and was not compatible, so they decided to use the single SWIFT format instead. The difficulty in implementing SWIFT, however, was that Panasonic needed the same security level as banks, beyond ordinary corporate requirements and it had to make additional security investments.
Panasonic has realised multiple benefits from its treasury centre, where it has now consolidated 95% of the group’s funds. Consolidating cash saved ¥3bn and standardising operational process strengthened accountability and transparency. The group plans to keep going and in future expects to include regulated countries into the operation, to strengthen FX hedging in emerging countries and to expand global cash management.
Implementing Payment Hubs and SSCs
UTSIT chief executive officer (CEO), Herve Postic, moderated a discussion between Bank of Tokyo Mitsubishi product manager, Mia Aoki, and Johnson Controls director of finance engineering, Wolfgang Ratheiser, about how to implement payment hubs and SSCs effectively.
Ratheiser started the session by defining SSCs as entities or cost centres which run transactions and operational services such as payroll, legal and payments. They are driven by cost, headcount, operational efficiencies and the audit rating. Payment hubs are transactional and technical, designed to release payments. Aoki added that payment hubs can be set up internally or outsourced. The objectives of corporates in setting up payments hubs, she said, are standardisation, harmonisation and making the most of IT.
Ratheiser said Johnson Controls established SSCs in Bratislava and Mexico, both of which had direct connections with banks. While they tried outsourcing the SSC, they were not successful and ended up running them internally.
His goal for the company’s payment hub was to work with domestic banks so that there would be no cross-border payments. They discussed using Hong Kong as a hub for Asia and Belgium for Europe. Talks began in 2008, with implementation beginning in 2010 and finishing earlier this year. They figured out which banks to partner with, went to the banks, and completed requests for proposals (RFPs) so that there was a proper process. Johnson Controls currently works with 10 banks – down from 70 in the past – and was able to select banks that could best help with their business and growth.
Open Account and the Convergence of Cash and Trade
OPUS Advisory Services International president, Alexander Malaket, led a discussion about solutions for trade finance with Ito-Yokado executive officer ,Yumiko Hoshino; Bank of Tokyo-Mitsubishi general manager, Shigeki Kawabata; Standard Chartered Bank global head for corporate cash and trade, Ashutosh Kumar; and Korea Exchange Bank senior advisor, Chang-Soon Thomas Song.
Kawabata kicked off the discussion by saying that while open account is needed to speed up settlement, there are still lots of L/Cs because countries and companies require them for settlement. Corporates are thinking, however, about how to speed up settlement and asking banks to develop new products, like L/Cs with open account capabilities.
Hoshino said her company prefers L/Cs rather than open account because they are more convenient, can outsource payment operations to their bank and they don’t have to arrange for telegraphic transfers (TTs) themselves.
Kumar said his clients report one of the challenges with L/Cs is the documentation, which has to move from the shipping company to them and then to the bank. There’s a lot of paper, which results in operational deficiencies. From a process perspective, corporate customers want simpler processes. The challenges of open account, however, are that availability of finance becomes difficult and risk mitigation is limited in markets like in Asia where there is little or no credit insurance. Kumar noted that open account has both counterparty risk and country risk. BPOs can provide risk mitigation and do not require documents to flow through the bank. The risk moves from the exporter to the BPO issuing bank.
Hoshino said that while her company doesn’t need to use L/Cs, they do want to provide financial support to their suppliers so that they can strengthen the relationship. Kawabata noted that BPOs provide certainty of payment, so banks can offer financing and help cement the relationship.
While BPOs can be used as collateral for financing, Kumar said, banks need to move away from balance sheets and focus more on supply chain linkages. They can look at factors such as the strength of relationship between buyer and seller, the years of relationship, the number of disputes and what percentage of sales come from the buyer to determine whether to provide financing.
Participants see a number of issues with BPOs at present. Hoshino said that there is a need for a set of rules. Kumar said more communication and education is needed and a whole ecosystem needs to develop around BPOs. Song added that there needs to be legislation that the BPO is a valid legal document.
SWIFT’s Patrik Neutjens and Benoit Pirotte outlined how banks and corporates alike can use SWIFTRef as a reference data solution for payments, treasury and compliance.
SWIFTRef is used by corporates and banks in processing, so the data they need is available. It helps answer questions like whether an International Bank Account Number (IBAN) is valid, whether a Bank Identifier Code (BIC) is still active, and what the national code is. It includes bank data in a bank directory, single euro payments area (SEPA) data to validate IBANs, BIC codes, intermediary banks, standing settlement instruction (SSI) data to find the correspondent bank and intermediary bank for commercial payments or FX or monetary management (MM), and other data as well.
Neutjens said SWIFTRef can improve compliance, risk management and cost. In a nutshell, SWIFTRef is available to financial institutions and corporates and vendors in all geographies and in any format the customer needs. Data is only sourced from and maintained by the originator’s authorised sources.
Myanmar: Open for Business
In a late-day session, Decillon Group outlined opportunities in Myanmar, a country of great interest to corporates and financial institutions alike. While Myanmar ranks low on many development indicators, it is undergoing rapid change. The path isn’t always easy, though, as there are barriers such as only a single internet service provider (ISP) in the country that has firewall ports blocked, government controls on the internet and power failures as a common occurrence.
There are currently four state-owned banks, 19 private banks and 17 representative offices of foreign banks in Myanmar, according to Decillon. Foreign banks include joint venture (JV) banks, offshore banks, strategic partnership banks and full branch or subsidiary banks.
The financial sector is undergoing rapid development. The central bank is planning computerisation so it can do everything online, and the country is establishing the Myanmar Payment Union for consumer payments. It has signed a memorandum of understanding (MOU) with the Tokyo Stock Exchange and Daiwa Research Institute to set up stock markets, while new foreign investment laws and foreign exchange laws are in the pipeline.
Although challenges remain, the under-banked and often-underserved population of 60 million makes Myanmar an attractive destination for corporates and financial institutions alike.
Placing Your Bets on Mobile Payments
Mobile payments remains a hot topic and a panel discussion at the end of the day focused on key developments in mobile. Following a presentation by BCG partner, Laurent Desmangles, on the current state of mobile payments, Asian Banker CEO, Emmanuel Daniel, moderated a panel discussion featuring Commonwealth Bank of Australia (CBA) executive general manager, Kelly Bayer-Rosmarin; PayPal general manager, Dan Schatt; and NTT Docomo Engineering president Kiyoyuki Tsujimura, as well as Desmangles.
Desmangles predicted that plastic cards will still be with us for many years and near field communication (NFC) will take a long time to get established, as a compelling value proposition has yet to be invented. Even if a forecast that 87% of merchants will have NFC terminals turns out to be true, consumers will still need to carry another card. And interestingly, he expects the greatest value to be not in payments, but in advertising.
Banks still need to play in the mobile space, Desmangles said, so that they avoid disintermediation of end user relationships. To compete, they’ll need to provide compelling banking solutions that offer a direct line into the account, real-time information, deals or offers, and payment transactions. On the merchant side, the world of acquiring is going through a transformation as companies like Square or PayPal offer lower flat rates and a new experience to smaller and mid-sized merchants
Tsujimura kicked off the panel discussion by outlining how the Japanese market is one of the most advanced for mobile payments. NTT Docomo has 120 million customers on mobile and 60% are using electronic wallets (e-wallets) because of the convenience and the deals through electronic coupons (e-coupons). Merchants get efficient transactions and customer information. Docomo provides low-value money transfer over the mobile and works with Mizuho Bank to offer larger payments.
Bayer-Rosmarin said CBA’s Kaching mobile app has grown to more than US$1bn in transactions in the past year. More than 50% of people doing internet banking with CBA use mobile, and the bank wanted to be where its customers are. Along with offering mobile payments to customers, it developed its own terminal because it saw existing payments terminals as one of the largest barriers to innovation.
Corporates were excited when CBA launched Kaching because the bank can put their cards in customers’ wallets, direct offers through it and give merchants richer information about where customers are spending their money. Payments to mobile phone are used the most, followed by phone-to phone payments, paying a Facebook friend and paying to an email address.
Schatt said PayPal has grown as a global internet payments network and now accounts for 20% percent of electronic commerce (e-commerce) payments. While it has focused on small businesses, it also has several hundred financial institutions using PayPal to move their customers’ money around the world. Since PayPal is starting to see that you can make using a mobile banking application as easy as taking out your wallet, it’s focusing on the user experience. E-commerce, mobile commerce (m-commerce) and tablet commerce (t-commerce), Schatt said are all becoming, simply, commerce.
Schatt expects consumers to gravitate towards wallets that give them the most utility and convenience, across all channels. While PayPal thought that consumers would feel more comfortable using a card when PayPal started offering point-of-sale (POS) payments, 80% of the people using PayPal at POS are typing in their phone number and a PIN rather than taking out their wallet.
All of the companies have good relationships with app developers. CBA signed up 600 app developers in two months, and Docomo has more than 100. Bayer-Rosmarin said CBA hasn’t felt that the telco operators are an essential component in the value chain and they’ve been able to do everything we want to without them.
Desmangles said the winners in mobile will be those who can leverage customer information, as it’s all about information. Bayer-Rosmarin expects that what wins in payments will be efficiency, convenience and security. She and Desmangles both predicted that cloud payments will supersede NFC, with Desmangles forecasting both provisioning of credentials on the cloud and offers.
Corporates found a multitude of opportunities at the second and final day of the Corporate Forum to increase efficiency and manage risk better, with solutions ranging from BPOs to SSCs and payment centres.
The final day of Sibos on Thursday will see a range of sessions as well as a summary of key developments in the closing plenary. gtnews will be there to bring you the ideas and insights that can benefit business.
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