The opening address on the second day of Sibos 2013 was given by HSBC’s global head of payments and cash management, Diana Reyes. She began the Corporate Forum by looking at key trends across industry. The four areas she highlighted were the increasingly strategic role of the treasurer, the global power shift from west to east, greater emphasis on operating efficiency and the importance of technology. While there is no standard response to these trends, Reyes said, there are many ways for treasury to stay on top of the changes.
Best practices in the Centralisation of Treasury Functions
The first working session of Day Two focused on centralisation of treasury. Microsoft’s general manger – treasury, Anita Prasad, told delegates that the US tech giant already has a treasury centralised in Redmond, Washington that reviews everything from cash and collections to investments, corporate finance and operations. A key development has been to have full information about the company’s cash, a need triggered when the chief financial officer (CFO) asked how much cash the company had and received multiple responses. Microsoft has since enhanced treasury so it can provide a single answer real-time.
Tata Consultancy Services (TCS) CFO, Seturaman Mahalingam, said TCS also centralised treasury, placing it in India more than eight years ago. The key, he said, was to have a central view of what the company was trying to achieve. By contrast, oil producer Saudi Chevron’s treasurer Alawi Al-Shurafa, said the group has centralised treasury rather more recently, having gone live in January this year.
Deutsche Bank’s global head of trade finance and cash management corporate, Michael Spiegel, highlighted one of the most critical questions for corporates in the centralisation process as figuring out what they are trying to solve. Prasad agreed, saying it is important to think about what centralisation means and to recognise that it includes policies and compliance.
Analysing the process of centralisation, Al-Shurafa suggested that it is never a smooth one. The process starts, he said, with looking at what is available – both with the help of banks and independently, conceptualising the plan, shortlisting preferred service providers and then using standard request for proposal (RFP) process to select a partner. It is also important to have technical staff from the bank in discussions during the review, to use checklists, and to establish service level agreements in writing. Prasad recounted how Microsoft had organised a workshop of representatives from ten banks and a SWIFT team when it was centralising treasury, as it was important to bring all the parties together and secure agreement on what to do.
Asked about cost, Prasad said that while Microsoft has gone through several implementations and the cost has been several million dollars, the return on investment (ROI) was about 45x. “When we can answer the question for the CFO and make the right strategic decision, it pays for itself,” she added. The next step for Microsoft, Prasad said, is electronic bank account management (eBAM), while for Saudi Chevron, Al-Shurafa said he is looking to make know your customer (KYC0 initiatives easier and more standardised.
Legacy Systems Renovation
Outside of the Corporate Forum, financial software group Diasoft’s director of global markets, Mikhail Kryuchkov, gave a presentation on alternatives to dealing with legacy systems, which he suffer from two major problems: cost and inflexibility.
The options he outlined to doing nothing were re-architecting, which is cost ineffective; re-hosting, which is inflexible; and renovation, which he espoused as a flexible and cost-effective alternative. Service providers can take legacy source code and use a toolkit to generate a renovated system using Java and GUI metadata. The renovated system can more easily enable web services, virtualisation, better security, and enhanced business processes. The session offered a novel solution for overcoming the difficulties of legacy systems, common to many financial institutions and corporates.
Increasing Efficiency in the Supply Chains
With treasurers looking more at how the physical supply chain is affecting companies’ cash flows and working capital management, participants in this panel session discussed whether the Bank Payment Obligation (BPO) can offer help.
ANZ’s global head of trade and supply chain and working capital product, Vivek Gupta, described how smaller business clients are focused on working capital, becoming bolder in trying out new things and looking at alternative service providers. Maybank’s global head of transaction banking Azrol Faizal added that shipments are faster than the documents, so there is a need for automation, and small to medium-sized enterprises (SMEs) are also looking for opportunities to unlock liquidity.
RBS global head of trade Anand Pande suggested that SMEs, which are also looking at both pre-shipment and post-shipment solutions, can use BPOs as a solution for these issues as well as for an extension of payment terms and credit growth. He is seeing more interest in BPOs in the commodities sector in particular, while Gupta reported he is also seeing interest from the commodities sector as well as from industrial companies.
The key to implementation by banks, Gupta said, is to see how the BPO fits into the transaction banking strategic agenda. While Faizal believes it was a benefit to have management buy-in for the cost of setting up BPOs, Maybank still needed to enhance the platform to incorporate BPOs, educate the risk managers (RMs) and also to socialise with the regulators.
The conclusion from the session was that while progress in usage of BPOs has been slow, they do offer a viable alternative to open account or letters of credit (LCs) for certain sectors and the market for BPOs is expected to grow.
Harmonising Global Transaction Banking Standards and Practices
As they debated the opportunities and issues in harmonising standards, corporate treasurers and banks on the panel at Sibos had contrasting viewpoints.
Corporate treasurers were very clear about what they needed, according to Gilead Sciences treasurer Brad Vollmer, who started out by saying that standards must have four components. They need to be simple, scalable, compulsory and widely accepted. The pain point lies in conducting the same process in different ways for different banks and whenever a company can use standardised formats across banks it is a huge win.
Honeywell’s programme manager, Gary Netherton, concurred. Lack of consistency is a major issue when corporates are looking to shorten time to market, and different standards add time and complexity. Corporates don’t want to be experts in making payments, he said. They want to have payments made on time and get reporting back on time. He added that any discussion of standards needs to start with the underlying processes the firm is trying to optimise and then move towards delving into formats and the data within the formats.
RBS managing director Simon Newstead proposed that standardisation must also include definitions, as describing the same things in the same ways matters greatly in transaction services. Barclays managing director Richard Martin said that while standards are important, he sees some clients who want to do things their own way. This creates a challenge in offering both flexibility and standardisation. Newstead said that while there is recognition of the need for harmonisation, banks expect different things in different fields, so it still has a long way to go.
As Vollmer summarised it, “from a corporate perspective, I want somebody to tell us what to do.” Netherton agreed, saying “we do not want to be experts in managing payments or reporting”. While the bankers agreed that standards are necessary, it became clear that it will be quite some time before standards and practices are harmonised.
SWIFT representatives Patrik Neutjens and Benoit Pirotte provided an update on SWIFTRef, which was launched at SIBOS in Osaka last year.
Financial crises, regulations and cost pressures have made the financial industry recognise the importance of quality reference data, said Neutjens and SWIFT responded to these needs with SWIFTRef. He noted that the industry incurred costs of up to €150m last year, primarily from fines, because it didn’t have accurate information, underlying the importance of reliable data.
SWIFT started by accessing authorised sources to collect good data, then cleansed and cross-referenced it. The financial messaging provider has gone through a five-step process to make sure it provides accurate data by working to provide more scope, data, customers and sophistication as well as working with the community to build the data. While the original scope for SWIFTRef was payment processing, SWIFT also added treasury transactions, securities entity identification, compliance and regulatory reporting such as KYC. The data now includes all bank identifier codes (BICs) worldwide and corresponding legal entity identifiers (LEIs), 800,000 national codes for 152 countries, local language codes, 400,000 small-scale industries (SSIs), all international bank account number (IBAN) BIC, and automated clearing house/clearing and settlement mechanism (ACH/CSM) participation and reachability.
Neutjens promised that further initiatives are in the pipeline, including more data, channels and value-added services.
The Evolution of Supply Chain Finance
In the final session of Sibos Day Two, corporates and banks looked at solutions and innovations in supply chain finance (SCF), focusing on liquidity and working capital management for corporates and at the banks’ goal of developing more effective trade financing.
International Chamber of Commerce (ICC) Banking Commission chair Kah Chye Tan said the banking industry faces challenges because the business model has changed. One commodity client, for example, reported that before the financial crisis 75% of their trade financing capacity came from banks while today it is 45%. Banks, then, need to change to make sure that they remain financial intermediaries.
Octal Petrochemicals’ treasurer, Gary Slawther, said that what he needs as a corporate is enough financing for his business. However, he had to recruit additional staff specifically to work with banks on credit facilities. If banks won’t give the company credit, he said, they’ll find it themselves – for example through credit insurance firms.
Standard Chartered Bank’s global head of corporate cash and trade, Ashutosh Kumar, believes the key needs of corporate clients are risk mitigation and credit. The supply chain typically works well when suppliers and distributors work together with their bank on an arrangement and where there is something the bank can add, such as longer credit terms or credit for distributors.
Bankers then turned the discussion to BPO, which they see as a tool that can solve corporates’ difficulties. Tan said BPOs help plug a gap by exchanging data without paper or fraudulent documentation, and by speeding up collections. Kumar sees BPOs as a solution to increase efficiency by reducing the movement of paper and shortening the duration for LCs.
Kumar added that BPOs are very relevant in Asia, which accounts for one-third of global trade yet has two-thirds of LCs globally. BPOs meet a need because they overcome the difficulties of enhancing risk management amidst a dearth of credit insurance.
Slawther said he feels that BPOs can put power into the treasurer’s hands. Octal has a weekly meeting of sales, production planning, raw material purchasing and finance staff, and “we don’t need a banker in the room.” What he wants is a tool for planning, which the BPO can offer.
Looking ahead at what comes next, RBS global head of trade, Anand Pande, observed that upcoming innovations to meet corporates’ needs include electronic invoicing (e-invoicing) to generate invoices and dynamic discounting.
The first day of the Corporate Forum provided useful insights on the needs of corporate, as well as diverse views on solutions in the offing. While corporates and their bankers may have different views on how fast solutions to their needs are being developed, there is a convergence on what is actually needed. gtnews will return for Day 2 of the Corporate Forum on Wednesday to provide updates on more issues and opportunities for corporates.
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