Most global banks have for years provided their US multinational corporate clients with a form of electronic billing that breaks down all the fees incurred for banking services, crucially enabling treasury teams to compare and analyze the charges levied by their core relationship banks.
But while the US has led the way in developing provision of this type of information that can enhance a treasury’s visibility of a key operational cost, outside the US and particularly in Europe and Asia, granular and comparative electronic bank billing is far less prevalent.One of the main reasons is that there is no single electronic standard for the exchange of such billing information agreed and applied unilaterally by banks and their clients all over the world.
Three standards are already in use independently and collectively – the so-called 822 in the US and the Twist BSB and IS0 20022 globally – but none have been adopted as the global standard. Nevertheless, there is overwhelming demand among banks’ corporate clients for this to happen.
According to Euromoney’s 2014 cash management survey, over 60% of a record 28,000 treasury professionals from non-financial corporates and financial institutions want to see the universal use of a common electronic bank billing standard, with Asia Pacific based treasurers the highest by region among them at 68%. By comparison, 50% of Europe based treasury professionals want it.
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Corporate treasurers at two large multinational companies in Europe and Asia sum up treasurers’ responses to the question of which areas of cash management and treasury they want their core cash management banks to help them improve most in the coming year.
“Understanding of all their various fees – very complex now,” says one.
The other says: “Help with simplifying optimizing bank/account structure driving elimination/reduction of fees.”
Company structures are often complex and the data and documents, often in paper files, relating to contracts signed with each bank can be located in different parts of the business. Such decentralized storage can often make it difficult for companies to check whether fees paid correspond to the fees agreed upon or whether any rebates have been correctly applied.
As a result, an analysis of bank fees is often manually intensive, and can be very difficult to verify accurately the international bank fees across a company. For the management of the company, this makes it difficult to obtain a global overview of their bank fees and to control cash management fees. Electronic bank billing helps manage this better.
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Standardized electronic bank billing reports, combined with a system in treasury that automatically imports such reports, analyzes the fees paid, compares them against those agreed on in the original contract, and reconciles them, can save time and money.
The increasing demand among companies globally for electronic billing, as the survey results show, could hasten the adoption and more widespread use of one of the two standards – the Bank Service Billing standard developed by industry working group Transaction Workflow Innovation Standards Team (Twist), and an equivalent ISO 20022 standard developed and launched by Swift.
However, Tom Durkin, global head of integrated channel solutions, global transaction banking, at Bank of America Merrill Lynch in Chicago, says that even if either of the Twist BSB or Swift’s IS0 20022 standards are taken up globally, “universal adoption of an electronic billing format will be more of a marathon than a sprint”.
The lack of technological ability of some banks to regularly provide such information is one reason why this will not happen overnight, another is simply that many companies do not have the technology and operational expertise yet to receive and use it in the way that they want.
“Companies need to build an operational model around this and have an effective interactive model with their subsidiaries,” says Lisa Davis, global head of enterprise services, treasury and trade solutions, Citi. “The pace of adoption is partly due to the fact that some companies have not invested substantially in building this type of operational expertise as their priorities continue to be in creating efficiencies in their own processes first (e.g. shared service centre creation) and only then look to optimize bank billing.”
Most global banks tend to operate a centralized global billing infrastructure that uses both the Twist BSB and ISO 20022 standards, but Davis says that for a global bank to provide this type of information to its clients it takes some ingenuity too because of the multiple countries, currencies, languages and platforms clients transact with them on any given day.
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“Pulling that data together into a single format that a treasurer can use and derive value from is challenging,” she says.
Davis adds that many of Citi’s multinational clients outside of the US, and particularly in France and Germany, have adopted the Twist BSB solution simply because the treasurers want to have “clear visibility of the transaction fees they are paying to banks globally.”
For example, German air carrier Lufthansa receives Twist BSB electronic billing reports for almost 40 countries worldwide from its core cash managers, Deutsche Bank and Citi. Other large German companies that similarly receive Twist reports include Siemens and Deutsche Post.
Gautam Jain, managing director and global head of client access, transaction banking, Standard Chartered in Singapore, says most multinationals and large local companies it works with have invested, or are investing, in sophisticated enterprise resource planning or ERP systems that have the analytical capability to use electronic billings.
Jain says Standard Chartered is agnostic on the use of standards. “What we don’t do is enforce the standards we use on our clients,” he says. “As and when we enter into a relationship or review an existing relationship, how they want to receive information from us, whether in billing or any other form of reporting, forms a key part of this discussion. It ultimately depends on what the client wants to do with this information.”
And in Asia particularly, he says there is rising demand for electronic billing statements from clients in Asia and that is set to continue.
“If you look at how Asia is evolving, a lot of multinational corporates out of the US and Europe are setting up shared service centres or treasury centres in Asia, which is driving much of the demand there,” he says.
“The other factor is the opposite dynamic as Asian corporates are expanding into Europe and the US, they are recognizing the fact that as they become larger, manual billing is not going to be sustainable as they look to grow at the same time as optimize their treasury functions. We predict that in a very short time frame, two years or so, we will see a significant uptick – double or even triple – in electronic billing in Asia.”
However, Jain says it will be interesting to see how the Twist BSB and ISO 20022 standards evolve, and that trying to assess the extent to which electronic bank billing will happen among global clients is tricky to call.
“To be honest, how can you predict client behaviour? As business becomes more and more digitized I think electronic billing will continue to grow, and probably at a pace faster than digitization of the business.”
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While the level of fees charged for cash management services will no doubt contribute to a company’s decision to change its cash manager, according to this year’s survey, the top three reasons for doing this are: poor overall service; a rating downgrade; and a personnel change.
Overall, 77% of treasury professionals of non-financial corporates and financial institutions say poor overall service is the main reason why they would change their international cash manager, followed by a bank rating downgrade with 13%, and bank personnel change with 10%.
However, 67% of non-financial corporates do not intend to change the number of cash managers they use in the coming year, although 10% plan to increase the number and 6% plan to decrease the number. According to the same respondents, 55% of them have between two and four banks that are core to the cash management operations, with 32% of respondents stating that they use just one bank.
For financial institutions, most have between two to four banks too, but while 56% do not plan to change their cash managers over the coming year and 19% say they do not know if they would, 14% say they would increase the number and 11% would decrease.
It is barely surprising that poor service is given as the top reason to change a cash manager, but the second highest reason, a rating downgrade, highlights just how sensitive corporate treasurers can be to this.
Asked about the likelihood of a rating downgrade on their cash manager leading to the issuing of a RFP, 42% of treasury professionals of non-financial corporates and financial institutions say it is both unlikely and likely, but 16% say it is very likely.
That likelihood goes up among financial institutions, with 49% of respondents stating that a rating downgrade would be likely to trigger the issuing of an RFP, and 19% that such action is very likely.