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| Mike Edwards, director, head of market management, EMEA, Global Treasury Solutions, Bank of America Merrill Lynch |
Long before the financial crisis, the world was familiar with the demands of conducting business globally. Contending with time zones, differing regulations and jurisdictions, managing conflicting approaches to business standards, and understanding evolving technology have been increasing challenges for years. What events of recent years have highlighted however is the fragility of a company’s position when it does not have a single, snapshot view of where its money is located. That coupled with an insufficient knowledge of the robustness of its counterparty relationships needs to be addressed if a treasury department is to operate at optimum efficiency. The financial crisis exacerbated the need for companies to seek revenue opportunities in higher growth markets around the world, beyond those of their traditional home markets. In order to accelerate growth, they needed to work with a bank that could meet these new global requirements. This led to corporate treasurers taking a more prominent position within their firms, with greater responsibility for their company’s financial needs, for risk management and for cost structures. Increasingly, we saw companies and financial institutions that conduct business globally, demand better access to cash and increased transparency of their cash flows. And this had to be achieved within the ongoing pressure of accomplishing more with less.
Enhancing bricks with clicks
Today, challenged with operating in this ‘new order’, corporates are no longer looking for a ‘one-stop shop’ to meet their global banking requirements. Rather, they are focused on how they can spread their risk by seeking a core banking group. This group is usually selected based on five criteria: credit availability, counterparty risk, system integration, relationship management and service excellence. Another key attribute is to ensure the group has a broad geographic reach that matches those markets in which the corporate operates. Depending on the size and focus of the corporate, coverage gaps may exist and these will dictate the required number of additional local banking relationships.
Banks are operating in this same ‘new order’ with similar goals. They have been working to ensure their clients’ needs are met by deepening the capabilities they provide in the markets in which they operate. At the same time banks have been extending their own footprint. Corporates benefit from this convergence of needs by finding their core banks operating in more new markets with them, This is particularly evident in the emerging markets – a key expansion target for many corporates, and as a result, for banks too.
Previously, when a bank wanted to extend its footprint it had two options: (a) acquire/establish its own branches, or (b) collaborate with a local bank. In the case of the former, there are high associated costs but on the plus-side, this option is likely to offer clients a more consistent banking experience. Partnering with a local bank, by making an introduction or ‘referral’ is a commonly selected alternative but in its traditional form has certain limitations for the corporate around issues such as technical integration, service models or counterparty risk that comes with having multiple local banks, coupled with maintaining global cash visibility and easy access to funds.
In selecting the most suitable coverage model, a bank has to consider the needs of its clients. A satellite office can flatter a bank’s global footprint but fall short of providing the full domestic capabilities required by corporates across a number of industry sectors.
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| Martin Knott, managing director, head of corporate sales, CEEMEA, Global Treasury Solutions, Bank of America Merrill Lynch |
Fortunately today there is an alternative to the buy/build or referral options. With advances in technology, coverage models are available that meet both banks’ and clients’ needs. Taking the best elements of a top local bank – its network, access to local clearing and file formats, and local market knowledge –integrating these with the sophisticated platform, service model and accountability of a global bank, an integrated partner bank model enables the global bank to effectively integrate local branches into an existing network. Selecting the right model
So does this global network really work? Bank interoperability really comes down to the level of integration and the flow of information through the global network. Ultimately, banks can process payments, but the integration and the delivery of information back to a centralised point present greater challenges.
It is the adoption of specific technology that can provide this global offering and present the integrated partner bank model as a real alternative to a bank having its own branch network. This model meets treasurers’ needs in today’s world, providing standardisation throughout the global banking network and across every required territory. And technology goes one step further – it helps corporates rationalise their banking relationships and provides the option of conducting business via fewer core banks. Significantly, technology offers a useful and broad array of services and capabilities that complements a bank’s cash management services.
With an integrated partner bank model, the legal framework is already in place for account structures, reporting lines and regulation so clients are able to immediately take advantage of interoperability, and established connectivity and systems. Information from around the world can be seamlessly aggregated and payments from a variety of systems can be standardised into the latest ISO 20022, multilingual interpretation and XML formats. Companies are therefore able to ‘hit the ground running’ without having to spend time on integration issues.
Significantly, standardisation across multiple systems can be managed through a single interface, as if a corporate were working with one bank. A single interface can be used regardless of the location and type of transaction, and is facilitated by a client’s own ERP system, shared service centre or in-house banking structure. Rationalising the cash management process also provides a corporate with a better service offering, greater operational efficiency, enhanced cost savings to provide an holistic electronic banking experience and above all, transparency. It empowers the treasury function beyond its traditional ‘back office’ role to a more board-level position, using the enhanced technology throughout all lines of business and facilitating decision-making across the organisation.
For a corporate, there is another benefit to employing the integrated partner bank model in that it enhances the customer service provided by either a traditional partner bank or a primary bank that has centralised this function. With this model, a regional treasury office is still able to have the single point of contact provided by their primary bank, but at the same time, at the local level, their domestic operating company or office is able to service the partner bank, and so build local relationships. They can also connect with the primary bank’s single point of contact – this solution really does offer the best of both worlds.
Selecting the right coverage model
For a corporate looking to do business in a new market, selecting the right bank requires careful consideration. If the corporate has successfully identified a core global banking group, then it stands to reason that one of these primary providers should be selected above a local bank – but only if they are able to directly, or through an integrated partnership, offer the capabilities needed to operate successfully.
It is thanks to technology that the traditional partner bank model has evolved and that through a single global interface, banks can now provide their clients with a system which both manages multiple relationships and integrates a comprehensive suite of financial solutions. The success of this ‘new order’ rests on strong, trusting bank/corporate relationships and the adoption by banks of technology that allows them to deliver to their clients greater transparency, better risk management, operational efficiency and cost rationalisation.