How to engineer a cash management monster

For the past decade and more, the big money spinner in global banking was to be a flow monster. Becoming a leader in the sales and trading of fixed income, currencies and commodities was the fast route to the big league of earnings. FICC was the glue that held global banks together.

But with a combination of regulation, litigation and moribund markets challenging the flow monster model, banking industry leaders are increasingly turning to a new adhesive – transaction services.

At the heart of transaction services is cash management. And at the heart of the biggest banks’ daily dealings with their clients, whether corporate or financial, are now not just the wheels of daily payments or trades, but also a strategic view of how to operate efficiently and successfully in an ever-more international marketplace.

Being a top cash manager is increasingly a prerequisite of being a top global bank. Euromoney’s annual cash management survey is the benchmark for the industry, with well over 27,000 corporate and financial services clients taking part.

HSBC retains top spot in both the financial institution and the non-FI categories this year. It holds a resounding top place in the non-FI category, with almost double the points of second place Citi.

But HSBC is not alone in keeping its position among the world’s top-ranking cash management providers, as the leading group remained similar to last year. With myriad banks providing global cash management solutions there is a consistency to the top 10 that suggests a long-term satisfaction among their clients.

What does it take for these banks to make it into the top 10? As each bank has grown and evolved in its own way there is no set standard for producing results, but themes for success in working alongside modern corporates do emerge.

When banks describe the transaction banking business as the ‘core’ or ‘backbone’ of their clients’ business, what do they actually bring? This is a market that appears to be both a marathon and a sprint: one in which longevity and track records are crucial, but so is cutting-edge innovation.

Bank of America Merrill Lynch and Citi are just two banks that have created innovation centres to work directly with clients to ensure they are building a banking proposition that caters to customers’ needs using their direct feedback. Through workshops they can feed upwards what the client wants and, where there is a commonality between several companies, make an appropriate offering around it.

Naveed Sultan, global head of treasury and trade solutions at Citi, says the bank has created a diagnostic tool that runs comparative studies for clients to compare themselves against their peer group and find solutions to run their operations more effectively.

BAML’s co-head of global transaction banking Dub Newman says: “We are in regular contact with our clients, and meetings such as the annual advisory board and other client conferences give us a very deep understanding of what they need from us. Increasingly, they want solutions that allow them to drive loyalty among their own client base.”

One thing the top 10 banks have in common is understanding that they need to pull together, both within the transaction banking department and across different divisions.

There is no consensus over what falls within transaction banking – some will stick to traditional trade finance while others will bring their card offering into the fold – but there is a rising understanding about the possible benefits of figuring out which divisions can work together to create the most cohesive structure for clients.

Diane Reyes, global head of payments cash management at HSBC, says the bank has focused on creating a strong digital strategy to support its clients. This includes breaking down previous roles for the creation of specific product heads, such as e-commerce, to support growing digital requests and the diversity of the support that is now needed by the corporate clients.

Depending on size and global reach, the banks will break down their operations into manageable chunks – BAML has regional heads including Newman and Jennifer Boussuge to run global transaction banking north America and EMEA respectively – to oversee geographical regions. And Boussuge notes that an outcome of dividing up the operations in this way is that, rather than there being competition between the regions as they vie for attention, collaboration is encouraged.

Working across the business and the bank in a joined up way makes sense to provide a coherent structure to customers. The different parts of the bank will often work with the same clients, and working in a cohesive way creates strong brand loyalty when they all work well together.

This moving away from working in silos within banks has benefits as it creates a streamlined operation, which ultimately help the client. Angelo Rizzuti, UniCredit’s deputy head of global transaction banking, explains that within the GTB division there is closeness, not only to the sales side, but also to the product management and the product development teams, to structure the most effective offering for the client base.

This is not limited to European institutions. Citi’s co-president Jamie Forese has moved transaction services to the heart of the bank’s international client group.

Citi says the move is already bearing fruit. “There are of course benefits to leveraging our different areas to give better value to the clients,” says Sultan. “We have a strong collaboration with the FX team and the payments part of trade and transactions. Whenever there is a cross-border flow there is a strong FX element.”

Andrew Reid, managing director and co-head of corporate cash management at Deutsche Bank, says it is only through pulling together across the bank’s various areas of expertise that overall value is realised.

Trust and longevity are also important. A cohesive banking team is weakened if it does not have a strong and long-term presence in the market.

In the few short years since the economic crisis, and while many banks were still underserving their transaction banking teams, others were placing them front and centre as part of their focus for growth. Michael Mueller, head of cash management, corporate banking at Barclays, says that cash and trade are two of the supporting pillars of the bank.

Marc Espagnon, head of payment and cash management at BNP Paribas, also highlights his bank’s focus on the business, saying: “In cash management you can’t have the policy to invest one year and not the next, and we have invested huge amounts since 2007. It is a key commitment to continue to invest in this business.”

Establishing a strong operating model cannot be achieved overnight, and the support for the international banks demonstrates the loyalty created through a number of years spent focusing on key markets. Standard Chartered cites its focus on Asia, while UniCredit continues to look to central and Eastern Europe for primary business, both for the clients based there and those who are looking to take a step into the region. This dedication earns both banks a top 10 position for their key regions in the non-FI results.

Tarek Elyafi, head of liquidity products and unity at Standard Chartered, says: “Clients are looking to move from country management into a regional value proposition to centralize regionally. They are setting up payments and shared service centres.”

The arrival of the Single Euro Payments Area (Sepa) provides the potential for standardization across payment formats. HSBC’s Reyes says it has long worked towards standardization, and that two of the bank’s board members have been involved with Swift. Once the banks and the corporates have an agreed definition of the standard, there should be a big uptake as it will streamline processes for both parties.

Banks can make things easier by implementing a recognised system that can be used across geographies.

Treasurers need to split their operations between banks depending on country and function, and a single bank cannot always fill every need.

Most corporates use between two and four cash managers for their business, according to the survey. Companies with a turnover of $2.5 billion or above on average use five or six cash managers.

Therefore, banks have to be willing and able to work alongside other institutions if they are to ensure that their clients retain them over the years.

This can mean working with external vendors to bring internal platforms up to date. Espagnon says: “Our culture of technology is agnostic as we develop internally but also buy externally. We don’t have a strong principle, but this means we can adapt to the situation.”

Having such a platform only works, however if it can be used easily alongside the offerings of other institutions. A system that can be adaptable across formats has greater benefits to a corporate that might potentially use several banks.

Mueller at Barclays says: “We have a strong in-house tech offering, but when we do use third-party products we make sure that they are fit for purpose. Our objective is to make the systems as easy as possible to work with.”

Corporates operating in many countries can clearly benefit from operating systems that can be used across jurisdictions. Boussuge of BAML says the bank has taken the decision to implement the same platform across all its divisions: “Having the offering across one global platform is something that our clients appreciate. We have built a platform which has allowed us to innovate and provide a globally consistent experience.”

Implementing one platform across an entire bank is not easy. According to the treasurers Euromoney surveyed, one reason that they look to change cash management provider is that they have found their current provider’s systems were not up to scratch. Many of these were smaller corporates, suggesting bigger clients get better service.

Rizzuti at UniCredit says: “Technology is the name of the game. We have developed a culture of talking and listening to the client and translating this in our IT investment. We try to understand both what the client needs today and also what they will need tomorrow.”

There’s a strong element of competition here too. As HSBC’s Reyes says: “We know that clients will work with more than one bank. But it is up to us to make sure our product offering is foremost in their minds.”

The move towards new technology is having an effect as clients are demanding a more connected service. Mobile systems are increasingly in demand and could have a big role to play in deciding the line-up of the top-10 table, as the banks appear to be at different stages of creating their offerings.

Smaller companies seem more responsive to using new technology as they often have less complex chains and a lower level of legacy infrastructure to work through; one example is the M-Pesa network in Africa.

“We’re seeing small companies in particular as being early adopters of mobile technology,” says Reyes at HSBC. “If we don’t have a compelling offering in this space, then in five to 10 years we’ll be looking back, asking where our payments volumes went.”

Deutsche Bank stepped early into new technology when it launched its Autobahn app in 2012, which then went mobile in 2013. By August the bank had added a cash-management app that can facilitate straight-through-processing of collections and payments.

Jens Mikolajczak, managing director and co-head of corporate cash management at Deutsche, says: “Sophisticated technology is – and certainly should be – a given these days. But it’s all about applying it in the most appropriate way; ensuring innovations enhance the strength and security of payment platforms, for example, while simultaneously allowing for flexibility and customization, without compromising the stability of the underlying system.”

Citi has also launched its own app. “The tablet system is available through the Apple store, making it easy to download it and use it in the same way as other apps. This simplifies things on the corporate side,” says Sultan. “Any difficulties in the implementation process can cause friction, but this creates ease of implementation and use.”

Tech developments have also gone beyond apps to address issues surrounding online security. Barclays has recently announced the launch of its biometric finger scanner in the fight to combat fraud. It will only be available to its corporate clients when it is launched in 2015. The bank knows its clients want to be able to bank on the move, and it is looking to create products that assuage their concerns about security.

HSBC has already successfully implemented a mobile system, and some $40 billion has been transacted through the channel in the past two years.

As in all banking, systems and technology can only go so far. Reid at Deutsche Bank says: “An important consideration, which derives from treating clients individually, is to ensure that their plans not only address more immediate commercial challenges, but also uphold their strategic long-term visions – even in the throes of considerable economic and regulatory change.”

BNP’s Espagnon points out that the way in which banks are being used now is completely different to 10 years ago. Clients expect an advisory role plus the latest technology and high-quality service. Simply ensuring that payments are being made on time is not enough to guarantee that a corporate will continue to use its services year on year.

UniCredit’s Rizzuti adds: “With GTB, it is about moving further along this track of market innovation. It is not about innovating for the sake of it, but innovating because you have listened to the clients and understood their needs.”