Holding hundreds of bank accounts is an inefficient and costly process for corporates with a global footprint. At the very least it is time-consuming, and at worst it can leave corporates susceptible to fraud.
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Solutions are variable and there remains some lack of standardization across banks Alex Wong, |
Corporates will often find they have hundreds of accounts through international expansion, or through acquisition of other organizations. Others, such as legal firms and fund managers, hold separate accounts for their clients’ deposits.
Of course, regulation plays a role too. For example, some international film companies are required to open a new account with the production company working on each new film.
It can mean some companies have huge numbers of accounts to oversee. Research by KPMG of 48 corporates for the BNP Paribas Cash Management University found that 28.3% of corporates surveyed have over 1,000 bank accounts globally.
The cost of having all of these accounts open is significant.
Carsten Jäkel, partner, finance and treasury management, at KPMG, says: “When you look at the overall sum of banking fees at an average corporate, it will be most likely seven-digit figures. Reducing the number of bank accounts alone would contribute significantly, not mentioning the corresponding internal costs. We’ve seen global multinationals saving millions in banking fees.”
The evolution of Sepa and the ability to consolidate accounts in the eurozone has helped some corporates to reduce the number of their accounts, but many will still require accounts in numerous locations due to regulations or the need to transact in the local currency. And this is not to mention the numbers of accounts they might hold outside of Europe.
The biggest issues of multiple accounts is not always directly linked to cost, but the capacity needed to maintain them all.
Alex Wong, GTS EMEA solutions consultant at Bank of America Merrill Lynch (BAML), says: “It is often the indirect cost of the administrative burden and effort that may have more impact; fees may be overstated.”
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Paul Bramwell, SunGard |
Electronic tools have emerged to consolidate this information, but, so far, corporates do not seem to be moving towards using them. The KPMG study found that 80% of respondents do not have a central tool in place to give overviews on their accounts.
Paul Bramwell, SVP treasury solutions, at SunGard, says: “There is significant value in moving away from paper-based processes to electronic communication where processes that formerly took days can be completed in a fraction of the time.
"This real-time ability to view a bank account structure adds tremendous value to a client and ultimately also to the bank who can move away from inefficient paper-based processes.”
Paul Greenhalgh, director, cash management corporates UK, global transaction banking, Deutsche Bank, says: “Treasurers should look to eradicate duplicative accounts wherever possible.
"Those treasurers who aspire to best-in-class platforms should work with bank partners to deploy solutions such as virtual accounts and on-behalf-of structures where appropriate. Such solutions can reduce bank accounts held to the bear minimum.”
'Payments on behalf of' is when a company uses some its liquidity to make a payment to another part of its organization. It comes about when a company has already centralized its financing into a treasury centre. The parent part of the company can then make the payments to the subsidiaries.
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Paul Greenhalgh, Deutsche |
EBAM has emerged as a solution. The bank account management platform utilizes the ISO 20022 messaging format. The messages that pass along Swift’s channels can be pulled together to create an overview, regardless of their bank or country of origin. This can then automate the opening, closing, reporting and signatory management.
“The management of entitlements, signatories and access can become overwhelming when tracking multiple accounts and multiple users who may be leaving or joining the company involving multiple banks – this task can be never ending,” says Wong.
"EBAM goes a long way to helping with this, but solutions are variable and there remains some lack of standardization across banks.”
While the use of eBAM is growing, it has yet to reach any significant level amongst corporates. Some of the reluctance might come from the lack of quick benefits, beyond increased data gathering.
Virtual accounts is another option, and a solution that doesn't typically require the help of an external third party, such a bank or software vendor.
From a central bank account, the details of other accounts are drawn into to give a greater overview, and which can span the treasurer’s entire global bank account network. The accounts create additional layers, categorizing and segregating information, and defining settlement instructions within the organization.
Virtual bank accounts help to centralize a system of disparate accounts, which means a lack of knowledge over the activity of each account, and how it works within the rest of the organization, is addressed. It is this lack of widespread understanding that can result in fraud.
Corporates still have concerns about whether digital solutions – eBAM and virtual accounts – would work in practice effectively. The KMPG study found the biggest concern was around the limited bank acceptance of exchanging electronic messages.
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Jonathan Ashton, global head of digital client access, at Barclays, says it is not a problem as other account information can be drawn in.
“It starts off with the main account and we can connect other accounts from a third-party bank on the Swift network," he says. "Barclays transactions will show on the account immediately, and third-party messages can take 30 minutes.”
Enabling the corporate to have a greater overview can place the head of cash management at the top of the tree in terms of making decisions on all of the accounts, and the knowledge that can be gleaned from being able to see them all in one place.
Ashton says: “Some treasurers are looking for move oversight on the fund movement which places them at the centre of the approvals flow.”
This in turn can help with the greater consolidation of the number of accounts that are needed, but ultimately corporate treasurers are likely to have to manage multiple accounts regardless of the solutions implemented.
“An appropriate liquidity management structure will provide further opportunity to rationalize bank accounts, but this is not always the case – some structures may require a few additional accounts,” adds Wong.