Treasurers Vs. Banks: Can the Relationship Work?

Six against one?

At a breakfast roundtable in Singapore in July, Lenovo Treasurer Damian Glendinning was clearly outgunned. There were six transaction bankers from ANZ, Bank of America Merrill Lynch, BNP Paribas, HSBC, OCBC Bank and Standard Chartered Bank.
Rounding out the attendees were two executives from Progress Software, which sponsored the event organised by Enterprise Innovation, CFO Innovation’s sister publication, and Martin Fitzpatrick, Executive Director at J.P.Morgan, who previously dealt with transaction bankers as Southeast Asia director for finance at Microsoft a year ago.  
Glendinning, who is also president of the Association of Corporate Treasurers in Singapore, more than held his own. “If you look at history going back 20 years now, everybody was busy building an electronic banking system as a means of trapping the customer – um, sorry, building customer relationships which just happened to depend on using the bank’s system that will only work with the services provided by that bank,” he said puckishly. “This has gotten in the way of the development of truly modern cash management solutions.”
The result has been “a complete nightmare” where companies ended up using two or three banks (because, among many reasons, not one bank covers all the markets where the corporation operates) – and “nothing talked to each other,” said the treasurer. “When they tried to build connectivity between the banks, you got into a situation where one bank refused to receive electronic communication on another bank’s behalf.”
Some companies have paid “a fortune” for an accounts receivable matching system, Glendinning went on. But they get only 90-95% accuracy. “C’mon, guys,” he said. “In this day and age, should we be operating this way? . . . I think if we sit around this table and take a look at how efficient we can make all the data transfers, I would submit that there’s a gross underutilization of the technological capability.”
Unprecedented Challenges
The discussion was actually more good-humoured and balanced than the above salvo would suggest. Indeed, the picture that emerged was one of unprecedented internal and external challenges for both clients – CFOs, treasurers and others in finance – and their banking partners. .
Asked Paul Zanker, Senior Vice President and Global Business Solutions Executive at Bank of America Merrill Lynch: “Who hasn’t had a conversation with a client that is a) upgrading an ERP platform, b) putting in a new Treasury Management System, c) putting in a Shared Service Centre or some kind of back office, d) looking at standardisation and trying to rationalise all their bank accounts?”
Any single one of those transformations, let alone a combination of two or three or all of them, can drive huge changes across the enterprise. “The question is how to provide a solution to the client that absolutely meets their needs,” suggested Zanker. “Clients want solutions to deliver better, faster and cheaper than before. ‘Don’t sell us product. We want a partner that will help us grow.’”
The banks say they are trying to respond. “We have actually moved away from product sales to a working capital sales model,” said Samuel Mathew, who is Regional Head, Transaction Banking – SEA at Standard Chartered Bank. “One sales person looks after and understands the financial ecosystem/supply chain of the client, their suppliers and buyers, assessing the terms of trade and which markets they are in, etc.”
But there is a sense of uncertainty about how well they are doing. “I’m still scratching my head,” admitted another banking participant. “Getting somebody who’s been a very product-focused person to suddenly sit down and say, let me understand your industry, let me understand your business, let me understand your risks and challenges – that is quite a sea change . . . How the bank will do it I don’t have the answer yet.”
What Finance Wants
Glendinning conceded that banking clients are grappling with their own internal contradictions as well. On the one hand, corporate treasurers want commoditised cash and treasury management services – done at the touch of a switch and paid for as cheaply as possible.
“But if something goes wrong, we’ll call you up and start working on the relationship,” said Glendinning. “We forget about the systems while they are working, but on the day that a transfer didn’t go through, we need to be able to call up the bank and be able to say: ‘What the heck happened?’.”
Most CFOs and treasurers also want to simplify banking relationships, which can multiply at an alarming rate. One roundtable participant said that his bank is working with a client to cut down its 800 banking relationships worldwide to just two – a huge undertaking that needs to be done cautiously and with great sensitivity.
Internal politics come into play in these cases. “If you ask corporate treasurers, they will say they want to control everything from the centre,” Glendinning said. “If you then talk to CFOs, most will say, I need to be able to control my cash, I need to make sure I can pay my suppliers.” Local CFOs are likely to complain about not being able to make emergency payments and feel uncomfortable that the centre will be able to withdraw cash from ‘their’ bank accounts.
“I was that CFO when I was with Microsoft,” J.P.Morgan’s Fitzpatrick said. In the end, though, treasury got its way – Microsoft had US$25 billion in cash and centralisation was what mattered. “They just broke everything, very aggressively,” he recounted. “As a CFO, if you’re not comfortable with that, you can go work somewhere else.” Eventually, everyone got over it.
At Lenovo, Glendinning counts himself lucky that he started with a clean slate. The Chinese computer maker bought IBM’s PC division in 2005 and he and the CFO decided to work only with one banking partner for transaction banking in some 60 countries outside China. (Lenovo already had existing banking partners within China.)
“When you start with embedded relationships it’s amazing how difficult it is to break them,” Glendinning said. That’s now starting to become an issue as Lenovo embarks on M&As and joint ventures – it recently entered into a JV agreement with a company in Japan and is in the process of buying a company in Germany. Lenovo expects its transaction banking partner to help integrate the cash and treasury functions of its new partners and acquisitions.
New Kids, Old Kids
As the roundtable discussion proceeded, what became clear is that Asia’s transaction banking providers are not monolithic. “We are in the world of Asia Pacific one of the late entrants,” said Indrajeet Maitra, Head of Cash Management, Asia Pacific, Global Transaction Banking, at French bank BNP Paribas. “We are the new kid on the block, too,” echoed Vijay Shankar, Head of Payments & Cash Management, Payments & Cash Management, Asia, at Australia’s ANZ.   
The implication was that, as new entrants, BNP Paribas and ANZ can leapfrog incumbents in terms of technology and, perhaps, in developing transaction banking solutions that are more responsive to new requirements by Asia’s CFOs and treasurers. “One of the huge positives in being a late entrant is that you can learn from your peer group,” said Indrajeet. “And the technology that cost, say, $100 two years ago costs perhaps $30 today.”

HSBC, Standard Chartered Bank, Bank of America Merrill Lynch and J.P.Morgan are, of course, long-time players in the Asia space, along with Citi, which did not send a representative to the roundtable. “We are always looking for ways to speed up our implementations,” said HSBC’s Lee Chung Keet, Head of Product Management, Global Payments and Cash Management. “Clients always push you to run faster, do it quicker” – a demand that the incumbents feel they are well-positioned to meet because of their long experience and intimate knowledge of the market.

The key, agreed the roundtable participants, is to give the customer what it needs, and that means knowing the unique structure and goals of each organisation.
Ricky Lim, Head of Product Management & Client Services, Group Transaction Banking at Singapore’s OCBC Bank, recounted a bank exercise four years ago that involved several OCBC bankers shadowing an SME businessman as he went about his business. “He didn’t have a Damian [Glendinning] in his shop,” said Lim. “He’s the owner, he’s the treasurer, he’s the sales guy.”
One of the things OCBC learned is that credibility and reputation are top of mind for small business owners. If a payment goes out late or a check is dishonoured, everybody in the industry knows about it. So the group transaction banking unit created an e-alert service that automatically warns a client when its checking account has insufficient funds. The client is given time to top up the balance and thus avoid damaging the business’s credibility.
Counting on Technology
“What a lot of this comes down to is that banks have to be proactive,” observed Bryan O’Neill, Regional Vice President, Asia, for Progress Software. The independent enterprise software provider implements enterprise integration, data interoperability and application development solutions for banks and other companies, allowing real-time visibility across payment, on-boarding, and account management operations.
He recounted discussions he recently had with a major bank about how being proactive can trim up to 15% of call centre costs. “For example, if you know from past experience that clients will call in to confirm that a deposit has gone in, the call centre can proactively send messages confirming the deposit,” said O’Neill. Clients would no longer need to call and the time and energy spent on servicing them on that particular issue can be harnessed elsewhere.
Above all, said O’Neill, "CFOs and treasurers want a 360-degree view of all their bank accounts, cash positions, payments, receivables and account management operations. Visibility is the piece that people are looking for. Being able to see across multiple silos -- in real time -- that's the key capability that bankers are looking for today. What's more, bank clients want it now.”
Technology solutions can help. Progress Sofware offers a product designed to monitor transaction breakdowns and provide insight into applications to recognise warning signs and make corrections before problems occur. “Think of it as little robots which are on every bank server and the applications across there and being able to report where the break is or if a [scheduled] transaction did not occur,” he said. “The bottom line is, I get to see it early, that file, that failed transaction, which is otherwise extremely hard to see because the systems are so complex.”   
What about Glendinning’s complaint about 90-95% accuracy of matching systems? Some banks are now able to create a unique virtual account that match with every payer. One J.PMorgan client has 700,000 virtual bank accounts. “It’s nearly a virtually fool-proof way of achieving 100% customer reconciliation,” said Victor Penna, Managing Director, Solutions & Advisory Services. (He was not at the roundtable, but spoke to CFO Innovation earlier.)
Penna said, however, that not every bank can offer this capability, which requires significant investment. That’s one challenge that banks – and their customers – have to come to terms with. “You’ll never have all the money you need because of the various priorities you have, whether it’s technology, whether it’s people, whether it’s plugging the geography gap,” said a roundtable participant. The bank that focuses on receivables matching may have to trade-off that spending against opening new branches, for example.
Beyond Technology
There are many other issues around the relationship between corporates and banking providers, including the sheer diversity of banking systems. “If you look cross-border, there are significant differences between country clearing infrastructures,” said Standard Chartered Bank’s Mathew.

“For example, is there anything in common between clearing systems in Vietnam and Singapore? They are miles apart. Vietnam is largely a cash based society with some RTGS capabilities, while markets such as Singapore are at the other end of the spectrum. Standardizing these linkages and providing standard feeds to a regional treasurer sitting in Singapore or Hong Kong is a big challenge for banks.”

Still, the suspicion that banks are using proprietary banking systems to ‘trap’ corporates into doing business exclusively with them is probably outdated today. Banks have been working more closely with each other to provide a 360-degree view to clients, particularly when a global bank, for example, has no choice but to partner work with local banks because the global bank’s network is not as extensive as local banks in their home markets.
Even SWIFT, the messaging platform owned by the banks, “has had a certain enlightenment,” reckoned Glendinning. “It now wants to be the vehicle for transmitting information [from corporates to banks].” In the past, only banks can communicate with each other using the SWIFT platform. The new SWIFT for Corporates solution allows eligible companies to communicate directly with banks on the network, not just the institution they have a relationship with.  
“The fact of the matter is, there’s enough business for all of us in the marketplace,” said ANZ’s Shankar. “There’s enough space for everyone with the kind of growth that we are seeing in this region. Cambodia, Laos, Vietnam, Indonesia – you’d be surprised at the kind of positivity, the aspirations they have.”
That’s what their client companies, and their CFOs and treasurers, are counting on, too. With luck, banks and enterprises may be able to work more closely to achieve their respective goals, which the roundtable discussion indicates have more in common than perhaps either side realises.
About the Author
Cesar Bacani is Editor-in-Chief of CFO Innovation. He moderated the breakfast roundtable sponsored by Progress Software in Singapore on 28 July 2011. 


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