Gov regs62

Getting to ‘Know Your Customer’ Is a Major Pain

KYC provisions have been dogging companies for years. But some are now exploring the use of Blockchain to help ease this pinch point.

Wallet

Custodian Banks - Unloved but Here to Stay

There are a lot of things that treasurers would rather do than work with their custodian banks. But with MMF reform, custodian banks are here to stay.

iTreasurer logo 2016

Subscribe Now

Today is over. Subscribe to iTreasurer and
get ahead of the problems you will face tomorrow.

Banking Relations

Thinking Rationally About Reducing Bank Accounts

Share |
September 01, 2017

Like barnacles on a boat's hull, bank accounts accumulate to the point they must be culled.

Accounting-Money“Less is more” as a principle applies to many areas, but it is an especially pertinent principle for corporate treasury when it comes to the number of bank accounts. While the benefits of fewer accounts are many, e.g., improved control and utilization of cash, reduced risk, economies of scale and scope, etc., the costs and challenges to reduce are often significant. Members of the NeuGroup’s Global Cash and Banking Peer Group (GCBG) explored the current state of rationalization objectives, blocking factors and strategies to enable reductions.

Globally, according to Deutsche Bank, the recent focus on account rationalization has been driven by a need to reduce costs and increase control. GCBG members also attribute liquidity optimization and easier reconciliation as drivers. But ultimately, treasurers have been confronted by the realization “that after many years of organic and inorganic growth, most MNCs have too many bank accounts and bank relationships.”

And this is true of the GCBG. In a pre-meeting survey, 82% of respondents said they had more than 200 bank accounts as part of their global treasury structure, with three members having more than 1,000 active accounts. These accounts are most often serviced by 20-30 banks globally. And 66% percent of members have a bank account rationalization plan, with many running it on an ad hoc basis as opposed to a formal project.

And formulating a plan should be any treasurers’ to-do list. That’s because direct costs accumulate quickly. Based on statistics from Deutsche Bank, direct costs of maintaining a bank account are between $4,00-$7,500 per year. Virtual accounts and POBO structures are providing clients with cost-effective alternatives to traditional bank accounts.

Bank rationalization is still a big deal for most members they continue to focus on liquidity optimization and ease of bank account reconciliation. The project isn’t easy, however, and it requires a great deal of work, often on an ad hoc basis, to collect data and analyze choices for account consolidation. New solutions like virtual accounts and POBO structures may offer some relief, but they’re not always a panacea as tactical challenges still prevent many from utilizing these options.

Despite these challenges, capabilities to enable bank account rationalization are growing. In Asia, for example, changes at the local level have resulted in tax and utility payments no longer requiring accounts with local banks, as has been the case historically, allowing for more consolidation of accounts with regional providers.



comments powered by Disqus