Managing cash in China has just gotten easier for clients of Bank of America Merrill Lynch (BofA), which recently announced becoming the first foreign bank to launch a dedicated cash management service in conjunction with the only bank card association approved by the national government and the People’s Bank of China.
The alliance with China UnionPay (CUP) enables clients of BofA’s Global Transaction Services (GTS) unit to pay into and debit out of individual, small business and corporate accounts across several of China’s largest banks at lower costs and with greater transparency.
The alliance “supports direct debt collection from corporate accounts opened with the ‘Big Four’ local banks,” comprising the Agricultural Bank of China, the Bank of China, the China Construction Bank and the Industrial Commercial Bank of China, said Faisal Ameen, head of GTS’s Asia Pacific treasury products. He added that the vast majority of corporates operating in China have relationships with those institutions.
In addition, said Mr. Ameen, the agreement with CUP enables GTS clients “to either initiate an electronic debit or electronic credit directly to or from their supplier, vendor, and distributor bank accounts, as well as from individual accounts, from more than 100 banks operating across mainland China.”
Such activities today for corporates operating in China tend to be labor intensive and may require maintaining multiple accounts. The alliance with CUP enables BofA’s clients to set up a centralized account for collections, resulting in faster processing and same-day visibility of funds. In addition, said Mr. Ameen, processing transactions through CUP should generate lower management and administrative costs, resulting in highly competitive pricing, and connectivity to BofA’s ARM system allows for automated reconciliation.
Ethan Wang, research director in Gartner’s banking and investment services industry advisory services team, said the first-time alliance with CUP will not have a major impact on overall local banking business in China, since foreign banks so far represent around 2 percent of total banking assets.
“But it indicates a major move for foreign banks in China to push for their cash management businesses, for not only foreign currencies but also renmimbi-related business,” Mr. Wang said, adding that it could provide opportunities to foreign companies operating in China and potentially could be extended to Chinese companies looking to expand globally as renmimbi use spreads outside of China.
In a pilot phase for the last several months, the cash management solution, which connects to BofA’s receivables engine, thereby improving cash forecasting and automating reconciliation, has attracted attention from corporates.
“Outback Steakhouse requires a cash management system that is designed to meet the needs of our dynamic business,” said Dexter Newman, treasurer at Bloomin’ Brands, the parent company of Outback Steakhouse, in a statement.
Bloomin’ Brands recently choose BofA as one of the cash-management banks for its first company-owned location in Shanghai. It will use the CUP alliance to provide services including daily collections, merchant services, account management and electronic payments.
UnionPay, with more than 80 financial institution shareholders, was launched in Shanghai in 2001, and it reports directly to China’s central bank.
Mr. Wang said a “similar story” was Citibank announcing in early May that it was launching a multi-currency notional pooling with renmimbi, making it the first bank in China to offer such a service. Such services are used by corporate treasury centers manage cash flow from a central location, and to manage cash in multi currencies from a single position, without altering FX exposures or having to perform FX swaps.