Treasury transformation continues to be top of mind for GCBG members as technology remains a high priority.
Many members of the Global Cash and Banking Group are implementing specific solutions to improve new or existing processes, with ERP upgrades, SWIFT implementations, TMS rollouts, and blockchain among the top projects. At the 2017 H1 GCBG meeting in Redwood City, CA, member discussion focused on three areas:
1) Best-in-Class Treasury—the Quest Continues. Treasury transformation has been an area of focus for many of the world’s largest corporates over the past few years, as new technologies continue to add efficiencies to many treasury tasks.
2) The Latest Innovation in Bank Rationalization. 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 them are often significant.
3) Signatory Verification. Maintaining cash visibility requires a disciplined approach to bank account management, automation and validation, as was highlighted during our Member Spotlight session on signatory verification and related processes.
Best-in-Class Treasury—the Quest Continues
When asked what top-priority project members were focused on for 2017, TMS was a clear winner for many GCBG members. Treasury transformation has been a key area of focus for many of the world’s largest corporates over the past few years, and new technologies continue to make many treasury tasks easier to do. This roundtable session allowed members to share their latest process improvements and provide updates on upcoming initiatives.
KEY TAKEAWAYS
1) Stay the course with tech. Innovation and technology implementations continue to be top of mind for members. Many are embarking on significant implementation projects, including ERP upgrades, SWIFT implementations and TMS rollouts. Kyriba was the system most often mentioned as part of the member implementation plans.
2) Alliance Lite or service bureau? With SWIFT implementations taking center stage, the group had a robust discussion about the benefits and challenges of two solutions: Alliance Lite and the use of service bureaus. Members shared pros and cons of both solutions, with no clear “winner.” Company size and complexity were key components in deciding the appropriate path. It was also suggested that Alliance Lite could be used as a primary solution, with a service bureau arrangement in place as part of a disaster recovery program, used only in the case of emergency.
3) Fintech anyone? Fintech innovation is occurring at a rapid pace, yet 76% of members are only somewhat familiar or not familiar at all with basic concepts like blockchain and distributed ledger. Members would be interested in purchasing blockchain technology for trade settlements, letters of credit, and custody and investments. Other fintech innovations members would be willing to pay for include investment analytics, KYC vault technology and softbot technology.
OUTLOOK
Technology continues to be a high priority for members, with many implementing specific solutions to improve new or existing processes. Blockchain is expected to bring greater efficiency, transparency and choice to corporates, as the traditional one-to-one relationship between corporate and banker blurs.
Counterparty Risk Management Practices
In 2016, Moody’s, Fitch and DBRS introduced Deposit and Counterparty Risk Ratings to better assess the exposure of different relationships with financial service providers. Most corporate treasurers, however, are still relying on debt ratings. This roundtable session allowed members to share how they are measuring and monitoring counterparty risk.
Most members track credit default swaps and credit ratings, and report on a monthly or quarterly basis using a variety of dashboard reports to provide confirmation of predefined limits by counterparty, and in some cases, by country and/or business sector. This process is extremely manual and time-consuming, with a few members looking to utilize SAP’s Credit Analyzer Module.
Managing overall counterparty exposure and limiting potential losses were common objectives as part of an overall counterparty risk management program; however, only a small minority of members have a formal, stand-alone counterparty risk management policy in place to define goals and risk tolerances.
The Latest Innovation in Bank Rationalization
”Less is more” applies to many areas, but it is an especially prescient principle for corporate treasury when it comes to 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 the number of accounts are often significant. Leveraging the survey responses, this session explored the current state, rationalization objectives, blocking factors and strategies to enable reductions.
KEY TAKEWAYS
1) Boy, that’s a lot of accounts. Eighty-two percent of respondents have 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 to 30 banks globally. Studies cited by Deutsche Bank show that corporates with the widest geographic footprint tend to have the largest number of bank accounts. It is not uncommon for such corporates to have 1,000-plus accounts. Along with business footprint, tax structures are the most common culprit for bank account largesse.
2) Let’s be rational. Sixty-six percent of members have a bank account rationalization plan, with many running it on an ad hoc basis as opposed to a formal project. Liquidity optimization and easier reconciliation are the primary objectives for having a plan in place. There was also discussion about whether members had done enough to rationalize EUR accounts in the SEPA zone.
3) Direct costs accumulate quickly. Based on statistics from Deutsche Bank, direct costs of maintaining a bank account are between $4,000–$7,500 per year. However, virtual accounts and POBO structures are providing clients with cost-effective alternatives to traditional bank accounts.
OUTLOOK
Bank rationalization is still a big deal for most members as 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.
Increased Attention on Overall Working Capital Management
Most members confirmed that treasury has either taken on full responsibility or acts as a major contributor as they engage with other departments to define ways to improve processes and thereby better manage cash along the full working-capital continuum.
Dynamic discounting and traditional supply chain finance strategies were discussed as possible solutions to bring added efficiency to working capital management. However, technology is offering many solutions to improve and enhance current tactical treasury operations.
What about cutting-edge products like real-time payments? For most members, real-time payments are not a current focus because of the system changes that would be required to accept and process them on a real-time basis. Additionally, and maybe more importantly, members are not interested in the significant hit that makingreal-time payments would have on their overall working-capital cash flow. The float is still very important on outbound transactions.
Member Spotlight: Signatory Verification Process Improvements
In this session, a member shared her company’s signatory verification process improvements following a corporate split. The company faced tremendous clean-up efforts to get more than 300 signatories validated and updated on more than 1,000 bank accounts with more than 80 partners.
KEY TAKEAWAYS
1) The master list. Because of the separation, one of the new corporations created a signatory master list with all relevant data elements, implemented a monthly verification process against its HR active employee directory and tightened the controls around its Excel-based bank account repository (BAR).
2) Strive for standardization. This company found that its signatory list had dozens of variations on the same signatory name, was often missing an employee email address or ID, or missing information on US person status. This showed the need to standardize the information collected and maintained, reconciling this against HR system/process standards, in order to lessen subsequent administrative burdens, and expedite audits and FBAR reporting. Such standardization will also pave a better path toward eBAM in the future.
3) Ask your banker (more often). To further strengthen its new processes, the corporation increased the frequency with which it approached banks for signatory validations from annual to quarterly and instituted active confirmation from the bank, signed by an officer to ensure they had sufficient proof that a signatory removal or change had been properly actioned on the part of the bank. Thus, reports of foreign bank and financial accounts and the annual bank audit have run as smoothly as ever.
OUTLOOK
Maintaining cash visibility requires a disciplined approach to bank account management, automation and validation, as was highlighted during this member spotlight session. Key lessons of communication, standardization and process definition were among the important issues shared with the group. Questions about the risk of fraud from a signatory who has left the company also point to the need to conduct a risk assessment. Measure the risk and the performance of signatory verification that will mitigate it to hold stakeholders accountable. Follow up and escalate—important lessons learned that made this project a great success.
Tax Reform and the Narrow Road Ahead
The group discussed the uncertainty in the US and global economic environment as we await further policy guidance from the current administration. There are hopes that any policy reform will include tax reform, with the possibility of favorable tax treatment on foreign repatriation and the potential for a lower corporate tax rate. Concerning tax reform, members seem to see an overall bias toward a more tempered “middle of the road” plan that’s significantly less impactful than what President Trump described as part of his campaign. It isn’t likely that any significant changes will be approved and/or implemented until later this year or potentially into early 2018.