16 February 2009 Comments

 

It's time for cash to speak up

It looks like there's to be no let up of the amount that banking dominates the press in 2009 - and taking the lion's share of the flak. As the world attempts to unravel the knot the banks are accused of tying us all in, enterprises have to continue and banking needs have still to be met. There is a different focus now, and different needs.  What is needed to untangle themselves from the global mess is liquidity.

So corporations now need banks to excel at the good, old-fashioned, management of money - especially their money. After many decades as the boring mechanics of banking, the engine-stokers keeping the cruise ship moving forward while the bonus-hungry bright young things dance on the top decks with champagne and caviar, transactional bankers now find themselves the respectable face of banking. Sexy, even. What's more, for the next few years at least, squeezing every last drop of liquidity out of what money you do have will take prominence in all organisations and, as such, has suddenly got the CEO's attention.

Today most corporations are familiar with domestic pooling in a single currency (euro, sterling, dollar).  But when strapped for cash, sweeping and notional pooling across currencies, including the less obvious ones, across borders, for example using margin netting, and across banks are finding their way into the corporation's invitation to the banks to tender.

But, you ask, I have a treasury system.  Why ask a bank for this instead of doing it myself?  Answer: because banks can sweep money after the usual cut-off times, back-valued with good value, reducing or removing the tyranny of the treasurer's world clock and alleviating the problems of late, unexpected payments.  Oh, and just try doing notional pooling yourself!

As a result, the banks that are surviving are the ones doing more and more of the corporation's work for them, more integral to the corporation.  Which is how corporations like it.  Keep track of your intercompany loans, sir?  No problem.  Calculate withholding tax for you?  No problem.  Provide clear workings of the interest calculations?  No problem.  Unlike banks, corporations do not have to be that big to be multinational.  Bluntly, banks have the scale most corporations do not, to invest in technology that automates processes, without which a corporation has to employ one or more people.

The question is, will transactional bankers rise to the challenge?  Will they roll out the best cash management products now, when the time is right?  Will they, who have often been out of the spotlight, nonetheless see clearly enough to embrace the new cash products that anticipate the demands of corporations?  Or simply add each new feature slowly to their existing, creaking infrastructure?  Will they, in many cases now working in a bigger, merged bank, exploit their scale to challenge the big four cash pooling providers, leapfrogging them at their own game?

In order to do this well, the bank needs proper automation too.  The first, and biggest, unaddressed issue is the lack of sufficiently workable standards for reporting account transactions and balances.  I might get my information from each of my bankers from a special bank dial-up or (if I'm lucky) web based electronic banking screen, or by a file download in the bank's chosen format, or in the "flexible" (i.e. different) Swift format.  And there's no guarantee that banks will use the same approach in different countries.

The bank's blocker is their mix of different systems - all working in different ways.  No problem.  Change their system!  Hollow laughs all round - remember it's called software because everything about it is so hard.

Anyway, cash management must ideally also report and use information from accounts the corporation holds with different bankers - the main bank has no chance to change other banks' systems!  So most banks resort to having an army of staff monitoring and adjusting statements messages sent from different systems so they can be used to present an aggregate picture of cash and checking any sweeping has been executed, and executed correctly.  Not ideal for cost, not ideal for reliability and certainly not ideal for on-demand, intra-day reporting.  So the minimum the banks need, since we are not close to a fully featured, fully obeyed standard, is automatic transformation of these messages into a reliable set of data they can present to their clients.

Other attributes of the service that usually use humans but can be automated include packaging cash pooling elements into bank standard products targeted at specific needs, handling contract changes with corporations making forward-dated amendments online, generating the contract schedule automatically ready for activation when the charges have been agreed with the bank and the ability to apply the correct jurisdiction's VAT to the bank's fees for a cross-border service (especially if it can cope with so-called "force attractive countries").

Transactional bankers clearly have an important role to play over the coming years. The challenge for them is to get the best out of their people and their systems in order that their customers get better services and the bank opens up new revenue streams. Improved transaction banking will help banks to drive new customer relationships and enhance those they already have and whilst there may be some challenges along the way, the banks that thrust transaction banking to the front of its priorities now will emerge - and emerge as the strongest - for years to come.

Author: Phil Cantor, product strategy manager, Misys