Members of the NeuGroup’s EuroTPG convened for their autumn 2014 meeting earlier this week, hosted by a member in Zurich and sponsored by Reval. Reval and a speaker from Fides tackled the technology aspect of treasury management, including the crucial piece of connectivity to banks in order to facilitate cash-related projects like enhancing visibility and rounding up liquidity. Member-led sessions covered the appropriate way to tackle treasury integrations after M&A, considerations when setting up an in-house bank, and pay-on-behalf-of, POBO and receive-on-behalf-of, ROBO.
Higher cash visibility. Related to the next-generation liquidity structures and bank account rationalization is increasing cash visibility to 90 percent or above levels and automating the cash-reporting process; this is with a view to shift from calculating daily or even intra-day cash positions to taking decisions and actions based on those positions. This increased cash visibility is an important part of efforts to reduce working capital needs and increasingly a means to manage pushback by banks not wanting to see unexpected balances of over $100 million left on deposit in jurisdictions where they don’t need or want the added liability.
How to connect? Reval’s presentation on their link-up with Fides showed members the alternatives to direct SWIFT connection and how each might impact their cash visibility (and pave the way for STP on the payments side as well, the other aspect of the connectivity equation). Here are the key ways to connect:
- Bank portal or portals: OK when you only have a few banks.
- Host-to-host connections: Also OK when dealing with few banks, but as soon as you want to send bulk payments or SEPA credit transfers, banks will not entertain host-to-host. Some banks in the Nordics may do it if you do a lot of business with them, but generally, at this stage, banks will push toward SWIFT.
- SWIFT Alliance Lite: It is proliferating rapidly but requires a bank investment and contracts with all the banks you are using, and some banks may not have all their branches on SWIFT.
- SWIFT Service Bureau. Fides is one of several service bureaus and it offers solutions for connectivity by sitting in between the company and the banks, and addresses some of the shortfalls of Alliance Lite. Services include: account statement validation; payment validation; conversion services; pre-market sanction filtering service; and outsourced SWIFT for Corporates onboarding (where required). Because Fides is a subsidiary of Credit Suisse, it has a FI BIC code, which helps in making bank reporting more smooth and turnkey.
From intercompany lending and netting structures to the full IHB. A member-led session on considerations for an IHB sparked a discussion of how far to take an intercompany lending program to the full structure of an in-house bank. If a company already has a robust netting and intercompany lending program to shift liquidity, the business case for a full IHB may be diminished. This is the counterpoint to the vision of the full-scope IHB obviating cash pools. Another consideration is the extent to which pooling and other bank liquidity management structures will be impacted by Basel III and related LCR (liquidity coverage ratio) regulations. Banks’ reluctance to accept large deposits may require greater intermediation by an in-house “bank”. While all agreed that an IHB offered the most flexibility and structure to add a payment and collection factory with POBO/ROBO, the additional benefit had to be considered carefully before going to tax and legal to get clearance for the IHB. Scrutiny of transfer pricing in intercompany lending structures also has had an impact.
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The European Treasurers' Peer Group (EUROTPG) is a membership group for MNC treasurers and treasury operations directors overseeing treasury in Europe, who come together to exchange knowledge, share experiences and discuss solutions to common challenges .
The NeuGroup is the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member groups serving more than 350 treasury and finance professionals across functions, industries and global regions.