Tuesday, April 17, 2007

Are we there yet?

Having jetted into Miami Florida to attend EuroFinance's international treasury management conference for North American multinationals, little did I know that an anecdote a passenger shared with me on the flight from London to Miami would have some resonance on the first day of the conference.

As the conference was on cash management trends amongst large US multinationals, one of the key focuses on day one was to what extent companies were looking to obtain a single view of their cash enterprise-wide on a global basis, or what Ron Chakravarti, liquidity and investments, global transaction services, Citi, termed "strategic treasury".

Unsurprisingly "strategic treasury" is not as easily obtainable as the 'perfect body' is perhaps for some Miami South Beach regulars. Both require significant investment in terms of time and money; with corporates having to standardise fragmented technology platforms and systems, integrate business processes, streamline banking account structures and affect cultural change at the corporate level.

Yet, unlike the 'perfect body', "strategic treasury" is not just reliant on what effort and investment companies make, but also how committed their banks are at doing the same, and it soon became apparent that the banks also have a lot of work to do. Chakravarti stressed the importance of real-time information in helping companies obtain a 'single view' of their cash, but there are still huge disparities between banks and the payments clearing infrastructure in general in terms of its ability to provide up-to-the-minute high quality transaction information to companies.

Companies also need to move away from what Chakravarti described as a "hotch potch" of electronic banking systems, which large US multinationals such as General Electric (GE) has done rationalising its more than 40 proprietary EDI connections with banks using SWIFTNet Member Administered Closed User Groups (MA-CUGS) and standardising communications with its banks using SWIFT standards such as FileAct for bulk payment transfers.

Yet, despite its unprecedented investment in SWIFT, Seth Marlowe, director, strategic initiatives, corporate treasury, operations services, General Electric said SWIFTNet was not a 'panacea'. More importantly, Marlowe said, its experience of setting up the 57 SWIFTNet connections it maintains with banks, was less than consistent.

"What we found is a mixed bag. There are some banks that have the technology available, and all it takes to establish a connection with them via SWIFT is three months. But some don't have the technology in place and it can take two years to negotiate how the bank should deploy the technology on SWIFT."

According to Marlowe, whilst companies are being asked to standardise their business processes, it is anything but standardised within the banks in terms of account validation which often differs within the same bank on a country-by-country basis.

"Probably the most standardised thing is that there are exceptions to standards and a lot of that has to do with the banks. They need to get rid of the exceptions and do things the [same] way even if the branch of a bank may operate differently."

Even in the case of BICs and IBANs, which are mandatory in Europe as a means of increasing straight-through processing of payments, Marlowe said whilst banks insisted on companies including the correct IBAN in transactions, when it came to balance reporting, as a different system was used within the bank, the banks used BBANs (Basic Bank Account Numbers), which meant companies had to support two account numbers, IBANS and BBANS.

In a roundabout way this brings me back to the anecdote I mentioned at the beginning that a fellow passenger shared with me on the plane to Miami, which demonstrates how business practices within subsidiaries of the same bank are anything but standardised.

The passenger was recently visiting London and wanted to know if they could use their credit card from their US bank in a Royal Bank of Scotland ATM machine in London without being charged as RBS owned the US bank they banked with. Needless to say whilst both banks belonged to the same parent company, neither staff at the bank in the US or RBS in the UK seemed to know about the other or whether there had been any attempt at standardising processes between the two banks when it came to credit cards.

So when it comes to "strategic treasury" it appears that the banks as well as corporates need to get their own house in order.