Keeping Cash Flowing
In tandem with the ongoing push for payments and messaging standards, the management of a company's liquidity is front and center for banks' treasury businesses during the crisis. Of course liquidity management is nothing new. The experts interviewed for this article, however, emphasize that the urgency around this service has escalated as companies try to gain a better view of their cash positions in a shaky economy.
The economic downturn has served to accelerate treasury services trends, such as integrating banks' systems with corporates' enterprise resource planning (ERP) systems, efforts to provide greater visibility into the payments chain and the push for more real-time data, suggests Bank of America's Newman. In fact, he says, the acceleration of these trends — which are necessary to help companies achieve the transparency they need to succeed in the current business environment — may be the greatest impact of the financial crisis on the treasury business, more so than demands from clients for new products.
To meet this demand Bank of America created this past October a new unit, the Global Liquidity Solutions Group, dedicated to improving clients' liquidity, Newman reports. The group consists of a sales force that looks off-balance sheet to help clients with anything from operating cash to strategic cash, he relates, stressing that the bank views this area as a critical business contributor over the next several years.
Once again, integrating the bank's systems with its clients' technology is key to providing value. "Integrating ERP systems has always been thought of as an efficiency play, but it's also another way to gain availability and transparency into liquidity," Newman says. "This has always been more prevalent in card payments than in other areas of payments, but it's a trend that's accelerating. The transparency into a corporate's financials around the availability of funds, the ability to populate real-time data more and looking into analytics, is the more qualitative value of straight-through processing in ERP systems. It enhances your ability to understand what's going on in the business."
Back to Basics
For all of the activity in the treasury management space, however, some things still haven't changed. STP and ERP integration, despite their obvious value, remain elusive, notes Aite's Atkinson, who points out that they have been goals for the industry for the past 20 years. "Banks in general, and particularly in the treasury business, have been leaders on standards because of the high degree of automation they've achieved," Atkinson says. "But STP has been a goal since the 1980s and it's [still] just beyond arm's reach. We are getting closer as the technology advances, especially with imaging and electronification of payments."
BofA's Newman concedes that there are hurdles to attaining ERP unity. "Things happen in the industry with incremental fits and starts driven by the economy, interest rates, capacity in clients' technology departments. It can be driven by the move from one ERP system to another," he explains. "It's driven by many things that happen episodically. That doesn't mean there is a lack of integration. But ERP integration is so dependent on other systems and the availability and prioritization of resources."
While the advancement of service-oriented architectures and open platforms has improved the opportunity for systems integration, notes Amol Gupte, North American head of treasury and trade solutions for New York-based Citi ($1.8 trillion in assets), it's hit or miss as to how adept a company is at achieving STP, particularly at smaller organizations with fewer IT resources. "Some corporations are good at it and some struggle because of their infrastructure and organizational structure," he relates. "It's truly necessary to help break silos in corporations, particularly where systems are departmentally driven and don't talk well together. Moving toward a centralized treasury model with common platforms is an important way to achieve greater efficiencies, and we see many of our forward-thinking clients moving in this direction."
There are isolated pockets of ERP integration in the industry, but nothing sweeping, observes Aite's Atkinson. For instance, San Francisco-based Wells Fargo ($1.3 trillion in assets) rolled out its Adaptor service, which provides the bank's midsize commercial clients with direct integration of their Oracle and Edward Jones ERP systems with Wells Fargo's systems. Although Atkinson says the bank is off to a good start, she doesn't recommend creating "Adaptors" for each ERP system and suggests that this approach is more limited than widely adopted standards.
BNY Mellon's Briand, however, expresses concern over the fate of the industry-based initiatives that promote standards and have led to advances in automation. "Some financial institutions have been more broadly affected by the economic turmoil and are pulling back resources from some of the industry work they do," he relates. "The efficiencies in treasury services came from the industry working groups such as NACHA and SWIFT. I hope that doesn't suffer a downward trend as some financial institutions hunker down and cut back on their use of resources."
According to Rick Schumacher, director of products for New York-based Wall Street Systems, a provider of treasury solutions to financial firms, and a member of several industry working groups around collateral standards, he has seen no signs of industry activity around standards abating. "I run an FX working group for FPML, a lingua franca to electronically describe OTC derivatives transaction," he explains. "At least here, in the last three months I've seen renewed directives from the Fed and other government agencies accelerating the emphasis of standards in areas such as collateral."