- Dub Newman
- Head of North America Global Transaction Services, Bank of America Merrill Lynch
by William ‘Dub’ Newman, Head of North America, Global Transaction Services, Bank of America Merrill Lynch and Galen Robbins, Head of Global Commercial Banking, Global Transaction Services, Bank of America Merrill Lynch
The 2015 outlook for large and mid-sized companies in the US is one of optimism. Revenues are up, and businesses are turning their focus to growth and investment opportunities after many years of stagnant activity. Dub Newman (DN), head of North America treasury solutions, and Galen Robbins (GR), head of global commercial banking treasury solutions at Bank of America Merrill Lynch, discuss clients’ priorities and concerns in the coming year, and outline some of the ways the bank and its clients are working together to balance the risks and rewards ahead.
What are the greatest challenges faced by clients in the macro-economic and business environment in 2015?
DN: In North America, the macro-economic backdrop is positive with signs of sustainable growth and increased confidence being reflected by corporate activity: both mergers & acquisitions and business investment are increasing. We’re also seeing a majority of clients say they plan to pursue new growth strategies this year, due to increased confidence in the economy and the positive performance of their companies.
Outside the US, however, the picture is more complex. In the past few months we have seen a number of concerns resurface that were last seen in 2012 and 2013. There is renewed uncertainty in some Eurozone countries, while the decision by the Swiss National Bank that it would no longer hold the Swiss franc at a fixed exchange rate with the euro has underscored the potential for unexpected change. Against such a dynamic backdrop, the main priority for clients is to know where their money is at all times and be able to access it when they need it so they can avoid any financial pitfalls.
GR: As recently confirmed in our annual 2015 CFO Outlook Report, CFOs are overwhelmingly optimistic about their companies in 2015 and anticipate their revenue, workforce and company will grow. That is prompting companies to look for opportunities to expand. However, the macro-economic environment gives companies pause when they seek to expand overseas. For example, there is a weak economic outlook for some European countries and uncertainty in many leading emerging markets (which have been a favoured investment destination in recent years). Moreover, the falling oil price has changed the dynamics for many companies, by lowering input costs for energy intensive businesses while weakening the prospects of companies directly exposed to the energy sector.
Clients’ main goal when they grow internationally is to expand safely. Companies must choose a bank they can trust – one that has the practical capabilities, such as clearing relationships and a presence on the ground, to help them achieve their strategic objectives. However, equally important is finding a bank with the appropriate expertise: it’s an obvious thing to say, but international markets are very complex and companies need a bank that understands and can help highlight the risks and opportunities that exist in a given market.
What treasury goals do clients have for 2015?
DN: There is a continuing focus on streamlining treasury operations. This includes a drive to rework treasury structures, by making greater use of shared service centres, payment factories and, increasingly, centralised receivables processing, through the use of structures such as ‘receivables on behalf of’ (ROBO).
Streamlining efforts are also focused on treasury practices. In particular, we see clients seeking to leverage their treasury workstations and accounting platforms more effectively. The aim is to make sure that treasury is well positioned as the company’s growth accelerates. Budgets are being made available for treasury projects but return on investment remains critical: new investment is expected to pay its way. The focus is on automating core treasury functions, such as transaction execution, cash positioning and investment management. These areas offer increasingly attractive returns as the economy improves, volumes increase and interest rates rise.[[[PAGE]]]
GR: Another continuing priority for companies is liquidity management, which remains crucial as companies seek to improve visibility and control of cash – and gain a greater understanding of counterparty and liquidity risk. A new dimension to liquidity management is the impact of regulations such as Basel III, which recently introduced a Liquidity Coverage Ratio (LCR) for banks, which reflects how much high-quality liquid assets (HQLA) should be held against potential outflows in a crisis. The LCR is expected to increase banks’ costs. HQLA is required for certain types of deposits. As a result, yields on bank deposits for investment cash are set to remain low. Companies will find that cash flow management efforts will be more important than ever as they look for yield on longer-term investment cash.
The impact of this change is now broadly understood by companies – we have passed the high point on the learning curve. We have also introduced new products in response to these new regulations and the products have been well received. For clients and the bank, the focus is now on execution and working together so that both parties get the most out of our relationship.
How are clients addressing the changing payment landscape?
GR: Clients are eager to increase automation in payments. Among mid-size clients in particular, there is a new drive to increase efficiency. Many of these companies have a small treasury team and are eager to find ways to free up time for more value-added tasks. Additionally, the increasing interest in improving the efficiency of payments processes is being driven by the expansion of many mid-size companies into international markets. They recognise that entering a new market offers an opportunity to create a streamlined payments process.
Developments in the consumer payments space are driving companies to expect the same on the corporate side. For retail companies, it is crucial to be able to interact with their customers in the ways that are most convenient to them. Generally, although consumer and business payments are very different, there is a halo effect from new products introduced by household name brands because it increases interest and highlights what is possible in payments. People see the accessibility and functionality of electronic consumer payment products and want something similar in treasury.
DN: We have responded to the appetite for efficient electronic payments solutions with Digital Disbursements, a new process that enables companies to make payments – such as rebates, refunds, claims, and royalties, for example – to their customers digitally instead of issuing a cheque. Payments are directly routed to the bank account of the individual payee, using either a mobile phone number or email address as the identifier. The solution, which leverages the technology behind person-to-person payments, reduces end-to-end disbursement costs by as much as 75% compared to a physical cheque. It is fast and convenient for the customers of our clients. Insurance company Allstate became the first company to use the new Digital Disbursement method in the US.
GR: One of the most exciting areas in terms of the changing payments environment is US healthcare in the wake of the Patient Protection and Affordable Care Act (PPACA). There is finally momentum behind efforts to electronically manage and control the payment chain between patients, healthcare companies and insurers for medical claims. The PPACA should play a major part in helping the industry to overcome many of the long-term challenges of electronic payments and associated data.
