by Patrick Peters-Buhler, Treasury Practitioner Executive, Bank of America Merrill Lynch
Setting up an in-house bank is an exercise worthy of consideration for any multinational corporation with operations in multiple countries. This type of structure is one of the best cash management tools to emerge in the last five years and can help companies to more effectively concentrate cash, improve compliance and risk management, and improve efficiency and control. In-house banks are generally easier to set up than payment factories and can help companies gain better visibility over their liquidity and their funding of transactions.
In Europe and North America, in-house banking has become commonplace allowing companies to carry out a wide range of different functions using this type of structure. In Latin America, the situation is somewhat different. While some countries within the region are becoming better suited for in-house banking, there are others that are unable to support this type of model. Due to changing regulatory requirements, it’s crucial that companies pay careful consideration to those changes before embarking on such a project in the region. In-house banks have a legal and fiscal element that has to be considered.
Benefits of an in-house bank
The objective of an in-house bank is to provide a structure within the company which is able to perform some of the services that would otherwise be provided by an external bank. These could include both external and inter-company payments, foreign exchange (FX) transactions, the management of inter-company loans and liquidity management, among other things. By setting up an in-house bank, a corporation should be able to improve visibility over its cash flows, reduce the need for liquidity in intercompany transactions, reduce external bank fees, improve straight-through processing rates and increase efficiency.
An in-house bank is not the same as a shared service centre, which can carry out a range of business services for the corporation, aside from financial processes. Nor is an in-house bank the same as a payment factory, which has the sole purpose of centralising accounts payable – although an in-house bank may include a payments factory within its structure.