Published: June 01, 2011
Cash management has always been an important business for UniCredit. With the establishment of the Corporate and Investment Banking division in 2009 and its new strategic set-up, UniCredit has accelerated its growth plans in this area, and global transaction banking (GTB) is now a primary focus for the group as it is a product line that offers significant value to our clients. We are continuing to invest substantially in GTB because our clients have an increasing need of products such as cash management, trade financing and supply chain financing.
UniCredit is very well positioned to offer excellent GTB services, owing to our extensive network with more than 9,600 branches and strong domestic presence in 22 countries, excellent processing capability and a holistic approach to addressing customers’ financial challenges. We have long-term, trusted relationships with our customers, and extending our GTB services has already proved the ideal vehicle to engage with them on a deeper level, understanding and responding to both their transactional and strategic objectives, in order to tailor specific solutions that meet their current needs and future ambitions.
Although parts of Central and Eastern Europe lack the financial maturity of Western Europe, the grasp of new concepts and techniques is often much faster.
Much is changing in the field of corporate treasury, in terms both of customers’ requirements and the tools that are available to fulfil them. For example, financing and transaction services are more closely linked than ever, as companies of all sizes seek to optimise the financial supply chain to enhance working capital, improve efficiency and leverage their financial assets as collateral for financing. Delivering transaction services in an efficient way is also far easier than in the past, with web-based platforms which mean there is no need for expensive IT infrastructure, and which are easily integrated with in-house systems. Consequently, treasurers are less tied to their legacy cash management bank(s) and find it easier to work with their bank of choice for transaction banking, which is creating considerable opportunities for UniCredit.
We are a European group with the advantage of a very strong, established local presence in 22 countries, and this allows us to suggest tailored solutions to our clients depending upon the various markets. It also means that with a local bank we face a different competitive situation in each country. We have for example a client penetration of over 90% in Austria while in other countries this may be only 20 or 30%. We are in different stages of growth across Europe, with diverse financial requirements in each country. Our primary focus is on developing a flexible strategy based on proximity in each market and cohesive solutions that reflect local variations whilst supporting pan-European cash management objectives.
In this environment, we have been extremely encouraged by the response of both new and existing customers. In Central and Eastern Europe, companies welcome our ability to share experiences, solutions and best practices derived from other parts of the continent. Companies operating in these countries recognise UniCredit’s unique ability to deploy proven solutions from other parts of Europe, adapted to meet local conditions. Although parts of Central and Eastern Europe lack the financial maturity of Western Europe, the grasp of new concepts and techniques is often much faster. Companies operating there have high expectations of their banks, which therefore need to deliver solutions that provide demonstrable value both in the short term and over a longer period. This focus on delivering pragmatic solutions that provide demonstrable benefits is equally valued by treasurers in every country who are seeking to add value without adding to the financial or administrative burden in treasury, which adds to UniCredit’s attraction.[[[PAGE]]]
Treasurers are more focused on risk than at any time in the past, looking at where risk is created, how it is monitored and the best ways of managing it. Just as business and financial risks are specific to each company, each treasury committee has a different attitude to risk and how it should be managed according to industry, business culture, strategy and shareholder objectives. At UniCredit, we approach risk on a customer-specific basis. For example, we maintain a network of local offices so that we can ensure direct proximity to our customers, and work closely with them based on a deep appreciation of how risk is created, as well as how best it can be monitored and mitigated. From our experience, this approach is more effective than relying on a central business and technology hub to design and deliver risk management solutions. Thus we recently launched a risk management campaign for construction companies in Germany, an industry which many banks exited during the crisis; however, we recognise not only the long-term growth prospects, but also the immediate needs of these companies, and have specific solutions to meet them.
Another significant trend is centralisation. While this has been apparent for a number of years, particularly amongst larger multinationals, it is now stronger than ever among a wide spectrum of companies. Visibility and control over cash is now a priority for all companies, not only those that have external regulatory requirements, and centralising cash management and related processes is typically the easiest way of achieving this. For example, we are supporting a growing number of companies with, or implementing, centralised payment operations, known as payment factories, although this often refers to a wide variety of different structures. Migration to SEPA (Single Euro Payments Area) will support companies’ centralisation efforts by enabling consistent payment and collection methods and integration formats to be used across the Eurozone, and facilitating a reduction in the number of cash management banks and accounts.
Since the final dates for migration were announced, there has been a marked increase in the number of companies planning or embarking on SEPA migration projects. SEPA migration brings a wide range of benefits and opportunities, particularly for the centralisation of cash management processes, rationalisation of accounts and straight-through processing. Treasuries that already operate as in-house banks, or are planning to do so, are attracted to SEPA, and services such as virtual accounts are highly applicable to a SEPA environment. The opportunity for standardisation of formats is also considerable, as SEPA payments are based on XML ISO 20022 standards. Even customers that have had a long and positive experience of working with EDIFACT see the value of global standardisation and are increasingly migrating to XML.
Migration to SEPA will support companies' centralisation efforts by enabling consistent payment and collection methods and integration formats to be used across the Eurozone.
An initiative of this scope and scale does, however, inevitably bring challenges. The Rulebooks for the SEPA Credit Transfers and Direct Debits are written at a high level, so there are a number of gaps when trying to implement efficient transaction processes. This means that different banks have interpreted the Rulebooks, and filled in these gaps, in various ways, which then creates challenges for corporate treasurers seeking to implement consistent processes and integration across the Eurozone. For example, in Belgium an opening ‘0’ in the customer reference field is ignored, although this could be very important for reconciliation purposes. This would also cause a first direct debit file to be rejected. If this is modified, such as by adding a ‘1’ or ‘A’ prefix, the second file would also be rejected, as the first file had not been received. This is by no means an isolated example, with a multitude of regional variations to contend with.
However, these issues have been identified and addressed through the experience of implementing SEPA payment instruments with early adopter customers, so companies now migrating to SEPA can expect a far easier time. There will continue to be some legal and operational changes over the coming years, long after the compulsory migration to SEPA in 2013-14, which may be inconvenient if reference data or processes need to be amended; in most cases, these are likely to be relatively minor. Most changes are likely to be in the area of direct debits, while credit transfers are more straightforward. In Germany, for example, direct debits can be set up with seven or eight days’ notice, while under SEPA this period is extended to 14 days, which has liquidity implications. There are also issues with the transition of mandates. Some customers, therefore, are now in an interim period with some old and some new mandates, which need to be stored and indexed. Although the ERP vendors are undergoing initial pilot projects for mandate management, companies need to decide whether to wait for these new developments to be disseminated more widely, to continue relying on banks, or to acquire a specialist service or application.
Regulatory changes such as Basel III will undoubtedly have a substantial impact on the way that banks operate in the future, and how they interact with their corporate customers; however, the specifics of this are not yet clear. In addition, we anticipate a continuation of the trends we are seeing today, particularly in centralisation and risk management. Although SEPA standardises the way that payments are made in euros within the Eurozone, there are considerable differences between countries, particularly in Central and Eastern Europe; consequently, every cash management and transaction solution needs to support local variations as well as a company’s wider financial objectives.
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