Published: May 02, 2012
As the effects of globalisation continue to extend, corporate treasurers in Germany are facing similar challenges to their peers in other parts of Europe: the need to optimise liquidity, monitor and manage risk, and maximise operational efficiency. Counterparty risk has become a particular issue since the global financial crisis, as companies seek to ensure that their counterparty banks have the financial strength, geographic reach, product depth and commitment to long term relationships that they require. However, while there are similarities between the needs of treasurers in Germany compared with those in other parts of Europe, the context is often quite different, in terms of local payment formats, connectivity mechanisms and cultural diversity. Consequently, treasurers face a dilemma: how do they ensure that they meet their domestic, pan-European and global cash and treasury management requirements whilst avoiding fragmentation of bank relationships and increasing counterparty risk?
German treasurers, and treasurers of companies overseas with German subsidiaries, have been accustomed to working with domestic banks to meet their local needs, and international banks to support their cash management requirements outside Germany. Often these domestic banks are small, however, with a lower credit standing than the company’s counterparty credit policy would require, and may not be part of the company’s strategic banking panel. Furthermore, as these companies’ international ambitions increase, whether a large multinational or a mid-cap corporate, they often need to rely on alternative banks to meet their cash management requirements outside Germany, potentially resulting in fragmentation of cash and information, and replication of electronic banking systems.
Working with one, or a small number of strategic partner banks, to support both domestic and international cash management requirements, brings considerable benefits in areas such as liquidity optimisation. Treasurers and finance managers can gain visibility over global cash more easily, and implement liquidity management techniques such as physical or notional cash pooling. The right banking partner is essential to the success of these initiatives. For example, not only does the bank need to have the technology and solutions to deliver the most appropriate liquidity management solutions across the company’s footprint, but they must also have the local presence and expertise to deliver innovative liquidity management solutions in highly regulated markets to avoid trapped cash and reduce borrowings across the group.
One of the reasons that I joined BNP Paribas at the start of 2012 was the bank’s capability to support corporate customers’ domestic needs in Germany, such as mass payments, whilst also facilitating their cash management requirements further afield, across Europe and into Asia and the Americas. This will perhaps come as a surprise in some cases: while BNP Paribas is well-known as an international bank, not everyone was aware of our domestic capabilities in Germany. In addition to having the skills and solutions that our customers in Germany require, we have a strong local presence, with six business centres in the major cities, providing on-the-ground, German-language support. While technology advances would appear to suggest that a local presence is no longer necessary to provide a high quality of customer service, we appreciate that personal contact and in-depth knowledge of our customers’ business is very valuable. We are continuing to invest in dedicated customer servicing in Germany to develop closer relationships, build trust, identify opportunities to support customers’ business more effectively and manage the impact of evolving market conditions.[[[PAGE]]]
One example of how BNP Paribas is helping to support specific domestic requirements in Germany within a broader, international context is bank connectivity. Unlike companies in some other parts of Europe, German treasurers and finance managers have been accustomed to using multi-bank technology, MultiCash, to connect with their German banking counterparties. However, treasurers are now looking for banking partners to provide a standardised EBICS connection both for domestic and non-German payment files, which BNP Paribas is particularly well-positioned to support.
Many are recognising that a change in bank connectivity is an opportunity to integrate their domestic and international payments through a single channel.
BNP Paribas’ web-based electronic banking solution, Connexis, enables bank statement retrieval and payment processing not only in Germany, but worldwide. This is a powerful proposition for companies operating both within and outside Germany, and provides a single, robust information and processing platform that meets local format requirements in each country, whilst facilitating companies’ regional and global cash management requirements. While there are a number of international banks that can support customers’ cross-border payment needs, there are few that are equipped to execute domestic payments in multiple countries, as well as cross-border payments through a single channel.
In addition to EBICS and Connexis, we are seeing a steady increase in the number of companies, both mid-cap and large corporations, that are opting to connect with their banks through SWIFTNet. This is a bank-independent solution that enables companies to connect with multiple banks through a single channel, providing them with resilience, security and process efficiency, whilst enabling them to add or change banks easily in the future. As the bank processing the largest volume of corporate activity through SWIFTNet in Europe, we are well-positioned to support customers seeking to connect with both BNP Paribas and other banks through SWIFTNet.
There is more to efficient payment processing than simply the right bank connectivity, and with the impending end date for SEPA migration (February 2014), treasurers and finance managers are tasked to migrate their payments from existing domestic formats to SEPA instruments. Although there is an imperative to do so, SEPA migration should not simply be considered as a regulatory obligation. Instead, treasurers and finance managers can use SEPA migration to centralise and enhance payments and/or collections, and optimise working capital. For example, by reducing the total number of payment or collection accounts in euro, companies can achieve a simpler, more streamlined cash management. Furthermore, by adopting standard payment methods and formats across Europe, it is far easier to centralise payments and collections in a shared services environment than it has been in the past. By doing so, treasurers and finance managers can reduce costs, leverage a single technology platform, standardise and enhance processes, and create richer management information.
Until the end dates for SEPA migration were confirmed, while many companies had started to introduce SEPA Credit Transfers (SCT) for cross-border payments, there was more reluctance for SEPA Direct Debits (SDD). SDD was introduced more recently, and many treasurers were concerned about how attractive SDD was compared with direct debits in Germany. In addition, there has been some ambiguity over issues such as transferring existing direct debit mandates.
However, with the end date now approaching, treasurers and finance managers recognise that firstly, the time for prevarication is now over, and secondly, there is an opportunity to use SEPA migration as a catalyst for process enhancement. Domestic as well as cross-border flows need to be migrated to SCT, and SDD used to replace local direct debits. We are actively supporting customers through issues such as mandate management, and ensuring that all elements relevant to migration, such as technology, integration, resourcing and project management are aligned.
Many treasurers found that the global financial crisis increased senior managers’ recognition of the invaluable task that they fulfil, managing liquidity and financial risk on behalf of the organisation. Having proved their skills, technology and processes during the crisis, treasurers now have the credibility to extend their sphere of activity into areas such as implementing commercial cards for travel and entertainment expenses and/or purchasing. These offer considerable advantages not only in terms of convenience for employees, but also control over expenditure, the ability to negotiate better terms with approved suppliers, and major working capital improvements.[[[PAGE]]]
As treasurers extend their reputation for defining, implementing and executing standardised, efficient processes, and establishing a global approach to both strategy and operations, they need a highly credible banking partner to support their ongoing efforts. While there are a range of factors that determine which banks are best for a particular organisation, there are some staple considerations that should apply. The financial status of a bank, and its ability to fulfil the demands of Basel III is an essential requirement. Furthermore, the geographic footprint of the bank, its ability to support both domestic and international cash management requirements, a comprehensive solution portfolio supported with innovative, robust technology, and a strong commitment to customer service are all amongst the vital factors that treasurers and finance managers should consider in their choice of banks.
One thing I have found particularly rewarding about joining BNP Paribas is the commitment of senior managers to the cash management business. This gives us considerable potential to invest in solutions, services and technology over the long term, to fulfil and anticipate our customers’ changing requirements. Treasurers in Germany are increasingly recognising BNP Paribas’ strength not only as an international partner bank, based on its financial strength, geographic footprint and quality of solutions, but also as a local partner, with the on-the-ground presence, local support, cultural synergies and domestic solutions that they require.
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