Relationships, Risk and Regional Banking

What would you identify as SEB’s core market?

Over the past 150 years, SEB has developed a strategy, culture and product set to serve the needs of both large and mid-sized corporations, and institutional clients. We support these organisations in our home markets, which extend across the Nordics, Baltics and Germany, and also facilitate their international expansion throughout Europe and globally. To enable this, we have adopted a highly collaborative approach, both with client organisations and with partner banks, allowing us to provide outbound services to our clients across 80 markets worldwide.

This co-operative approach has also made SEB highly successful in supporting inbound financial institution and corporate clients’ business. This includes multinational corporations seeking to do business in the Nordic and Baltic regions, who need a strong banking partner which can actively support their business strategy and demonstrate a detailed knowledge of each market. For these customers, we often find that they work with SEB to provide one product initially, such as subcustody, and then expand into other areas as they become more familiar with the bank, our services and approach.

How does SEB differentiate its services in cash management?

SEB has played an intrinsic and vital role within the Nordic industrial context for well over a century, supporting today’s multinational companies from a very early stage in their lifecycle through to the present day. The Nordic region has been a marvellous birthplace for SEB. Unlike other regions where banks built their success through client volume, SEB needed to be smarter and more entrepreneurial, and work more closely with our clients across the value chain rather than simply focusing on delivering individual products. This approach has created a strong, unique culture within the bank which differs fundamentally from other organisations.

We are already providing SEPA services to a number of our Nordic customers who have a pan-European reach and use the euro extensively.

One example of this is the Corporate Financial Value Chain concept. This involves SEB working closely with our customers to build up a detailed picture of their needs in a systematic way. We can then structure, implement and support solutions that match their requirements and priorities, across cash, trade and other working capital products. By adopting the Corporate Financial Value Chain approach, companies can benchmark their financial processes against many of the world’s leading corporations, and set objectives to accelerate up the excellence ladder.

To deliver the Corporate Financial Value Chain approach successfully requires a detailed appreciation of the principles and drivers of each client organisation, for which education is key: education both internally and within customer organisations. Ensuring that SEB staff have a clear understanding of how corporations operate, their needs and priorities, is critical to identifying and implementing potential solutions.

Remaining on the topic of cash management, with the recent launch of SEPA Direct Debits, how would you describe your customers’ attitude towards SEPA (Single Euro Payments Area)?

We are already providing SEPA services to a number of our Nordic customers who have a pan-European reach and use the euro extensively. Companies have a different perception of the value of SEPA depending on where they are based. For example, in Finland, more efficient use of the euro is very important; in Norway, there is little awareness and still less interest in SEPA. However, SEPA is a reality and it is important not to think of it simply as an inevitable industry change, but to recognise the benefits. SEPA is symbolic of the rapidly increasing commoditisation of global money movements, assisted by electronic payments handling and associated transactional information. For corporates operating in Europe, the opportunities for standardisation of information flows as well as rationalisation of accounts and banking partners are considerable.

How are you helping clients to achieve these benefits?

As well as supporting SEPA payments, we help clients to understand their immediate payments requirements and future strategy, interoperability and information needs, and build up a solution accordingly. Just as a car is constructed from a variety of different specialist components, an effective and integrated payments and cash management solution requires elements provided by both banks and vendors to ensure that processes are well-designed, with the necessary automation, security and intuitive user interface, together with the right information flows.

One of the challenges of achieving a fully integrated solution is the need to engage with different parts of the business, such as accounts payable, accounts receivable and treasury, which may have varying objectives. Furthermore, these departments frequently use a language that is specific to their activities, which may not always translate easily across departments. Consequently, at SEB we consider part of our role to be a facilitator within an organisation, and to translate both objectives and language into a common vision.

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How does this approach work beyond the payment cycle?

A key objective for a bank should be to help its customers to do business and therefore to increase and accelerate revenue generation. Trade is an important area in which to do this; for example, by making it easier to export, such as helping to accelerate the documentation and payment processes, and providing guarantees and supply chain financing for end customers, we can help to boost earnings and move closer to the heart of the business.

As SEPA becomes integral to cash management in Europe, we envisage that our future success will not necessarily be determined by increasing the number of transactions we process, but by extending our product offering more widely across the value chain, reaching further into the financial processes of our customers.

There has been significant talk about the banks offering ‘value added’ services on top of the core SEPA payment products. How well-equipped are banks to achieve this?

Banks’ usual approach is to optimise individual elements of the financial value chain, rather than taking a holistic and entrepreneurial approach, which provides only limited value to clients. For example, most banks are still tied to the legacy vision of trade finance and cash management products, and while there is much discussion about supply chain financing, it is still at a nascent stage in many cases. Looking ahead, we recognise that banks will need to take a broader and more holistic approach to enable delivery of value-added services, in which SEB has already made substantial progress.

The next five years will see a new generation of services for corporations involved in complex cross-border sourcing and trade. Cash, trade and other working capital products are coming together, driven by banks such as SEB. While most corporate treasurers have not yet aligned their business in this way, the message is resonating strongly as they recognise the untapped potential of applying a holistic approach and the benefits of an integrated solution.

In what ways do you see corporate-to-bank relationships changing in the future?

We see some important trends starting to develop which have the potential to change the way that corporate treasurers and finance managers work with their banks in the coming years. One of the most important elements of this, of course, is the development of the more holistic approach to the financial value chain that I have described already. Furthermore, since the collapse of Lehmans, banks have reviewed their attitudes towards risk and re-evaluated their business models and product suite. There is an increasing recognition that different types of banks bring different benefits. For example, one of the key benefits that mid-size banks with regional specialisation bring is the quality of their relationships with customers, while the strength of larger global banks is their delivery capacity. To provide the best possible services to customers at the lowest risk and without replicating the same investment across multiple banks, there are clear benefits to collaborating more closely to leverage each organisation’s strengths. Until recently, banks used to compete on every aspect of their business, so the shift from competition to collaboration is a major change. This is likely to manifest itself in a larger number of alliances, both between banks and between banks and vendors, to deliver cohesive solutions to customers in the regions in which they require services.

What do you think the banking industry will look like in the future?

There are various changes that I would envisage. Firstly, organisations – both banks and corporates – will define the acceptability of risk more specifically than they have done in the past. In other industries – take aviation, for example - risk parameters are very clear. The finance industry needs to build in the same transparency and specificity to their attitudes to risk.

We recognise the banks will need to take a broader and more holistic approach to enable delivery of value-added services.

The banking industry is also likely to see further consolidation, with fewer global banks but with greater scale and capacity, and with a wider global presence. Local banks will continue to exist, often as the key banking interface with corporates, but those without comprehensive regional presence could experience problems. There are also likely to be fewer IT providers supporting corporate treasurers, as they will need critical mass to support the new requirements created by SWIFT connectivity, SEPA and the shift towards greater standardisation.

It will undoubtedly take a couple of years for banks to take serious steps towards the degree of collaboration which is necessary to ensure a strong banking industry that supports the needs of its customers; if the crisis is then forgotten, then perhaps this will become a lower priority, but corporate treasurers can be instrumental in effecting change by demanding greater standardisation, quality of relationships and efficiency of processing on a global scale.