by Helen Sanders, Editor
As TMI reported in March, 2015, cash management solutions provider Cashfac Technologies recently conducted a market survey, the Cashfac Operational Cash Index, with research company East & Partners Asia on corporate treasurers’ experience and confidence in their banks’ electronic banking systems. As the survey highlighted, only 35 percent of respondents had timely, accurate visibility over more than 55 percent of their cash. This article explores the findings in a little more detail.
Scope of research
The Cashfac Operational Cash Index included data from interviews with 364 chief financial officers and corporate treasurers from top-ranked corporates in Singapore, Hong Kong, Malaysia and Australia, with an average turnover of USD 1.43bn. There was some correlation between the turnover of the corporation and the number of bank accounts, with an average of 5.6 banking relationships amongst Hong Kong businesses, which had the highest turnover on average, while Malaysian businesses, with the lowest average turnover and typically a more domestic focus, maintained 3 bank relationships.
Lack of cash visibility
One of the most significant challenges identified by respondents to the Operational Cash Index was the inability to achieve a real-time consolidated view of bank account balances and transactions. Alastair McGill, Managing Director, Global Business, Cashfac explains,
“While ‘real time’ for the purposes of this survey does not refer to the dynamic update of data on-screen, treasurers expect to be able to look at reliable data at any specific point of time, within a 5 – 15 minute timeframe. The more timely this data, the more quickly that payments and collections can be reconciled, and the more responsive treasurers can be to potential problems or surprises.”
On average, only 35 percent of respondents had real-time visibility of more than 55 percent of total cash. These figures were notably lower amongst Malaysian corporates, at 28 percent and 44 percent respectively, potentially reflecting that these corporations are more likely to bank with local banks that lack the sophisticated electronic banking tools of some global banks, and the complex and highly regulated nature of the countries and currencies in which they operate.
Corporate confidence in cross-border transactions
An interesting finding which is not commonly included in research amongst corporate treasurers is their level of confidence in the security and reliability of cross-border transaction processing across different banks. This differs widely across locations, with the highest rating amongst corporations in Australia and Singapore at 2.54 and 2.62 respectively (where 1 reflects the highest level of control and 5 the lowest). In contrast, Hong Kong corporates expressed a confidence rating of 2.78 and Malaysian corporates 2.88.
These figures are surprising for a variety of reasons. Firstly, while it is logical that Australian treasurers would have the highest level of confidence given that they also have the greatest visibility over cash, with sophisticated systems and a highly efficient domestic clearing system, it is less logical that treasurers in the remaining locations should have concerns over transaction control. This is clearly an area on which banks and technology vendors need to focus. By increasing transparency over the transaction lifecycle, treasurers are likely to have greater confidence in the reliability and security of transactions, and be able to resolve payment failures caused by incomplete or inaccurate payment instructions quickly, therefore avoiding delays.
Obstacles to cash visibility
Limitations in electronic banking systems and the high costs to upgrade were identified as the biggest obstacles to visibility over balances and transactions. Internal systems issues and the challenges associated with decentralised treasury organisations were also cited, but these were less significant.
Given that most participants had multiple cash management banking relationships, shortcomings in multi-banking arrangements (referring to proprietary bank tools rather than independent platforms such as SWIFT) were also major reasons for lack of cash visibility and transaction confidence. Patchy workaround solutions (23 percent) low self-service functionality (22 percent) and network coverage (17 percent) were amongst the most commonly cited problems. However, as Darryl Ye, Senior Analyst, East and Partners Asia notes,
“Corporates find that most solutions in the market are well-designed for a specific purpose. However, integrating them into their own technology ecosystem becomes a nightmare for corporates with a patchwork of workaround solutions that are insufficiently flexible to adapt to future changes.” [[[PAGE]]]
A logical means of overcoming the perceived limitations of proprietary multi-bank solutions is to use SWIFT, which has become the communication method of choice for many large multinational corporations in Europe and North America, and is becoming more accessible to mid-cap corporations through service bureaus, SaaS (software as a service)-based treasury management systems and SWIFT’s cloud solution Alliance Lite2. However, SWIFT has been less widely adopted in Asia, partly due to the lack of support for Chinese character sets, and historically due to the relatively low value/ volume of transactions, but this has changed significantly. Alastair McGill, Cashfac comments,
“SWIFT plays an interesting role in facilitating a single view of cash but corporates need a TMS or ERP into which to connect, which is not universal amongst treasury departments in Asia Pacific.”
The electronic banking journey
Alastair McGill continues,
“Banks’ electronic banking systems have evolved considerably over the past decade. Originally, banks offered these systems simply as a window into their own systems. Therefore, these were rarely designed to meet the needs of corporate clients, and they were invariably rigid and difficult to customise. This has changed, with sophisticated electronic banking systems becoming a vital element of banks’ cash management offering. This survey illustrates, however, that there is still a long way to go in delivering the functionality, flexibility and confidence that corporate clients demand.”
He also emphasises some of the difficulties in banks’ proprietary multi-banking solutions,
“A bank typically provide their multi-bank solutions to clients on the assumption that it is the primary bank. However, in Asia Pacific in particular, where a regional bank may be the primary banking partner, this is not always the case, so it is questionable how valuable these solutions are. Realistically, a multi-bank solution can only really deliver value if the starting point is the corporate treasurer’s needs, rather than those of the bank.”
Building robust, secure, flexible and easily integrated electronic banking platforms, whether single or multi-bank, is a major investment undertaking for banks. This is particularly the case for local and regional banks where clients demand the same functionality and flexibility as they demand of their global banks, but regional banks’ ability to develop and maintain these solutions in-house may be more limited. Alastair McGill concludes,
“We see the opportunity for a new generation of electronic banking systems that are centred on the needs of corporate and institutional clients, that provide the flexibility, integration capabilities and the real-time view of cash that they are seeking.”
For a copy of the Cashfac Operational Cash Index please visit: www.cashfac.com/cash-index/
