by Liba Saiovici, Director, Latin America Product Management, Marcelo Moussalli, Managing Director, Latin America Corporate Sales Executive and Luiz Carlos Couto, Managing Director, Latin America Financial Institutions Sales Executive at Bank of America Merrill Lynch
Centralisation, efficiency and convenience are among the top priorities for treasurers in Latin America today. The region’s treasury professionals are aiming to streamline their operations, and in order to do so, they are increasingly turning to the most technologically advanced solutions available. In this article we review some of the most important products and solutions for treasurers in Latin America today and moving into the future.
Centralisation and efficiency
As companies centralise their treasury operations and look for greater efficiencies, we are seeing growing demand from corporate treasurers for a single point of contact when dealing with their banking providers – not only within the Latin America region, but also globally. In order to achieve this, many treasurers are looking for a global platform which will enable them to undertake their cash management, trade and investment activities in a standardised and consolidated way.
Companies are also looking for banking providers which can offer multi-currency capability. Whether a company is making domestic local currency payments, or euro or dollar payments to overseas beneficiaries, the expectation is that a bank should be able to handle the company’s global needs in any currency, including cross-country and cross-region liquidity structures as permitted by local regulation in the countries in which accounts reside.
Centralisation is a priority for many companies and treasurers in Latin America are increasingly focusing their attention on the opportunities offered by shared service centres. As companies look to centralise and become more efficient, the shared service centre plays an important role in delivering these objectives.
The functions included in a shared service centre typically include accounts payable, reconciliation, borrowing, investments, intercompany loans, and to some extent, accounts receivable. It is usually easier for companies to centralise the payments part of their cash management business than it is to centralise receivables, due to regulatory variations and different market practices between different countries in the region. As a result, companies tend to focus their attention on payments in the first instance.
Miami continues to be a favoured location for shared service centres servicing the region as it has traditionally been seen as a gateway for Latin America by US multinationals. Mexico and Brazil are also popular locations, although as costs have risen in Brazil, other locations have become more attractive. One such location is Costa Rica, which is low-cost, centrally located, and has many qualified professionals. More recently, Panama and the Dominican Republic are becoming known as up-and-coming shared service centre hubs.
Technology and convenience
Where technology is concerned, treasurers in Latin America are looking for flexible access in order to perform their daily cash management activities regardless of their geographical location. In today’s environment, the reality is that treasurers do not spend every working hour sitting in front of a computer – for a significant portion of their time they are on the road. On the other hand, since the financial crisis, treasury professionals have been more focused than ever on remaining up-to-date with cash positions at all times. As a result, mobile banking technology, which enables them to do so while they are away from their desks, is becoming more attractive.[[[PAGE]]]
At the same time, the growth of mobile phones, smart phones and tablets has been explosive in Latin America in the last five years and there are now over 620 million1 mobile connections in the region, according to a study by Gartner. Indeed, in most countries in Latin America the mobile infrastructure is better than the landline network. Meanwhile, research by the International Monetary Fund (IMF) suggests that the Latin America economies will continue to grow at an average rate of 4% until 2016. These are favourable conditions for the growth of mobile banking.
In light of these trends, treasurers are recognising the added value offered by the ability to perform daily cash management activities via mobile devices. In particular, access to balance and transaction information is very important to treasurers when they are away from the office. Treasurers may also need to approve or indeed initiate payments while they are travelling – and there is often a need for administrative functions as well, such as unlocking a user who has been locked out, or disabling a user who has left the company.
In addition to focusing on mobile technology, companies in Latin America are turning their attention to bank agnostic payment platforms. The concept of SWIFT for corporates is not new – SWIFT introduced it many years ago – but while it was initially focused on Europe and Asia, in the last three years we have seen accelerated adoption by companies in Latin America. Many of these are multinational corporations that are already using SWIFT in other regions and want to do the same for their activities in Latin America. More recently we are beginning to see Latin American corporations looking to use SWIFT for the first time. Companies that are planning to use SWIFT are looking to use ISO 20022 XML, and companies already using other industry standard formats are tending to migrate to this format, which is becoming the standard.
In conclusion, the overall trend for companies in Latin America is towards sophisticated technology which can be used in the pursuit of efficiency, convenience and the centralisation of treasury activities. We expect this trend to continue in the coming years.