Features : Treasury & Cash Management Roundtable

Treasurers Find Role at Center Stage

At a recent meeting in New York City, Global Finance brought together some of the leading figures in the global treasury and cash management business to discuss the prospects for the industry’s future.

GLOBAL FINANCE:What are banks and their corporate customers experiencing as a result of the movement from paper payments to electronic payments?


Alarcon: I hear clients say they are not seeing the full benefits of Check 21 yet

Diane Quinn,managing director, cash management sales, Citigroup: The movement from paper to electronics has opened up a lot of opportunities in total supply-chain management for us. More and more, we’re taking on a broader role for our customers than we had before. We’re handling a lot of the paper processes for them so the corporates can make their entire process more electronic, gain efficiencies and reduce cost.

Skip Heaps,global product executive, global product management, Bank of America: One of the challenges facing all of us is to figure out how to scale back the paper processing and infrastructure at a pace that is not too fast or too slow. Shutting down 25 check processing factories could cause big problems. But if you don’t take out some of the infrastructure and some of the costs, it’s hard to be competitive.

Al Briand,managing director, global payment services, The Bank of New York: It’s an evolution of the business model. Paper is going to be around for a period of time, but it does give us the opportunity to innovate. It also gives us the opportunity as providers to corporates and to other financial institutions to break down some of the silos. In an electronic frame, we’re able to pull things together. We’re able to give information to clients in a much more accelerated, integrated and innovative way.

John Alarcon,general manager, North American operations, XRT: From a corporate perspective, organizations are implementing a number of initiatives to integrate more tightly their treasury function with payment and collection functions. They want to leverage the technology they already have, so there is a lot of work toward integration. They are also looking to rationalize how they interact with their banks.

Patrick Gutmann,senior vice president, head of product management and strategy, transaction banking, ABN Amro: Most clients—even small or mid-market ones—want to migrate to electronic payments, but there are challenges inherent in that migration. For example, the internal processes and controls that today are in place on the check side may be different on the electronic payment side. As banks we can play an important role in assisting clients in the migration toward electronic payments.

Doug Davis,staff director, global cash management, treasury, FedEx: We’re in the middle, with banks that have paper and electronic platforms and customers who want to use new electronic technology. We’re trying to draw customers into the most economical and cost effective system, to give them what they want—and to integrate that with the banks.

Al Carpetto,senior vice president, western hemisphere sales executive, treasury services, JPMorgan Chase: It’s a delicate balance for the banks. JPMorgan Chase wants to be able to process the last check, while at the same time converting and moving our clients into the electronic space. Our customers really drive everything because we manage to meet their needs and expectations.

Andy Yeates,senior vice president, corporate cash management sales, global payments and cash management, HSBC: The use of purchasing cards, corporate cards and other forms of card instruments creates an interesting paradigm for the corporate client. You can take what has been a very paper-intensive environment—payables—and adapt it to an electronic environment via a card transaction. This then allows a corporation to settle thousands of individual transactions via a single payment to the card issuer. Because of the rebate structure on cards, payables is also morphing from a cost center to a profit center.

Briand:Another consequence is that we can provide better customer satisfaction. There are just so many more things we can do in terms of reporting back and the immediacy and completeness of information. There’s so much more that we can do with that payment that ultimately is good news for us as providers, in terms of the breadth of things that we can bring to our client base.

Quinn:Many of our corporate customers want to make things very electronic, but their customers and suppliers aren’t there yet. One of the opportunities we have is to make their connectivity to us totally electronic, and then we manage the paper, end-to-end. We can work with them to convert their customers and suppliers to electronic.

Heaps:Integration and information that helps the client to manage all their data while we’re moving from electronic to paper is critical.

Alarcon:Moving from a paper-based organization to an electronic-type organization requires redesigning business processes and redefining roles and responsibilities. Who is supposed to authorize what in a paper-based organization might not be formalized—but it has to be formalized when you automate the process.

GF:What trends are emerging in treasury outsourcing?

Carpetto: The risk is that clients don’t fully utilize the fraudmitigation technology

Quinn: We are dealing with a lot of middle-market and smaller companies that are looking to establish a global presence. In that segment there is a lot of outsourcing of liquidity management and treasury operations. We’re not seeing so much of that in the large corporate area. And if payables falls within treasury’s ownership, we’re seeing a lot of outsourcing of those functions to gain efficiency.

Carpetto: The smaller companies want to expand and compete globally, but they don’t always have the money to continually invest in technology. That’s where the banks can play a strategic partnership role. We can bring a back office to them while still giving them the control to make the decisions.

Yeates: Large corporates have such a huge embedded infrastructure that they’re probably not going to tear down those walls. We bring to our clients ideas that will add value to their specific organization. Those ideas should help make their job easier and enhance their advisory role within their companies.

Briand: Outsourcing is prompting the design of certain products and the use of certain technologies that allow us to do things we may not have been able to do before on behalf of some of our customers. It’s about creating “ease of process” for clients—taking some of the decision making regarding the correspondent selection, the location, the timing, all of the issues associated with getting the money to where it needs to be at a certain point in time.

Heaps: Some clients, particularly middle-market clients, are considering outsourcing some of their decision-making process—how they route a payment or make a tax payment, some of their tax decisioning. It’s probably more valuable from a client point of view and more valuable from a bank point of view if you can come to an agreement on those decision rules, but it adds a whole level of complexity that isn’t there in paying a check or reconciling an account.

Gutmann: We’re moving away from just doing basic processing to providing data management and, to a certain extent, decision making on behalf of clients. The complexity thus also increases.

Alarcon: In some cases, particularly in medium-size organizations, treasurers don’t find internally the level of IT support they need, so they’re looking for different ways of outsourcing their IT infrastructure and application services. IT outsourcing takes different forms, from managed IT infrastructure, to application hosting or increasingly popular application management outsourcing solutions such as software-as-a-service [SaaS] offerings.

GF:It’s a year on since the introduction of Check 21. What are its prospects for the future?


Gutmann: Customer satisfaction boils down to two critical components: information and integration

Alarcon:I hear clients saying they are not seeing the full benefits of Check 21 yet. Corporations must update their business processes to gain full advantage of the benefits.

Heaps:I respectfully disagree: Clients absolutely are seeing a benefit, and it actually can be quantified. A simple example is a remote deposit. Instead of shipping a US-dollar-denominated check back to the US, you can scan it wherever you happen to be and present the image of the item on a same-day basis.

Davis:We were one of the first customers to give this service a run. We’re finding that you may be able to eliminate going to the bank but not to eliminate all those bank accounts. I’m not sure we can justify the cost of the hardware at this point, but it’s going to grow anyway, and we are reviewing ways to integrate it and trying to integrate it and use it in a worldwide spread. It has really helped us not having to go to the bank with a lot of checks in an unsecured fashion, though.

Briand:Clients are excited about the benefits they can get from imaging checks from remote locations. But it might be perceived as not taking root because, firstly, clients have to assimilate the changes from an operational point of view and, secondly, image exchange across the banking industry has been slower to take root than was expected.

Gutmann:We’re all seeing explosive growth in remote deposit, primarily as a result of the transparent benefits to our clients. However, image exchange presents a dilemma for banks: Check processing is a declining business, yet we’re all expected to invest heavily. The notion of investing heavily, yet maintaining and managing cost structure in a declining business, leaves us all with some very difficult decisions from a cost-structure management perspective.

Carpetto:As the technology gets better, clients will become more comfortable, and adoption rates will go up. Then companies will start to see that if they don’t implement the newer technologies, it’s going to cost them money. The banks have to and want to be there for the client.

GF: What changes is globalization forcing on treasuries? How can banks and technology providers help corporates meet the challenges posed by these changes?

Davis: We want to be able to push a button at any time and know what our global cash position is

Yeates: Globalization is really a focus on liquidity. Gone are the days where you can get away with issuing commercial paper in the US while you’re sitting on cash balances in the UK. The banks’ role is to provide our customers the data so they can manage their global cash position on a real-time basis. This is the whole “total working capital principal” that’s taking place in the industry. As one of the largest banks in the world with an extensive worldwide footprint, we are able to assist our clients with the challenges of globalization.

Quinn: Visibility and control are really important, especially with Sarbanes-Oxley. But the third element we’re seeing is people looking for standardized processes in a very un-standardized world. They want the banks and other technology providers to manage the integration with all the different systems so they can be very standard in their back office.

Carpetto: There are tax, regulatory and many other issues for which our clients need advisement. JPMorgan Chase’s global expertise allows us to offer best-in-class solutions that meet a company’s geographic requirements, while also providing the technology to pull it all together.

Briand: We sometimes look at ourselves as interpreters: We smooth out the variations from country to country to facilitate our customers’ move to globalization—variations that not only are there in a static form but are changing as well. Our role is to facilitate our customers’ move to globalization, to help be that interpreter, to smooth out that path, to allow even-money-flow across the globe.

Davis: It all kind of boils down to information—about a country, a payment system, services you may provide. And, to borrow a phrase, “Show me the money.” What we want is to be able to push a button at any time and know, in US dollars, what is our global cash position. How can I get that? How can you get that information to me? In a single source, in a format that’s usable for me? That information is critical.

Heaps: Corporate treasurers have to make at least two, perhaps three, really tough decisions if they’re already global or if they’re thinking of going global. One is local versus global. There are advantages to working with global banks that have a ubiquitous presence versus, say, a French bank in France and a Spanish bank in Spain and a Turkish bank in Turkey. But there are also tradeoffs. Another decision is decentralization versus centralization. Do you want to manage a global position for your company in Memphis or in London or in Hong Kong, or do you want regional treasuries? The final decision is outsource versus insource. Do you want to do all of this yourself and hire people locally—all around the world? Or do you want to take parts of it and say, “We don’t have the expertise in that part of the world, so we want to outsource some piece of it”?

Gutmann: As globalization is being pushed down even to smaller middle-market clients, they’re now requiring more sophisticated solutions. Ease of use and visibility to their financial flows are critical.

Alarcon: We believe Internet technologies have a lot to do with the advances in globalization. Leveraging Internet technologies, companies can achieve many things they couldn’t do with traditional applications. Corporations are looking at how to eliminate silos on a global scale and streamline their different business processes across the enterprise, taking advantage of these new technologies.

GF:Are electronic payment channels more vulnerable to fraud than paper? What can companies do to combat all forms of fraudulent transactions?


Quinn: Clients want direct access to the information that we have in our back office

Yeates:The electronic environment is potentially much safer than a paper environment. There’s an incredible amount of technology and security built into the electronic environment, and it’s becoming a much more secure payment arena.

Carpetto:It’s estimated that check fraud ranges from $12 billion to $15 billion annually. Millions of checks are forged, altered or counterfeited each year. On the other hand, people have concerns about electronic payment channels because if there is fraud, it’s usually much larger than what you see for check. However, there are very good security applications in the electronic space. The risk is that clients don’t fully utilize the fraud-mitigation technology.

Gutmann:In a lot of corporations, electronic payments are still handled as a kind of exception process, particularly the corporations that have not wholeheartedly and fully migrated their payment stream. This means they may not have set up the internal controls or articulated the internal processes to the extent that they have with check payments. Often those stringent controls are put in place once they experience some type of fraud.

Davis:It’s incumbent on the corporates to use the commercially reasonable standards that the banks offer, those products that are keeping us safe. If we don’t, it’s on us.

Briand:In bank-sponsored systems, fraud is very low. But people don’t always make the distinction between those and other electronic systems, which might not be so secure. Some of that perception carries over into some of the systems we offer.

Alarcon:With treasury systems and automated bank communications, companies benefit from more secure access controls and transactions. It’s harder to commit fraud in a totally automated environment because you have a number of controls that are embedded in the systems, and committing fraud requires increasingly sophisticated IT-security skills. In addition, auditors have access to audit trails, which make it easier to detect fraud. Lastly, it takes longer to detect fraud in a check environment. It generally takes many more occurrences to find it.

GF:What about the vulnerability of cards?

Heaps: The bigger the company, the bigger is the opportunity to put cash to work

Heaps: The bigger the company, the bigger is the opportunity to put cash to work
Heaps: Actually, the loss experienced is really low on cards—two basis points on average. We’d all love it to be zero, but there is some data that would suggest the losses are quite low. Thankfully a lot of the controls thus far have been pretty effective.

Davis: I heard it was in the 1.7% to 2% range, but there is a vast number of holes that somebody can get into. As soon as you close one down, they’re going to find a path of least resistance to go to the next one. With the movement to electronic payments, there’s going to be a new era of trying to keep security at a level where it keeps people out.

Briand: Just because fraud has been lower, it doesn’t mean that we don’t need to work hard and be vigilant. There is no doubt that there are fraudsters out there, and they’re going to look for the weakest link in the chain. We need to make sure we stay ahead of them.

GF:Payment factories are apparently booming in Asia and Europe and now are about to take off in the US. How are companies employing technologies to support payment factories?


Global Finance publisher Joseph Giarraputo: What changes is globalization forcing on treasury?

Alarcon:Companies are looking at their treasury technology and at how they can leverage this technology to apply to their global electronic payment processes. The same technology that is being used for financial transactions coming out of treasury can be applied to those payment processes originating in other corporate systems. It provides organizations with the capability to group payments internally and send those payments through different banking partners from a unified platform. This also provides full visibility into the companies’ cash outflows—and provides increased forecasting on top of that. In the US, the environment has changed over the past few years with the growth of electronic payments. Now US companies are looking at extending their shared service centers to include their external payment processes or creating dedicated shared service centers for their external payments, also referred to as payment factories. From our perspective, this trend has been around for some time in Europe where more transactions are done electronically.

Quinn:I see it the exact opposite way. In the US we saw a real movement toward shared business services about 10 years ago. At that time the banks were offering services that helped companies generate payments of all different types more efficiently through a single file source. Even 10 years ago in North America companies looked to their bank providers to take a single file from a shared business service center in North America and make other cross-border payments and their local payments. I really think that a lot of those initiatives started here with some of the big global companies, such as FedEx. Now we’re seeing more folks eliminate some of their shared business service centers around the world and consolidate into certain key regions. More importantly, they’re looking to their banks and their technology providers to do single file input of lots of different local currencies.

Heaps:This concept is at least a decade old, but it’s been perfected, and there’s better integration into ERP systems and so forth. The practice of a single payment file-splitting of wires, ACH payments, printing checks, maybe doing multi-currency transactions is probably at least a decade old.

Alarcon:A number of these companies are pulling external payment files from a number of different systems. Technically it’s a real challenge for companies to be able to take those files, group them, convert them, split them by destination, depending on where they need to be communicated to. Then, before the communication is done, the proper workflow has to be applied to those payments. All that is being done in a multinational-type environment where there is maybe one regional unit here and then one in Europe actually processing those payments for all the other countries. This notion of grouping those payments and processing those payments cross border is something that North American businesses from all perspectives have been traditionally less eager to apply than their European counterparts. But from our perspective there is a greater acceptance of the notion of payment factories in North America.

Quinn:It depends on the market segments you’re looking at. A lot of the companies in North America embraced this concept a long time ago, consolidating and integrating their back-office systems into a shared business service center or a payment factory.

Carpetto:Payment factories are taking off in Asia and Europe because these are expanding markets. Domestically we’ve dealt with this, but now there is a global need. It ties right back into the technology question and whether or not the resources are available to invest in technology. Once in a while you come across a treasury department that owns its own IT resources, allowing them to drive their own projects. But in many cases the technology resources are not available internally.

Yeates:There were certainly some first movers here in the United States that were doing this. It just wasn’t a buzzword at the time. There were also companies in Europe and Asia that were looking at this because they had operations in 15 different countries or across 21 different countries and territories in Asia. They were trying to decide whether they should replicate a system 21 times in Asia or, say, once in Singapore. So it caught on there, even though it really started in the US. What is new, in the world of Sarbanes-Oxley, is that you have put control back into companies’ laps, so it’s becoming top-of-mind again, and it’s getting embedded into the companies in the US who didn’t address payment factories when they were first introduced.

Davis:I think the euro drove part of this in the sense that you had a single currency so this became a hot topic. We’ve done it—we set up service centers for EMEA, APAC and the Americas—and it’s been a wonderful thing. It’s been difficult. It takes senior management commitment, it takes IT resources, it takes money and dedication, and you’ve got to find the people and give them the training, but in the end we got there. One of our biggest challenges globally was finding banks that offered the services that allowed us to send a single file in different formats.

GF:The demands of Sarbanes-Oxley have elevated the profiles of treasurers. What else can treasuries do to make themselves more central to their companies’ operations?

Yeates: Banks need to ask themselves how they will work with the non-bank players

Carpetto:Treasurers are now getting more deeply involved in the operating processes of their firms, acting as internal consultants. Executive management sees the value in the treasury role and the bottom-line savings that can be brought to the firm through process management.

Quinn:The treasurer is pretty much the owner of working capital management, so they can incorporate themselves very fully in the organization. They can help find excess cash in the system and deploy it more effectively.

Heaps:There are opportunities, both on the revenue-generation side and cost-containment side. The bigger the company, the bigger the opportunity to put cash to work. Then the other aspect is on the cost-containment side. It’s long been part of the treasurer’s responsibility to reduce bank fees, to reduce costs for the company. But some of the technologies that banks are deploying today can allow a corporate treasurer to reduce in-house staff, people who were previously keying information or entering information to ERP systems. As banks provide better technology solutions to corporate America, they can take in an electronic file directly into the ERP system and eliminate those in-house staff. There are both revenue-generation and cost-containment opportunities, and technology and information allows them to be more effective than they had been in the past.

Briand:One of the things we find productive is when the treasurer invites us to be part of the conversation with some of the other areas of business that are looking for solutions. We have opportunities to do things that we may not have had before, which can enable the treasurer to be a value to the company in a whole new dimension.

Yeates:Treasury is morphing into much more of an advisory role within the corporation. It’s now their role to really get involved with sales, procurement, HR and legal departments and pull them all together with a common theme of what the corporation is looking for. The treasurer can have as much control on moving share price and return on equity as an effective sales department.

Davis:We have kind of a consultant role to all the operating companies. We’re looking down from 20,000 feet, making sure we’re all on the same page, to keep the efficiency of the systems we’re using.

Alarcon:Treasury management is becoming less labor intensive, and companies are realizing the importance of cash and working capital management from a competitive standpoint, which is pushing treasurers into a more strategic role.

Quinn:Treasury is also playing a real key role, from a risk-management perspective and in vendor-selection processes that affect cash flow.

Davis:The security of the banking structure within the company is one of treasury’s main responsibilities. Katrina and other hurricanes have made disaster recovery a top priority.

Carpetto:The treasurer historically had more of a financial reporting role. We are now seeing the treasury role expand beyond financial reporting and money management. The role is broader than ever before and is now, in many cases, included as part of the executive committee.

GF:What can banks and technology providers do to improve the level of customer satisfaction and make it easier for customers to do business with them?


Briand: We smooth out the variations from country to country to facilitate our customers’ move to globalization

Gutmann: Customer satisfaction boils down to two critical components: information and integration. With the increased sophistication and complexity of many corporations’ treasury operations, and as more companies are doing more business globally, clients need further information transparency and visibility. Once the information transparency and visibility is there, integration between the client and the banks becomes critically important.

Briand: Sometimes clients say, “I want to just talk with one person when I have an issue.” But what they really need is understandable, integrated, timely information so they don’t have to call that person in the first place. Providing that is the key to customer satisfaction.

Quinn: More importantly, clients want direct access to the information that we have in our back office. If there’s an issue or a concern, they want technology to deliver that either in the form of an alert or a screen they can use to access our internal systems and see where the issue stands. Technology is providing us with all kinds of useful tools, from fraud alerts to electronic documentation management, electronic signatory management and digital signatory management.

Heaps: We all have clients that are small business clients, middle-market clients, large corporate multinational clients, clients in the US, clients overseas. And trying to create one solution for all of them, of course, is folly. You’ll never get there. Actually listening to your clients and understanding that FedEx’s needs are different from XRT’s needs is really important. While there might be some common themes—integration and information and so forth—the way they want it, the time they want it, the currencies they want it in, whether they want push or pull, there are lots of different sorts of variations on that theme. Listen first and then talk about solutions.

Davis: Most of the banks are very open minded and have a good ear, but it is a challenge because there’s so many different things out there that different customers want and need.

Carpetto: JPMorgan Chase develops a menu of services from which our clients can choose. But the key is to be able to successfully tailor those services to support the individual needs of each client.

Yeates: The common theme is fewer touch points. How do we as a bank manage our large infrastructure and provide clients with a single point of contact?

Alarcon: What clients are looking for is the ability to measure how well they do. What we can do is provide them relevant measures or tools that corporates can use to assess their relationship with their banking partners.

GF:What’s your vision of the future of this business? Where is growth going to come from? Are there any new markets to exploit?
Carpetto: The vision is to do more with clients as they grow globally. There is also a strong movement into what we call “adjacent spaces” of this business. Much of what we’ve talked about is going to move us into a different space. We need to manage our clients along the entire supply chain, dig deeper into accounts payable and accounts receivable and look at the total order-to-pay process. Clients are starting to look at things more holistically, and we need to be there to support them.

Heaps: One way to grow is to redefine the roles and redefine the business. If you look at the supply chain, growth has peaked in the areas where banks historically played. So they need to move into adjacent areas.

Quinn: We see the growth coming from an end-to-end treasury perspective—expanding our role and tying together all the different services that the bank has to facilitate the supply chain. We also see growth in certain market segments, such as the middle market, specifically as it relates to globalization. These smaller companies are starting to do things that the large corporates have done because technology makes it easy for them to compete in markets where they have no physical presence. We see lots of traction in the emerging markets, and we also see lots of opportunity in the global public sector. A lot of public sector entities, specifically in the global market, are acting like private enterprises.

Briand: From a strategic point of view, a growing provider is a good provider, but what is going to make us grow? Three things: One, make it easier to do business globally; two, make information as transparent and available as possible; and three, listen to customers and build solutions and a diversity of product.

Yeates: We’re getting into a consultancy space with our clients, trying to figure out what the future will hold for them. Outsourcing is very topical. We’re going to shift the paper paradigm to the electronic arena. We have to continue to look at how we can help our customers. As banks, we also have to ask ourselves how we work with and how we react to the non-bank players that are out there.

Gutmann: We view growth as coming from three primary areas. First, we certainly see the globalization of our business as a critical growth area, particularly in the emerging markets. Second, even within the US landscape, however, we see opportunities to grow, particularly as we focus in on particular industries and specific industry needs. For example, there are a lot of opportunities to help the healthcare industry streamline and create efficiencies within their payments and cash and treasury management areas. Growth will come from focusing on industry-specific solutions. Third, we believe there is room for vertical growth within the financial supply chain. Ultimately it all ties back to listening to the clients and understanding their needs.

Moderated by Joseph Giarraputo