An Integrated Approach to Working Capital
by Nick Blake, Head of Global Sales and Strategy, Global Transaction Services, RBS
During the recent TMI Transaction Banking Roundtable, held in association with Fundtech, which is featured in this edition, Shahrokh Moinian, Head of TFCMC Global Solutions & Head of Global Cash Management Committee, Deutsche Bank, made the point that clients do not want their banks to push products in particular segments, such as cash, trade or FX. Instead, as Nick Blake, who joined RBS as Head of Global Sales and Strategy, Global Transaction Services earlier this year, describes in this article, corporate treasurers, and their banks, are taking a more integrated approach to working capital.
Regulatory and market pressures
Integration of complementary business functions, such as cash management and trade finance, has become a priority for banks in recent years, firstly in response to customers’ changing working capital needs, and secondly to reflect the increasing cost of capital. Banks therefore need to balance their offerings given that the cost of delivering trade and trade finance services is now higher. This is driving a closer relationship between core financing, cash, trade and ancillary banking activities.
Corporate treasurers understand the changing regulatory pressures on banks, and despite the possible constraints in terms of cost and availability of financing, they also see the benefits in terms of improved, more integrated solution offerings that meet their working capital objectives more specifically than a product-led approach. There remain challenges, however. On one hand, corporates need to reward their lending banks with ancillary business; on the other, they need to maintain operational and financial efficiency, which may be easier to achieve when working with fewer banks.
Calibrating relationships and efficiency
One of the important ways in which they are doing this is via the digitisation of cash and trade processes and adoption of multi-bank communication through SWIFT. Greater independence from banks for process automation, integration and connectivity enable treasurers to select their banks based on the quality of their solutions in particular markets or regions, counterparty risk considerations and broader relationships without compromising efficiency. Banks therefore need to work harder to find new ways of differentiating their services and increasing wallet share.
Banks need to work harder to find new ways of differentiating their services and increasing wallet share.
Over the past few years, many major transaction banks have realigned their organisation to combine cash and trade; however, there remain considerable differences between banks in terms of the degree of integration of people, processes and platforms. An important aspect of RBS’ corporate restructuring has been end-to-end integration across our product, sales and delivery teams in the Global Transaction Services division; for example, we have an integrated platform, combining cash and trade, providing customers with a single point of access. As customer organisations are also diverse, with different individuals responsible for particular parts of the operation, the platform is configurable to provide the appropriate functionality and security rights in each case. Similarly, we structure our teams to build relationships with key decision-makers who may be located in different departments and regions, and could be stakeholders in different parts of the working capital cycle.
Perspectives on working capital
There can be enormous benefits to customers in situations where their banks take a holistic view of working capital. Banks already have a great deal of working capital and financial supply chain data relating to their customers, such as payments and collections. The next step is to transform this data into intelligence that can inform ways to enhance supply chain efficiency and optimise working capital. For example, some banks are now offering eInvoicing solutions to further accelerate and automate the supply chain. In other cases, supply chain finance tools such as dynamic discounting are helping to improve working capital and accelerate cash flows. In time, we may well see more business process outsourcing (BPO) as banks offer more value-added services, leveraging business intelligence and platforms to create efficient working capital solutions, a development that would be far more difficult to envisage without an integrated approach to cash and trade.