Making Bank Partnerships Work for Corporate Treasurers
By Byron Gardiner, Executive Director, Treasury Solutions, Transaction Banking and Joey Lee, Network Management, Transaction Banking, Standard Chartered
No banks are truly global – all form partnerships to deliver local services to corporates, and how those partnerships are constructed is critical.
Corporate treasurers are under pressure to reduce costs, improve efficiency and enhance visibility and control across their global operations. One straightforward way to do this is by consolidating banking services to a handful of international network banks, which enables cash management-related processes to be standardised, and eliminates the need to maintain multiple local bank relationships. But finding the right banks for the job can be tricky. To evaluate banks, corporates need to consider the risk profile of potential partner banks; the extent of their product standardisation globally (and the pricing benefits this delivers); their technological security; and the level of service they offer.
One additional factor, which is sometimes overlooked by corporates, is the approach taken by international banks to local markets. As they are unlikely to have an extensive branch network to service their clients’ needs adequately in every country, international and multi-regional banks must find ways to extend their coverage and capabilities. Different operating models come with various advantages and disadvantages; understanding the implications of these models can be critically important.
There are two main types of alliance model:
1) The direct, nostro-based model uses an international bank’s nostro account with a local bank to receive deposits or make payments on behalf of a corporate. As corporates don’t need to maintain a relationship with a local bank, this model is often preferred by treasurers; it facilitates a rationalised account structure, streamlined services and the use of a single electronic banking channel.
Fig 1 - Direct model, host-to-host connected and process integrated
2) The indirect, non-nostro model requires a corporate to establish an operating account with a local bank. Between the local and the international bank, a host-to-host connectivity is then established to enable the company to initiate payments from and reporting on their local bank account using the international bank’s online platform. Crucially, service arrangements, including pricing, are usually negotiated bilaterally between the corporate and the local bank.
Fig 2 - Indirect model, host-to-host connected and platform interfaced
How global banks approach local markets
Typically, international banks supplement their domestic network coverage and cash management capabilities through alliances with local banks. The aim is to enable seamless transaction initiation and reporting, even when corporates have accounts with local banks. Integration is usually accomplished via a host-to-host or SWIFT interface with a corporate’s enterprise resource planning (ERP) system to facilitate payment initiation, receivables reporting and multi-bank sweeping.