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Rethinking how to manage international payment


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Jesper Linden, Offering Manager, GTS Banks at SEB , talks to
Bob Currie about how his team is helping financial institutions
to redesign their international cash management arrangements

Published in: Economy & Finance, Business
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Rethinking how to manage international payment

  1. 1. Cash management Rethinking how to manage international payments Jesper Linden, Offering Manager, GTS Banks at SEB , talks to Bob Currie about how his team is helping financial institutions to redesign their international cash management arrangements The global financial crisis and recent turmoil in the euro- change agenda is essential. As Offering Manager for GTS zone have dictated that financial institutions and corporates Banks, Jesper Linden leads a team responsible for providing continue to manage their international payments activity in an integrated view on the transaction banking needs of the an atmosphere of uncertainty. In this environment, treas- bank client segment (including custody, clearing and cashFinancial Services Research Q4 2011 urers are under pressure to optimise the efficiency of their management). From a cash management perspective, this liquidity management and to reinforce the risk manage- will involve providing integrated service delivery across cli- ment sitting around this process. In a volatile economic ents’ full cash management needs: they are not interested climate, issues of security and liquidity remain crucial. Are in buying separately across different types of international companies holding their cash somewhere safe? And can payments or account structures. The client is wishing to buy they access these cash balances promptly when required? a joined up service across each of these cash management Moreover, cash optimisation becomes particularly impor- products. tant. Some companies have accumulated significant piles of cash – and in the current low interest rate environment it is valuable to optimise yield on cash balances at acceptable Managing change levels of risk. With policy makers and financial authorities driving a constant stream of regulatory reform, cash managers are Against this backdrop the need for a strong partner to running hard to adapt to changing rules and refinements to34 support cash management activities and to manage the the payments infrastructure. In helping clients to manage
  2. 2. Cash managementthis change agenda, Jesper Linden high- bilities and message formats even withinlights two development areas that sit at the the SWIFT standards. Gresham Computingheart of SEB’s cash management strategy has helped SEB to manage these opera-for the banking segment. The first centres tional complexities, standing as an interop-on cash clearing and liquidity provision, erability hub. Clareti Cash Reporting (CCR)embracing SEB’s traditional inter-bank will take in messages in a diverse array ofcash management business. The second is format, it will cleanse and standardise thisdelivery of a white-label services product, message information such that it can beenabling foreign banks to link to the local forwarded to the recipient in a standardpayments infrastructure via SEB as account message format such as ISO 20022 XMLoperator, thereby operating in SEB’s home or presented in a consolidated mannermarkets as if they are domestic banks. through an online portal. As a result, SEB is able to deliver a consolidated real-time viewThough the traditional cash clearing service of transactions across a client bank’s net-is a relatively mature product that SEB has work of correspondent banking partners.offered for many years, the prevailing in-stabilities in global financial services dictate Cash mobility is fundamental in enablingthat banks are attaching huge importance SEB’s customers to discharge their paymentto ensuring that their liquidity is managed obligations. Clients must verify that theyin a secure and efficient environment. In have funds available in the right place andfacilitating this process, SEB is focused on that they have control over which paymentsimproving cash visibility, cash mobility and go out first. SEB offers advanced sweepin enhancing optimisation tools that are functionality which allows funds to be allo-available to its client base. cated to where these are most needed. In a number of markets, it also has the ability toIn the cash visibility area, banks are seeking time stamp outbound payments such thatclose control of their counterparty expo- they will be held on the account until thesesures – including the ability to monitor open need to be paid. To maximise efficiencyposition exposures in real time, to mitigate across this process, effective cash optimisa-key risks across these exposures and to tion is important to ensure that any fundsmeet the delivery commitments created remaining in the account end of day canby these payment obligations. To facilitate be swept into high-yielding accounts in linethis process, SEB continues to enhance its with the client’s preferred risk appetite.reporting capability in line with the varie-gated needs of its clients. Some may wish FSR asked Jesper Linden how the economicto receive SWIFT-based reporting intraday, climate has shaped clients’ demand for cashreceiving MT942s that confirm transactions optimisation in the face of this existing lowthey have received during the past 30 or 60 interest rate environment. For example inminutes. Others may ask SEB to pre-advise the UK, FSA Client Asset rules stipulatethem on outstanding payments and to in- that English banks may not hold more thanform them if any anticipated payments have a specified percentage (currently 20 per Financial Services Research Q4 2011not completed as expected. Many clients cent) of their clients’ cash deposits in theirmay wish to monitor cash balances and own books. The balance must be held inopen positions via a Web-based portal. SEB the books of other banking institutions. Asprovides flexibility to accommodate each of a result, banks are setting in place depositthese client preferences. arrangements with multiple banking coun- terparts. “Given the strong credit rating ofIn managing these diverse client needs, SEB SEB as a bank and the fact that the Nordicis working with transaction and cash man- markets ex Finland are comparatively wellagement specialist Gresham Computing. insulated from the euro, this has contrib-Financial institutions may have payment uted to strong cash relationships betweenarrangements in place with 50 or 100 pro- SEB and a number of UK-based banks,”vider banks (and there may be multiples of explains Linden. “But, inevitably, clientaccount with each provider), many of which banks are seeking attractive yield on the 35may employ slightly differing system capa- cash balances involved. SEB has developed
  3. 3. Cash management a range of flexible interest rate models – ment staff and it will manage its payments offering a tiered interest rate based on the activity via the same client interface and inter-bank base rate plus a margin for banks delivery model employed by HSBC in other with sizeable cash balances on deposit – markets worldwide. This partnership ar- and interest-netting facilities.” rangement offers the additional benefit that it will accelerate procedures for account White label services opening, potentially shortening the time In parallel with these commitments, SEB taken for completing new account agree- continues to invest in the development ments in the Nordic markets from several of its white labelled services – named weeks down to 2-3 days. ‘network-managed payment services’ or ‘re-account models’ by some banking SEB established its first client under these institutions. “Traditionally when banks arrangements approximately 10 years ago. have wanted to support the international “For a number of years we saw limited payments activity of customers in markets activity for this product, but during the past in which they do not have a presence, typi- 2-3 years a number of banks have made a cally they have referred this business on to strategic choice to restructure their inter- a cash correspondent partner with specialist national cash management arrangements,” expertise in the local market,” says Linden. says Linden. “It is challenging for a US or “But for a number of banks’ key clients, an Asia-Pacific based bank to know how to such referral arrangements may no longer support efficient cash management services suffice. Their global payments needs require across the Nordic markets – it takes time the same level of operational efficiency and to build this expertise and to establish an cost efficiency as their domestic payments efficient cash management infrastructure.” and they are reviewing their international Recently, SEB launched its Multi-currency payments arrangements to move them Direct Debit Service, enabling SEB’s financial closer to this goal.” institution clients to access direct debit schemes in the Danish, Norwegian and In supporting this demand, SEB has been Swedish markets. As a Nordic cash manage- working closely with a number of global ment specialist, SEB is able to insulate the banking institutions as they review the client from the complexity of managing structure of their international payments each DD scheme individually. “For clients networks. In some locations, these clients using the SEPA direct debit payments may have their own bank branches and system, for instance, we can take in instruc- will meet clients’ payments needs through tions in ISO 20022 XML format and convert their own cash clearing capability. But in this into the proprietary formats employed other locations this approach may not be by each of the three Scandinavian pay- practical. In the Nordic markets, a number ments clearing houses, thus enabling these of financial institutions now employ SEB’s customers to re-use the developments payments architecture on a white-labelled that they have done to process SEPA direct basis to service their Nordic payments ac- debits,” says Linden.Financial Services Research Q4 2011 tivity, providing access to the domestic cash clearing infrastructure and extending local Financial institutions are seeking an alterna- currency accounts to international clients tive to fragmented local correspondent as if they are using a domestic bank. For banking relationships and many are at- instance, HSBC has announced a partner- tempting to establish a smaller number of ship arrangement with SEB through which centralised regional solutions to meet the SEB will provide access to local payments cross-border payment requirements of their clearing systems on HSBC’s behalf. Through customers. SEB has established a sophisti- this arrangement, the HSBC customer cated white-label offering for the Nordic will (for example) have an SEK account in markets and is well placed to fulfil the London that will be directly connected to needs of international customers seeking the Swedish infrastructure to support do- to meet their global coverage through this mestic cash payments. However, it will be type of regionalised payments and cash36 supported by HSBC relationship manage- management solution.