Written by Mike Vigue, Bottomline Technologies
This article was first published by GTNews in July of 2008.
Cross-border trade continues to increase at a staggering rate, displaying more than a four-fold growth rate over the last 20 years. This rapid growth has been accompanied by changes in both geographical and market presence for corporations. As trade moves from west to east, and expands down from traditional multinational corporations to middle-market companies, the requirements for initiating, processing and reporting on global payments are changing.
Added to the challenges banks face is the need to reduce processing and support costs while enhancing the clients' user experience. The convergence of global trade and cash has banks re-examining their cash management products and services to determine if they are designed to address changing market dynamics. With corporates demanding cash management solutions that are more sophisticated and highly personalised, providing products and services that are truly 'global' is no longer just about simple language translation.
Extending Beyond Local Awareness
While many banks leverage internationalised user interfaces within their cash management systems for cross-border payments, most are not designed to address specific cultural workflow requirements or adhere to a particular country's clearing system specifications. In many cases, the back office still defines which payment products are offered. The challenge today, for example, is about supporting a UK national who is working in Spain and initiating payments to Korea. What were once simple cross-border payments have been complicated by the reality of trade moving to emerging nations where paper is still pervasive and business culture dictates behavioural changes.
As a result, global cash management systems need to be locale aware and able to provide individual users with a personalised experience, such as 'dynamic' screens that display terminology and workflow familiar to a particular user. For example, in the US bank routing codes are often referred to as an ABA number, while in many other countries it is simply referenced as a sort code.
In addition to local awareness, cash management systems should perform character set validation and file format/straight-through processing (STP) rules specific to a country's clearing method at entry - as opposed to being rejected once the transaction reaches the clearing system - to enhance STP, improve the client experience and reduce repair fees. Each country has specific restrictions regarding the character length of account numbers and generic screen validation capabilities will simply validate the overall maximum value, usually 34 as defined by SWIFT standards. If transactions going into the appropriate clearing system are not adequately validated at entry, there is the risk that the transaction will be rejected upon reaching the clearing system, resulting in missed payments and costly repair fees. A truly global offering should be able to determine the required field-level validation specifically based on where the payment is going to be settled.
Another component for improving the user experience that banks should consider is empowering corporate clients to determine the preferred method of clearing for international payments. There's no reason why a client based in the US making a payment from one UK account to another UK account should not have the ability to quickly and easily select either BACS or CHAPS as the clearing method. In many instances today, this type of decision is executed using separate applications and screens, or determined not by preference but by the settlement date and times.
That's not to say that empowering users comes at the cost of providing the bank with the ability to select the preferred clearing method. Banks simply must be prepared to accommodate clients who wish to define the payment method based on the legal rules associated with the payment type (i.e. US ACH is revocable, wires are not) with a flexible solution for addressing both parties.
Leverage System Flexibility to Support Workflow Requirements
Best practices for multinational corporations are strongly influenced by their regional culture and local practices. Transaction workflow for activities such as approval, repair or release can be considerably different depending on where you are doing business. In the US, transactions generally rely on workflow focused on specific entitlements and individual signatures, or assigned votes based on specific criteria such as payment type or US dollar amount. In this scenario, a transaction such as a US$10m wire to cover payroll might require two signatures before it can be released. In this case, it would be initiated and subsequently approved by a supervisor and finally approved by any one of the senior-level finance professionals who have approval authority assigned to them.
The same transaction initiated by an Asia-Pacific corporation, though, might follow workflow that requires panel-based approval instead. With panel-based approval, individuals are again entitled to certain functional roles as well as granted access to specific accounts/data. However, transaction workflow is assigned to specific role titles (such as controller or CFO) and the order in which transactions are managed can be mandated. Using the same example above, the US$10m wire initiated might have to be first approved by the controller and could be released after the CFO has approved it. In order to best serve the business requirements of their corporate clients, banks' cash management products and services need to accommodate the entire workflow and hierarchy regarded as common practice within each country or region.
Operate Globally, Manage Locally
Today, corporate banking clients are seeking to manage business locally, while maintaining visibility and control via a central treasury. Although payment initiation could be done on a local basis, central treasury may want to have the right to release high-value payments so that they can take advantage of intraday interest. In other cases, a multinational organisation with tens or hundreds of thousands of accounts may want a global view across all cash balances while still allowing remote locations to view local account balances. From a reporting and a transaction perspective, multinational companies are actively seeking the capabilities that will allow parent organisations or treasury headquarters to have visibility over all accounts with restricted access at the subsidiary level.
This might mean that a payment is initiated in one language, but is approved in a second language. In some cases, all cross-currency payments may be managed by central treasury in order to maximise FX benefits. Transaction approval locally may require one approval workflow, while central approval may use a different method. Having the flexibility to support cross-currency, FX, different approval methods and local language with date and time stamp assigned by locale helps to improve the client control, experience and efficiency.
Addressing Evolving Payment Sophistication
The emergence of new payment standards and regulatory mandates are transforming the industry away from region-specific payments, challenging cash management systems to support traditional payment types while adding a new level of payments sophistication. Initiatives such as the introduction of the single euro payments area (SEPA) are designed to reduce the number of in-country formats that need to be supported and therefore make it easier for banks to deploy global cash management systems. However, the reality is that banks will have to continue to manage in-country formats alongside the SEPA payments as long as their customers continue to make payments in the traditional way.
Banks have spent a significant amount of time and resources on developing back-office systems, and the emergence of service-oriented architecture (SOA) is creating the potential for new opportunities to provide better functionality to corporates. As banks continue down this road, the potential for further standardisation will almost certainly grow. This push for standardisation will also be driven by corporate clients who view standards as a mechanism for lowering their cost per transaction. Failure to respond to client demands will almost certainly result in lost business to other banks or, increasingly, vendors within the market who now offer traditional banking services.
Globalisation is More Than Cash Management Software
The changing role of the bank/client relationship is due in part to the convergence of trade and cash. When moving into uncharted waters, corporations look to their trusted banking partners for advice in areas such as local expertise, advice on in-country investments and aid in navigating the seas of paperwork to be compliant in culturally new business practices, all of which can be daunting. Banks can provide their corporate clients with ways to mitigate risk, maximise their cash and work within new frameworks. By engaging in a 'consultative' relationship, banks will be able to establish a successful global cash management practice.
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