From cash management and payments to clearing and settlement services, the world of transaction services is undergoing unprecedented change as regulation, technology and emerging markets reshape the business. In the wake of the financial crisis, banks have been ramping up their cash management services as corporates seek to better manage cash on a global basis. Lloyds Bank Corporate Markets is no different and has recently announced various ways in which its relationship directors and product experts are helping treasury departments to meet challenges through providing innovative, intellectual capital and investment in new products and technology.
In May 2011, Lloyds Bank launched a thought leadership programme called FD Gameplan – to provide treasurers with insight to support their strategic plans. The first FD Gameplan brought a range of articles on the topic of risk management and a case study in conjunction with innocent, the leading smoothie maker, to the bank’s customers. Over the coming six months, the bank will tackle the hot topics of emerging markets and liquidity.
“Arena combines FX and Money Market Deposits with economic insight and offers clients a comprehensive blend of services and powerful features, whilst maintaining a customisable user interface.”
Additional areas of interest that the bank has witnessed are abundant changes in electronic channels. Evolution and maturation of channel offerings is helping to reduce complexity through automation of processes, reducing risks such as settlement and reputation risk and processes such as e-invoicing are taking off. September also sees the launch of Lloyds Bank Corporate Markets’ new e-platform, Arena.
Arena combines FX and Money Market Deposits with economic insight and offers clients a comprehensive blend of services and powerful features, whilst maintaining a customisable user interface. “In Lloyds Bank, you have a partner very much focused on helping customers today to plan for the future,” says Richard Dallas, Transaction Banking Director, Lloyds Bank Corporate Markets.
International trade: a world of opportunities
Export markets are also under the spotlight, as many companies look towards international trade with overseas markets in a bid to offset difficult and sluggish domestic performance in domestic or western European economies. Yet, in tandem with the potential of countries in Asia or Latin America for business growth, comes increased payment risk.
“Trade finance is a key market for Lloyds Bank and one in which we have seen significant levels of growth activity over the past year.”
As a result, UK corporates are relying more heavily on their bank as a trusted advisor who understands the risk profile of the international markets and the key tools available to help customers mitigate risks in those markets, whether it be hedging or trade finance. John Salter, Head of Trade, Payments and Cards at Lloyds Bank Corporate Markets, said: “Trade finance is a key market for Lloyds Bank and one in which we have seen significant levels of growth activity over the past year. This is driven by a significant uplift in export activity as illustrated by customers such as innocent and Hotel Chocolat as they successfully target overseas markets for growth.”
International trade – innocent
With the majority of its raw materials sourced overseas and plans afoot for further expansion into the European drinks market, innocent’s Finance Director James Davenport finds himself faced with new risks and the prospect of an increasingly volatile market.
innocent, the brain-child of three university friends, started life as a stall serving smoothies to revellers at the Notting Hill Festival. It has since become a player in the international drinks industry, turning over £150m a year. On the back of its success in its native UK, the company has recently embarked on an ambitious project of European expansion. Lloyds Bank has helped with the transition.
“Our relationship team at Lloyds Bank Corporate Markets understands our business and our aims and is happy to support us. They also really bought into our way of doing business, our principles – they could see it worked and were happy to leave it alone,” explains innocent’s Finance Director, James Davenport. “Europe’s a pretty nascent market for us, but we’re trading in 11 countries outside the UK and there are 300m consumers on our doorstep. There’s huge potential and there’s a real drive towards healthier, tastier food.”
The decision to move into the European market wasn’t taken lightly. With half the fruit that innocent uses in its smoothies bought in dollars and half in euros, the company’s FX exposures were already significant. “There’s a whole new area of risk that opens up. That’s why we have a close relationship with the Sales and Derivatives Structuring team at Lloyds Bank Corporate Markets,” explains James. “We discuss our risks with them to ensure we have hedging strategies in place that are most appropriate for us.”
innocent manages its FX exposure with forward contracts, which allow the company to plan ahead and budget with far greater certainty than would otherwise be the case. Removing the risk of exchange rate fluctuation also creates a far more certain platform from which to perform its cash flow forecasts and plan around its margins.
“innocent places orders in the market so that, when the rate hits a certain level, the order is automatically triggered. That way it doesn’t matter what time zone the order occurs in, which takes away the need for the business to constantly monitor rates,” explains Sandy Scott, Director, Sales and Derivatives Structuring, Lloyds Bank Corporate Markets. “Managing risk boils down to removing variables and providing certainty. I’d sum up innocent’s strategies as sharp, simple and effective.”
“We look 12 months ahead and consider our net position with dollars and euros. Then we look at whether we need to buy or sell – or what else we need to do to remove any foreign exchange exposure. Working with Lloyds Bank, the aim is that they take away the risk entirely so we can just focus on our business. We’re not commodity traders or foreign exchange specialists – we’re just smoothie makers.”
Understandably, the impact of the credit crunch has forced companies to manage their liquidity better, and the importance of engaging with the supply chain more effectively is a key area of focus to support corporates’ quest for growth. Buyers and uppliers of all sizes are looking at programmes that support their business, not only by mitigating or eliminating risk but also by accelerating payment through enhanced cash flow. Combined with the impact of regulatory changes such as those being imposed by ILAS and Basel III, this has caused a fundamental shift in the landscape. As a result, Lloyds Bank has reacted with a number of new products, which are outlined in the interview with Richard Dallas overleaf.
John Salter adds that, “Customers need to ensure that the regulatory changes are made to work for them, and this is a factor behind much of our current demand. For example, the introduction of the SEPA Direct Debit has been positive for the average business, by creating a single, convenient way to accept or make direct debit payments across 32 European countries.”
Now, more than ever, corporates need to maintain visibility of their group cash, and the role of the bank in supporting that strategy continues to have great significance.
Richard Dallas talks to Treasury Today about how Lloyds Bank Corporate Markets is responding to the needs of corporates in the transaction banking arena.
Into which areas of transaction banking is Lloyds Bank investing and why? What are the benefits that your corporate customers will see from those investments?
Recognising that transaction banking continues to be at the core of customers needs, it has also been deemed one of the highest priorities within our recent ‘Group Strategic Review’. As such, we will be investing in enhancing three primary areas, the first being our wholesale cash management and payments proposition. The second area of strategic investment will be our trade and supply chain finance offering. Finally, we will also be investing in our cards business, from both a card issuing and card acquiring point of view.
At the turn of the year, we are also planning to enhance our recently launched Arena offering. Today, Arena is principally focused on FX and money market dealing capabilities and offers robust insight and research in these areas, together with risk analytics. We are currently building out our transaction banking capabilities onto the same platform and next year, Lloyds Bank will be able to provide its customers with a unique online offering.
Customers will benefit since they will have an even richer set of services from which to choose. In turn, this means that they will have services which are not only leading-edge, but that also meet more and more of their core needs. Corporate customers will have an enhanced channels offering, so the way that our customers access our products and services will be greatly streamlined. Put simply, it will be easier for them to do business with us and customers will be able to manage their facilities with us in a far more user-friendly way.
On the back of this, customers will have easier access to a superior quality of information. Effectively, they will be better equipped to make informed financial decisions, improve their cost efficiency and to mitigate their risk.
The transaction banking market is a competitive one. How will Lloyds Bank differentiate itself?
Lloyds is driven to become the leading bank for UK corporates. We want to be known as the ‘go-to’ bank for corporate customers seeking advice and services in the UK, as well as supporting their international needs. Fulfilling that ambition encompasses a number of facets, ranging from award-winning* relationship management to the quality, diversity and relevance of the products we offer, as well as our channels, pricing strategy and service quality.
“We want our customers to see us as the natural choice for their banking needs, from solutions to advisory services.”
Not only do we want to be the best in market, but we also want to ensure that we have a service proposition that truly differentiates us. Our primary aim is to make sure both the market and our customers see us as a trusted advisor in this space and rate us as a go-to player. It is about investing in technology and our products – for example, we were first to market with what we believe is a much richer SEPA Direct Debit (SDD) offering than many of our peers – but equally, it is about investing in our excellent people. We want our customers to see us as the natural choice for their banking needs, from solutions to advisory services.
What are the key cash management demands your clients are placing upon you at the moment?
When the group was working on its strategy, we spent a great deal of time listening very closely to our customers. As such, we uncovered what their real needs were versus which capabilities were simply ‘nice to have’.
What we found was that our customers want, within the context of a supportive relationship with the bank, to be able to manage their money more easily, to manage their risk more effectively within their business, and they want better information to support their decision-making requirements. In addition, corporates need to be able to optimise the returns on their capital and they are looking to streamline their treasury processes in order to take out costs, whilst maximising efficiencies.
Together, those needs and challenges form the basis for the ongoing areas of development and investment at Lloyds Bank Corporate Markets. Our developing proposition is being designed to make the treasurer’s life easier, better, faster, quicker and less expensive.
Recognising the significance of international trade to business growth, what is the bank doing now and in the future to support UK international trade?
The UK economy is pinning its hopes on exports to play a major role in its economic recovery. Success in international business depends on a number of key factors, including having the right type of financing in place. We provide a wide range of trade finance services, for both importers and exporters, and have extensive experience in nearly all of the world’s most significant markets and business sectors.
The UK government has also responded by launching a number of new initiatives earlier this year aimed at helping exporters. Lloyds Bank Corporate Markets is supporting these initiatives to complement and strengthen its export finance offerings for the benefit of its UK corporate customers. We support customers through both a strong product range and sector expertise delivered locally combined with global reach. From a product perspective, it’s about understanding corporates’ needs throughout their trade cycle – from Letters of Credit and other forms of risk mitigation, to pre and post shipment finance and supply chain.
How do you help treasurers with their liquidity?
Managing liquidity is one of the core strategies for business survival, but many companies also have larger deposits on call and it’s crucial to make these work as hard as possible. Many of our customers are becoming much more astute, increasing demand for banking that can be trusted to offer both prosperity and protection.
This year, we built a range of deposit solutions which provide a wide choice of products to fit differing needs – and to make funds go further. With the partial withdrawal fixed-term deposit, we can give our customers the benefits of a 12 month term, yet they can access 20% of their deposited funds with just 32 calendar days’ notice. Our customer choice product is the 95 Day Notice Account which aims to generate interest income over and above that from similar money market products, but doesn’t keep capital tied up for the longer term as in many fixed-term deposit accounts. Although there is 95 calendar days’ notice, I think it is helpful to treasurers as they can also keep adding funds to suit their needs.
Lloyds Bank Corporate Markets
Lloyds Bank Corporate Markets has a network of relationship teams with the mix of national strength and global reach necessary to provide long-term product support and advice to its customers. The bank offers a broad range of finance, spanning structured and asset finance, import and export trade finance, securitisation facilities and capital market funding. Its product specialists provide bespoke financial services and solutions including tailored cash management, international trade, treasury and risk management services.
With a heritage that ensures unrivalled understanding of business needs, Lloyds Bank has a proven track record of supporting customers across all sectors and regions of the UK. Priding itself on a very personal approach, it has provided support to its customers throughout the economic cycle. Over 1,900 businesses were helped in 2010, with over £30 billion of finance.
For more information on our transaction and international baking solutions, visit www.lloydsbankcorporatemarkets.com or www.lbcmarena.com