Treasury Today Country Profiles in association with Citi

Bank account rationalisation

This issue’s question

“How should treasurers go about rationalising their bank accounts?”

Portrait of Kimberly Floyd
Kimberly Floyd
Portrait of Peter Dong
Peter Dong
Kimberly Floyd, Senior Analyst, Global Cash Management and Peter Dong, Global Cash Manager, World Vision International:

Over the years, bank accounts proliferated throughout World Vision International (WVI) due to convenience and necessity, without much thought to an overall cash management strategy. This untenable situation posed potential risk to the organisation in the form of fraud, liquidity, inefficiencies, controls and cost.

To address this problem, WVI Global Treasury started the Bank Rationalisation Project with the goal of reducing the 200+ banks to seven global partner banks and to rationalise 2000+ bank accounts.

Recognising that these changes would be disruptive to our finance operations, we developed an approach that addressed change management with emphasis on collaboration and communications amongst all impacted offices, the global partner banks and global treasury.

To begin, this saw each global partner bank visit our local offices to learn and see how each office was using banking services and listen to the challenges they faced. We named this our ‘due diligence’ process. Through the due diligence process, we learned that most of our bank accounts simply existed to access cash to fund operations and pay vendors. Consolidating these proved an opportunity to create greater efficiencies and safety to staff.

Once the due diligence process was completed, the global partner banks crafted cash management solutions customised to each World Vision office with guidance and broad objectives provided by WVI Global Treasury. The new solutions consolidated all bank accounts in each country to one partner bank and maintained only those bank accounts deemed operationally necessary.

Where applicable, the new cash management solutions provided more efficient payment methods such as electronic, mobile, and prepaid cards in lieu of cash and cheques. The new solutions also included centralising all payments to one office and eliminating the need for separate accounts payable accounts at each project location. The result: World Vision is saving money by making our banking processes more efficient and manageable.

Another important step in the rationalisation project was the use of a three-stage iterative approach in forming the best cash management solution and account structure. The banks provided the new solution to the global treasury team, the regional finance directors, and finally the national finance directors. This process allowed the solution to be vetted multiple times to meet project objectives and operational requirements and include all stakeholders in the process. By including as many parties in the decision-making process as possible, our bank rationalisation solution is a team effort rather than a top-down management approach.

Rationalising banking partners and bank accounts is a time-intensive project. In hindsight the benefits far outweigh the time and energy cost. Efficiency, security for employees, visibility, transparency, cost savings, and improved account management are just some of World Vision’s successes realised through our bank rationalisation project.

Portrait of Pieter Sermeus
Pieter Sermeus, Manager, Zanders:

Globally active corporates often have a high number of bank accounts which are held with a variety of banking partners around the world. This creates complexity in their banking landscape, an increase in the amount of paid banking fees and cash management inefficiencies such as trapped cash on stand-alone bank accounts. So how can corporates rationalise their banking landscape?

While historically a corporate could have a few or even one single ‘house bank’ that would take care of all its regional and/or global banking requirements, from a counterparty risk and diversification point of view this is no longer acceptable. Wallet distribution is a frequently used methodology for evaluating multiple banking partners. In this methodology, the amount of corporate banking business assigned to a banking partner (measured in both direct and indirect banking fees) is compared against the provided credit commitment of that banking partner. This allows corporates to evaluate if each banking partner’s reward is in balance with the commitments and to compare the relative performance of different banking partners.

The wallet distribution methodology can provide a corporate with valuable insight into the revenue expectations of its banking partners and bring objective arguments to the table during discussions. It is however important not to limit the discussion to this ‘revenue versus credit commitment’ trade-off. A banking partner can underperform in terms of wallet distribution, but can provide complementary value-adding services or have a high level of overall satisfaction. Overall, corporates should make sure their banking partners understand where they fit into the general treasury strategy.

Following the wallet distribution methodology, a corporate ends up building mutually beneficial relationships with its core banking partners who are committed for the long-term and rewarded accordingly. On the other hand, one needs to remain bank-agnostic to maintain flexibility in case there is a need for a change in banking partner. Many corporates have implemented bank-independent connectivity via SWIFT which improve the visibility compared to multiple, proprietary bank interfaces. Remaining bank-agnostic will mean a change in banking partner can be implemented more quickly, and more importantly can also be a catalyst to harmonise internal banking processes. For instance, the use of a central payment platform will allow standardised payment processes and further efficiencies.

Recently banks have also been offering virtual account solutions. Multiple virtual accounts are linked to one ‘real’ bank account and help to reduce the number of external bank accounts held. A corporate can have one real bank account per currency with an unlimited number of virtual accounts linked to them, significantly reducing the complexity in the banking landscape and facilitating the centralisation of receipts and accounts receivables reconciliation processes. Since cash is concentrated on a limited number of bank accounts, this will also have a positive impact on cash and liquidity management.

A corporate’s banking landscape will also be impacted by changes in the regulatory environment. The Payment Service Directive 2 (PSD2) or the Open Banking initiative in the UK will oblige banks to provide access, with consent of the corporate, for third parties to extract statement information and initiate payments. This will create a stimulus for the offering of bank agnostic applications which can consolidate the information of all bank accounts via the use of application programming interfaces. This will enable new entrants to offer innovative, value-adding services which challenge the traditional bank services.

Portrait of Dan Gill
Dan Gill, Senior Director, Redbridge Analytics:

There is not a one-size fits all approach to rationalising bank accounts. The number, location, type and funding structure of bank accounts can vary widely across companies, even companies that are in the same industry and regions. In the lifecycle of many treasury organisations, the natural growth, acquisition and other factors tend to lead to a bloat in the number of accounts used to conduct the business. Among the myriad of strategies for rationalising a particular bank account structure, we will focus on rationalising the expense of maintaining those accounts.

Every bank account that a company maintains represents a cost. Often, those costs can be greatly reduced by eliminating accounts and not only rationalising the existence of each account, but also rationalising the services that are being used. While a significant reduction in the number of accounts will certainly reduce the fees associated with cash management operations, we often find even greater savings by rationalising the types of services used within accounts to effectively manage cash.

In order to perform a service rationalisation on our cash management accounts, we require some new treasury abilities. We need to establish visibility into our true costs of managing our accounts and performing cash management transactions. To achieve visibility, we first must gain accessibility to the bank fees we are being charged. One of the reasons that visibility into bank accounts and their costs is so difficult is that many banks have simply not reported the details of the charges levied. This has led to significant expenses to the treasury bottom line with no way to validate the accuracy.

Fortunately, the global banking industry has developed a solution that allows any bank in any part of the world to accurately report the monthly accrual of bank service usage and charges. The ISO 20022 file format known as the Bank Service Billing (BSB) standard can be used by any bank, anywhere in the world to report the monthly aggregated balances, service usage, pricing and charges for any account to any client.

Through the use of the BSB or other industry standard reporting formats, banks are able to help their clients close gaps in both the rationalisation of the cash management services they are using as well as maintaining control over their entire inventory of accounts by automatically identifying new accounts opened. It is the automated visibility into our accounts that the BSB file gives us that can help us solve the account rationalisation problem once and for all.

By monitoring the whole inventory of accounts in real time, we can eliminate the sporadic need for a review project every year or two. Even in the most decentralised treasury operation, the near global availability of the BSB file format offers us the opportunity to rethink the entire need for account rationalisation. Automated BSB review gives us visibility into the cost, the usefulness and the rationale for every account in our inventory and they are now available from banks in many countries around the globe.

Next question:

“What are the current trends in treasury management in Africa?”

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