Photo of Ciaran Walsh, J.P. Morgan, Meredith Vance, PayPal.

This project uses a new International Treasury Centre in Luxembourg to centralise international cash management, investments, FX and internal financing. The benefits are simple: control visibility, simplification and scalability.

The challenge

PayPal has historically operated with a decentralised treasury structure, fraught with complexity. For instance, treasury was managing 18 separate pools of cash in multiple currencies and hedging exposures in the name of 25 different entities, with high associated costs. Internal financing was achieved by lending across 18 different entities with an inter-company lending portfolio of approximately $2bn (USD equivalent).

The complexity of its treasury operations was, unsurprisingly, impacting its ability to effectively manage global liquidity and group funding, investments, FX, payments and to scale with the international growth of the company.

As Meredith Vance, Assistant Treasurer at PayPal recalls: “Our issues included a lack of visibility over global cash which led to difficulties around concentrating investments, FX exposures and providing an adequate funding strategy for group companies. Moreover, our governance structure required approvals from the boards of each entity to execute standard treasury activities, which made for an inefficient and slow process.”

The company’s inter-company settlement approach, which occurred across hundreds of bank accounts, was also decentralised, creating a lack of visibility, hindering the management of foreign exchange.

“Faced with these significant challenges, a transformation was required,” states Vance. The right people, processes and systems were going to be key in PayPal’s treasury success.

The solution

PayPal engaged in an impressive treasury transformation initiative, moving from a highly complex, decentralised organisation to a simpler, more scalable one with greater cash visibility and concentration of key activities and controls.

By creating a uniquely effective governance structure that delegated authority to treasury personnel to execute a standard set of activities on behalf of 60+ global entities and reforming underlying operating policies, treasury was able to establish a consistent standard around the world for conducting core activities and paved the way for the international treasury centre (ITC); a new USD functional treasury legal entity in Luxembourg.

This was key to centralised management of international cash, investments, enabling PayPal to realise its US dollar investment strategy, as well as centralising FX exposure and streamlining internal financing. In addition, ensuring that the right people with the appropriate skills were employed in its ITC helped to drive its success.

Recognition of PayPal’s global liquidity management solution validates our path towards operating a world-class Cash Management organisation. It is the result of a journey that my team readily embraced to prepare PayPal Treasury for future growth and I could not be more proud of our accomplishments thus far.

Further, implementing a multi-currency notional pooling solution and leveraging the SWIFT network to automate cash transfers between in-country operating accounts, facilitated cash visibility via ITC and removed the manual effort. The use of a notional pool structure eliminated the need for treasury to manually exchange foreign currency for working capital requirements of its subsidiaries and reduced the number of entities needed to hedge intercompany financing exposure via ITC.

To wrap around the solution, treasury technology implementation has enabled further automation. All of this was accomplished without negatively impacting tax and ensuring that legal and regulatory requirements were met.

As Vance explains: “Most importantly, the scalable nature of the ITC solution allows us to support the growth demands of the company globally. Today, we continue to build upon the activities of the ITC through a strategic roadmap that incorporates best in class, innovative enhancements such as receivables on behalf of (ROBO) and payments on behalf of (POBO) initiatives.”

Best practice and innovation

This solution not only serves the company exceptionally well now, but it has set the stage for ongoing transformative and innovative change. This change began with the critical need for real-time visibility into global cash balances to support strategic decision making and expanded to address mitigation of foreign currency risk, optimise internal funding, and automate cash concentration and reporting.

This is not the typical liquidity management structure of the past. It is truly the foundation for building, scaling and driving best practices. As Vance concludes: “The business benefits of our treasury transformation can be summed up in four words: control, visibility, simplification and scalability.”

Key benefits

• Streamlined operating processes; reduced manual efforts.
• Concentrated FX exposure and reduced hedging costs related to internal financing activities.
• Significant improvements in visibility over the company’s cash.
• Created a solid foundation to build future enhancements (eg ROBO/POBO).
• Treasury now a key enabler for company’s growth strategy.

Key takeaways

• Clearly identify your problem statement, objectives and measurements of success.
• What does your roadmap/journey look like? Create a vision for the future with defined milestones and understand the regulatory environment which you operate to avoid roadblocks
• Understand your stakeholders, their needs and ensure buy-in from senior Management upfront.
• Ensure you have the right resources (internal and external) dedicated to the project. Leverage your global bank relationship and advisors. Their experiences across other Companies are invaluable to creating your own solution.
• Optimise technology to automate and drive continued operational efficiencies.