Bank Interview: Erik Zingmark, SEB

Published: Oct 2008

We talk to Erik Zingmark about SEB’s cash management strategy, the challenges and opportunities brought by SEPA and the other trends shaping the payments landscape.

Erik Zingmark

Global Head, Cash Management/Global Transaction Services

Erik Zingmark is Global Head of Cash Management at SEB Merchant Banking. Erik has extensive experience of cash and working capital management and has worked in cash management on the buy and sell side, and as a consultant. He was Cash Manager and later EMU Co-ordinator at Skanska Group, before joining ABN AMRO as Head of Cash Management at the bank’s Stockholm branch. Erik was later President and Partner, N&G Financial Consulting. At SEB Merchant Banking, Erik is responsible for cash management in 16 markets.

How is it possible for a regional bank like SEB to compete with major international players for international cash management business?

We are extremely fortunate: for the last 150 years SEB has had some of the most sophisticated clients in the world. Corporates in Sweden and the Nordics had relatively small home markets and therefore needed to expand their businesses internationally very early on. SEB followed these corporates in their expansion, continuing to help them with their banking needs. As a result SEB now has a local presence in 27 European countries, through our own network and partnerships, and our global network covers 33 countries, including the US, Canada, China and Singapore.

In order to succeed we have needed to be competitive. Our clients set themselves high standards and therefore expect high standards from their bank. We have raised the bar by measuring our success against the standards of global rather than regional banks. As we could never compete with global banks in terms of size, we have had to be more innovative and to provide services in a smarter way.

For example, SEB went online as early as 1972 with real time banking platforms; we were subsequently among the first to introduce netting and cash pooling in the early eighties and internet banking in the early nineties. We developed web-based cash forecasting ten years ago, which other major banks are only just starting to introduce. The technical maturity of the whole Nordic region has of course helped us to do this.

The key is that development has always been carried out in close co-operation with our clients. This has proven to be a very successful business model and we still work along these lines. We are constantly improving our offering and enhancing customer satisfaction and the liquidity products available to our clients.

How successful are you in this area?

We are doing very well and we continue to grow and take market share in an extremely competitive market. In the Nordic and Baltic regions SEB has long been the dominant cash management house. We currently act as the main cash management provider for approximately 85% of Nordic multinational clients and 75% of Baltic multinational clients.

Furthermore I think there are few banks that can provide such an extensive list of global, European and Nordic/Baltic awards as SEB can. Just to give some examples, SEB has been awarded ‘No. 1 globally for overall customer satisfaction’ in the Euromoney Cash Management poll 2008, ‘No. 1 globally for level of commitment to the cash management business’ in the Euromoney Cash Management poll for the last three years running, ‘No. 1 globally for global liquidity capabilities’ in the Euromoney Cash Management poll 2008 and ‘No. 1 globally for industry expertise and knowledge’ in the Euromoney Cash Management poll 2007 and 2008.

How does SEB drive innovation in cash management?

SEB’s philosophy is to work in collaboration with clients in order to create financial and administrative value. This means that we always involve clients throughout the development process with new products, ensuring that we get it exactly right from the beginning.

“SEB’s philosophy is to work in collaboration with clients in order to create financial and administrative value. This means that we always involve clients throughout the development process with new products, ensuring that we get it exactly right from the beginning.”

SEB also works with a best practice methodology. Indeed, by using one of our solutions, called the Cash Management Value Chain™, our customers are able to measure their cash management, risk management, short-term investment and funding processes against benchmarks set by ‘best in class’ corporates globally. Using this methodology, our customers can increase the efficiency of their processes and lower the total cost of running the cash management business. For SEB it means a larger share of the total cash management market.

Looking at recent changes in the payments market, what impact has SEPA had on treasurers so far?

So far the impact has been quite limited. I believe that preparation work has started but few treasurers feel that they have made much progress and most are still trying to understand how quickly they should move. They’re also starting to realise that in order to reap the benefits of SEPA, they need to make some adjustments in their own systems.

I think that most treasurers believed that banks would do more or less everything themselves, and that it would be a question of ‘plug and play’ for the corporate environment. Now they are starting to realise that they need to make changes in order to be able to handle XML messages, for example.

What opportunities does SEPA bring for treasurers?

The role of the treasurer is now much more about hands-on support of the business and there are some more responsibilities for efficiency around accounts receivable, accounts payable and working capital. I think that treasurers see a number of potential benefits in the future, such as decreased cost, in terms of both bank costs and efficiency improvements internally. They also see opportunities when it comes to centralisation – it will be easier to set up shared service centres and easier to get an overview on the euro liquidity. Other benefits are harmonisation between the markets, payment instruments and reporting, as well as straight through processing of course.

“The role of the treasurer is now much more about hands-on support of the business and there are some more responsibilities for efficiency around accounts receivable, accounts payable and working capital.”

What qualities are most important for a bank in delivering effective SEPA solutions?

First of all, it should be understood that SEPA is a journey that will go on for many, many years. It is also a facilitator – for the bank, but especially for the corporate – making it easier to centralise, harmonise, improve straight through processing, decrease costs, have information on your liquidity and work on your liquidity management in a more efficient way. It facilitates setting up shared service centres, decreasing counterparties, being more specific towards your IT suppliers.

It is essential for a bank to be able to deliver price and quality. And, as long as they can do that, they are in the game. If they fail on either of those things, corporates will need to move to find another way of handling SEPA.

To be a credible player in SEPA, you need to have the commitment from top management of the bank and top management needs to understand what SEPA is all about. SEPA is not only a part of cash management. It’s a matter of what banks will be: the top account or overlay for a particular corporate’s euro liquidity. And if you have that view on it, it suddenly becomes a top management issue for most banks.

How is SEB positioned and what sort of solutions are you offering?

We were ready by 28th January and we are continuing to develop additional optional services. We are also, of course, preparing for the PSD and SEPA Direct Debit.

Our view on SEPA is that it’s very easy to be 100% focused on the euro and SEPA, but for most corporates, at least in Europe, you also have to handle other currencies. We offer an approach we call European Liquidity Optimiser, meaning that while we are very focused on SEPA we also want to have a ‘bird’s eye view’ to ensure that we don’t lose sight of the non-euro currencies. The treasurer managing the liquidity needs one point of entry for SEPA and the euro, but also towards the Nordic currencies, for example. So we have the same approach as before, but with an extra focus on SEPA.

On a more practical level, we use the phrase ‘with SEPA inside’, which means that we take our existing processes and integrate the benefits of SEPA. We have the Cash Management Value Chain™ concept, which I mentioned earlier. This is a methodology for going through the in- and out-flow of the company, looking at where you have potential for improvements, both from a cost and quality perspective and from a working capital perspective. We look at all the benefits you find with SEPA and integrate them into this methodology.

The last level in our approach is that we look in detail at the opportunities that SEPA brings to companies. Will it make the business case good enough to establish this shared service centre they have talked about? Could they centralise liquidity management or go in for one treasury now? There are a handful of clear benefits, and we’re assessing these with all our strategic customers.

Can we have a look at the other changes that are talking place in the European treasury landscape?

At the top of the agenda is, of course, the financial turmoil. Treasurers are finding that they need to prepare for tougher times. They have a higher funding cost and they need to be very scarce with their liquidity.

For most corporates, the topic of expanding into Eastern Europe and Asia to support the business is another main theme.

Working capital is another important area. You need to be very efficient with your own capital, and that is something that everybody is looking at, together with liquidity forecasting. Corporates have become more efficient with their liquidity planning and liquidity usage, and they are more focused on handling liquidity optimally compared to a couple of years ago, when the economy was still booming and they had to focus on other things.

And then the area of operational efficiency is something that treasurers talk a lot about. How could we have one pipeline to our main bank or main banks, host-to-host? How could we use only one electronic banking system? How could we improve STP ratios to be as efficient as other processes within the company? Aside from SEPA and the financial turmoil, corporates still need to stay competitive in the global environment.

It’s always important to talk to your customers and it’s even more important now because even the largest banks really need to ensure that they are doing the right thing from an investment perspective. SEPA forces banks to understand what role they have to play in a SEPA environment, but even if you take a defensive approach, it still requires a lot of investment. If you decide to outsource, you still need to clean up before you can do that – and you need to be sure that you take the right decisions, because you will not have enough investment capacity to make another try. I think that really trying to understand customers’ priorities – geography versus system upgrades versus full steam ahead on SEPA – is very important.

“It’s always important to talk to your customers and it’s even more important now because even the largest banks really need to ensure that they are doing the right thing from an investment perspective.”

For us, in the Nordics, it’s also a matter of how long corporates will continue to invest in EDIFACT. The Nordics is a very EDIFACT-intensive area, and we need to understand what the future looks like for corporates in three, five and eight years’ time. Meanwhile, geographical reach is becoming more important year by year and we are focused on looking for partnerships in different regions – such as Asia and parts of Eastern Europe – to be able to supply our customers with one point of contact.

We have also upgraded our web forecast application for liquidity forecasting. Liquidity forecasting has been on the agenda for many years but for most people this has been an exercise in Excel spreadsheets. It’s starting to become so core now, fuelled by the financial turmoil, so we see this as a very important area.

Finally, we really believe in our approach, the Cash Management Value Chain™. This means being very pragmatic and hands-on, talking to customers, staff in accounts payable and receivable and logistics people in order to understand exactly how the liquidity and working capital moves in the company. It’s very basic but it’s extremely important to be able to optimise most of what we have talked about.

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