Becoming SEPA-proof, innovation in European payments and overcoming the scarcity of liquidity: we discuss these topics and more in this interview with Mark Buitenhek. We also touch the idea of treasurers de-coupling from bank standards and how technology is driving this trend.

What are the major forces shaping the structure of the market environment for treasurers today?

One of the main drivers in the corporate treasury space today is the scarcity of liquidity. This is exacerbated by the regulatory environment and capital demands on banks, such as Basel III.

Elsewhere, there are a number of interesting developments taking place. For example, technology has become generally cheaper and more readily available, as well as being easier to apply. Efficiency and effectiveness are also big themes linked to technology. Finally, risk management has definitely risen up the corporate agenda over the last 18 months.

How are treasurers coping with the scarcity of liquidity?

First of all, I would say that today, treasurers are doing their job even more effectively than before. This is reflected by the growing emphasis on accurate cash forecasting, in-depth reporting, and having the correct treasury structure in place. Treasurers are also managing their bank relationships more closely than ever before.

One of the main drivers in the corporate treasury space today is the scarcity of liquidity. This is exacerbated by the regulatory environment and capital demands on banks, such as Basel III.

Moreover, they’re doing everything they can to unlock cash within the company. If they happen to have excess liquidity, they are spreading it across a number of banks in a variety of geographies to be absolutely sure they limit the risk.

Which regulatory initiative do you see as the biggest threat for corporates and why?

Basel III is going to have a huge effect on banks and on the availability of capital. For corporates, this means that there will be less credit in the market. In turn, that’s going to put an enormous pressure on corporate treasurers to be able to provide their own sources of funding. The challenge is to do that without hampering their growth too much.

By way of preparation, corporates should be looking to optimise their own working capital and minimise their need for bank credit. Reviewing the wallet share that they have with their banks may also assist them in securing the external funding that they still require.

How is ING helping its clients through these tough times?

It is true that the environment is challenging, but at ING we are ready to assist our clients, with a wide range of solutions in the cash management area. However, that’s simply what we do in the course of day-to-day business.

What we are trying to do in direct response to the tough macroeconomic landscape is work more closely with clients to help gain increased visibility over their treasury operations. This means improving their reporting capability, making it easier for them to see where their money actually is. To that end, we are also enhancing our channels to give clients a complete view of where their cash is.

Elsewhere, our local presence certainly helps customers to approach their treasury activities in an effective way. For instance, if you have a subsidiary in Poland, we have people on the ground who can help you there, or assist your subsidiary in moving towards a more centralised model.

Technology is definitely an enabler, but are banks really offering what corporates want? Not as much as perhaps they should be, I would say.

In addition to that, we are really focusing on simplifying our offering. Until five years ago, everybody more or less believed that having an enormous amount of product features and capability was the way to go. We’ve now moved to a direction we think everybody likes: a slimmer but more targeted line up of solutions.

The aim here is to make life easier for corporate treasurers. It’s a very tough job and as a corporate you don’t need 250 different options when 25 would work just as effectively. Finally, where the treasurer’s role and remit has become broader within the organisation, we are reflecting this in our own structure. We have concentrated all of our activities with regard to flow banking within one transaction banking unit, called Transaction Services. Everything is there from trade, to flow, to commercial finance, securities et cetera. So, we are combining our knowledge and personnel around the needs of the treasurer.

What about technology? Should that be simpler too? And are the banks really offering corporates what they want in this space?

As part of my role at ING, I’m involved in numerous roundtables with corporates, where we ask those kinds of questions. ‘What do you want from us?’ It’s surprising to see how many different answers you get from different types of corporates. Some corporates are really interested in having all kinds of mobile capabilities, others say ‘we don’t really mind, so long as it works, so make it as simple as possible.’

Technology is definitely an enabler, but are banks really offering what corporates want? Not as much as perhaps they should be, I would say. The issue is that we come from a market where banks used to set the standards and that has changed. We have to adapt to the fact that we can no longer set all the standards in the world and then expect corporates to buy into it. As an industry, I think we are actively recognising that.

For instance, we used to determine which format to use and why but today the market simply determines what it is. So we will offer ten basic formats. It doesn’t matter where they come from, those are the market standards with which we cover 95% of what’s required. So that‘s a clear signal that the market has changed from a seller’s to a buyer’s market in that respect.

SEPA is meant to bring full standardisation across Europe, truly making one payments market. What we see today is that there will still be a number of small differences at country level.

It also comes back to what I said earlier: some people in this space still think that the key to success is offering a lot of opportunities and possibilities, simply because the technology can do it. What we at ING believe is that we should cater for the true needs of the client. At the end of the day, the client just wants to be able to deal with very simple – but very effective – tools.

On the topic of standards and standardisation, we now have a SEPA deadline. What do you see as the major challenges that lie ahead?

SEPA is meant to bring full standardisation across Europe, truly making one payments market. What we see today is that there will still be a number of small differences at country level. So while there will be standardisation far more than there is at present, there will still be differences in the market. That’s a risk because that will block the fundamental idea behind SEPA, which is that with one standard you can travel across all these countries. So that’s one major challenge.

The second significant hurdle is to get companies ready on time. Everyone is aware that SEPA is coming, but I would say that it is still quite far down the corporates’ list of priorities. I think that the risk is that many companies will leave it very late to begin their work on SEPA migration – perhaps as late as H2 2013. This will cause bottlenecks and an enormous amount of pressure on IT suppliers, banks and their own internal departments, et cetera. That’s one of the greatest risks and one of the real challenges we see around SEPA right now.

Source: European Central Bank (ECB) February 2012

On average, how long does it take for a corporate to migrate to SEPA?

We’ve seen migration periods from six to 12 months. That’s an average figure. If you’re a very large conglomerate with a number of companies, and at the same time you want to look at centralising some of your activities, then that can easily become 18 to 24 months. I’ve also seen transformations or migrations that have cost €2-3m, so corporates need to allocate some budget for this. The biggest issue though, as I mentioned, is that if everybody draws on suppliers’ IT resources at the same time, there simply won’t be enough expertise to go around. I would say that for corporates this is a bigger and more complex operational undertaking than the migration to the euro.

We’ve seen migration periods from six to 12 months. That’s an average figure. If you’re a very large conglomerate with a number of companies, and at the same time you want to look at centralising some of your activities, then that can easily become 18 to 24 months.

What top tips do you have for corporates who haven’t started their SEPA migration yet? Also, what is ING’s approach to helping clients here?

First of all, start immediately. Appoint a project manager. You have to organise this. If you keep simply talking about these kinds of things, it isn’t going to work properly. Corporates also need to allocate time and budget this year to SEPA.

Next, look at the country migration plans. Each country has a migration plan for SEPA in place (or will have that finalised and updated by the summer this year). It’s also important to remember that every country is at a different stage of SEPA uptake and corporates will need to adjust their plans accordingly.

Source: European Central Bank (ECB) February 2012

The next thing to do is to talk to your bank and your IT suppliers. Invite them to join the project from the start. You need both parties to be involved, and you need to include your internal organisation. The key is to start working on this collaboratively.

The right banking partner will bring with it extensive experience with other companies. For instance, if you look at Belgium, 25% of the Belgian market has already migrated. ING is one of the biggest players in Belgium and we organise roundtables with clients who have already migrated and with clients from other countries who have not yet done that. So we assist in sharing the experience we have and our clients have. Those kinds of communities really help. The same goes for the IT suppliers. I know some of the largest IT suppliers have created user groups around their ERP systems, helping other companies to move forward.

Also, if you have the time as a company, look at centralisation options for both your treasury and your payments factory. Making sure you integrate SEPA into your financial supply chain is also critical, and Diagram 1 illustrates how ING approaches the different aspects of the chain with its clients.

At ING, we are committed to supporting clients in migrating to SEPA. We believe in sharing experience with others across countries. With our dedicated and experienced staff and extensive end-to-end value-added services we support the migration. Our testing service to ensure a smooth roll-out is one example.

In fact, we have our own website that is dedicated to helping corporates to become ‘SEPA proof’: www.ingsepa.com. There, corporates will find information on the benefits of SEPA as well as more tips towards SEPA migration and a detailed checklist. It really is a great resource.

Looking to the future, what major developments do you see in the treasury space?

One interesting area is innovation in the electronic payments market in Europe. Consumers have already significantly changed their payment habits.

Following on from the rise of payments with credit or debit cards, we are seeing the rise of e-commerce and that the increasing popularity of smart phones has enabled new ways of making payments. The benefits of better market integration in this area are substantial and this is definitely a development to watch out for.

If I were a treasurer today, I would also be looking at the possibilities of becoming less dependent on banks. So I would become de-coupled from my bank’s standards. As such, it’s easy to see why developments such as eBAM and SWIFTNet are growing in importance for clients. There’s also a lot of talk about virtual accounts. This means that you can use your virtual account, which is connected to a bank of choice, to become less dependent and you can switch more easily between banks in the future. This is all possible because of technology.

Following on from the rise of payments with credit or debit cards, we are seeing the rise of e-commerce and that the increasing popularity of smart phones has enabled new ways of making payments.

I also believe there is the possibility of further integration of the financial supply chain. So from e-invoicing to accounts payable to accounts receivable and back, we can clearly envisage a more integrated approach.

Another key development, in my view, will be capital market access. Some corporates can get access to the capital market and more credit out of it far more easily than others. I think we’ll see all kinds of new ways of one company giving another company credit, and that also has to do with the supply chain finance type approach, which I’m sure we’ll see much more of.

Finally, there’s still a lot of discussion around the euro which has not been finalised yet. In a corporate treasurer’s shoes, I would keep a very close eye on what’s going on there.