Executive View: Carole Berndt, Bank of America Merrill Lynch

Published: May 2013

In this challenging economic environment, banks should rethink their relationships with corporates, software vendors and other financial institutions. By being open to new ways of collaborating, banks can deliver value and reach for clients and improve their own business prospects, while corporates can achieve their treasury objectives at a lower cost.
Carole Berndt portrait

Executive View

Carole Berndt

Head of Global
Transaction Services
Europe, the Middle
East and Africa

Published: 8th May 2013

Carole Berndt is Head of Global Transaction Services for Europe, the Middle East and Africa (EMEA), where she is responsible for the end-to-end product, business, technology and operations, and client sales management strategy for the treasury and custody businesses. She also has a leading role in delivering the integrated global corporate banking financial plan and market share growth.

Prior to joining Bank of America Merrill Lynch (BofA Merrill), Berndt worked for Citigroup in New York where she led the Client Delivery team, with global responsiblity for the end-to-end delivery of implementation, service and client technology for global treasury products. Berndt also held various roles for Citigroup in Hong Kong ranging from product management and reengineering to business management and client delivery. Prior to Citigroup, Berndt worked at American Express, managing the Merchant Service eCommerce strategy for Asia.

A 20-year financial services veteran, Berndt began her career in the insurance industry, holding roles in finance, risk management, business development and technology. She then held senior roles with Allianz and ING in Australia and was instrumental in establishing the industry’s eCommerce strategy for the corporate insurance market.

Berndt has a degree in Information Technology and a Masters of Business Administration in International Business.

What is the ‘new normal’ for treasurers?

Managing uncertainty is now business-as-usual – macro-economic instability and financial volatility are here to stay, as recent events in Cyprus have shown. Consequently, the treasury needs to be at a continual state of readiness: the euro crisis contingency planning Bank of America Merrill Lynch (BofA Merrill) helped clients with over the past 18 months has left them better prepared should any significant market event occur.

More generally, to accommodate this uncertainty, companies need to adopt a new approach to risk management that is holistic in nature – it is about managing enterprise-wide risk – and making risk awareness a primary focus for the business. In order to achieve this, the remit of CFOs and treasurers has extended well beyond a pure treasury focus. At the same time, treasuries have to keep up with rapidly evolving markets driven by regulatory changes and political reaction to macro-economic trends.

These two trends put considerable pressure on the treasury. Not only does it have to do more within its own company, it must also respond to a more uncertain and ever-changing external environment. In many cases, it is being asked to perform this increased role with fewer resources. When infrastructure investments are made, they are invariably given the go-ahead based on their ability to deliver greater operational efficiency and better risk management as part of the expected return on investment (ROI). Corporates are still focused on cutting costs rather than providing extra funds to support what they consider day-to-day activity. With the cost of banking rising at the same time, managing projects and resources effectively has become a real balancing act for many treasurers.

Why are banking costs rising?

There has been an increase in the number and complexity of regulatory changes – and an acceleration of the pace of change – which has led to increased compliance costs for banks. Most banks are also investing heavily in technology, controls and contingency in order to maintain a pristine control and compliance environment. This is the right approach – caution is a good thing – but it increases banks’ operating costs which, in turn, push up the overall costs of transaction banking. Some regulatory change will also have a direct impact on the range of transaction services offered because of increases in the amount of capital that banks are required to hold against certain assets.

In addition to regulatory changes, local market developments – such as the Faster Payments Scheme (FPS) in the UK and niche mobile payments products across Africa – are rapidly advancing. It’s imperative that banks stay ahead of the curve with innovative products that are not only practicable and useful, but also meet clients’ increasingly sophisticated needs.

The challenge for banks is exacerbated because while costs associated with regulatory change and market developments are increasing, many sources of revenue are under pressure. The industry is moving to Single Euro Payments Area (SEPA) instruments, which will lower prices, and compounding this are spreads close to zero and, in some cases, negative. Banks will have to find new ways to accommodate their increased costs at a time when revenues are under pressure.

The best way to do this is to take a holistic view of the relationship between the corporate and the bank. If such an approach is taken, the profitability of an individual product is balanced against the overall (product agnostic) value of the client relationship. Banks need to have a transparent discussion about where the value exists across the products and services that a client uses – to do that requires a strong, deep, trusting relationship between banks and their clients.

At the same time as bank revenues are under pressure, the challenges faced by banks mean they are questioning whether they can be all things to all clients in all markets. This is especially pertinent because clients are operating in more jurisdictions than ever before. Moreover, since 2008, regulators have taken a more parochial and less globally consistent approach, which has resulted in greater requirements to hold capital locally and keep data in-country than in the past, which further increases costs.

One answer to these challenges is greater co-operation between banks – and the smart ones are making collaboration part of their core strategy.

What does greater collaboration mean in terms of how banks serve their clients?

The economic environment encourages banks to re-evaluate the ‘global footprint myth’ – the idea that a bank can have a full product range in all geographies. Although a bank may have a branch in a particular country, it doesn’t necessarily follow that it has a full suite of banking capabilities. While it may tick a box in a request for proposal (RFP), the functionality to make tax payments, collect cash or clear cheques across markets such as India or China, for example, may not be there. We increasingly see smart treasurers differentiating between a bank’s footprint and its ability to meet a corporate’s needs.

The best bank to provide local services in a specific country is often an established, stable local bank, so global banks need to assess when it is in their best interests to build the functionality themselves or to team up with another bank. If selecting the latter, it must be done in a way that is seamless and transparent to the client providing the same experience and efficiencies as if they were dealing with just one bank. Technology available today makes this seamless experience a real possibility, in a way that has not been possible historically.

The important point to make is that collaboration between banks could potentially offset some of the cost of innovation and regulation through shared utilities and development, because it becomes exponentially more expensive if we all try to build it ourselves. If we share capability, platforms and infrastructure then the industry as a whole will benefit. Industry collaboration does not reduce competition or limit choice for the client, it enhances it. Everything we wrap around the transaction – the structure, solution, people and confidence – is what differentiates banks, makes the whole network viable and drives competition.

How does this differ from the idea of a partner bank network?

Banks have always used correspondent banking networks to extend their reach. However, in the past, many treasurers have had unfavourable experiences with such arrangements. The problem is that the alternative – gaining more control through direct involvement with local banks – is simply not practical for companies. Most treasury departments don’t have the resources to maintain 40 to 60 different banking relationships in order to meet all their in-country requirements and such arrangements inevitably introduce additional risk and cost.

Fortunately, modern technology provides a solution and means that today’s partner bank networks differ greatly from those of 20 or even five years ago: corporates can now expect a truly seamless experience. But to make this goal a reality, banks need to be smart about who they team up with, ensuring they protect their own reputation and be held accountable to their clients for the partner bank’s performance.

There will always be treasurers who are reluctant to rely on a partner bank network, but few have the wherewithal, time or need to manage it themselves. For everyone else, effective partner banking using a one-world-style alliance can make high quality, consistent services a reality wherever that corporate operates.

What does a one-world-style alliance mean in transaction banking?

Pan Am once aspired to be the world’s only true global airline, flying everywhere. But it became overambitious, overstretched and the capital challenge was so big that it failed. In the 1990s, the airline industry responded by restructuring many airlines’ focus to home markets but partnered to build their network. This evolved into the airline alliances we know today.

The banking industry needs to emulate that model. A oneworld transactional banking alliance recognises that it’s impossible for one bank to meet all a client’s needs. Instead, by forming an alliance it is possible to provide transaction banking services in every corner of the world in a seamless way.

Clients may elect to have their primary relationship with just one or two banks, but if and when they want banking services in Bulgaria, or in a province in China or Latin America, for example, there will be a partner bank within that alliance that will inter-line, single ticket and give frequent flier points on their primary programme.

In addition to fully supporting the client in the best way possible across multiple markets, this collaboration will also drive down the cost of banking, which – as we’ve discussed – is a growing concern for most corporate clients. If we leverage the footprint of other banks, then we avoid over-extending our reach. Being thinly spread – in contrast to doing more in fewer markets – inevitably increases costs, which are then passed on to clients. An alliance, therefore, offers a straightforward way to address this.

How does this translate into a sustainable business model?

Banks must recognise that increased collaboration supports their overall goal of managing costs while doing more – and using it to reinforce their overall growth strategy is a sustainable model: gone are the days when a bank has to do everything itself.

However, banks aren’t the only ones to benefit from close collaboration. It also empowers the corporate to address the issue of rising bank costs – which are chiefly driven by higher compliance costs – and which increase exponentially the more markets in which a bank operates. Corporates are therefore able to pick and choose banks that use collaboration as a way to control those costs, because those that don’t will be passing them on to their clients.

Sustainability is about creating a platform or environment – whether in a business or natural ecosystem – that operates harmoniously. From a treasury sense, it’s about having the systems, processes, platforms, relationships, and structures in place that positively contribute to the health and well-being of the corporate’s business. A collaborative model for transaction banks clearly has the potential to do just that and is, therefore, a sustainable model for banks and corporates alike. Indeed, it is important to think about collaboration not just between banks but throughout the financial ecosystem. Today there are many industry groups involving corporates, banks and vendors working together in ways that wouldn’t have been possible even five years ago.

How does the idea of collaboration extend to the corporate-to-bank relationship?

Some corporate treasurers have historically chosen their banks based solely on price, effectively treating the bank as another vendor of products and services. Others have taken a more holistic and forward-looking view – working with their banks to ensure the relationship is mutually beneficial. It is important for both parties to understand where the value lies in the relationship and to develop trust over time.

The latter group of companies, which openly discuss their business strategy with their bank, and are transparent in how business will be allocated, will ultimately get the best value from their bank. With this knowledge the bank can take a rounded approach to the relationship and aggregate profitability across multiple products.

The drivers and challenges on the corporate side may be different to those affecting banks, but they ultimately lead to the same place – a deeper relationship and closer collaboration. Those corporates that collaborate with technology vendors and banks are going to be better positioned than those that operate in functional silos.

Gone are the days of a purely RFP-led procurement approach. Today, having an open and honest conversation about the corporate’s needs helps the bank to understand when it should be building, purchasing or partnering to deliver the best solution.

Your bank should bring to you the best services they can, tailored to your needs, and do this through their network and partners. They should wrap around this, ownership and accountability for ongoing services and support – both of which are the real measure of a quality provider.

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