Regional Focus

Question Answered: Treasury in Latin America

Published: Oct 2015

This issue’s question

“What’s new in the Latin American treasury space? Are there any cash management or payment innovations treasurers should be aware of, for instance?”

Juan Pablo Cuevas, Head of Global Transaction Services, Latin America, Bank of America Merrill Lynch

Juan Pablo Cuevas

Head of Global Transaction Services, Latin America
Bank of America Merrill Lynch

In Latin America, the treasury space is undergoing a significant and rapid transformation as a number of forces converge to shape the future of cash management in the region. We often talk about the effects of companies expanding their operational footprints and the evolving regulatory landscape as contributors to the challenges facing treasuries today. And while there is no question that these will continue to influence and impact treasury strategies and priorities, there is another aspect driving the evolution of treasury in the region, which is the enormous focus on and investment in making cash management processes easier, safer and cheaper.

This activity has been heavily influenced by two factors: advancements in technology and changing client needs and expectations. Further accelerating the evolution is the symbiotic relationship between these factors. Client needs are driving advancements in technology, and advancements in technology are influencing client expectations.

Mobile is a good example of how treasury is evolving. In the last few years, consumers have adopted mobile banking in large numbers and as this usage continues to grow, treasury professionals who access their personal bank accounts from a mobile device are demanding the same functionality, speed, simplicity and transparency in the business banking environment – and at a lower cost. Banks have recognised the potential for mobile technology in the business-to-business environment and are actively working on new solutions.

The introduction of mobile technology has also increased the need and expectation for real-time, ‘instant’ payments. The respective payment infrastructures in the region are responding. For example, in Mexico, the country is moving to 24/7 payments availability and is improving speed of settlement from 30 seconds to five seconds.

While the popularity of mobile devices is a worldwide phenomenon, the huge growth in usage is coming from emerging markets. In fact, Latin America had the fastest rate of smartphone adoption globally in 2014, according to a report from market research firm GfK. And although consumer mobile banking transactions in the region are low right now, we expect this figure to increase soon as countries continue to evolve digitally.

What’s more, the focus of emerging technologies is by no means limited to the payments space: innovation is also addressing the challenges associated with receivables and, more specifically, the reconciliation process which for many firms can be extremely challenging. In Latin America, it’s common for many companies to employ large teams specifically tasked with matching payments to the respective client and invoice. In the past, efforts to streamline reconciliation have had limited success – but a new automated accounts receivable matching solution could help companies post cash faster, reduce days sales outstanding and increase efficiency.

The innovation applies rules defined by a company, and matches payments to the company’s open accounts receivable files. The technology is able to identify exceptions, which can then be corrected online before being posted. By reconciling payments faster, companies may be able to free up their customers’ credit limits – potentially increasing sales – while also improving their own working capital cycles.

From an overall innovation perspective, the game has changed and technology is constantly evolving. Understanding the latest advances in technology, as well as trends impacting the treasury space, will prove invaluable to companies looking to stay ahead of the cash management curve.

John Taboada, Director of Corporate Initiatives, Latin America, SWIFT

John Taboada

Director of Corporate Initiatives, Latin America

Managing cash and liquidity effectively and efficiently is the cornerstone of a well-run treasury function across the globe. Latin America is no exception. The region, much like similar markets, faces the challenge of managing manual processes which are both risky and costly. This problem is then compounded by regional nuances such as operating in different countries with different currencies, varied bank statement formats and several electronic banking systems and host-to-host applications. More than ever before, Latin American treasurers are seeking technology to help facilitate automation, standardisation and provide better cash visibility.

The shift to better and more robust, standardised technology is building significant momentum amongst treasurers in Latin America. This means that innovation and standardisation is moving into the spotlight, receiving greater precedent on the way. Treasurers are making the most of new technology that provides them with such features as a dashboard for customised reporting, drill-down capabilities as well as timely visibility of the opening position of the day. When treasurers can access multi and single-currency views and streamlined reconciliation processes, they can ultimately get to market faster.

Participation from the corporate sector which began leveraging SWIFT connectivity in 1999 has grown at a rapid pace. Today, we have over 1500 corporates connected on SWIFT and this trend is also seen in Latin America where corporate connectivity has grown to over 50 connections over the last five years. Additionally, banks are also increasingly adopting ISO 20022 messaging to standardise the way they interact with their corporate clients, which is helping drive participation.

Corporate treasurers are leveraging SWIFT’s technology to consolidate financial institution statements, translate them and then transfer them into their back office system. This eliminates a series of manual processes, including managing external devices, logging onto multiple banking portals and downloading multi-formatted statements which then require conversion into a standard format.

Jose Luis López-Sors, Head of Transaction Banking Latin America, BBVA

Jose Luis López-Sors

Head of Transaction Banking Latin America

Technology is without doubt changing the landscape related to banking services in the region. It brings, on one hand, the possibility of ‘digitising’ payment and collection services that today still rely extensively on the use of cash and, on the other, the efficiencies brought by the integration of payment and collection information into ERPs.

The fast growing penetration of mobile and smartphone users offers multiple opportunities to bring efficiency and minimise the use of cash and physical branch services, as well as reaching the non-banked population that need to receive payments without opening bank accounts or issuing physical credit cards as those remain too costly.

Some examples of such services include: ‘Mass Mobile Payments’ by which a corporate or government payer issues payments by sending codes to mobile users that can retrieve the cash on ATMs without a credit card, the development of apps to manage branch queues by informing the user of the estimated time to be attended and pre-register the operations to be made and the use of real-time information related to a payment to unblock the delivery of goods. In all cases, the result is a reduction in the use of the branch services, which still remains one of the big challenges in the region for corporates as queues are still, unfortunately, a reality and represent a time-consuming task for companies.

It brings, on one hand, the possibility of ‘digitising’ payment and collection services that today still rely extensively on the use of cash and, on the other, the efficiencies brought by the integration of payment and collection information into ERPs.

But mobile use is only one part of the digital revolution we are facing today. When we look on the corporate side, the degree of automation of tasks that can be achieved using ERP integration represents an excellent opportunity to reduce low value-added tasks that are executed today by treasury teams (for example, reconciliation of payments and collections). Therefore, efforts can be focused on treasury planning and forecasting.

As an example, direct channels like SWIFTnet and host-to-host bring corporates the opportunity to issue payment and collection files, track the status of each transaction and reconcile it without any human intervention, connecting the corporate ERP and the bank systems without navigating through a web portal. An additional factor is the possibility of standardising the file formats, channels and heterogeneous processing of several countries and banks using regional players and standard XML messages, reducing dramatically the need of costly IT developments on the corporate side to adapt to each local bank.

Next question:

“What is best practice when implementing electronic cheque deposit scanners? What processes do corporates have in place to fully leverage this product? Also, once the cheques are scanned, for how long should they be kept?”

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