The main drivers for a bank agnostic approach are: the reduced costs when changing banks, the ability to harmonise processes and the potential for improved efficiency. These three drivers are relevant in the context of a multi-bank structure when counterparty and performance risks are a concern. The greater the number of banks (and frequency of change), the larger the value of moving away from the proprietary processes will be.
There are four major treasury processes that can be disconnected from the proprietary environment, namely: payments, cash application, trade finance and foreign exchange trading. I will not cover the latter since online trading platforms already have a broad adoption.
Payment processing is the most advanced of all. File formats have been standardised over time and SWIFT has been offering capabilities to corporates for over a decade now (MT101/103). Assuming a corporate uses its own SWIFT infrastructure, all payment files can easily be ported from one bank to the next, thereby reducing the friction cost of changing bank. The other clear benefits are: allowing standardised connectivity between the ERP and payment factories and better control over users, signatories and approvers. The second process, cash application, mostly involves electronic bank statements. Again, SWIFT formats, like the MT940/942, have helped improve the standardisation of these statements. However, each bank has its own limitations, often driven by legacy systems and slow adoption of SWIFT standards – this is particularly true in Asia with certain markets falling behind because of the complexity of the information that needs to be contained in a statement.
Finally, trade finance has seen some positive recent developments (SWIFT for Trade, TSU and BPO initiatives, for instance). But the adoption rate has not been as rapid as for the first two processes, particularly in Asia. This is mostly due to local regulation and challenges associated with the fact that a lot of economies in Asia are either paper-driven or rely on paper for final goods/payments/custom release. Language, character support and other technical challenges are also forcing corporates to rely on email or bank proprietary platforms for trade finance-related processes.
At Johnson Controls in Asia, payments and cash application processes have been implemented that allow for centralised processing and management of payables and collections in one single shared service centre. For other corporates, there are important factors that would influence such a project: size and volumes. The pursuit of bank independent structures means that an infrastructure needs to be put in place; the initial investment of which can be large and is only recuperated through process efficiencies and increased control over bank fees. These make sense when the organisation is complex enough and when the volumes justify taking control of the transmission channel.
Besides owning the network and systems seeming, at first, an obvious opportunity for a treasurer, the benefits come at the cost of being responsible for it. The major advantage of a bank proprietary platform is that the company shares it with all the other customers of the bank, benefitting from a larger scale infrastructure which, more often than not, is very reliable. Taking ownership of that infrastructure means the treasury team is responsible for the normal downtime that any system can and will face. Managing that new risk, internally, is a challenge in and of itself.