This issue’s question

“The bank agnostic model is becoming ever more popular among large Western corporates – but how easily can this be achieved in Asia? Also, what technologies or developments in the region should corporate treasurers be looking out for as a means to foster a bank agnostic operating environment?”

In Asia Pacific (APAC), there is a demand – especially in the MNC space – for bank agnostic offerings. As the region covers a range of different geographies, it’s quite expensive from a treasury perspective to be able to deal in all of the countries required. Here, we see a trend for corporates to operate a centralised treasury model (as much as possible), from a regional ‘hub’ from which they can carry out operations and transactions across all of the different geographies. A bank such as BNP Paribas, with a presence in 14 markets in APAC, can offer quite a lot of the functionality required by corporate centralisation – but not all banks operate with such scope. Therefore, there is a gap in the market which a rising number of multi-dealer platforms are filling. They provide the functionality for a corporate to operate centrally but deal across the region, adhering to local regulations and restrictions.

Despite pick-up in the use of bank agnostic platforms, there remain some regional considerations. In APAC, there are restricted currencies and various regulations around transactions in the payments space, for instance, where the execution of those services has to remain onshore in that particular country. This introduces complexity in terms of the workflow; ensuring compliance, but also trying to give a degree of scale and central management to that process. For BNP Paribas, it is a case of making sure the appropriate technical workflows are in place onshore to deal with regulation and any restrictions. But, for every bank to do that individually, it is quite expensive. A central platform can act almost as a universal utility for both the bank and client in a cost-efficient manner.

Moreover, beneficial for corporates is the competitiveness that platforms bring to the market. By having aggregated services, they get the opportunity of aggregated pricing. Another advantage that corporate treasurers should be looking at is that of desktop ‘real estate’ considerations. For many companies, they have multiple banks servicing them and the ability to display data from each on one desktop is a challenge. A multi-dealer platform allows everything to be consolidated in one space and easily allows corporates to either work with their banks in aggregate or through an individual correspondent.

The uptake of bank agnostic platforms is somewhat sluggish in Asia. The reasons are understandable as there needs to be improvement in the pre-trade and post-trade areas as bank agnostic platforms are largely geared around execution. Certain abilities are not available on platforms: access to account balances, deposit balances and revaluation statements, the ability to roll deposits and interact with actioned transactions and access to research on certain markets, for instance. So, although there will be a rise in bank agnostic execution, there will always be a place for the banks’ delivery of those services.

Bank agnostic operating models may be more widespread in the Western world, but their popularity in Asia is quickly catching up. And, whilst it goes without saying that every region has its own challenges, Asia needn’t be seen as such a maze for corporates to operate in any more. This is largely due to technology developments over the last few years: SWIFT service bureaux, and other middleware providers, can assist corporates in ensuring the formatting and regulation requirements for Asia are handled in the same manner as they would be in any other region – whilst simultaneously supporting the adoption of a less bank-reliant operating model. And this is something Asian corporates are embracing: SWIFT reported that APAC is one of the fastest growing regions in terms of payment traffic volumes, experiencing a 12.6% increase in the year to date.

Using our experience as an example, at the moment Etihad Airways is going through a major global connectivity project and is experiencing first-hand the benefits of using a SWIFT bureau, enabling connectivity with multiple banks in multiple parts of the world. Currently, the airline has 50 transactional banking relationships across the globe. The major benefit for Etihad treasury is, whilst we are gaining end-to-end straight through processing (STP), by employing Fundtech to implement and operate SWIFT in partnership with us and our IT function, the team can focus more on the day-to-day treasury activities and further value-add projects.

Moreover, we do not see progress towards an agnostic model preventing or damaging any of our banking relationships. Rather, the desire for more bank agnostic models is driven by treasurers wanting to be able to exchange information with multiple banks using common standards, eliminating any duplication of effort and minimising counterparty risks. It may also soothe any communication pains that might have existed in the past when dealing with varying cultures and could, in fact, open up more opportunity for relationships with banks in less-developed parts of the world – all because you can have that single communication channel.

Of course, there are many different operating models that a corporate can select to achieve the ultimate end goal. So although for us, it was a clear choice to appoint a SWIFT bureau due to Etihad’s global network, I am aware of smaller corporates that have deployed SWIFT Lite2 themselves. It depends on the requirements of the business. However, my advice for other corporates hoping to gain the benefits of adopting a co-operative network, such as SWIFT, would be to avoid looking at technology in a silo but rather how such an agnostic model would work with the overall treasury infrastructure – ERPs and general ledger systems, for instance, and all the way through to a fully centralised treasury.

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.