All together now: integrating payments, trade and working capital
The complexity of modern business means that a client and solution focused mindset is increasingly necessary to meet corporate’s daily transactional challenges. Integrated delivery, driven by this understanding, can help client organisations become more efficient in both their key business processes and in managing their finances.
By Gerlach Jacobs, Global Head Transaction Services, in association with Treasury Today
For ING, Transaction Services has brought three distinct but closely allied product domains into a single line of business, as a third product pillar of Commercial Banking, alongside Financial Markets and Lending Services. Transaction Services merges the core flow businesses of Payments and Cash Management, Trade Finance Services and Working Capital Solutions, together with the highly specialised cash management and pooling business of Bank Mendes Gans. How does this approach influence ING’s view of the world and more importantly, what does this mean for its clients?
The cash and trade alliance
Cash management and trade within the corporate space have always enjoyed something of a synergistic relationship, says Jacobs, noting too that “some of the products are substitutes for each other”. However, in the current economic environment, corporates are increasingly sensitive to the positions of their core suppliers and the other key participants in their value chains. Therefore they are ensuring they use the appropriate products to cover their risks and to ensure that their entire value chain continues to work efficiently. “I think there’s an even more proactive approach to make sure that there is access to sufficient liquidity throughout the entire supply chain” he states. “There is and always has been a close relationship between cash management and trade – and this will always be there.”
An holistic approach
The corporates across the ING client base are, generally now much more interested in looking at an overall banking proposition, rather than taking a product-by-product view. “What I see is a more holistic approach, with corporates looking at their total value chain,” Jacobs confirms. This holistic approach is driven by the need to make their working capital position as strong as possible, including reducing funding requirements and to become better at self-financing. It means that more functions are involved in the financial processes of the business, including IT and procurement, but this is a welcome broadening of the discussion. “In the past we talked mainly to the treasurer or assistant treasurer and the conversation was often about a specific product. Now we tend to meet with a larger group of client staff, looking at the company’s overall financial position, how it all fits together and ultimately finding ways to improve working capital and liquidity.”
Considering the increasing importance of the treasury department across ING’s client base and the need for businesses to be on top of working capital more than ever, the bank has made some “quite dramatic changes” to its business model, says Jacobs.
It started by reviewing its core products; those seen as a key part of the working capital proposition for its corporate clients. It defined four overarching product domains: payments and cash management; working capital solutions; trade finance solutions; and a fourth product domain which is operated via ING subsidiary, Bank Mendes Gans, providing specialised overlay propositions (including cash pooling on a global basis handling close to 40 currencies). “I guess it’s a sign of the times and also proof that companies are becoming better in managing their working capital, as we see that these products are in demand, with many customers having a growing interest in them,” states Jacobs.
ING also created a client solutions group specialising in looking at the working capital of customers, coming up with “total solutions” (rather than focusing on a single product) to address the whole physical and financial supply chain of its customers. “We continue to develop our technology, investing in our portals, our centralised services for treasury and centralised data management,” Jacobs states. “We are also looking at harmonising processes and our client service model. We are a large international bank with extensive market presence internationally but we want to make sure that our customers feel that we are a harmonised organisation, with all the efficiencies that a seamless consistent service can bring.”
Treasury presents a dynamic environment in which both corporates and banks must respond to and increasingly anticipate events. Right now, SEPA is top of mind and will stay there until at least 31st January next year. ING is mindful that it must give its clients time to implement and comply, but will also continue to work closely with clients to provide innovative solutions to improve their liquidity management. “Having gone through the SEPA implementation, in the second half of 2014 I expect many corporates will be seeking advice on what will happen in the post SEPA era – ‘SEPA 2’ – and how SEPA can improve their payments and cash management processes ” Jacobs says.
The continual stream of regulatory change will absorb a lot of industry time and effort. The European Commission’s proposal for a revised Payment Services Directive (PSDII), for example, was published in July 2013 and if approved by the European Parliament, will have to be transposed into law in each Member-state before being implemented. Such changes will continue to demand “a lot of the bank’s attention” but, Jacobs adds: “We will continue to look outwards, servicing our customers and making sure that we continually make things easier for them and deliver the best solutions that fully meet their requirements – in the end this is what really matters to both us and to our clients.”
Download the full article: Bank profile interview, Treasury Today, October 2013