Cash & Liquidity ManagementPaymentsEurozone Crisis Tops Agenda at EBAday in Edinburgh

Eurozone Crisis Tops Agenda at EBAday in Edinburgh

The spectre of a Greek exit from the eurozone loomed large over the EBAday forum, which was held 15-16 May in Edinburgh. The European payments professionals who gathered in the Scottish capital discussed a range of issues such as pan-European online payments, effective liquidity and cash management, the single euro payments area (SEPA) and risk management. But as one delegate told gtnews, a Greek exit would render any work on such developments irrelevant as all resources would have to be diverted to the operational and systems changes required to cope with a Greek reversion to the drachma.

Given the euro exit concern, it was fitting that the opening keynote speaker, Folker Hellmeyer, chief economist at Bremer Landesbank, delivered an impassioned defence of Greece and the moves it has been making to address its debt problems. He admitted to taking a “very different view” towards the eurozone from the mainstream because, he argued, that many facts were not being reported in the mainstream media that were “of high importance”.

Hellmeyer outlined the problems in the US: dysfunctional money markets, banks not trusting each other, etc and a debt crisis that is not attracting the attention it should. He characterised the eurozone crisis as a “sister of the US dollar crisis”.

But it is the reform effort in Greece that he felt had been ignored in the media, saying that it was “appalling” that commentators still voice their views that Greece has “done nothing” to address its problems. “No other country in the history of industrialised nations has done more than Greece has in the past 30 months to reform its economy,” he said. Greece was able to diminish new debt from 15.4% of gross domestic product (GDP) in 2009 to 9.1% by the end of 2011 at a time when the economy shrank by 12%. This was an achievement that should be acknowledged.

Hellmeyer said he was hopeful the pure structural reform approach of European leaders such as the German Chancellor, Angela Merkel, would be balanced with growth, particularly following the election of French President Francois Hollande. “The reality is that the eurozone economy is not as bad as it is supposed to be,” he said.

Alex Caviezel, global head of international expansion, treasury services at JP Morgan, said despite Hellmeyer’s optimism, Europe was in a technical recession which made life very tough for financial institutions and their corporate customers. During the next few years banks will have to adjust their business models and ensure they are not “spread too thin”. Corporates are increasingly global in their activities and expansion into new markets will require support from their banks. Export/import banks are addressing these requirements, he said.

Focus on Corporates
Speaking during a panel session on how to support customers in the current environment, Caviezel said SEPA could fail; there is still a long way to go to get 100% adoption of SEPA Credit Transfers (SCTs) and SEPA Direct Debits (SDDs) by the deadline of 2014. “Market fragmentation remains a threat to interoperability. If national approaches to SEPA are taken, Europe will not be able to compete with other markets outside of the region,” he explained. Moreover, corporate clients will not be able to enjoy the benefits of standardised, regional payments practices that will improve straight through processing rates and reconciliations.

The financial industry should focus on developing cost efficient regional services for corporate customers, he said. Such services could include conversion services for SEPA migration. “We need to encourage corporates to use the ISO 20022 standard and more innovative services that will come from that, such as e-invoicing [electronic invoicing] and supply chain financing.”

Caviezel identified three areas where financial institutions could help to add value for corporates’ payments operations:

  1. Sharing experience with and knowledge of industry changes.
  2. Develop capabilities, such as multi-regional payments solutions, that can deliver beyond the current industry environment.
  3. Drive innovation.

Setting problems in Europe aside, Caviezel pointed up that there are substantial opportunities in emerging markets for both financial institutions and their corporate clients. “Corporates are looking to their banks for advice and support about trading and trade finance in emerging markets. Financial institutions need to become more involved in renminbi [RMB] services and also look at new emerging economies such as Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa [the so-called CIVETS].”

Caviezel’s fellow panellist, John Ball, global head of cash management, financial institution sales, Deutsche Bank, said European and US banks would find it difficult to compete with the Chinese banks in China. “Chinese banks are making interesting moves in the market: they have joined CHIPS in New York and are moving some processes into that environment. They will be here to stay, so watch out!”

Panel moderator Doug Ziurys, senior vice president (SVP) at FImetrix, a US-based corporate treasury analysis firm, said a survey it had undertaken found 25% of US middle market firms had done some form of RMB transactions during the past year. “It is clear there is activity in this sector and they will want RMB service capabilities from their banks.”

The continuing demand from corporate customers for increased service levels will lead banks to collaborate more and more, said Caviezel. “No one bank is big enough to do everything for its customers. Collaboration is a reality of existence. There will be collaboration between banks, between banks and non-bank financial institutions, and between banks and non-financial institutions.”

While much of the discussion during the two days was about the impact of regulation on liquidity management for banks, Kevin Brown, global head of products and transaction services at the Royal Bank of Scotland (RBS), addressed the issue from a corporate perspective. He said corporate treasurers had three key priorities across their businesses when it comes to liquidity management:

  1. Reliability of and trust in their banks: will their banks be around tomorrow?
  2. Agility and adaptation from their banks.
  3. Dealing with regulatory changes.

Corporates are changing their systems and while they do this, they are looking to achieve increased efficiency. “Corporates want their financial institution partners to be more innovative. They are looking for value. Not just in price, but also in the quality of service and relationship,” he said.

Brown said it was important that regulators recognise there must be a balance between the need for tighter controls on liquidity and the requirement from corporates for short- or long-term money from banks (maturity transformation). “Corporates are concerned that short-term money they leave with banks won’t have value or will become trapped.”

Financial institutions need to work on developing an agenda that supports corporate customers’ needs, he said. Developments such as electronic bank account management (eBAM) do this, addressing corporate frustrations with the bank account opening and closing process. “As a bank we have to be focused on the customer and their requirements, be reliable as an organisation and with our systems, and be agile in meeting changing demands.”

No payments conference is complete without sessions on SEPA. The deadline of 1 February 2014 to make it legally binding for banks to offer SEPA payment processes is now set in stone. But still, as Caviezel pointed out, there is a way to go.

Simon Newstead, head of financial institution (FI) market and business strategy, global transaction services at RBS, joked that it was the 10th anniversary of the ‘SEPA Now’ session at EBAday, although progress had been made with a question mark now being replaced with an exclamation mark at the end of the title.

He cited four areas that remain a challenge:

  1. A common interpretation of Regulation 260/2012, which sets EU-wide requirements for credit transfers and direct debits in euro, is required.
  2. Preventing additional optional services prejudicing interoperability or impeding payments flows between countries.
  3. The existence of multiple end dates in the end-date regulation.
  4. Understanding the bigger picture of SEPA and how the pieces fit, such as parallel developments including the E-money Directive, the Payment Services Directive (PSD) and the Anti-money Laundering (AML) Directive.

Karsten Becker, product manager receivables Europe at Deutsche Bank, said the different variations within SEPA and ISO 20022 XML tend to confuse corporate clients. He said the work of the ISO 20022 Common Global Implementation (CGI) group was helping to dispel some of the confusion. However, “this confusion prevents corporations from migrating to XML because they are not sure which journey to take. This will contribute to the fact that on 1 February 2014 many corporates will not be ready to send XML payments to their banks,” he said.

Innovation is a much-used word in the financial industry. While some would argue innovation is all about new technologies, Gian Bruno Mazzi, managing director of Italy’s payments processor SIA, said it was more about better using the components and processes already available. His fellow panellist, Trent Whalan, client manager northern Europe, GTB cash management Deutsche Bank, agreed. Whalan said innovation was not necessarily invention and sometimes was just about redoing things in a better way. “Product development and improvement have to be customer driven. When building new offerings you have to make sure that they are universally beneficial and can be built for many users.”

One product development that was focused on during the event was e-invoicing. During a panel session the relationship between e-invoicing and supply chain finance (SCF), Martin Thomas, managing director treasury services, JP Morgan, said corporates faced increasing complexity in the supply chain, driven by globalisation and regulations such as Basel III and local laws. Rising costs characterised the management of global trade activities, he added.

Peter Hazou, the newly appointed managing director for Europe, Middle East and Africa (EMEA) market management at Bank of New York Mellon, said the physical and financial supply chains were converging. Banks could bring the many different elements of these supply chains together and address corporates’ concerns about risk and liquidity.

Eric Lemmens, head of supply chain finance at RBS, said e-invoicing enabled faster deployment of SCF programmes and a better service experience for corporations through the exchange of relevant information.

When it comes to innovation, corporate clients want their banks to deliver more integrated services that are aligned with their business priorities, said Jean-Pierre Arens, director global products business at Logica, during another session on innovation. He cited a study undertaken by Logica and Eurofinance, which found that some corporate treasurers were unsure who payments factories suited: banks or their own businesses. “Corporates complain that all banks are bringing them the same solutions and that these solutions don’t reflect reality. And very often the bank representative presenting the solutions cannot show the business benefit.” He said the focus for corporates remained better visibility and control over cash.

EBAday does not yet attract a significant number of corporate delegates. A better mix of delegates may go some way to helping banks understand just what their corporate clients want.

Related Articles

Interview: Dealing with regulatory pressures

Corporate to Bank Relationships Interview: Dealing with regulatory pressures

20h Austin Clark
Jurisdictions make progress in developing standards for payment, clearing and settlement

Banking Jurisdictions make progress in developing standards for payment, clearing and settlement

4d Austin Clark
Trade around the world: Mitigating rising supply chain risks in evolving economies

Banking Risk Management Trade around the world: Mitigating rising supply chain risks in evolving economies

4d Peter Cunningham and Natasha Condon
The future of trade is open

Open Banking The future of trade is open

5d Mike Walker
Bank Leumi (UK) powers up treasury, trading and sales with new platform

Banking Bank Leumi (UK) powers up treasury, trading and sales with new platform

2w Austin Clark
UOB builds China strategy with FX solutions

Banking UOB builds China strategy with FX solutions

2w Austin Clark
Addressing the challenges of bank treasury

Banking Risk Management Addressing the challenges of bank treasury

2w Austin Clark
SWIFT gpi momentum grows

Banking SWIFT gpi momentum grows

3w Austin Clark