Jesper Linden, Offering Manager, GTS Banks at SEB , talks to
Bob Currie about how his team is helping financial institutions
to redesign their international cash management arrangements
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Rethinking how to manage international payment
1. Cash management
Rethinking
how to manage
international
payments
Jesper Linden, Offering Manager, GTS Banks at SEB , talks to
Bob Currie about how his team is helping financial institutions
to redesign their international cash management arrangements
The global financial crisis and recent turmoil in the euro- change agenda is essential. As Offering Manager for GTS
zone have dictated that financial institutions and corporates Banks, Jesper Linden leads a team responsible for providing
continue to manage their international payments activity in an integrated view on the transaction banking needs of the
an atmosphere of uncertainty. In this environment, treas- bank client segment (including custody, clearing and cash
Financial Services Research Q4 2011
urers are under pressure to optimise the efficiency of their management). From a cash management perspective, this
liquidity management and to reinforce the risk manage- will involve providing integrated service delivery across cli-
ment sitting around this process. In a volatile economic ents’ full cash management needs: they are not interested
climate, issues of security and liquidity remain crucial. Are in buying separately across different types of international
companies holding their cash somewhere safe? And can payments or account structures. The client is wishing to buy
they access these cash balances promptly when required? a joined up service across each of these cash management
Moreover, cash optimisation becomes particularly impor- products.
tant. Some companies have accumulated significant piles of
cash – and in the current low interest rate environment it
is valuable to optimise yield on cash balances at acceptable Managing change
levels of risk. With policy makers and financial authorities driving a
constant stream of regulatory reform, cash managers are
Against this backdrop the need for a strong partner to running hard to adapt to changing rules and refinements to
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support cash management activities and to manage the the payments infrastructure. In helping clients to manage
2. Cash management
this change agenda, Jesper Linden high- bilities and message formats even within
lights two development areas that sit at the the SWIFT standards. Gresham Computing
heart of SEB’s cash management strategy has helped SEB to manage these opera-
for the banking segment. The first centres tional complexities, standing as an interop-
on cash clearing and liquidity provision, erability hub. Clareti Cash Reporting (CCR)
embracing SEB’s traditional inter-bank will take in messages in a diverse array of
cash management business. The second is format, it will cleanse and standardise this
delivery of a white-label services product, message information such that it can be
enabling foreign banks to link to the local forwarded to the recipient in a standard
payments infrastructure via SEB as account message format such as ISO 20022 XML
operator, thereby operating in SEB’s home or presented in a consolidated manner
markets as if they are domestic banks. through an online portal. As a result, SEB is
able to deliver a consolidated real-time view
Though the traditional cash clearing service of transactions across a client bank’s net-
is a relatively mature product that SEB has work of correspondent banking partners.
offered for many years, the prevailing in-
stabilities in global financial services dictate Cash mobility is fundamental in enabling
that banks are attaching huge importance SEB’s customers to discharge their payment
to ensuring that their liquidity is managed obligations. Clients must verify that they
in a secure and efficient environment. In have funds available in the right place and
facilitating this process, SEB is focused on that they have control over which payments
improving cash visibility, cash mobility and go out first. SEB offers advanced sweep
in enhancing optimisation tools that are functionality which allows funds to be allo-
available to its client base. cated to where these are most needed. In a
number of markets, it also has the ability to
In the cash visibility area, banks are seeking time stamp outbound payments such that
close control of their counterparty expo- they will be held on the account until these
sures – including the ability to monitor open need to be paid. To maximise efficiency
position exposures in real time, to mitigate across this process, effective cash optimisa-
key risks across these exposures and to tion is important to ensure that any funds
meet the delivery commitments created remaining in the account end of day can
by these payment obligations. To facilitate be swept into high-yielding accounts in line
this process, SEB continues to enhance its with the client’s preferred risk appetite.
reporting capability in line with the varie-
gated needs of its clients. Some may wish FSR asked Jesper Linden how the economic
to receive SWIFT-based reporting intraday, climate has shaped clients’ demand for cash
receiving MT942s that confirm transactions optimisation in the face of this existing low
they have received during the past 30 or 60 interest rate environment. For example in
minutes. Others may ask SEB to pre-advise the UK, FSA Client Asset rules stipulate
them on outstanding payments and to in- that English banks may not hold more than
form them if any anticipated payments have a specified percentage (currently 20 per
Financial Services Research Q4 2011
not completed as expected. Many clients cent) of their clients’ cash deposits in their
may wish to monitor cash balances and own books. The balance must be held in
open positions via a Web-based portal. SEB the books of other banking institutions. As
provides flexibility to accommodate each of a result, banks are setting in place deposit
these client preferences. arrangements with multiple banking coun-
terparts. “Given the strong credit rating of
In managing these diverse client needs, SEB SEB as a bank and the fact that the Nordic
is working with transaction and cash man- markets ex Finland are comparatively well
agement specialist Gresham Computing. insulated from the euro, this has contrib-
Financial institutions may have payment uted to strong cash relationships between
arrangements in place with 50 or 100 pro- SEB and a number of UK-based banks,”
vider banks (and there may be multiples of explains Linden. “But, inevitably, client
account with each provider), many of which banks are seeking attractive yield on the
35
may employ slightly differing system capa- cash balances involved. SEB has developed
3. Cash management
a range of flexible interest rate models – ment staff and it will manage its payments
offering a tiered interest rate based on the activity via the same client interface and
inter-bank base rate plus a margin for banks delivery model employed by HSBC in other
with sizeable cash balances on deposit – markets worldwide. This partnership ar-
and interest-netting facilities.” rangement offers the additional benefit that
it will accelerate procedures for account
White label services opening, potentially shortening the time
In parallel with these commitments, SEB taken for completing new account agree-
continues to invest in the development ments in the Nordic markets from several
of its white labelled services – named weeks down to 2-3 days.
‘network-managed payment services’ or
‘re-account models’ by some banking SEB established its first client under these
institutions. “Traditionally when banks arrangements approximately 10 years ago.
have wanted to support the international “For a number of years we saw limited
payments activity of customers in markets activity for this product, but during the past
in which they do not have a presence, typi- 2-3 years a number of banks have made a
cally they have referred this business on to strategic choice to restructure their inter-
a cash correspondent partner with specialist national cash management arrangements,”
expertise in the local market,” says Linden. says Linden. “It is challenging for a US or
“But for a number of banks’ key clients, an Asia-Pacific based bank to know how to
such referral arrangements may no longer support efficient cash management services
suffice. Their global payments needs require across the Nordic markets – it takes time
the same level of operational efficiency and to build this expertise and to establish an
cost efficiency as their domestic payments efficient cash management infrastructure.”
and they are reviewing their international Recently, SEB launched its Multi-currency
payments arrangements to move them Direct Debit Service, enabling SEB’s financial
closer to this goal.” institution clients to access direct debit
schemes in the Danish, Norwegian and
In supporting this demand, SEB has been Swedish markets. As a Nordic cash manage-
working closely with a number of global ment specialist, SEB is able to insulate the
banking institutions as they review the client from the complexity of managing
structure of their international payments each DD scheme individually. “For clients
networks. In some locations, these clients using the SEPA direct debit payments
may have their own bank branches and system, for instance, we can take in instruc-
will meet clients’ payments needs through tions in ISO 20022 XML format and convert
their own cash clearing capability. But in this into the proprietary formats employed
other locations this approach may not be by each of the three Scandinavian pay-
practical. In the Nordic markets, a number ments clearing houses, thus enabling these
of financial institutions now employ SEB’s customers to re-use the developments
payments architecture on a white-labelled that they have done to process SEPA direct
basis to service their Nordic payments ac- debits,” says Linden.
Financial Services Research Q4 2011
tivity, providing access to the domestic cash
clearing infrastructure and extending local Financial institutions are seeking an alterna-
currency accounts to international clients tive to fragmented local correspondent
as if they are using a domestic bank. For banking relationships and many are at-
instance, HSBC has announced a partner- tempting to establish a smaller number of
ship arrangement with SEB through which centralised regional solutions to meet the
SEB will provide access to local payments cross-border payment requirements of their
clearing systems on HSBC’s behalf. Through customers. SEB has established a sophisti-
this arrangement, the HSBC customer cated white-label offering for the Nordic
will (for example) have an SEK account in markets and is well placed to fulfil the
London that will be directly connected to needs of international customers seeking
the Swedish infrastructure to support do- to meet their global coverage through this
mestic cash payments. However, it will be type of regionalised payments and cash
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supported by HSBC relationship manage- management solution.