Facing fluctuating interest rates, businesses today confront the dual challenge of planning for periods of both hikes and declines. Federal Reserve rate increases to combat inflation as well as current market predictions of potential decreases create economic unpredictability for businesses like yours.

Rates Fluctuate. Is your debt strategy flexible?

This reality emphasizes the critical need for businesses to adopt flexible, innovative debt solutions that can weather volatility and support informed financial decision-making.

The Challenge You Face:

Because of the fluctuation in rates and the constant unknown, your business faces two challenges: the need to adapt to rapidly changing interest rates while ensuring sustainable growth. This situation has made it imperative for companies to reevaluate their debt management practices and find strategies that not only mitigate risks but also capitalize on opportunities presented by market fluctuations.

With this in mind, here are six essential actions to guide your business in strengthening your financial strategies in the face of rate volatility:

Action #1 – Evaluate Capital Structure

The evaluation of debt capital structure involves a strategic analysis where businesses must consider the right mix of debt, equity, and cash flow to finance your strategic plan. This involves assessing the cost and constraints of your debt structure against key value-correlated performance indicators such as returns on invested capital (ROIC), earnings margins, and top-line growth.

The inherent risks for different financing alternatives must be considered such as the chance of default, refinancing risk, and interest rate volatility. If not evaluated properly, the consequence could be an inability to continue operating as a viable business.

Action #2 – Diversify Funding Sources

The principle of diversifying funding sources can be linked to the concept of balancing opportunity with capital. Companies are encouraged to continuously evaluate their entire portfolio, considering the mix of investments in new and existing opportunities that create the most value.

This includes recognizing that capital can be raised or returned to shareholders, suggesting that diversification is not just a tactic to mitigate risk but a strategic approach to optimize capital allocation across different opportunities​​.

Action #3 – Seize Refinancing Opportunities

Refinancing opportunities emerge as part of strategic financial planning as well as with the passage of time, where your company assesses your capital balance against the need for investment in growth opportunities or the optimization of existing debt.

This strategic perspective emphasizes the importance of agile financial planning, where your business adapts your strategies based on current and anticipated financial conditions, including the possibility of refinancing to unlock value​​.

Action #4 – Explore Innovative Debt Products

Exploring innovative debt products involves understanding the evolving landscape of financial instruments and how they can be leveraged to manage risk and capitalize on new opportunities.

This approach requires a deep understanding of the market and the ability to adapt to new financial products that offer strategic benefits under changing economic conditions.

Action #5 – Strategic Use of Fixed-Rate Options

The strategic use of fixed-rate options can be seen as part of a broader approach to managing financial risk across a portfolio. By balancing fixed and variable rate debt, you can protect your company against interest rate fluctuations, much like how portfolio-level risk management can optimize the allocation of capital and mitigate financial risks more effectively across a company’s project portfolio​​.

Action #6 – Implement a Flexible Financial Strategy

Flexible financial planning is crucial for adapting to the dynamic economic landscape. By recognizing all risks, ensuring adequate funding, and adopting a consistent approach across the portfolio, companies can make more informed decisions, enhancing financial stability and responsiveness to market changes​​.

Confidently Prepare for the Future

Adopting a strategic approach to debt management is crucial for thriving in a decade marked by interest rate changes, a global pandemic, and dynamic geopolitical situations. Redbridge’s debt advisory services provide businesses with the expertise needed to navigate these challenges effectively.

Our team of financial experts deliver tailored strategies to design financial structures that balance cost and flexibility as well as current and future needs. This helps our clients to gain insights into market dynamics and:

  • Enhance Financial Flexibility
  • Diversify Lenders
  • Extend Loan Maturities
  • Secure Liquidity

By incorporating these six essential tips into your financial strategy, you can enhance your business’s resilience against market volatility. Partnering with Redbridge’s debt solutions allows your business to be prepared for the uncertainties of today and positioned for prosperity in the future.

Contact Redbridge today to explore how our debt advisory services can guide your business through turbulent debt markets and beyond, laying the foundation for enduring financial health.

Introducing the Redbridge debt advisory team

Introducing the Redbridge Debt Advisory Team: your ally in navigating the financial landscape. Beyond our expertise in credit and debt management, we’re your partners committed to fostering growth and ensuring stability. With a rich background of global experience and a commitment to tailored solutions, our team not only helps your business prepare for the future — but stay ahead of it.

Each member of the team embodies the passion and precision that define our approach to debt advisory, bringing their unique insights into the heart of what we do and why it matters. With that in mind, meet the skilled professionals whose expertise powers the Redbridge Debt Advisory Team:


What does the debt advisory team do?

“Here at Redbridge, we provide strategic advice on credit profiles and capital structure. We also help clients structure and arrange debt. The reason I came to Redbridge was because as an ex-banker, I often had conflicts as to what was best for my clients and wanted to provide unbiased advice. Here at Redbridge, I love working to find my clients solutions that are the best for them. ”

– Audrey Lokker, Senior Director, Redbridge


How does the team operate?

“As one of the largest independent debt advisors, we are able to cover the comprehensive range of instruments and topics including: credit ratings, bank financing, syndicated loans, public markets, private markets, asset based financing, securitization, equity linked, etc. At Redbridge, we all work under the same flag with the same DNA, and the same objective: to bring transparency to our clients and help them make the most informed decisions. ”

– David Laugier, COO, Redbridge


Why did you choose this role?

“After 20 years in banking, I joined Redbridge because there is a real need in the mid-corporate space for better transparency and unbiased thought. At the end of the day, we arm our clients with better information so that they can make better recommendations to their key stakeholders.”

– Juan Trejo III, Relationship Manager-Director, Redbridge


Why is debt advisory so important?

“Lending markets are complex, volatile and not very transparent. Lenders’ advice is biased by essence! Independent debt advisory is the key to seeing the full picture and being able to identify what debt solutions and financial strategies are best for a given company at a given time.”

– Didier Philouze, Managing Director, Redbridge


Dedicated to providing you with the strategic guidance

The landscape of debt markets is constantly evolving, presenting new challenges and opportunities. Redbridge’s debt advisory team is dedicated to providing you with the strategic guidance and support needed to navigate these changes effectively. Our tailored solutions: * Bullet points of features of our solutions * ensuring you remain competitive and financially healthy.

Explore how the Redbridge Debt Advisory Team can elevate your financial strategy and secure your business’s future.

Contact Us

HawkeyeBSB is now available in the Coupa App Marketplace, extending Coupa’s platform and increasing efficiency in bank fee management for global enterprises.

Houston, Texas, March​ 12, 2024 — Redbridge, a leading provider of treasury and debt advisory solutions, today announced that its HawkeyeBSB solution has been certified for use in the Coupa App Marketplace. The Coupa App Marketplace connects businesses with certified pre-built solutions. HawkeyeBSB will be offered to Coupa Treasury customers worldwide, via the Coupa Business Spend Management (BSM) platform. Coupa helps teams collaborate to build more agile and sustainable operations, delivering intelligent and responsible spend strategies to meet their companies’ purpose.

HawkeyeBSB, Redbridge’s proprietary bank fee management software, transforms how enterprises manage and analyze bank fees, offering a unique solution that bridges the gap between procurement, accounts payable, and treasury departments. HawkeyeBSB leverages reliable data from bank branches to provide actionable insights and streamline financial operations.

“With the complexity of global banking relationships, the need for streamlined bank fee management is imperative,” said Nigel Pegg, VP & GM of Coupa Platform and App Marketplace at Coupa. “We are proud to have Redbridge and HawkeyeBSB on the Coupa App Marketplace to give our Treasury customers even greater visibility into their global bank relationships to improve efficiency and reduce costs.”

As a certified CoupaLink solution, HawkeyeBSB meets the requirements established by Coupa through its CoupaLink Partner Program and is available in the Coupa App Marketplace. Coupa’s treasury customers benefit by discovering and connecting solutions to optimize their business spend and mitigate business risk while reducing the cost of third-party software integration. Through HawkeyeBSB, Coupa Treasury users can take their cash forecasting, reporting, cost allocation and budgeting to the next level. Bank fee data strategically bridges the gap between accounts payable, procurement, and treasury.

“Connecting HawkeyeBSB into the Coupa Business Spend Management platform gives our customers a streamlined bank fee management experience and significant cost savings,” said Bridget Meyer, Head of Strategic Partnerships at Redbridge. “We are proud to be part of the Coupa App Marketplace and a trusted CoupaLink technology partner. We look forward to our relationship with Coupa to further help customers transform their spend management processes.”

For more information on HawkeyeBSB and how it can revolutionize your bank fee management process, visit the Coupa App Marketplace at marketplace.coupa.com.

Coupa, Coupa Business Spend Management (BSM), CoupaLink, and all Coupa logos are trademarks or registered trademarks of Coupa Software, Inc. All rights reserved.

About Redbridge

Redbridge Debt & Treasury Advisory is a global advisory firm dedicated to helping corporations optimize their financial operations through innovative solutions. With expertise in treasury management, debt advisory, and financial technology, Redbridge empowers clients to achieve greater efficiency, control, and savings in their financial processes.

Redbridge Media Contact

For further details, please contact:

Bridget Meyer, Head of Strategic Partnerships

Email: Bmeyer@redbridgedta.com

Treasurers are at the forefront of financial management, juggling a myriad of tasks that span from ensuring liquidity to assessing financial risks and optimizing capital for future growth. This is not just routine work; it is a quest for fiscal responsibility in a world where every penny counts. That said, amid the hustle of finance management, a critical challenge often goes unnoticed: bank fee analysis

The Case for Bank Fee Analysis Software

At last year’s New York Cash Exchange Conference, Frank D’Amadeo, Con Edison’s Director of Treasury Operations, shared his proactive approach using software. For D’Amadeo, bank fee analysis is not a tedious task, but a treasure hunt, where building a relationship of transparency and trust with banks is as much a priority as finding errors. Emphasizing bank fee analysis software as a strategic asset, D’Amadeo shared, “it is not merely an expense, but an investment that multiplies its value within the first year.”

Still, many organizations remain skeptical, viewing bank fee analysis software as another added cost in a time when most are focused on cost cutting. What they do not realize is that the neglect of thorough bank fee analysis can lead to significant cost increases, including redundant charges.

Exploring Uncertainties in Treasury Management

As limited resources leave treasury teams stretched thin, pressing questions are left unanswered—how much does the global banking operation truly cost? What is the effective yield on balances held in our accounts? And, as Timothy T. Hesler, Assistant Treasurer at NYU, asked during the discussion, “Are we ensuring our bank fee costs are minimized,” by verifying them against agreed pricing and rates?

These questions merely begin to uncover the complex risks underlying bank fee analysis oversight. Imagine discovering fraud in a bank account you did not know existed or finding charges that span months, or even years, for a supposedly closed lockbox. Consider a scenario where an Accounts Payable team member, aiming to streamline processes, inadvertently racks up substantial fees by uploading vendor payment instructions online. What happens to those who are responsible for these expensive financial oversights?

Treasurers like Marguerite Versacci understand the complexities of data management all too well, as treasury operations at Tronox span 6 banks and 120 accounts across 17 countries. Speaking at the conference, Versacci shared that bank fee analysis software was crucial for gaining visibility, control, and the ability to make informed decisions at her organization. “I would not pay a personal bill without a statement or invoice,” she explained, highlighting the software’s role in enhancing transparency. “Having that clear oversight has empowered me with better decision making and action planning,” she added.

Winning With Bank Fee Analysis Software

The journey of treasurers like Hesler and Versacci underscores the transformative potential of bank fee analysis software. It’s clear why solutions like HawkeyeBSB are so vital. By addressing the nuanced challenges inherent in bank fee analysis, HawkeyeBSB transforms bank fee analysis from a routine task into a strategic asset that:

  • Enhances Transparency and Control
  • Guides Strategic Decision-Making in Finance
  • Turns Treasurers into the Leaders that Know the Answers Hidden with the Data

Redbridge remains committed to developing tailored solutions that solve bank fee analysis problems. With HawkeyeBSB, your financial management is simplified, and you are empowered with actionable insights to promote operational efficiency. Discover why leading organizations choose HawkeyeBSB for a transformative approach to their treasury needs.

In recent years, you’ve likely received several communications related to the Visa and Mastercard Payment Card Settlement. These may have been emails or calls from entities offering assistance in reclaiming funds lost to merchant processing costs. While initial developments may have been slow and complex, significant progress is now being made in this case.​

Key Developments in the Settlement Process​

As of December 1, 2023, claim forms started being dispatched to merchants, a process expected to extend into January 2024.​

Eligibility and Participation​

You might wonder, “What does this mean for me?” If you didn’t opt out of the Settlement by July 23, 2019, and accepted Visa and MasterCard payments between January 1, 2004, and January 25, 2019, you’re eligible to participate. Additionally, participation is optional, even after receiving your claimant number. Learn how you can begin the claimant process below: ​

Option 1: You choose to participate and file a claim​

If you have received a claim form with a claimant ID and control number, you can log in at the official Payment Card Settlement website, here: Payment Card Settlement | Official Court-Authorized Website – Login. If you haven’t received a claim form, providing your Tax-Payer Identification Number (TIN), along with additional business information will allow a Class Administration to determine your eligibility. We recommend that you utilize the official website to avoid fraudulent links.​

Upon receiving your claim form, you will find that it includes estimated totals from Visa and MasterCard, detailing transaction, volumes and interchange fees. These estimates offer a foundation for your claim, allowing you the option to proceed with these figures or provide your own data for a more customized assessment. Additionally, for those managing multiple TINs, the system facilitates an efficient linking of these identifiers within your established profile. This feature is designed to streamline the claim filing process for businesses with complex structures. ​

Ultimately, the settlement payment will be based on your actual or estimated interchange fees associated with Visa and MasterCard transactions from the timeframe of January 1, 2004, through January 25, 2019.

The deadline to file is May 31, 2024!​

Can I utilize a third-party service to file the claim?​

Yes, merchants have the option to enlist third-party services to file their claims, though they are free to file claims independently without incurring third-party costs. Additionally, merchants are entitled to contact the Claims Administrator, or Rule 23(b)(3) Class Counsel, at no cost, to request assistance with understanding and filing the claim form. Keep in mind, there is still much uncertainty about the timing for funding and the settlement amounts that will be paid out. ​

How will I know how much I will receive?​

Visa, MasterCard, and the Bank Defendants have agreed to pay a minimum settlement of $5.54 billion to merchants who have not excluded themselves. In addition to exclusion status, your individual payout is dependent on a variety of factors such as the number of participating merchants and the actual or estimated interchange fees associated with your Visa and Mastercard transactions from January 1, 2004, through January 25, 2019. ​

Additionally, the settlement funds will be reduced by an amount not to exceed $700 million, for those merchants who have excluded themselves. These funds will also cover the cost of the settlement administration, tax expenses that are approved by the court, as well as any approved legal expenses.​

When will I receive my claim funds?​

The timeline for disbursing funds has not yet been determined. Payments are expected to begin after the May 31st, 2024, claim submission deadline, and subsequent court approvals.​

Option 2: You choose not to participate​

It is completely at the merchant’s discretion to not participate in the settlement. However, it should be noted that if you did not opt out of the settlement by July 23, 2019, you will be bound by the terms of the agreement which includes the release of certain claims against the Defendants and other parties identified in the Agreement.

These claims are released if they already have accrued or will accrue in the future, for up to five years following the court’s approval of the settlement and the resolution of all appeals. Essentially, we believe the courts took this approach to prevent numerous additional lawsuits within the window of five years that could be similar in nature. If you don’t file a claim by May 31, 2024, you will not be eligible for a portion of the settlement. For detailed information of the release and claims please see the court document here: Microsoft Word – Interchange Long Form Notice 4.11.19 – clean (paymentcardsettlement.com) ​

Settlement Background and Final Thoughts​

This lawsuit, initiated in 2005, accused card brands and banks of colluding to fix merchant processing fees. This settlement involves both Visa and MasterCard as well as major US banks which issue their cards, including JPMorgan Chase, Bank of America and Citibank. The lawsuit culminates based on the interchange fees merchants paid during the time frame from January 1, 2004, to January 25, 2019.​

During this time, it was stated that the associated card brands and banks violated the law by imposing and enforcing rules that limited you, the merchant, from steering your customers to other payment methods. These rules did not allow surcharging or cash discounting, and required all cards be honored, which ensured the card brands and banks controlled the market. The court did not state which side was right or wrong or which laws were violated. Instead, an agreed upon settlement by both sides has been reached, averting the possibility of further trials and appeals. ​

The settlement is an ongoing process, and the outcome for non-opt-out merchants is still being determined. It is unknown how many merchants will be participating to share in the funds, and it is at your discretion if you would like to participate. ​

While we don’t provide claim filing assistance or legal advice, we’re here to offer informational support should you need it. For inquiries or further clarification regarding the claim submission process, please reach out to Chelsey Kukuk, Director of Payments at Redbridge, at Ckukuk@redbridgedta.com. Otherwise, please consult your legal counsel for personalized guidance.

High interest rate environments have created opportunities for companies to significantly increase their treasury revenues through investable balances while reducing bank fees from bank cash balance offsets. As such, banks are pushing their clients to invest their cash balances in money market funds, but alternative investment vehicles may offer more optimal returns on investment.

The Evolving Role of Treasurers in the High Interest Rate Landscape

Treasurers have a wide range of daily responsibilities that include updating cash flow forecast, monitoring cash pooling, setting cash positioning, bank account management, and much more. As a result, the task of regularly evaluating the company’s cash investment policy can be overlooked and become a missed opportunity for companies to capitalize on the current high interest rate environment.

The traditional investments utilized by treasurers include money market accounts, short-term bonds, cash pooling, interest bearing accounts, and leveraging excess operating cash balances for Earnings Credit Rates. That said, treasury departments have a chance to be viewed as profit centers within their organizations.

With the recent Fed Fund Rate increases, meant to reduce inflation, companies can invest their cash balances to offset bank fees, generate interest revenue, and increase cashflow. Banks are motivated to attract and retain cash balances from companies to offset their internal liquidity ratios; therefore, their interest rate offerings are increasingly aggressive.

The first step in this process is to evaluate the cash on hand that is available to be tagged as excess operating cash flow or investable balances. Additionally, researching any restrictions placed on excess cash on hand is required.

Optimizing Excess Cash Flow

Excess operating cash flow is the cash on hand in the operating DDA that is leftover after a company’s outgoing liabilities and payments are met. Treasurers should pay close attention to this amount to ensure that there is no missed opportunity for long-term investment with a higher yield. In addition, these balances can be utilized with the bank’s offered earnings credit allowance, which offsets monthly cash management fees by assigning an earnings credit rate (ECR), which typically follows the fed funds rate or low risk government bonds.

Contingent on the balances kept in the operating DDA, the awarded earnings credit allowance is applied against monthly cash management bank fees and works to reduce your overall annual bank fees. Earnings credits are tax exempt and not considered income. Additionally, they are applied monthly based on the available balance, and expire at the end of month, if any excess credits remain. This option requires a delicate balancing act of maintaining a threshold, or peg balance, to fully take advantage of the earnings credit rate offered and maximize your offset of cash management bank fees.

Strategic Allocation of Investable Funds

Investable balances are balances that do not need to remain in the operating DDA and can instead be placed in an investment opportunity for short-term gains. These balances may include capital contributions, managed account balances, or surplus operating cash. Identifying the investment opportunity for investable balances should be revisited quarterly, if not monthly, in the current interest rate environment.

Investable balances are usually placed in an interest-bearing account that generates taxable interest revenues. This investment strategy presents a lucrative opportunity for organizations that hold high investable balances, as the amount of revenue generated from these accounts can cover the tax implication and cash management fees assessed by banks, while also further enhancing the company’s on-hand liquidity.

During the 2018 and 2020 recessions, the most common investment vehicle banks offered to treasurers for investable balances was a money market account or short-term bond (with one or three-month terms). Of course, the low interest rate options at that time required minimal maintenance and intervention by corporate treasurers and their departments. Specifically, the climate ensured that a small amount of interest revenue could be obtained to offset bank fees, as the earnings credit rates were under 15bps.

Rethinking Investment Strategies in the Current Economic Climate

Today, considering the current high-interest rate environment, does it make sense for treasurers to select money market accounts over other interest-bearing solutions offered by banks? It is important that companies consider whether the investment strategies of the past are currently the best investment strategies for the success of the company today.

With the help of their cash management partners, companies may find opportunities to capitalize on amending their treasury investment policy by researching other investment vehicles that yield higher returns than money market accounts.

Traditional interest-bearing accounts, for example, offer highly competitive hard interest rates. Interest bearing account rates tend to have a direct relationship to the current fed funds rate and are parallel with the changes made. Another beneficial option, especially in international regions, could be a cash pooling setup. In this case, interest revenues are generated daily either by a traditional sweep each night or a notional pooling setup.

The Redbridge Solution: Tailoring Investment Strategies for Optimal Treasury Performance

Considering today’s high interest rate environment, treasury teams may be pondering the following questions:

  • Which type of investment vehicle is best for my organization?
  • How do we select and re-write our investment policy to produce cash flow for the company with confidence?

Redbridge has a wealth of solutions that can aid you in this decision-making process. As leaders in banking and cash management negotiations, we have solid partnerships with banks that give us insights into how to prescribe the best investment solutions to corporations.

Our experienced team of global advisors work to analyze your current investment strategy and cash balances, and recommend several different scenarios to reduce your cash management costs and generate interest revenues.

The volatility of the world economy over the last 5 years has shown that we must remain vigilant with identifying new means of cash flow forecasting, protection, and planning. Treasurers must stay abreast of all investment opportunities available and being offered by their banking partners.

It is prime time for treasury departments to generate revenue and be seen as a profit center. Learn more about how you can partner with Redbridge today and capitalize on the current interest rate environment:

Contact Us

Within the realm of cash management, major corporations are always seeking innovative ways to optimize their financial strategies. One tool often used as a means of cost-savings is the Earnings Credit Rate (ECR). For businesses, ECR plays a pivotal role in offsetting bank fees and providing a financial cushion that eases the weight of service charges.

While utilizing ECR is undoubtedly a valuable tool, it is essential that treasury departments understand the potential challenges of over-relying on credit rates, while also being made aware of other tools that can maximize their cash management strategies beyond ECR.

Understanding Earnings Credit Rates (ECR)

Earnings Credit Rate, or ECR, is a financial tool used by businesses to offset bank fees associated with treasury services. At its core, ECR represents the interest rate that a bank applies to the average daily balance held in a company’s operating account.

This accrued interest can then be used to cover various fees, including service charges, transaction costs, and other banking expenses. In essence, ECR is a financial safety net–a means for businesses to protect their bottom line from being chipped away by bank charges.

The Current ECR Landscape

In recent times, as the Federal Funds Rate has continued to hike, ECR rates have also seen a significant uptick. Unsurprisingly, many companies have become reliant on ECR to effectively offset their banking fees. Though viable today, in the long term, this strategy tends to be highly unreliable.

ECR rates are influenced by many factors, such as the Federal Reserve’s monetary policies, but they do not always mirror every shift in interest rates. Additionally, ECR rates are not entirely within an organization’s control, and they exhibit a level of transience. As the economic landscape fluctuates, so do ECR rates—the expression, “what goes up, must come down,” rings true in this case.

Companies that find themselves dependent on ECR rate increases to manage their bank fees may inadvertently become complacent and leave themselves vulnerable to sudden economic and financial shifts. A more integrated approach can be found in implementing a comprehensive cash management strategy that not only addresses bank fees, but also optimizes yield structure, hones cost-efficiency, brings clarity to fees and service costs, and prepares financial departments for a future where ECR rates might fluctuate.

The Need for a Comprehensive Approach: Redbridge Cash Management Advisory

The two key first steps in effectively managing your bank fees and mitigating unexpected offset changes are ensuring you have visibility into what you are currently being charged across your banks, and determining how precisely these charges are being offset.

Today, this transparency is crucial in wider financing discussions with banks, as they are increasingly moving toward a holistic pricing model across all their services.

Redbridge has unrivalled expertise, proprietary tools, and market benchmarks to ensure your success in this area. With our Cash Management Advisory service, we empower businesses to:

  • Gain a comprehensive understanding of their banking fees.
  • Anticipate potential market fluctuations.
  • Strategically negotiate better terms with financial institutions.
  • Optimize yield structures and ensure long-term financial resilience.
  • Remove the “heavy lifting” data collection and analysis, which Redbridge manages on your behalf.

While utilizing ECR to offset bank fees can be a short-term relief, maintaining a clear view on the long-term health of your financial strategy remains critical.

Contact us, to learn more about how your business can partner with Redbridge to optimize its cash management strategy, today.

The Association for Finance Professionals (AFP) conference is more than just a gathering of financial experts; it’s a convergence of minds navigating the complex currents of finance, treasury, and banking. Over three days of sessions and exhibits, last week’s attendees gained valuable insights into how to strategically approach their payments, banking, and treasury operations, amid today’s fast-evolving economic and technological landscape.

With finance leaders from industry giants like Under Armour, U-Haul, Microsoft, American Airlines, and AT&T at the helm of several key discussions, here are three major takeaways from this year’s AFP conference:

1. The Power to Transform the Financial Landscape Lies Within the Data

Under the guidance of Redbridge’s Head of Strategic Partnerships, Bridget Meyer, treasury leaders from American Airlines, Under Armour, and AT&T underscored the role of data in transforming treasury operations. The resounding lesson learned is that data accessibility and analytics lie at the heart of optimizing bank fee analysis and achieving cost efficiencies. Digitizing bank statements and using data analysis software are just two ways that organizations can begin to foster accessibility within their databases.

The most crucial element in making data transformative though, is turning the insights into action. “It’s not just about securing electronic fee statements; it’s about having dedicated systems that can dissect that complicated data and spit out a clean analysis for the Treasury team, thus turning it into actionable intelligence,” said Ryan Millard, Senior Manager of Treasury at American Airlines. “I agree,” said Stacey Roth, AVP Global Cash Management at AT&T. “Having that robust system makes all of the varied data a little more apples to apples, so that ultimately, there’s greater clarity across the treasury organization,” she added.

2. As Payments Costs Continue to Increase, Remaining Vigilant Is Key

Payment costs are primarily composed of interchange fees, making it critical for businesses to closely monitor and assess their payment processing strategies. From interchange rate increases to shifting consumer card preferences, businesses today are faced with a complex landscape of cost drivers. Dealing with these cost dynamics demands vigilance, continuous monitoring, and proactive adjustments, according to Andrew Cain, U-Haul International’s Director of Payment Operations.

Implementing and leveraging data-driven insights is one way that payments teams can enhance their vigilance in the cost management process. Additionally, using available resources to understand the why behind cost increases is equally as important in the quest for effective cost management. “Most people are afraid when they’re tasked with having to search for errors, and request any changes associated with these types of costs,” said Joey Dembek, Head of Solution Delivery, Optimized Payments. “Everyone generally accepts that credit card costs are up, but no one really asks why, and if they do, there’s typically no response… If you don’t have someone in the organization that can tell you “why,” it’s wise to start looking for someone that can; your solutions start there,” he added.

3. Automation Technology Is a Key Driver of B2B Payments and Process Improvement

As we enter an era of rapid technological advancement, many businesses are finding themselves at a critical crossroads where reevaluating B2B operational strategies is key. From identifying pain points in manual processes and payments, to efficiently managing insurance and tax complexities, organizations must forge ahead with comprehensive process optimizations.

One optimization path focuses on implementing automation software to reduce the costs of manual processes. “We’ve found that paper invoices were typically processed in 10 days at a cost of $10.90,” said John Paris, Sr. Treasury Manager at Gilbane Building Company. “In manual scenarios, processing time and costs were found to be 3 times higher when compared to an automated invoice, which was typically processed in 3.1 days at a cost of $2.60,” he added.

Many organizations face difficulty in changing current internal processes, still, “payment teams should be proactive in urging their companies to adapt these new technologies,” said Greg Toussaint, Director at Edgar, Dunn & Company. Otherwise, the added risks of slowed growth and lack of organizational visibility grow.

Connect with Redbridge Debt & Treasury Advisory

AFP’s 2023 Conference unveiled a wealth of insights and strategies for finance, treasury, and banking professionals. From tackling inflation and cutting bank fees to harnessing AI and automation, attendees gained actionable wisdom to elevate their financial operations.

Redbridge Debt & Treasury Advisory is a leading financial management partner to global corporations seeking cash management, payments, and financing solutions. Through the expertise of our global advisory teams, and the reliability of our industry-leading software, we are committed to providing every client with proper strategic guidance to optimize cash flow and reduce transaction costs.

For more information about our bespoke solutions, Contact us today.

Organizations are constantly in search of new ways to optimize their banking relationships and reduce costs. Still, many companies face a significant hurdle: the lack of time, resources, and expertise needed to understand the intricacies of data elements like AFP Service Codes™, ensure their correct mapping and harness the valuable data within their bank fee statements. This oversight can lead to inaccurate benchmarking, improper cost calculations, and missed opportunities for cost savings.

The AFP Service Code™ Conundrum

AFP (Association for Financial Professionals) Service Codes are a critical component of any bank fee benchmark, reporting, analysis, or project. Additionally, they are also the key that unlocks the mystery of the service charges themselves, as they provide a standardized way to categorize transactions and banking activities. The challenge arises when organizations, especially the financial institutions who report them, fail to allocate the necessary resources to properly manage these codes.

The improper mapping of AFP codes can result in flawed benchmarking, making it difficult to accurately compare financial performance with industry peers. Banks are one of the largest consumers of benchmarking data and they perform more cross-bank pricing exercises than their corporate clients so the lack of attention to these codes creates more work on all sides.

In addition, within the loads of data contained in bank fee statements lies a wealth of cost-saving opportunities that often go unnoticed. The complexity of these statements and the sheer volume of transactions can overwhelm finance teams, leaving them without the time or know-how to extract meaningful insights that can positively impact an organization’s bottom line.

The Solution For Data Complexities

While extracting meaningful insights from banking data presents universal challenges, there are a few solutions organizations can consider:

  1. Transition to Electronic Bank Fee Data – Traditionally, treasury departments spend exorbitant amounts of time sifting through PDF statements. Making the switch to electronic data not only saves time, but also makes the AFP code mapping process much easier to complete with potentially fewer inaccuracies.
  2. Work with AFP Accredited Service Code Providers – These banks have their AFP Service Codes certified annually to ensure accuracy and consistency.
  3. Leverage Bank Fee Software – Bank fee analysis software is a helpful tool that can identify the hidden potential within your bank fee statements. A solution that manages the data classification is key to being able to gain visibility into the nature of your charges to reduce costs and detect internal processing issues that should be resolved.
  4. Outsource Your Benchmarking – Utilizing data service providers to offload the benchmarking process allows organizations to access comprehensive data sets, tap into external expertise, unlock accurate industry comparisons, identify areas for improvement, and make data-driven decisions with confidence.

Why Redbridge

With our comprehensive bank fee analysis software and team of experts, we offer clients:

  • Strengthened Bank Relationships: Proper AFP code analysis and mapping, as well as data optimization, lead to more transparent and efficient communication with your banking partners. This strengthens your relationships and fosters collaboration for mutual benefit.
  • Time, Money, and Resource Savings: Redbridge’s finance expertise and proprietary technology streamline the entire data process, saving your organization precious time and money so that you no longer need to allocate excessive resources to manual data analysis.
  • Better Benchmarking: Our global database includes billions of fees in more than 105 countries and 550 bank branches.
  • Enhanced Finance Team Efficiency: With Redbridge as your partner, your finance team becomes more effective and efficient. Freed from the burden of manual data analysis, they can focus on strategic initiatives that drive growth and profitability.

If your treasury department’s current process for streamlining the analysis of its bank fee data is unoptimized, it’s crucial that an efficient strategy is devised and implemented. Working with a data optimization partner like Redbridge allows organizations to free their internal resources by outsourcing the heavy lifting of data analysis and benchmarking to finance experts.

Connect with us today to learn more about how you can optimize your bank fee analysis process and enhance your cost-savings capabilities.

In 2022, Didier Philouze, Head of Debt Advisory at Redbridge, and his team raised more than €10 billion of financing. In this interview he looks back at the past year in the debt markets and considers what may be to come in 2023.

– What’s your outlook for corporate financing in 2023?

– Didier Philouze, Redbridge: Last year, banks were very active, albeit at higher spreads than previously. A few regulatory impacts increased capital for some banks, which caused a slowdown in the second half of the year, and some failed syndications, particularly in certain sectors like oil and gas. We expect banks to have a measured appetite for lending this year, as economic uncertainty is top of mind.

Higher interest rates have increased their cost of capital and triggered them to conduct strategic reviews of their liability portfolios – the full effects of which we’ll see later this year. Banks will continue to raise their credit margins and their credit committees will be more selective.

At the same time, bond markets seem to be digesting the sharp rise in interest rates and regaining some confidence, as we can see with the return of issuers such as Caesars Entertainment, Transocean and Dish Network to the high-yield segment in January and the completion of amend & extend transactions on the leveraged loan side.

That said, the reopening of bond markets will be gradual and will undoubtedly experience a back-and-forth, particularly for issuers with the riskiest profiles. Every bit of bad news will create concern.

– What does all this mean for corporate financing strategies?

– When it comes to bank financing, companies looking to strengthen their financial structure should not waste time as the tightening of market conditions has only just begun. For companies seeking to refinance existing debt, carrying out an amend & extend will enable them to keep their current financial terms and conditions in place. That means they can postpone discussions with lenders until the environment normalizes.

Companies should also consider alternative sources of liquidity. The high yield market has seen some recent windows of opportunity but could remain volatile given uncertainties about inflation and recession. It is important to prepare in advance in order to be ready when the timing is right by working on your credit ratings.

Unfortunately, this market is not accessible to all borrowers. Meanwhile, factoring has been growing for a wide range of companies, from smaller to large corporations. The price of factoring has increased less than it has for other types of financing and it’s open to borrowers whose credit profile has suffered as a result of the current economic climate. Factoring also has the advantage of being less capital-intensive for banks.

With economic conditions becoming more difficult, there’s been an increase in direct lending, sponsor transactions and special situations funds. This has been particularly noticeable in the energy sector in the US, which is facing the withdrawal of European banks and institutional investors due to environmental concerns. US banks are also reducing their exposure to borrowers in this sector that don’t have a convincing ESG policy.

I’d sum it up by saying it’s vital for companies not to postpone their opportunities for raising debt – if they wait, they risk seeing the window of opportunity close.

– How important is ESG?

– ESG has a big role to play in facilitating negotiations and access to liquidity by broadening the base of potential lenders. What’s more, companies perceived to have a strong commitment to sustainability can obtain improved terms and conditions.

ESG financing accounts for more than half of the financing arranged by Redbridge. When arranging this kind of financing, it’s vital to ensure that the ESG indicators chosen are in line with the company’s strategy and that the market deems them relevant. The financial implications of the ESG objectives not being achieved must also be defined and negotiated in advance.

We recently surveyed over 30 banks in the US, including large national banks, large regional banks and smaller local banks. ESG was of high importance to 38% and developing importance to 24%. Almost all banks see it continuing to grow in importance over the next few years. The current focus is starting with higher emission sectors such as oil and gas, construction and automotive, but will be extended over time. As with most things these days, ESG is influenced by political considerations, causing conflicting incentives for the banks.

– Why should companies choose to work with Redbridge?

– We raise over €10 billion per year. We close between 35 and 40 engagements every year, three-quarters of which are financing transactions, with the remainder being advisory engagements on debt structure and credit profile positioning. This means we have a great deal of insight into what’s going on in the market.

Calling on our services means you gain access to our in-depth knowledge of market conditions and the capacity of each lender to mobilize at a given moment. We can let you know which banks haven’t raised their prices too much and haven’t used up their loan envelopes. We’ll also provide you with information on the conditions that the best bidders in the market are offering:

  • Which terms can be negotiated to provide flexibility without changing the price
  • Which additional sources of liquidity would simplify negotiations with your existing lenders
  • Which ESG KPIs will give credibility to your company’s approach to CSR

Our team can provide objective advice on all these subjects based on the experience we’ve built up working on a wide range of deals. We help companies with all kinds of credit, financing and liquidity issues. We’re currently working on a lot of rating and risk-adjusted return on capital/banking relationship consulting projects, which is indicative of the concerns companies have about accessing bank liquidity over the near term.

– How do you intend to enhance the advice you provide to companies in 2023?

– We’re expanding our international footprint by continuing our development in Switzerland, Belgium, Italy and France. What’s more, our activity in the US is set to increase even more as we’re continuing to work towards obtaining a broker-dealer license.

Given the difficult macro backdrop, it seems clear that making the right plan will remain important as low probability economic shocks are becoming ever more probable. We are therefore pleased to announce the strengthening of our team with the arrival of a number of experienced former bankers, including Guy Silvestre, Pierre Bonnet, Margaux Randier and Cédric Le Brenn. We now have 17 people in Europe and the US serving both large and mid-cap companies.

We have also launched a major internal project to structure our market intelligence and digitalize it with the aim of developing new technological solutions that best meet our clients’ needs.

Initially scheduled for the end of November 2022, the start of banks’ migration to the ISO 20022 standard for payments has been postponed by a few months. Rather than just being something new to comply with, the standard will enable banks to provide new services to businesses thanks to the enriched information that this payment format involves, and there will also be big benefits for corporate. Here’s what we found out about ISO 20022 during SIBOS in Amsterdam last October.

Last autumn, the ECB announced its decision to delay the Euro system’s migration to the new ISO 20022 messaging standard by four months to ensure that the transition to the new platform will be smooth. In light of this announcement, Swift committed to further analyze and validate impacts on the timeline for using ISO 20022 in cross-border payments and reporting (CBPR+).

To ensure that operational and business continuity is maintained across the global financial system, Swift has aligned the start of the global ISO 20022 migration for CBPR+ with the ECB’s updated timetable. As such, the period of coexistence between the ISO 20022 and MT messaging standards for all users will begin on March 20, 2023.

At this date, banks will start to move all of their cross-border payments messages to the ISO 20022 financial messaging standard, whose messages are more highly structured and data-rich than the previous format. The coexistence period between the two standards will end in November 2025, when MT messages will be removed. Banks are free to adopt the new format at their own pace between March 2023 and November 2025. In the meantime, in-flow translation tools will help them to receive messages in the format of their choice.

The-new-ISO-20022-timeline-calendar-graphic

What are the implications of the the migration to ISO 20022?

At first glance, it might seem like corporates don’t need to worry about the migration to ISO 20022 as they are not involved in the interbank space. What’s more, they already have the choice to send payment messages in MX format or via FileAct for large ISO files.

But that’s not the full picture. The migration does have implications for corporates, as ISO 20022 could improve the efficiency of the interactions between their treasury, accounting, sales and purchasing departments. And the richer data within ISO 20022 messages could also lead to enhanced bank reconciliation, cash forecasting and payment efficiency for corporates.

For banks, the ISO 20022 migration is much more than a compliance issue. It represents an opportunity for them to develop compelling business cases for their clients.

The financial industry is still in the process of identifying all the potential use cases that ISO 20022 messages will lead to by exploiting synergies with real-time payments and modernized payment infrastructures. At SIBOS, Deloitte presented two potential use cases for the new standard during a workshop: one for the insurance industry, the other for small businesses.

Insurance industry use case: better processing of insurance claims

This use case is linked to the processing of an insurance claim, all the way from filing and approving the claim to paying the check and performing account reconciliation. At the present, it generally takes between 5 and 15 days to receive payment after making a claim. What’s more, making entries manually throughout the process might lead to errors, and the overall cost of processing a check is between  $20–$30. This can be reduced by $10 by using the ISO 20022 system as reconciliation is easier and there is no need to issue and post a check.

With ISO 20022 embedded in the app dedicated to claim direct deposits, the customer can follow the approvement process in real time and is notified when the payment is received. For this to be possible, the bank must be able to provide real-time payment APIs to the insurer through the relevant ERP, ensure there are real-time controls on fraud and anti-money laundering, and send real-time acknowledgement messages along with structured remittance data. In this case, ISO 20022 is used on the reconciliation side of the transaction.

Small business use case: installment payments

This use case considered the benefits of linking a web-based ordering platform to ISO capabilities, with a QR code proposing different types of payments based on the remittance information. Banks could generate additional business by providing funding or additional offers to their clients based on the clearer view of their business that ISO 20022 messaging results in.

Corporates need to invest in ISO capabilities so that they can accept required data from their customers as well as achieve increased automation through end-to-end processing and reconciliation of payments. They also need to invest in additional digital capabilities. When combined with ISO 20022, these investments will result in significant benefits for their customers, such as QR-embedded invoicing and the ability to track the progress of their orders online. There will also be benefits for corporates, such as significant cost savings through shifting from manual-intensive to automated reconciliation and optimized treasury operations.

With such a fast-paced and everchanging payment ecosystem, there are no providers that can cover everything a merchant may need. So, how can merchants turn this challenge into a competitive advantage? It all starts with understanding and leveraging payment architecture.

What is payment architecture?

Payment architecture is the carefully designed structure allowing a merchant to accept payments from anyone who is willing to pay or has previously agreed to be debited.

For each merchant, payment architecture may differ slightly depending on their overall goals and what systems are currently available to them. Looking at the payment value chain can give merchants a better idea of what they should be looking for based on their needs in each step of the payment process . The payment value chain is a series of steps that outline the entire payment process from beginning to end. It takes into account both “card present” and “card not present” transactions.

 

The Payment Value Chain

payment architecture graphic of the payment value chain

Today’s payment ecosystem is very fast-paced and operates in an environment where many different types of payment methods coexist. Some of them with international reach (e.g., Visa, Mastercard, American Express, UnionPay…), and others with a very local approach (e.g., iDeal in the Netherlands).

At the same time, payment providers face extensive regulatory requirements and ongoing evolution, which makes it extremely difficult for them to have global reach and accept all available payments methods at an optimized cost. Therefore, there is currently no single provider that can cover all merchants’ needs in every country or region at the most competitive price.

As a result, merchants must decide whether to pick specialized providers or go with one that offers full-service, then fill the gaps with complementary solutions. As usual when talking about technology, each approach has its pros and cons:

Specialized providers

Pros

  • More flexibility
  • Better performance
  • (Sometimes) lower pricing per unit

Cons

  • Complex integration and maintenance
  • Multiple contracts, reporting, invoices, and relationships to manage

Full-service providers

Pros

  • Simplified technical aspects
  • Easier to manage

Cons

  • Overall, more limited
  • Increased risk of vendor lock-in

The key takeaway is that there is no “one size fits all” solution when it comes to payment system design. Rather, there is a myriad of providers that each merchant needs to carefully consider based on their needs.

Why is payment architecture important for merchants?

Deciding on the best payment processing architecture for a given merchant is particularly complex. This is because many different things need to be taken into account including, technological, business, finance, and compliance related implications.

When looking at a business’s top priorities related to payment architecture, there is always a push to have the most relevant payment methods with frictionless user experience. This is the case no matter how risky, complex, or costly these solutions can be.

From a compliance and risk point of view, accepting and collecting payments must be a bulletproof process. Meaning any associated risks need to be identified, properly mitigated, and controlled. One of the important security details to look for is PCI-DSS (Payment Card Industry Data Security Standard). As non-compliance may end up with the unilateral termination of the acquiring contract by the acquirer. Payment related fraud is also another big piece when it comes to payment risks.

When looking at how payments work from a system and process standpoint, the workload must be as low as possible to maximize efficiency. Lowering the workload can be done by relying on pre-built integrations or task automations offered by provider(s). For example, if a provider has a pre-built integration with an ERP or ecommerce platform already used by the merchant, the implementation will go much faster. Once a provider is selected, putting enough effort into the payment integration design will drastically reduce delays in the implementation process.

 

Different types of payment architecture

payment architecture graphic of different types of payment architecture

The best way for merchants to set up an efficient payment architecture

Setting up an efficient payment architecture starts with clearly identifying the merchant’s requirements and making sure nothing important is overlooked. An effective approach to this would be to tackle the main topics one by one and then weight and prioritize each to establish a consensus across different departments.
This 360º approach should include the following topics:

  1. Acceptance & customer experience
  2. Security, fraud management & compliance
  3. Technical architecture & internal organization
  4. Cost analysis and potential optimizations
  5. Provider’s relationship and selection

Once a list of requirements and their level of importance is defined, the exploration of possibilities and further assessment can start. Some of the main considerations a merchant will typically need to think about when defining the target payment system architecture are the following (list non exhaustive):

Multichannel vs omnichannel

When merchants have multiple sales channels, combining all of them in order to create an omnichannel experience may be a key objective. Combining them will determine if there is still a need to rely on omnichannel providers or if the setup can be done internally. Building it internally will allow for more flexibility but, require a more complex implementation (including how to remain PCI-DSS compliant).

One main payment provider vs multiple providers

There are any many pros to using one provider, such as aggregating volumes for better pricing or being able to simplify implementation and management. On the other hand, having distributed systems architecture also presents many benefits. These include flexibility to select providers better suited for the job or that are the least costly. A distributed architecture also helps reduce the risk associated with a provider going down, as the traffic can always be routed to another provider.

Full acquiring service vs payment gateway + local and / or international acquirers (banking or non-banking acquirers)

Full-service providers usually have a wide offering of payment methods and a centralized platform because their acquiring rails are either in-house or they rely on their own acquiring partners. However, this setup can significantly limit the options to optimize costs. On the other hand, a gateway + acquirers’ setup usually offers less payment methods and is more complex to implement/maintain, but let’s merchants negotiate and pick acquirers for fully optimized costs.

Terminal management

Traditionally, terminals were purchased directly by constructors, but now it is a common practice for terminals to either be rented or sold by payment providers with maintenance fees. However, because of this vertical integration, some payment providers limit terminal usage to their own acquiring services. Doing so increases the risk of vendor lock-in and limits the options for a merchant to optimize costs on specific payment methods. Methods such as American Express or services such as Dynamic Currency Conversion (DCC) can usually be optimized significantly when working with a direct connection or a specialized provider.

Payment orchestration layers

This payment platform has been a hot trend for a few years, and it’s currently only available on Card Not Present (CNP) transactions – Mail Order, Telephone Order (MOTO) and online transactions. It has a multi payment provider strategy while simplifying a lot of the technical implementation and maintenance. In fact, a payment orchestration layer becomes the single technical point of contact for a merchant, while offering connections to (almost) any payment gateway, payment processors / acquirer and other third parties like 3DS or fraud management providers. Therefore, an orchestration layer can facilitate the way merchants secure transactions while maximizing conversion by proposing a better payment experience.

Specialists

Depending on a merchant’s business and needs, it can also be worth looking into specialists for specific services or geographies. Specialists may offer a better level of service and/or better pricing conditions:

  • payment service providers specialized on local and alternative payment methods
  • token management
  • fraud and/or chargebacks management
  • dynamic currency conversion (DCC), VAT refund, maintainers

Instant treasury is becoming more of a necessity as treasurers are increasingly looking for solutions that allow real time visibility on their cash positions. At the same time, open banking has become more accepted by many organizations as a result. So, what exactly is instant treasury and how can it be leveraged properly?

Corporates are increasingly demanding instant treasury solutions with improved analytics and high straight-through-processing ratios. According to surveys conducted by Strategic Treasurer and Tink, treasurers’ top two priorities today are improving the accuracy of cash forecasting and increasing automation of the workflow for API-enabled services. In fact, 40% of treasurers would like real-time / intra-day visibility on their cash positions. Meanwhile, financial institutions’ positive stance towards open banking has increased fourfold.

Eddy Jacqmotte, group treasury manager at Austrian chemical company Borealis AG, sums up why the concept of instant treasury is so important. “We have implemented an API solution with our US bank that flows directly into our ERP system, with a matching program, and basically 90% of our payments are immediately matched. With APIs, corporates are able to change their way of working. We’re moving from a situation where only the bank is providing information to an ‘on-demand’ situation, in which treasurers can access information to perform certain tasks whenever they need it”. According to Jacqmotte, interest in APIs goes well beyond the world of treasury. Company management teams are eager to access the most accurate information possible to base their decisions on. “We dove into the world of APIs three years ago. I am now waiting for all my banks to be ready!”, says Jacqmotte.

What is instant treasury?

But what does instant treasury really mean? To answer that question, Nicolas Cailly, head of payments and cash management at Société Générale, explains that “first we need to differentiate ‘instant’ – in seconds – from ‘real-time’ – batch-processed within the hour – and ask ourselves what is the value of instant or real-time, and in which use cases we need them”.

Christian Mnich, head of solution management treasury and working capital management at SAP, concurs. “It’s not enough to get statements at the end of the day – we need to question whether we really need a real-time view of any transaction”, he says. Jacqmotte considers that an update three or four times per day would be sufficient for treasury operations, acknowledging that “A credit department, for which certainty regarding the payment is essential, might have a different point of view”.

How to achieve instant treasury

There are two competing visions among banks about how to achieve this real-time visibility and operability on a global basis, which is needed by companies operating in multiple countries. One proposes building the future on legacy systems, while the other is much more disruptive.

Société Générale’s Cailly judges that “there is no magic wand that will lead to multiple banks agreeing upon one course of action”: achieving real-time visibility requires an overlay of cash concentration services based on the agreements that banks have with one another. As operational activities are based in different countries, the service is going to be different from one bank to another and from one country to another – even within the same bank – because of local regulations. “To address this, the banking industry is looking for global standards, or at least regional standards, such as Swift instant cash reporting solutions. In the absence of such standards, the other possibility is to have a man in the middle, like a software vendor solution, that can aggregate different things and provide treasury departments with a global view and an easy way to operate”, explains Cailly.

Regional differences in instant treasury

The quest for instant treasury is not the same for everyone, and is taking different forms around the world. “If you want to look at real innovation in payments, go to Asia. They’re leading the world and are at least five or six years ahead of Europe and the United States”, according to Victor Penna, global co-head of transaction banking at Mashreq. While cheque payments and lockbox processing are still commonplace in the US, treasury in Asia is heading towards real-time and new-technology-enabled services, following on from the deployment of brand-new real-time payment infrastructures in several countries. “When a firm starts to provide access to real-time payments online using QR codes, it can attract small businesses that don’t need to use a credit card to buy”, says Penna. He cited Singapore as one of the most prominent countries with respect to payment innovations as consumers can pay with the same QR code system using any app developed within the country, as well as with Alipay and WeChat.

No more batches?

“Real-time encourages banks to move away from a batch state of mind and make the transition from legacy infrastructures and processes”, says Lisa Vasic, managing director, transaction banking at ANZ Banking Group. The European market is developing a less disruptive approach than in Asia. Euro Banking Association (EBA) clearing is reportedly planning to accelerate bulk payment procedures to a ‘better than real time’ framework. Instant payments in Europe are designed for cases where absolute certainty about a completed transaction is required before any sale can be concluded. On the other hand, immediacy seems less essential for payments such as salaries and business-to-business invoices. For these, it seems wise to move to settlement in a few minutes.

The EBA has been working on modernizing the bulk payment framework so that it moves towards a continuous gross settlement mode. This settlement mode is linked to each participating bank with pre-funding possibilities via the pan-European Target 2 system, which is operated by the European Central Bank. Alternatively, the bank can wait until it has enough liquidity in its technical account to settle.
The EBA is also seeking to establish service levels that are more harmonized between banks to enable them to offer additional services, such as intra-day reporting.

Instant treasury requires multiple touchpoints

There are already national agreements in place to deliver several settlement cycles within the same day. Finland and Ireland implement an end-settlement function during the night to ensure that payments from bodies such as pension funds or social security systems are in beneficiaries’ accounts by the first hour of the day.

Implementing new settlements requires investments by banks and changes in the way they interact with their customers. The EBA clearing plan to achieve this move from a single settlement to multiple settlements is not mandatory, but is based on consultation between the major European banks.

Leveraging the data

“Talking about the future, there are plenty of opportunities for joint spaces in which we can leverage data as early as possible to unlock new potential. Think about the sales orders that are in ERP systems. If you could share them right at the beginning with your financial partners, that would open up access to new working capital funding”, explains Christian Mnich from SAP. To unlock liquidity from the ERP system, treasurers first need to consolidate and centralize information, then capture bank statements in a single system to get more real-time transparency.

“Corporates need to do their homework if they’re to be able to follow the trend”, concludes Eddy Jacqmotte from Borealis. He also points out that extra resources are required to handle all the connections, such as bank connectivity, ERP, APIs and artificial intelligence tools, to reap the benefits of instant treasury operations.

The yearly GTR conference brought about the usual crowd of CFOs, treasurers, corporate trade finance managers, bankers, insurers, lawyers, consultants and system providers. There was no particular overarching theme and the general atmosphere was rather positive.

A few “usual” themes caught my attention:

Banks’ support

The overall situation resumed nicely after the tumultuous covid credit events in the world of commodity trade finance. This is true especially from the perspective of the large traders to whom certain banks have pledged “whatever it takes” type of commitments. The year has brought about peak liquidity requirements first on the metal side, then oil and latest on gas and power whereby substantial additional liquidity was made available in record time from numerous banks and even states.

The large traders’ quest for additional sources of capital seems never-ending. Banks have been accommodating but there are limits. Meanwhile smaller and emerging traders are still struggling to catch banks’ attention and commitment while slowly and diligently building the required track record. There are no quick wins for building trust, just hard work and patience. Everyone anticipates that technical solutions aimed at mitigating, especially fraud risk, and making collateral more secure will help tremendously. And then there is the trade finance gap!

The trade finance gap and alternative liquidity providers

The Asian Development Bank’s global trade finance gap was previously estimated at USD 1.7 trillion. The study confirmed that SMEs involved in trade represent approximately 40% of the rejected trade finance requests. Hopes that direct lenders and trade finance funds can bridge that have been overly optimistic. Such players have hurdles both on finding the flows that will pay the high return requirements demanded by investors and building comfort on the investor side that they are deploying capital towards acceptable risks.

Such “fixed income” investors are not very familiar with trade finance and diligence is required in selling a risk mitigated package of classic trade finance assets (bills of exchange, receivables). For those players that have a good understanding of the risks involved and appetite beyond banks’ often restrictive approach, there is business to be made. What remains to be seen is how the economy will “land” following the unprecedented period of financial tightening we are seeing and impact on trade in general and commodity trade in particular. Furthermore the increased borrowing costs will test traders’ ability to pass it on to suppliers or off-takers in the supply chain. Ultimately there will be a higher bill to pay.

ESG

ESG pushes forward as the new compliance and companies (especially around debt facilities) need to embrace it sooner rather than later. Time is important and action needs to be taken sooner rather than later. Approaches vary a lot with some corporates working towards or having a dedicated rating while others prefer to develop very specific business related KPIs. There will be a forming process and the standard will be further refined but what is critical is that ESG needs to be put in the context of the company’s business model and properly understood by investors and stakeholders. What remains interesting to see is the linkage of syndicated facilities to ESG criteria, while transactional commodity finance lines, which remain the bread and butter of the trade and commodity finance sector seem not aligned.

Fintech

From blockchain to post-trade execution platforms, there are many players on the trade related fin-tech market. The challenge has been to align stakeholders and the risk is to end up with a solution chasing a problem. The return on investment profile and messaging of such solutions needs to be further refined. Legislation will play a critical role and will further enable the digitization of trade and hence bring a contribution to increased transparency and (fraud) risk mitigation. It will all come together, as I believe the digitation of trade is in its infancy. With English law being the main choice for trade and related arbitration, we can only congratulate the UK for the advancements on the Electronic Trade Documents Bill.

Overall, it seems that we are moving from an environment stressed by specific events like supply chain constraints, fraud, absence of physical documents, liquidity requirements to a more overall challenging economic environment with increased operating costs and a new financial regime. Sticking to risk management, disciplined capital allocation and competitive advantages will once more help throughout more difficult times.

Bridget Meyer faces the Treasury Dragons in a live session that looks under the hood of the best-of-breed bank fee analysis systems, including a live Q&A with real corporate treasurers.

HawkeyeBSB

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