Cash Management

Where the Money Is

Faster, better, cheaper. The best treasury products aren't just for the biggest companies anymore.
Janet KersnarMay 17, 2007

There’s a lot on the agenda at Arcelor Mittal these days. It’s been less than a year since the hotly contested merger of Luxembourg-based Arcelor with Indian-owned Mittal Steel, and now integration programs to join the two former rivals are in full swing.

From the vantage point of Rohit Seksaria, the newly merged firm’s group treasurer, it can be daunting at times. Arcelor Mittal, now the world’s largest steel producer, is aiming to be one day a “benchmark” treasury department and provide world-class services throughout the entire company. But with a number of projects in the pipeline, time isn’t always on Seksaria’s side. As he notes when discussing the expansion of a euro zone “payment factory,” “We have weeks, not months, to get this done.”

Arcelor Mittal’s aspirations don’t end there. Although already large before the merger, the combined treasury now has the clout to explore the products and services that only the largest companies have access to. Along with the payment factory, for example, Arcelor Mittal is expanding its in-house bank. It’s also reviewing the software market to find a “one-stop shop” product to streamline forex and commodity trading. Yet another project involves seeing whether the firm should move its current patchwork of national shared service centers into a regional, or perhaps even a global, model. Ultimately, Seksaria sees a future of more automation, real-time information and streamlined processes that will make “financing the business and protecting the money that the company makes” — the raison d’être of treasury — more efficient than ever.

Other treasurers might be green with envy. After all, what treasurer wouldn’t want all that? But treasurers have long lamented that if a company isn’t among the top league of major multinationals — as Arcelor Mittal now is — access to many products and services is limited, at best. These smaller companies say they have neither the staff nor the budgets to devote to running the full-blown systems being touted by vendors. Furthermore, they complain that banks and other providers don’t give product development or service at the mid-market level the attention they deserve.

Yet there are signs of change. Bankers, technology vendors and treasury consultants all say that a convergence of factors, particularly in Europe’s cash management arena, is shifting the focus from the multinationals to smaller, but no less global, companies.

Moving Targets

The wakeup call for banks came a few years ago, says Celent Communications, a financial-services research firm. In a report published in late 2005, Celent analyst Jacob Jegher observed that “financial institutions are being plagued with a disturbing metric — waning cash management growth. This risk to the bottom line is an indicator that inspirational and innovative new features and functionalities are required in order to differentiate and seek new streams of revenue.”

Whether the financial institutions have found the inspiration and innovation yet is a matter for debate, but they can’t be faulted for a lack of effort. In particular, notes another Celent report published in 2006, banks have been boosting investments in cash management technologies. In Europe, those investments will reach €990 million this year, double the amount spent four years ago.

An example of this spending is Citi’s Treasury Vision product. Developed in a pilot project with PepsiCo in 2005, the web-based service gives companies a single, real-time view of their cash, investment and debt data, from multiple banks and multiple locations. Since its launch, the bank has added dashboard-like analytical tools as well as cash forecasting and foreign exchange, helping it to win various awards in treasury management circles and encouraging some 50 — mostly large — companies to sign up for it, says Mark Beard, head of liquidity management and investments for EMEA at Citi.

And the banks appear to be reaping the rewards of the increased investments. According to Ernst & Young’s most recent annual cash management survey of major U.S.-based banks, published in November, cash management revenues are climbing, with growth at around 5 percent in 2006 from a decline, of 0.5 percent, in 2003.

But in Europe, further growth will be under pressure starting in 2008, when the European Payments Directive and the Single Euro Payments Area (SEPA) kick in. After that, banks foresee not only a dramatic drop in the fees they earn for moving around money for their customers — both retail and wholesale — but also a big shakeup in payments-processing markets, as a host of non-banks will be allowed to offer competing services.

One way the banks are responding to the threat is by focusing more on the mid-market, targeting clients with annual revenues of a few billion euros. It’s easy to see why. If the experience in the U.S. is anything to go by, note Tariq Khatri and Leon Ho of Diamond Technology Consultants, international and domestic banks in Europe will find that profit margins are higher for mid-market firms because those firms are often unable to negotiate volume discounts. “In the U.S., we observe margins for mid-market firms to be 30 percent to 40 percent, versus 20 percent to 30 percent for large companies,” they wrote in a paper published on GTNews, a treasury website, in November. “In fact, our research in the US showed that the mid-market was often the largest contributor to overall profitability to a typical bank.”

Burgeoning interest in the mid-market is “a trend that’s been obvious for some time,” asserts Ann Cairns, CEO of transaction banking at ABN AMRO. “It was one of the reasons why ABN reorganized in 2006 — we could see that there was huge opportunity to offer liquidity products and technological solutions right through the range of companies, from MNCs to the middle market to the consumer markets.”

To that end, ABN and other banks say that they’ve become much better over the past few years at tailoring products for the mid-market. For one thing, they’re emphasizing the user-friendliness of their products, something that’s important for companies that have neither the manpower nor the budgets to devote to training. “Products should be intuitive, almost like using an ATM,” says Alan Koenigsberg, JPMorgan Treasury Services’ core cash product executive for EMEA and the Americas.


Web-enabled technologies are key to the new offerings. As Celent notes, the web is “the channel of choice” for the mid-sized organizations which need to capture position information from global banking partners “in an automated, standardized way rather than over costly, and often constraining, proprietary bank connections.”

As such, a hot growth area is application service providers (ASPs). Rather than investing in full-blown treasury workstations or ERP systems, treasurers have begun “renting” cash and treasury management modules via the internet, either directly from ASPs or from banks offering ASP products under their own brands.

The more Côme Lefebvre du Preÿ, group CFO of €630 million French publishing house Le Monde, looked into ASPs, the more he was sold. “We tripled the size of the group over the past five years via acquisitions,” says the CFO, noting that the company now comprises about 70 legal entities, most of which are small publishing outfits based around France. “Because those acquisitions were financed by debt, we need to keep a good grip on cash.”

To keep that grip, the firm needed a cash management system that could “monitor our cash and liquidity positions every day, to see what has happened and what will happen.” But an ERP or treasury management system would be overkill, so he and his team began looking into ASPs.

The ASP Lefebvre du Preÿ chose was Kyriba, a pioneer in internet-based treasury launched in 1999. One clear advantage the ASP had, says the CFO, is that it is an independent provider. “If you want to use one of the bank’s cash management tools, it would want all of our business,” Lefebvre du Preÿ explains. “But we have cash concentrations with several banks, and we didn’t want that to change.” Another attraction was that it took just a few weeks to implement and was easy to use right from the start. “Most of our staff had never worked with a treasury management system and were used to working manually,” he says. “After just a little training, they took to the ASP module.”

Well Connected

Web-based tools are no longer luxury but necessity at many other treasury departments. Just ask David Eames, group treasurer of Spectris, a £685 million (€1 billion) UK precision instrument and electronic controls maker. A fast-growing, global company, Spectris is a network of 14 business units and 120 legal entities worldwide, with some 300 bank accounts in various currencies, creating a big cash management challenge.

Over the past few years, Eames has been using web-based tools to connect corporate treasury to the group’s units, so that “we can maintain a fairly strong control environment” from head office, even in a decentralized organization. “We are very cash generative and we convert something like 100 percent of our operating profits into operating cash flow,” Eames says. “But because those 300 bank accounts around the world clearly have floats, the challenge is to centralize that cash to where we have debt to pay down, and also to maximize the return on that cash.” That’s done with the help of Access Online, a web-based channel from ABN AMRO, which allows Eames and his team to view all of Spectris’ currency accounts held with the bank.

The greater focus on the mid-market by treasury providers can only be good news for Eames as he now looks to fine tune the firm’s cash management. Over the months ahead, he’ll be bedding down a new treasury management system. He also wants to expand Spectris’ pooling structures — particularly a euro zero-balancing pool that he set up with ABN AMRO in 2003.

Back then, when he sent out six requests for proposals for the euro pool, the response was disappointing. “One [bank] said we were too small and didn’t even want to know us,” he recalls. “Another said, ‘We have a great product but you’ll have to have a common ERP system in all your businesses,’ and they began talking about a centralized payment factory. That just wasn’t the direction we were going in.”

Integrate and Automate

Eames won’t be alone in hoping that banks are more accommodating today. Treasury Strategies, a consultancy, surveyed some 500 European treasurers about plans for the year ahead. The top project for mid-market treasurers is reviewing cash management networks, both domestic and international. (See chart below.)

Such reviews are already commanding much of the attention of Adrian Boutellier, group treasurer at Swiss technology manufacturer Oerlikon. While in the midst of a group-wide working capital management program last year, Oerlikon, with about SFr4.8 billion (€2.9 billion) of pro-forma 2006 revenue, began integrating Saurer, an acquisition considerably larger than its new owner.

Now, like Arcelor Mittal’s Seksaria, Boutellier has post-merger aspirations for treasury. These include setting up a payment factory, initially in Europe. SEPA will help, he says. Meanwhile, Oerlikon’s treasury is looking for ways to leverage its new size. “The more we integrate, the better,” he says. “That way we can really get control over our banking relationships, and really use the banks for their strengths.”

Even without the acquisition, managing complexity remains one of Boutellier’s main challenges. “The workload just goes up all the time; we’re pushed to increase the efficiency, so we can spend time on the bigger challenges — risk management, cash flow forecasting, supporting the operating group companies,” he says. “Looking back over time and comparing what we were doing in 2000 to today, it’s rather obvious that the complexity has increased, but we’re still about the same number of people in treasury.” This couldn’t happen without a vast improvement in the tools his treasury team are now using to streamline and automate numerous processes.

Like other treasurers in the mid-market, however, Boutellier has no illusions — size still matters. “I have the impression that it is easier to receive tailor-made solutions today,” he says. “But it helps if you reach a certain size.”