Bank Account Management

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2 Asia Pacific Treasury Management Barometer 2013 Paving the way for BAM As global corporations increasingly expand into Asia to tap into future growth opportunities, attitudes towards the role of treasury and the associated operations in the region have inevitably shifted. Many firms are now focusing on right sizing their operations for future growth, at local, regional and global levels. As a result, discussions between treasurers and their banking partners have evolved substantially. Nowadays, conversations more frequently involve topics such as centralization, enhanced yield returns, heightened risk management and consolidation of manual and time consuming procedures. These trends are consistent with Bank of America Merrill Lynch and SunGard research, which indicates that the fundamental issues of connectivity and cash visibility will remain key challenges for the region. According to the 2013 Asia Pacific Treasury Management Barometer, roughly 60% of treasurers count visibility of cash as a core driver. Furthermore, 38% identify rationalization of bank accounts as a key priority. Q: What are the primary areas of focus for your treasury in the next 12 months? 60% 44% 44% 38% 31% Improving cash visibility Yield enhancement & minimizing interest expenses Concentrating cash Rationalizing bank accounts Counterparty risk management Talent management 17% Other 8% Supported by these results, investment in scalable and centralized platforms and solutions will further emerge as a sustainable trend. Add fresh memories from the global credit crunch into the mix, transparency is clearly front-of-mind for treasuries in this region and will further stoke the centralization and visibility fires. Therefore it is unsurprising that the industry s broad focus on bank account management (BAM) solutions is gathering pace, albeit at different stages in Asia Pacific. 25

3 Asia Pacific Treasury Management Barometer 2013 Bank account rationalization and cash visibility At a corporate level, BAM discussions must first focus on the number of accounts or banking relationships. For corporates, it is often difficult to qualify the optimum number of accounts or banking relationships due to jurisdiction, industry, revenue, and company culture. Of the companies surveyed, a 57% majority used less than three primary cash management banks in Asia Pacific, with 33% using between four and ten, and 10% using more than ten. This indicates that many firms have already gone through some form of bank rationalization. However, there is still plenty of room for further movement. For corporations with global operations, the number of bank relationships is higher, with 13% dealing with more than ten primary cash management banks, and 41% with four-to-ten banks. Simply put, globally diversified corporations naturally have more complex cash management banking needs than those with regional or local strategies. When bank relationship rationalization is examined in Asia Pacific, cash visibility is an obvious driver. According to the Bank of America Merrill Lynch and SunGard research, improving cash visibility is a major priority for companies of all sizes, but a more pressing requirement amongst companies with over $5 in revenue. Examining the number of bank accounts by company size, it becomes clear that once companies grow to $5 in revenue, they reach a peak in the number of cash management banks employed. By comparison, companies over $10 have evidently begun a process of bank account rationalization, with 31% of respondents in the high revenue demographic planning to decrease the number of bank relationships. Q: How many primary cash management banks do you use in Asia? >$10 $5-10 $1-5 $500 million $1 $ million % 19% 8% 7% 5% % 44% 39% 40% 24% < 3 42% 37% 53% 53% 70% Q: Do you plan to increase or decrease the number of primary cash management banks in Asia? >$10 $5-10 $1-5 $500 million $1 $ million Yes, planning to increase 13% 11% 20% 23% 27% Yes, planning to decrease 24% 30% 35% 10% 25% No 24% 22% 31% 13% 17% 26

4 Given that conversations on visibility and rationalization are happening with greater frequency, it is not surprising that interest in BAM has picked up both regionally and globally. However, any corporates considering BAM must first understand three different variations of the solution globally: manual BAM, automated BAM and electronic BAM (ebam). The majority of corporations in Asia Pacific fall into the manual BAM category. This is due to an array of factors ranging from legacy systems to accounting policies to regulations. Manual BAM users are more likely to use spreadsheets to keep track of their bank accounts and this has its own set of limitations. As a result of over-reliance in manual processes, which is often out of the corporation s hand, an array of larger challenges in managing the bank accounts are a common problem, particularly as processes are prone to error and the risk of fraud manifests. To address this and other challenges consistent with manual BAM, vendors have developed workflow and repository tools, better known as automated BAM solutions. However, while treasury interest has frequently translated into implementation and BAM has made significant inroads as a centralized treasury platform globally, adoption levels in Asia Pacific have been moderate at best. But slow BAM adoption is not for lack of interest. In fact, the functionalities and advantages of a BAM platform will inevitably find a broad audience in the Asia Pacific region. From where we stand, broad BAM adoption in Asia Pacific could rely increasingly on willingness to implement technologically-advanced solutions, specifically automated BAM solution, while waiting for the electronic bank account management (ebam) support from banks. In other words, automated BAM could be a catalyst. Automating BAM in Asia Pacific While broadly beneficial, automated BAM is not applicable for all corporations. Bank of America Merrill Lynch and SunGard research indicates that automated BAM benefits corporations with revenues between $1-5 most, with 16% of the surveyed corporates looking to implement automated BAM for centralization purposes in the next three years. It is also interesting to note the companies in the same revenue bracket also average between four and ten primary banks. Additionally, automated BAM provides significant benefits for corporates with a large number of bank accounts. The end-goal is to streamline processes and to enhance control and security. This fact correlates directly to market trends observed in Asia Pacific. BAM, in its basic form, is about transparency, and clients will always demand transparency when mitigating risk and reducing exposures. From where we stand, we expect BAM to remain a best practice driver and a necessity for corporates managing businesses on a global scale. ebam, albeit characterized today by moderate volumes, will only be successful with the joint leadership of an industry focused collaboration across banks, technology vendors, and corporates." Amit Sharma Head of ecommerce and Channels, Asia Pacific Bank of America Merrill Lynch 27

5 Asia Pacific Treasury Management Barometer 2013 Q: Do you plan to implement a automated or third party bank account management (BAM) solution? (For $1-5 in revenues) No plans 78% 5% Yes, within the next months 12% Yes, within the next months 5% Yes, have already implemented BAM Q: Do you plan to implement a automated or third party bank account management (BAM) solution? For corporations with more than ten banking relationships Yes, within the next months Yes, within the next months 14% 8% 61% No plans 18% Yes, have already implemented BAM The ebam catalyst? Are automated BAM solutions a natural stepping stone before ebam is widely adopted across Asia Pacific? Possibly. Currently, ebam adoption is slow due to the regulatory environment with only three markets fully ready for ebam deployment; Australia, Hong Kong and Singapore. Let's take a closer look at ebam. As ebam comprises of account opening, account maintenance, mandates and account closing functionalities, treasurers rely on ebam to manage multiple bank accounts across multiple geographies. More recently, interest in ebam has come to include signatory management, which many clients believe enhance transparency at the account opening stage. The key requirement in the market is the account reporting function of ebam, which allows corporations to detect any fraud on the account and to analyze any non-operating account that they can detect and close. The regional dilemma While treasurers at large corporations in Asia Pacific would clearly jump at the opportunity to implement the ebam platform to better manage accounts, there are several external obstacles holding back wide scale adoption. On one hand, centralization initiatives are generally a lower priority in the region. However, a larger issue of legal frameworks and diverse regulatory regimes governing bank account management and openings is an dampening factor. The digital signature component of ebam is an example of the broad legal frameworks of Asia Pacific influencing regional adoption. As it currently stands, only Australia, Hong Kong and Singapore have passed legislation to support digital signatures. At the other end of the scale, in large regional markets such as China and Taiwan, all account openings have to be physically completed at the branch in front of a camera. In Japan and Korea, physical chops on the document are required at the branches. While in India, digital signatures are not supported. Hence the problems involved with implementing a global solution like ebam. 28

6 At an individual country level, digital signatures need to be recognized in the court of law in each jurisdiction for ebam to succeed. Not all countries have the legal framework in place currently and we do not see any signs of rapid adoption. However, collaboration across the industry has led to some progress in certain markets. Additionally, there is a need to establish a multi-bank digital infrastructure, that will lead to further dialogue. Across the board, once the legal framework is in place, international and local banks need to accept digital signatures instead of physical signatures. The second major challenge is that many countries require originals or certified true copies. The client needs to submit the electronic version followed by sending the copy of the documents physically, thus duplicating the process. Across the region regulatory clarity will be the major obstacle to the adoption of ebam. Asia remains highly fragmented and widespread adoption will take some time. Nonetheless, most companies continue to see BAM as the best option to better organize, rationalize and standardize their existing processes and to manage their workflows and approvals. Fraud, workflow and visibility are just a few of the reasons why companies consider bank account and relationship rationalization as their top priorities in the coming 12 months. Better use of technology will be the treasurer's best chance for success. After years of rapid growth emerging market companies highlight having too many banking partners has one of the greatest pains points they re not alone as this was also the most common response from some of the region s most developed markets including Australia, Hong Kong and Singapore. Kurt Vandebroek Senior Vice President, Product Development SunGard For ebam to succeed and push heightened BAM adoption in Asia Pacific, we believe that several distinct components must come together. Clearly, the solution must be cost effective but there are other more tangible variables that could drive adoption. There is the integration element. In many cases, external technology is not prohibiting ebam adoption. Rather internal processes, which add company specific technical, time and resource challenges, are holding corporates back. For example, ebam must be able to integrate with corporate back office systems such as treasury management systems (TMS), enterprise resource planning (ERP) systems and human resources (HR) system to succeed. Many corporations in the region need to establish these functions first in order to prepare for ebam integration. Additionally, wider adoption of multi-bank digital security and digital identification infrastructure like SWIFT 3SKey aim to create harmonization of digital interoperability across banks. 29

7 Asia Pacific Treasury Management Barometer 2013 Getting prepared On the future of the platform in Asia, it is more a question of when rather than if ebam will be embraced by corporates as the next logical step from an automated BAM platform. As legal frameworks develop in individual markets across the region to support ebam with specific functionalities like digital signatures, proactive corporates are already taking necessary steps to ensure that an imminent migration will be a relatively smooth affair. For example, the establishment of a central data repository, which stores essential data on bank accounts held by corporates, is an important first step on the ebam voyage. Furthermore, experience tells us that within actual ebam implementations a substantial amount of time is spent creating central data repositories for clients that have not established this function. Information held in a central data depository can house not only account information across geographies, but also documentation regarding signers, mandates and contracts. However, currently this information is typically still spread across multiple systems in this region. Increasingly, the banking industry is seeing more interest in the region for central data repositories. SWIFT was considering to establish a ebam Central Utility (ECU), linking multiple corporates and banks. This initiative did not move forward as SWIFT could not get the required funding. Furthermore, several banks have started offering ebam through their online banking portal. This allows corporations to start managing the account maintenance via the online banking self service model. Going forward, banks will need to offer this as a supplemental channel. Corporations in the region with one eye on ebam should also look at centralizing the account opening process, and working out the agency agreements internally from their subsidiaries. In our view, it is more difficult to manage and implement ebam in a decentralized operation, and establishing these processes will prevent potential issues later. Wide scale adoption of ebam in Asia Pacific will clearly take time, but will ultimately play a substantial role in the objectives of treasurers in the future. In order for ebam to be widely deployed, several elements need to align, most pressingly, the adoption of automated BAM solutions. Cooperation between the corporate sector, banking partners, SWIFT, technology vendors and consulting firms is clearly required to present a unified front for a regional BAM to succeed. The result will be a win-win for the entire industry. ebam will only be successful with an industry focused collaboration with banks, technology vendors, and corporate jointly harnessing their energy in this space to drive best practices and efficiencies. From where we stand, common global implementation (CGI) provides the necessary framework for establishing a model that can bridge competitors and collaborators. Cindy Murray Global ecommerce executive Bank of America Merrill Lynch 30

8 The survey results and interpretations in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either advice or legal opinion. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed Bank of America Corporation. Survey prepared February ARN5W570. SunGard is one of the world s leading software and technology services companies. SunGard serves approximately 25,000 customers in more than 70 countries and has approximately 17,000 employees. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software. With annual revenue of over $4.0, SunGard is one of the largest privately held IT software and services companies. For more information, please visit HYPERLINK "