Local banks are often the smart choice for younger businesses, but taking the time to re-evaluate the benefits of a more consolidated banking structure can be overlooked as businesses mature. In particular, companies that do business overseas and work within a decentralized, multibank model can have very little insight into their overseas treasury operations.
Smart Business spoke with Chase Commercial Banking’s John Hayes about whether or not a centralized model might be right for your business.
How did the decentralized model become prevalent, and what are the challenges?
As U.S. businesses expanded overseas, many leveraged multiple in-country correspondent banks for their treasury management. This provided access to on-the-ground experts for advice on best practices, regulatory/tax environment, supply chain and trade.
While this fragmented approach seemed viable at first, many organizations realized the inefficiencies and challenges, such as:
- Multiple relationship managers that cover each bank/region, adding to costs and time spent maintaining each relationship.
- Lack of visibility and control into international accounts, resulting in inadequate real-time insight.
- Multiple technology platforms and systems, which can make it difficult to manage access and control.
- Lack of risk management, which can increase the threat of fraudulent activity.
- Customer service models that vary from bank to bank, making it difficult to address and resolve inquiries.
- Inconsistent pricing.
- Decentralized accounts payable/receivable and foreign exchange management.
- Counterparty risk.
Is a decentralized model still viable? What has changed in the past decade?
The decentralized model gave many organizations the ability to conduct business on a global scale. In the past decade, however, technology advancements have allowed for a more centralized approach to global cash management. The various proprietary banking platforms and treasury management systems provide a single platform for all banking and cash management, offering clients more visibility and control.
This centralized model also increases liquidity and efficient management of funds; accurately forecasts budget projections; consolidates documentation in a complex regulatory environment; and provides more consistent cash management.
In some instances, organizations may still require local bank accounts in various locations for regulatory and/or tax purposes.
How can an integrated banking model push a business forward?
Many international banks have invested in developing dedicated, local banking groups with decision-making capabilities and on-the-ground knowledge of the region’s consumer and logistical landscape. This model has resulted in better client communication and automation to manage multiple accounts in multiple currencies.
Integrated international banking models operate on a single platform, which immediately reduces duplication and allows for better control and more consistent processes. Over time, companies may also realize cost savings by consolidating transactions and leveraging relationships with their vendors (including financial partners) to reduce transaction volume and, in turn, the fees associated with those transactions. Additionally, there’s the advantage of access to real-time reporting and increased visibility into accounts and statements.
For example, one U.S. based client operated in 24 countries with more than 80 bank accounts and more than 15 providers. By moving to a centralized treasury structure, it cut that down to 34 bank accounts with four banking providers, saving more than $50,000 annually.
As global financial institutions improve their international services, including developing more sophisticated technology to serve cross-border clients, the gap between international and local banks delivering local expertise has closed.
Case study: Migrating from a decentralized to a centralized treasury structure
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