29
Citi Perspectives
| Q1/Q2 2015
centralization and that further
efficiencies would be achievable
over time. However, regulatory
harmonization in EMEA (SEPA) and
the pressure to improve control, is
spurring corporates to seek greater
process efficiencies in the initial
stages of the centralization process.
This goal is being furthered by the
standardization of channels, such as
SWIFT to connect to banks, and the
increased adoption of standards such
as XML. As a result, the SSC is able to
achieve operational efficiencies even
in regions — most obviously Africa
— where there are few regulatory or
market similarities.
The drive for operational efficiency
is also prompting companies to
re-examine previously accepted
best-in-class strategies. For example,
for many years treasury has sought
to centralize FX to eliminate
in-country risk and gain control
over rates and fees. While these
objectives have been achieved,
process inefficiencies have not
been eliminated — they have simply
been centralized.
Increasingly, EMEA corporates are
considering using SSCs for low-
value, high-volume FX transactions.
Provided there is transparency
and agreed FX rate terms, the vast
majority of transactions can be done
at SSC level, dramatically improving
efficiency, while still giving treasury
the visibility and control it requires.
High value transactions can still be
processed, with additional scrutiny
and interaction with FX providers,
by treasury. Consolidating FX at
SSC level provides an opportunity
to consolidate account structures.
Multiple FX payments can be
executed from a single account,
achieving further efficiencies.
Companies are also questioning
assumptions about the payment
instruments they use. Until recently,
concentration of payments into SSCs
(or payment factories) was seen as
an opportunity to create a hierarchy
of payment methods, with low-cost
ACH payments considered favored,
followed by wire payments, and so on.
Now EMEA corporates are starting
to consider the broader costs to the
organization of different payment
instruments, rather than simply the
payment costs themselves.
The issue has been brought forward
by increased adoption of alternative
payment instruments in EMEA.
Cards are increasingly being used
for supplier payments, for example.
Cards enable companies to pay as
they purchase, eliminating invoicing
and the many costly processes and
checks associated with reconciliation.
As well as lowering processing costs —
to a level that better reflects the low
value of most corporate payments
— cards enable suppliers to be paid
quicker (which may encourage them
to lower prices). Moreover, by using
cards, a corporate can boost working
capital as it is able to receive goods
before the card bill has to be settled.
Payments can therefore effectively
become a revenue generator.
The drive for
operational
efficiency is
also prompting
companies to
re-examine
previously
accepted
best-in-class
strategies.
