The movement to bring together cash management and trade finance capabilities is gaining momentum. For banks, it’s a means of improving client relationships. For corporates, it holds the promise of greater control over working capital. GTR brought together heads of trade finance and transaction banking from leading institutions to discuss how the cash and trade concept is being applied.


Roundtable participants:

  • Julian Wakeham, partner, performance improvement consulting, PricewaterhouseCoopers (chair)
  • Michael Burkie, vice-president, head of corporate business development, Emea, The Bank of New York Mellon
  • Roque Damacela, managing director, trade finance head, Europe, Middle East & Africa, GTS, Citi
  • Adnan Ghani, global head, trade asset management, RBS
  • Iain MacDonald, head of business solutions and trade product management, UK and international cash and trade, Barclays Commercial
  • Jeremy Shaw, head of trade services for Europe, Middle East & Africa, JP Morgan
  • Olivier Berthier, solutions director, transaction banking, Misys
  • Peter Sargent, head of transaction banking, ANZ
  • Maarten van Wesemael, head of GTS UK, BNP Paribas
  • Wolfgang Friedinger, head of trade products and services, UniCredit Group

The roundtable was kindly hosted by Bank of New York Mellon at its London offices.


Chair: Since Lehman Brothers went into administration last year, phrases like counterparty risk and liquidity management have become increasingly important for both bankers and corporates that we service. There is clearly a need for a better handle on cash management. Given that environment, the intellectual argument suggests that cash and trade and liquidity should come together, and that we should see some convergence. Is this really happening?

Van Wesemael: I think it is. In particular, the interesting development is that the issue is moving up through the various levels of the bank from a group treasury level to CFO level.

With one of our clients in the UK, the CEO and his team are being remunerated if they meet their working capital management targets. There has definitely been a change in attitude.

Ghani: We’ve looked at a number of studies recently that have focused on the links between cash and trade from a working capital perspective.

According to one, there is approximately US$100bn trapped in the working capital cycle of corporate organisations. At a time when access to liquidity is critical, clients are looking to banks for ways to make better use of their cash – so clearly there is considerable demand for these types of solutions.

This also underlines the fact that fundamentally, both cash management and trade finance are flow products, ie, that there is some form of cashflow involved – whether it be a payment for a trade transaction or a bank-to-bank transaction.

The only caveat I would want to put forward in terms of the convergence between trade and cash is in client segmentation. At the mid-corporate level you typically have one decision maker (whether treasurer or CFO) and the integrated working capital proposition works very well – we are certainly seeing much more interest in the end-to-end solution from this segment.

When you talk about multinationals however, you have different decision makers looking at cash management, liquidity and trade and supply chain financing, and they invariably have different priorities.

Supply chain finance is one area where we are seeing increased interest from the larger corporates in a combined cash and trade solution – whereby the process of discounting supplier invoices can be directly connected to the buyer’s back office payment systems.

Burkie: I would certainly agree with the mid-sector comment.

There was a survey carried out recently across approximately 260 corporates. Key findings were that they viewed trade finance as an underdeveloped area, which in turn undermined them optimising their working capital.

Approximately 75% of these corporates managed their cash centrally while only 20% managed their trade finance centrally.

The smaller the company, the more likely it was to have its cash and trade integrated into a single working capital function.

This is clearly a disjointed approach as to how working capital is managed overall – for example, only 9% of these corporates included trade flows in their cash flow forecasts.
Corporates have to rethink the demands they place on their company’s effectiveness from a working capital point of view.

Sargent: I think for the smaller-to-medium companies – cash is king. Companies that are one stop short of being publicly-owned, generally speaking, do anything to generate cash.

As you get to the larger, publicly-owned corporates, they can generate their own cash and they are driven more by risk management.

I do think that the very big companies are looking far more at mitigation of transactional risk. That could be a letter of credit confirmation, the selling of receivables, or with which bank they put their surplus cash.

I do think there is a substantial differentiation when you get to the publicly quoted international companies that speak on risk management first, and cash management second.

Shaw: I would agree on this. What we’ve seen are that companies are much more focused on counterparty risk.

That is from a deposit perspective – as well as a clearing and settlement risk perspective. Trade is clearly part of this trend towards building a greater awareness of risks in the supply chain.

Large companies which previously were not as focused on trade risks are now much more focused. From our perspective, we look at this as all part of treasury services, ie, managing that cash cycle.

Damacela: I’d say that the large corporates are indeed looking at risk mitigation support and in addition, assistance with providing financing and working capital to their smaller business counterparties. This ties in with the concept of linking cash and trade, particularly for the very large corporates. For many of them, infrastructure on the cash side has been built and the next leg will be to leverage that with the financing solutions on both ends of their commercial transaction flows – this is very relevant in recent times due to the impact of the liquidity crunch on the supply chain. As companies have seen capital markets shut down, many have been looking to trade finance products to access much-needed liquidity and also channel it to their business partners. In this effort, they have the opportunity to leverage infrastructure that has already been put in place for cash management. For the SME sector, the convergence of cash and trade is a must-have from a bank’s perspective, in terms of having a visibility of all cashflows to ensure the bank’s position is actually on a sound footing.

Van Wesemael: In a UK context, a lot of companies have already restructured their balance sheets and are having to revaluate the management of their supply chain.

Furthermore, a lot of suppliers of large companies are being squeezed by Basel II because banks are no longer lending to them, due to the fact that sometimes the bank will need to put more capital aside than the actual nominal value of the transaction.

When working with large corporates, you really need to first look at how to secure in the suppliers, and then look after the corporates’ working capital.

Friedinger: Some years ago, we offered separate solutions for cash and trade products. We realised that we have to tear down these walls and offer internet-based solutions covering both needs in one application.

MacDonald: In Barclays, our cash, trade and liquidity business has been part of the same team for many years. Our approach has been to gain greater insight into our customer’s current buying behaviours to see if we can establish a link between the use of trade finance and cash management.

As most traditional trade finance products relate to cross-border transactions, the link with international cash management services is more apparent. We understand that a customer who is using our trade finance products is more likely to use cash products such as international payments, currency FX and currency investment services.

Of course proving that a link exists doesn’t explain why the link exists. For Barclays, this is all about understanding our customers’ working capital needs and then providing end-to-end solutions which draw on the full range of our trade and cash management services. I would say though, that for the more sophisticated companies, especially those requiring high levels of trade finance services such as the commodity sector, the need for genuine specialists in trade finance will always exist.

However, for companies with less sophisticated needs, or those who have less substantial demand for trade finance, we aim to provide bankers who are equipped to address the complete range of their working capital needs.


Chair: What I gather from your answers is that there is definitely customer demand for bringing these products together. But what is getting in the way? Is there a technology problem in that there isn’t a solution that can join up these products? What other obstacles are there?

Shaw: I think the answer lies in helping to broaden the treasurers’ remit.

It all depends on your access point at the corporate. On the cash management side, the day-to-day contact is typically the treasurer.

As you look at broader risks, these are monitored at CFO level, so to sell a combined cash and trade proposition you need to talk to the CFO.

Placing cash on deposit at a bank was probably not viewed as a very risky thing as long as it was with a top tier bank. The crisis has made people very aware of counterparty risk and the fact that significant amounts of cash are tied up in working capital. But the treasury has not been that focused on trade or supply chain previously.

Sargent: It is partly due to adopting the right consultative sales style to target the top-end corporates. You need sales people that display a top-class level of knowledge of the needs of both customer and bank rather than just product sales people.

MacDonald: A key driver on the cash and trade agenda is that trade finance business is moving increasingly into the open account space. Traditional trade finance is still vital, but we are now talking about a far broader proposition which supports our customers who are trading on open account terms.

For example, SCF solutions such as payables financing create a way of processing payments, which blends execution of future dated payments with the provision of finance to a supplier.

Damacela: In terms of promoting the working capital combined proposition of cash and trade, our experience thus far suggests it is more of a C-level discussion rather than a treasurer discussion as it touches several areas in the organisation. The more obvious ones are finance and procurement with regard to upstream solutions and credit and sales on the downstream side. One of the internal challenges for banks is in educating sales people about the value of the combined proposition so that it can be properly articulated at the right levels of the client’s organisation.

Ghani: For us, technology is not necessarily the barrier. It’s actually more about the nature of the relationship we hold with the client. For example, if we have a European cash management mandate with a large corporate, the core banking relationship is already established, and we will have a clearer understanding of the nature of their business. So, we can more easily talk to them about the benefits of say, a supply chain finance programme, as, at the end of day, there is a payment involved to either settle a trade transaction or make a payment to suppliers.

When you get to mid-sized corporates, the client demand is primarily about the bank’s ability to provide funding or fund the working capital transaction. Or it’s about providing access to information and improving visibility to their accounts.

Friedinger: I think we need to get a deep insight into the processes of our clients, to understand their needs, in order to build solutions that really offer internal and external cost savings.


Chair: Historically, corporate-bank relationships were managed on a credit-based model rather than at a transaction banking trade-based working capital level.

Are you seeing a shift away from a credit-dominated relationship management structure to a broader, working capital transaction banking structure? Who now makes those big decisions for clients?

Shaw: I wouldn’t say we are moving away from credit-based relationships. I think what we see are clients looking to their core banks to support them from a credit perspective and to provide as many other services as possible.

We have treasury and securities services and investment banking all within JP Morgan. There is a big overlap in terms of clients and it isn’t the case that one side of the bank makes a credit decision over the other side. There is more of a consultative process, and we look to see how best to serve the client and how to leverage what limited amount of credit there is to the maximum advantage.

There is much more focus on getting the right return. The right return may not necessarily mean the most amount of money or best return from an equity perspective but from a relationship perspective. We do what we think is best for the client.

Van Wesemael: It also shows the dynamic nature of the banking industry. In just a year, many banks have completely changed their models. In many banks, the product-neutral relationship management is in charge of client relationship – credit is no longer the driver.

Flow business, which included trade business, is seen as good return – especially in terms of Basel II.

Sargent: There is a geographic element to this as well. It is difficult to sell a corporate your transaction services offering in Europe if you are not prepared to put money into a customer’s revolving credit facility, to a degree.

In Asia it is different, you can offer a product-led approach – although meeting customer’s needs – that is an acceptable approach. It depends what you are selling and where you are trying to sell it.

MacDonald: We in the Barclays’ cash and trade business are certainly experiencing an increase in focus, which reflects the importance of working capital finance to our customers.

The two models are not mutually exclusive though. Our approach to the market is very much centred on the relationship with our customer and our relationship managers don’t just sell credit. We in the cash and trade business will be providing working capital expertise to support our relationship managers.

So the change is not away from the importance of credit, but towards the increased importance of managing the wider customer relationship. This should benefit our customers, but it also benefits the bank as we have even greater emphasis on the ancillary business that comes from cash, trade and liquidity.

Friedinger: Getting paid for additional services is a real challenge, in particular as most of the clients are quite price-sensitive. That’s why we are selling service packages, bundling traditional banking products like risk-taking or payments, with extra services, like data reconciliation. Thus the client can profit from our holistic approach.


Chair: How are you pricing these products? Are we starting to see a breakdown of the product into component parts with different pricing structures as clients use different aspects along their value chain?

Ghani: We recognise that payments are a necessary and core offering for clients, and therefore the tendency now is to offer working capital propositions where you provide a complete solution to a client and price it as a package.

We are now seeing this happening more and more. We go to the client and find out what they need, and then develop a tailored solution that works for their business. Some products are a core requirement for the client, and some are additional requirements that arise over time.

Burkie: We are in a slightly different position from everyone round this table as we are a bankers’ bank. We don’t compete with you for corporate clients but we do have the privilege of talking to you as partners in some shape or form in the transaction banking business.

What is very evident is that banks are now saying that what was previously their core business is not core to them anymore, but they have to sustain it as their clients expect it.

Margins and costs are a key focus. Our clients are coming to us and asking us whether we can manage what was previously a core business, but now is an ancillary service for them, so they can focus on their redefined core businesses.

That’s leading to an interesting dynamic in our discussions with our FI clients, especially as their corporate clients are getting more sophisticated and more demanding. There is a big gap between delivery – where capital expenditure in many institutions has been curtailed by any number of financial or regulatory pressures – and demand, especially where product development that was going to occur, is now no longer going to happen. Our clients are asking us if there is a quick fix to this.

Van Wesemael: I know that most of BNPP’s clients choose us because we have a strong balance sheet.

That is our core business – lending money – and it is up to us to make sure that with that tool we create good returns for our shareholders.

When clients speak to us we need to know whether we are talking about RCF, or trade finance and how we work about this.

What we shouldn’t leave out this equation is what we are here for – which is our strong balance sheet – that is what the client wants from us.

Berthier: In terms of technology, what is important is to have a good flexible fee engine. This is the area that has the biggest pressure on it.

Revenues from the bundling of transaction-based and lending-based solutions is putting pressure on the engine.

Another issue when banks move towards providing a complete supply chain transaction between buyer and seller, or when you develop a reverse factoring programme or expand domestic factoring operations to cross-border, is that you need systems that are much more agile and able to interface with legacy systems.


Chair: Over the years, many institutions have invested a lot of money in SCF integration technology and I suspect the returns in investment in technology have been poor.

As SCF becomes more important to client relationships, will you get return on your investment? Or will you turn to third-party offerings?

Let me give you an answer from a client perspective. We are currently working on a supplier finance programme with Sainsbury’s and one of the keys to the success of the transaction was our flexibility in terms of what technology they wanted to use.

We have our proprietary systems and also partner with third-party providers. It is a big challenge for banks in terms of which option we should be pushing, especially when we’ve invested a lot of money in our own systems.

At RBS, our approach is that if the client wants a third-party solution that is multi-bankable, we will adopt that system. However, if clients have not invested in third-party solutions, we will offer our own systems.

That was why, in part, we won the Sainsbury’s deal, as we were able to be flexible to the client’s needs. If something works for the client, we will change rather than asking the client to change.

Sargent: The size of the bank is also of note. Something that the larger banks would be able to swallow when it comes to budget will be different to something a typical medium-sized European bank would be capable of undertaking.

If you want to play in this space, the research and development costs are quite high – and if you are a typical mid-sized bank you have to look at a third provider – but if you are a global bank then you will be capable of developing your own systems.

Damacela: I think the market is broad and big enough to provide opportunities for all involved.

I think technology companies are critical in developing specialised cutting edge solutions and pushing banks along the systems development curve. While there are certainly many global banks with their own solid platforms, we have to recognise that some clients have made significant investment and may already be entangled with third-party platform providers but can’t get the full solution because of the capital market dislocation and the retrenchment by non-traditional providers from this space.

Mid-sized banks, on the other hand, have the option to use third-party platform providers, work with a larger bank’s solution on a white label basis, or to invest in their own systems.

This third option is less likely today, given the limited scope for investment. It’s also important to look at the possibilities from a client needs perspective; the one that actually really matters and will drive the market.

To be more specific, a large corporate’s needs are not monolithic – rather they are diversified if anything by geography and regulatory requirements. So this is not a situation where there’s one size that fits all and all involved need to maintain a certain level of flexibility to find a solution for a client in Poland which may very well be different from the one implemented in China.

Berthier: The multi-bank concept is a game changer here.

We are traditionally a bank vendor, but more and more we are being asked to provide our solutions directly to corporates.

They want something that will support a multi-bank requirement and that is more and more of an issue. It is a different target market for us.

MacDonald: Our Barclays supplier chain finance solution is in increasing demand as our customers become more familiar with the benefits it can bring to their supply chain.
The focus is on extending our offering into the earlier part of the supply chain and providing a flexible solution for our customers. Right now the market of potential technology solutions is so fragmented that it can be difficult to see the wood for the trees.

Again, the key is getting a clear view of our customers’ SCF needs and ensuring that we can meet these in a remunerative way. For example, there are numerous procure-to-pay vendors who our customers may be using already.

Can we integrate all these systems into our back offices and provide a platform neutral solution? Well, it depends on the integration costs and time. If you need to have third-party systems hardwired into your back-office and you have multiple back office systems across different geographies the cost can escalate.

I think one thing that is non-negotiable though – the banks must have a flexible SCF solution that can evolve as customers’ needs alter and the market dynamics change. For Barclays, this leads us to using a technology partner that can adapt with us.

Berthier: I think we are getting there in terms of a consistent messaging platform. Look at what Swift is doing now in standardising the way parties collaborate – already the case in the bank-to-bank space – but now also in the corporate-to-bank space. Standardisation was already present in the case of international cash management in terms of statements and transfers, but it is also developing in trade as well.

A standardised messaging platform is probably the best way to preserve your propriety capabilities and not worry about integrating through a third party, as most institutions will be on this network and will share the same structure.

Friedinger: Over the last few years, we have had to decide whether to build our own trade solutions or buy them externally.

The drivers were cost reasons and the necessity to meet “time to market” needs. Of course we didn’t want to reinvent the wheel again and again. So in one case we decided to adopt a white label solution from a banking partner.

In another case we bought the source code of a strategic partner out of the software industry to customise it to the needs of our group-wide internet platform for trade products.

Banks invested huge amounts of money in this. Over the last nine months, there has been a huge increase in interest in SCF, and there is enough business for all banks.

Open account trade business is huge. If you look at recent developments, the capital markets drying up and the bond markets virtually disappearing, there is increased focus on how to finance open account trade finance. Now is the time when we might be able to recoup some of that previous investment.


Chair: Around 18 months ago, there was a lot of talk about SCF payables finance and lot of investment banks were looking to invest in portfolios of payables. In the current climate, these investors are retreating as the yield on those products has disappeared. Will supply chain finance remain the domain of the banks or will other players enter the market using investor capital as opposed to regulated investment?

Van Wesemael: In terms of pure demand, I hope other investors do play a part in the market. I don’t think banks can supply the demand.

The real economy is currently shrinking, so demand has shrunk, but as we see manufacturing resuming and demand rise again, I really wonder whether banks will be able to meet this demand.

Will there be private funds, governments, or insurance companies moving in to boost capacity? I don’t know – but there needs to be more than there is now.

Shaw: This is a relatively low risk business and it has attracted returns in some respects. However, if you are an investor in one country and you have state-owned banks paying 5-8% return and you don’t perceive any high risks, and also, if you believe the government won’t walk away from that bank, why would you venture away for 50 basis points on a trade transaction?

But the concept is there – and we’ve talked to a lot of investors who are technically interested. But I think we’ll have to wait for the market to normalise a little before we see its real potential for non-bank investors.

Ghani: In my previous role, we successfully partnered with other banks in bank trade risk distribution. Why not create something equivalent on the corporate side? Supply chain finance would be a good area to focus on here, and some early efforts have been made. But everything is at a very early stage. I see a lot of potential, but we are not there yet as an industry.

The whole area of asset distribution in supply chain finance does need to develop going forward due to client demand.

More corporates are looking for these types of asset intensive solutions. What ends up being the sticky point is that everyone wants face time with the client and it’s very difficult to have a lead and participant structure when everyone wants to lead the deal from a relationship perspective.

The syndicated loan market took some time to evolve and compared to that market the SCF world is very nascent, so I am sure we will get there. There is a lot of focus and investment by banks in this area as not everyone is able to hold the entire deal either because of risk or asset considerations.

Sargent: The climate in which we operate has changed.

London or Europe as the centre of the trade finance world has gone. I think that Asia is becoming increasingly important.

You’ll see a slow creep over the next five years as Asian banks move into this part of world. If you look at culture in Asia, they tend to be savers not spenders, so they have liquidity.

There is a huge domestic market, particularly in China, and they have the ability to move into the international markets. Banks will lead SCF developments, but I think there might be different banks leading it in five years.

Ghani: I would like to ask one question. What does everyone see as the next innovation in this industry?

MacDonald: The frontier now is blending procure-to-pay and SCF capabilities. As banks look to build more and more financing options further back in the supply chain, the link with e-procurement and e-invoicing becomes more important. SCF is the most prominent example of the merge between cash and trade. But at Barclays, our priority is to make our range of working capital solutions increasingly accessible and flexible to meet our customers’ needs.

Shaw: I agree. For example, sometimes it takes 30 days to get an invoice to the right place before it is ready to be loaded on the system – you’ve already lost a lot of time.

A lot of investment is needed in electronic invoicing. The use of commercial cards/credit cards will also be a big area of development as you broaden out the scope of SCF.

Berthier: If you compare today’s SCF market with two years ago, there has been an explosion of new participants all vying for a share of the market. There are now so many overlaps between these organisations and those who have traditionally played in this space. Inevitably we will see some consolidation in the short-term and the clear leaders will start to emerge.

Sargent: I think we are driving towards industry-specific solutions. This is not just a product-driven approach, but is increasingly driven by how I apply that product to a particular industry.

Friedinger: Besides already existing internet solutions that cover both cash and trade products, we will see in the near future new upcoming initiatives in trade in the form of TSU services and Swift MT 798 communication.

Damacela: In addition to what’s been highlighted, I expect that we will see some development on the risk mitigation front. We are likely to see an evolution in terms of governments and export credit agencies (ECAs) stepping out of their traditional roles in order to support the reactivation of the cross-border as well as domestic trade finance markets.



More input from the field
Keen to add their perspectives, but unable to attend the roundtable in London, SEB and Deutsche Bank share their views on the union of cash and trade.


  • Marilyn Spearing, global head, trade finance and cash management corporates, Deutsche Bank
  • Lars Millberg, global head of trade finance, SEB Merchant Banking


GTR: Arguably, there is a far more natural overlap between asset and sales financing businesses and trade finance than between cash management and trade finance. Should banks be concentrating on bringing these businesses closer together and splitting trade finance businesses away from cash management where they tend to be the poor relation, given the inevitably higher income streams from cash?

Millberg: This is often the way that trade finance has been treated in the past, namely, as small structure finance transactions.

Our view is that trade finance should be viewed as a mass transaction-based instrument to facilitate trade between a buyer and a seller. A payment is still a payment whether domestic or cross-border, Sepa or legacy, credit transfer or direct debit, payment under open account or letter of credit (LC), and needs to be monitored, measured and followed up in the same way from a liquidity and working capital perspective.

When it comes to DSO [days sales outstanding], if trade flows have been optimised, a seller may be better off doing the sale under an LC compared to under a plain invoice, not only because of the risk, but under a regular LC the seller can collect payment more quickly if the commercial documents are produced and presented in a timely fashion. Best practice is 10 days from shipment to payment, while under invoice payment, terms are stated and fixed, for example, 30 or 60 days.

Beyond agreeing terms at the beginning, the seller can do nothing to influence the speed of payment.

Of course, the risk perspective also needs to be managed, but given the character of the risk involved, trade finance transactions cannot be compared with asset-based financing, which needs to be assessed and monitored in different ways.

The real challenges here for banks are: first, how to integrate the cash and trade business units; and second, how to incorporate other transaction-based products such as supply chain finance and receivables liquidity enhancement products.

These have traditionally been closer to asset-based financing, and managed within the overall financial supply chain perspective. This demands a wider range of competences, at least partial integration of back and front-office channels, interfaces between systems for transaction processing, and reporting and tools to support value-driven methodologies for clients.


GTR: Do you see a greater demand from corporates for a more holistic working capital management solution set from their banks?

Millberg: We have seen this as a demand for quite some time now, and our impression is that corporates are increasingly aware of the opportunity. However, it is a real challenge to move from awareness and concept to action and implementation.

The hurdles can be many and various, but one of the problems is typically that companies have segregated different aspects of working capital into separate departments, making it difficult to establish a consistent monitoring, control and implementation model that is required to implement a holistic working capital approach.

Furthermore, different governance models and ongoing performance indices may be based on contradictory targets (for example, logistics may target low transport costs as opposed to the quality of the bill of lading that would enhance the speed of payment). Other issues include sub-culture behaviour within different parts of the organisation, and potentially a lack of experience in working capital issues within the treasury department, which can create insecurity and a lack of direction.

Spearing: While the breakdown of traditional cash and trade silos in transaction banking has been apparent for some time, the financial crisis – and subsequent economic downturn – has certainly accelerated this trend and moved the driver for this from technology and efficiency to securing sustainable funding sources.

The unprecedented difficulties in liquidity markets in 2008 brought home to many the importance of ensuring efficient working capital management at all times, and this is best achieved by taking a holistic approach to treasury and cash management.


GTR: Should banks be leading the way with best practices in cash and trade or should corporates be determining the way in which banks can best support their transaction banking needs?

Spearing: While we always seek to respond to the changing needs of corporates, this is certainly a two-way street with a great deal of reciprocity between bank and client.

Of course, corporates are very aware of the support that they require in any given situation, yet transaction banks can often take a broader view of where and when efficiencies might be achievable.

In many cases, banks will also maintain the systems and platforms used by corporates and are thus better placed to make use of technological advances as they arise. In this respect, transaction banks will certainly be guiding their clients to take advantage of new developments in best practice.