The Credit Paradox

Clearly, the mortgage meltdown and the credit crunch it has helped to create are transforming the ways in which banks and their corporate clients work together. Most notably, of course, many loans are more expensive and harder to come by.

At the same time, however, longer-term and broader shifts, including globalization and advancing technology, also are prompting changes in the bank-corporate relationship. For instance, about one-seventh of midmarket companies now operate internationally, says Suzanne Hurt, vice president of banking and financial services with Bottomline Technologies, Portsmouth, N.H. “Globalization is going down-market,” she says.

As a result, banks are boosting their product offerings geared to global business, such as multicurrency accounts, says Jose Mantilla, national sales director for global treasury management with Key Bank, Cleveland.

Moreover, globalization intensifies many companies' need to rationalize bank accounts. (This is in contrast to the credit crunch, which is prompting treasurers to hold on to banking relationships to ensure that they have funding.) The need to right-size their banking structure is most acute for firms that expanded via mergers and acquisitions and have accumulated an unwieldy number of relationships, notes Peter Cunningham, director of treasury sales for Europe, the Middle East, and Asia with Citi.

However, any reduction in bank relationships requires thinking through the ramifications. For example, moving to a local bank in another part of the world may reduce transaction costs. However, if that bank lacks sophisticated reporting tools or imposes settlement times that restrict the operating window available to treasury, the net impact might be negative. You don't want to “be blind to the fact that rationalizing costs here may drive up costs elsewhere,” Cunningham notes.

One of the most significant effects of globalization concerns the technology that banks and companies use to interact with each other. The greater the number of banking relationships, the more communication standards that many companies must use. This adds complexity to their processes.

The model for corporate access to multiple banks that's available through the Society for Worldwide Interbank Financial Telecommunication (SWIFT), called SCORE, for Standardized CORporate Environment, is an effort to help companies move from bilateral electronic relationships with each bank to instant access to all banks, says Cunningham. Currently, 224 financial institutions and 40 corporations are part of the initiative.

SCORE helps to reduce the complexity inherent in maintaining multiple banking relationships, although challenges remain. “While there are a lot of standards (with SWIFT), each bank interprets them differently,” says Elizabeth Eriksen, assistant vice president of accounting with Raymond James, St. Petersburg, Fla. Even within standard file formats, some fields are freeform or optional, so banks can choose different characters to populate them.

In addition, banks use different methods of transmitting data. Some push the data to their clients, while others require clients to go to an online site and pull the data, Eriksen says. Similarly, some banks' GUIs are easy to navigate; others are more cumbersome. To work with disparate systems, Raymond James uses a solution from Bottomline that enables it to operate in a standard way across bank platforms. “We want a technology that's bank-agnostic,” she notes.

Some companies with multiple banking partners have an integration application for each. “The integrations are custom-built, brittle, and costly,” costing upward of $25,000 due to the custom coding required, says Jim D'Addario, director of the financial solutions marketing group with SAP. “In the U.S., there's a lot of electronic connectivity, but it's not standard.” Last year, SAP released several applications that allow companies to combine multiple banking interfaces into a single solution.