A 3-minute Guide to Cash Management

Cash management: requirements and opportunities

Payment systems are in flux: high value payments (Target2), low value payments (SEPA) and infrastructure (SWIFTNet Phase 2) are being overhauled simultaneously. This triggers a complete overall of the banks payments infrastructure, and enables a renewed approach to cash management: a unified European payment infrastructure will concentrate payments, streamline processes and will enable more effective Europe-wide cash management.
It is also a source of competitive opportunity: The emergence of a euro-wide payments infrastructure enables the nimblest of European banks to reduce IT and liquidity costs New services and systems capabilities can be key tools required to gain market share among corporate customers and compensate for the expected reduction in payment processing revenues for banks. European payments architecture evolution and intraday liquidity For high value payments, the transition from Target to Target2 has a deep impact on intraday liquidity management. Intraday liquidity management was a complex balancing act, involving liquidity pools coexisting in different systems: Gross and Net settlement systems, securities delivery; further-more, a large European bank would see such pools in each country where it does significant business, forcing complex and manual cash optimization operations. The introduction of a single European high value system offers the possibility of pooling intraday cash in a single location; the introduction of HV direct debit operations offers further opportunities to simplify and automate pooling of cash in a unique location. Low value payments are also undergoing a major change, with the introduction of SEPA Credit Transfers and Direct Debits, and the gradual (though partly

predictable) shift from national payment systems towards PEACH. Impact banks and opportunities for

payments; payments of all salaries from a central point are still impractical today. Centralizing corporate treasury and payments to providers is still in the future. Competition between retail banks has been essentially limited to country boundaries; the first banks able to construct the business and IT infrastructure to provide such services will capture significant market share when its up for grabs.

These changes entail renovation in banking IT. A major challenge will be for banks to undergo these changes, and the future changes, planned or unplanned, of European Payments architecture, while minimizing IT costs, and optimizing intraday liquidity management.

Cash management within banks More importantly, new Euro-wide payments platforms enable large This enables and hence requires an customers to envision significant overhaul of the banks cash changes in the way they process their management capabilities. Major

Euopean banks face a shift from countryspecific cash management to a Europe-wide approach. On one hand, the severe reduction in the number of payment platforms will reduce the volume for cross-platform cash balancing for instance, Euro correspondent banking is rapidly disappearing. Other cash pools will remain, for instance Nostro accounts for non-CLS FX transactions. On the other hand, the concentration of Euro enables a concentration of payment processing and cash management in a central location. In a diminishing but increasingly competitive market dominated by fixed costs, those banks that can most rapidly adapt their organization and IT to a reduced level will be the survivors of a concentrating market. New services Fortunately, this European transition also offers new business opportunities, and the possibility to create and offer new services to offset the scheduled decrease in current payment revenues. Chief among those, new cash management services for corporate customers. Large customers will want to streamline their own processes, reducing global processing costs by end-to-end STP. Smaller businesses do not have the critical mass of cash to justify internal cash management operations; they will be increasingly willing to subcontract their cash optimization to a bank suitably equipped to cater to a large number of corporate clients. Steria, a major partner in payments and cash management Steria enjoys a unique position to help banks undergo these important transitions. We have been involved in a number of cash management projects for major European banks, both as consultants for the business and organizational aspects, and as subcontractors for IT evolutions.

In particular, we have been partners for several banks, which have started to concentrate their cash management operations in a central European location. This expertise is a part of Sterias historically strong position in payment systems. Leader or co-leader in each of the relevant niche expertise, Steria is the only integrator to concentrate such a wide scope of required expertise within a single company: Central payment systems We have been the original and only developer of the French RTGS. Furthermore, we are instrumental in the development of the GSIT, and one of the main contributors to the EBA. High and low value connectivity The Cristal product has a 90 % market share in France, and is one of the major European Target2 offerings. Nostro-Cash-Manager is our product to complement non-CLS FX transactions. This is supplemented by a sizeable contribution as system integrator and consultancy to bank connectivity in major European countries, in particular France, Germany and the UK. Card processing Co-leader in its domestic market, Sterias card processing offer, centered around our STECARD product, is rapidly gaining market share. SWIFT connectivity We are a provider of one of the major software components that enables SWIFT connectivity. We are also one of the major SWIFT partners, as an integrator of SWIFTs connection package.

Steria, a Europe-wide scope of expertise In addition to this breadth of expertise, we have the width of delivery vehicles to serve our customers. Present in every major European country, Steria is uniquely positioned to cover the needs of large European banks who would need to conceive, realize and deploy major cash management projects throughout their European subsidiaries. We also have a balanced and comprehensive presence in IT activities, covering consulting, systems integration, products and managed services. Would you like to find out more about cash management and the opportunities in your organization? Ask for one of our experts to speak to you today, or contact your local Steria office.

Steria 46 Rue Camille Desmoulins 92782 Issy les Moulineaux Cedex 9

E-mail : sibos@steria.com www.steria.com