Doug Spickler does everything a 21st century domestic cash manager should be doing for his company, United Parcel Service Inc. He has reduced the number of money-center banks with which he deals to five core institutions. He has eliminated more than 100 of the company's bank accounts, although at 320 he still says he has more work to do. In 1998 he bought a SunGard Resource IQ, a treasury workstation that helped UPS get Y2K compliant and now allows it to communicate automatically with its banks and generate reports
The next step was obvious: Get on the information superhighway. His banks have been touting their new and increasingly robust Internet cash management channels, so he's heard all the selling points. It's cheaper and faster; it's the way of the future. He knows he'll use it eventually because banks will simply stop offering dial-up to customers.
And it's not that Spickler is at all hesitant; he would love to be connected to a browser for all his cash management needs. But Spickler also wants to keep using his treasury workstation, and most Internet platforms provided by the banks just don't interface with his SunGard or any other workstation. The irony: "All the money banks have poured into their Internet platforms doesn't help us" in cash management, he sighs. So his workstation continues to use the dial-in scripts available at four of his five core banks.
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At Citibank, however, Spickler has something that he believes is the future for cash managers like him: a bank that is willing to work with a treasury workstation provider to achieve compatibility. Thanks to a network created by SunGard called eTreasury Exchange (eTX), nearly all of Spickler's activity with Citibank is now done via the Internet, and it "works just fine."
If this is indeed the future, does SunGard become king of the world? Over the long run, probably not. The workstation market is too fragmented; too many treasury staffs are wedded to other workstations; too many cash management banks still balk at sharing SunGard's development costs, the price of joining the network.
Ultimately, SunGard is still delivering a narrow-based solution with a brand name, so the search for a universally satisfactory solution will continue. And until it is found, a certain degree of instability in the relationships among treasuries, treasury workstation vendors and banks is guaranteed.
It's not yet a crisis, but only because banks continue to support the "fat client" arrangements upon which workstations depend to get feeds of data. However, banks are gearing up to drop these dial-up systems. "Banks would like to force workstation vendors to re-engineer their systems, but that can't happen on the timetable banks are setting for migration to their Internet platforms," says Anthony J. Carfang, partner at Treasury Strategies Inc. in Chicago. Carfang predicts banks will blink and build their own interfaces to allow workstations in treasuries to operate with minimal disruptions as banks push companies onto their Net platforms.
For now, however, SunGard's willingness to meet the banks halfway is a huge advantage. "Interest is much greater than it was even three months ago," notes Martin Boyd, SunGard's executive vice president. Why not? SunGard's eTX can pull down reports from any partner bank's Internet platform, reformat them and then deliver them to SunGard clients in a form their workstations can process. ETX, with its real-time machine-to-machine bank hookups, offers more than painless connectivity, Boyd insists. It offers speed. The dial-up routines workstations were built to perform take several hours a day for a large company with many banks and balances. The same process takes just minutes with eTX, so using real-time, intra-day cash positions becomes almost simple, Boyd says.
The obstacles facing SunGard are substantial, too. To date, only two banks, Citi and ABN Amro, have signed on to feed eTX, and as long as nearly half of SunGard's 1,000 clients are not yet eTX-capable, it is barely beyond the pilot stage.
UPS was among the few corporations Citi asked to join its beta test. That puts Spickler on the leading edge, and he likes it there. In fact, he is eager to add more useful data, including interest-rate forward prices and yield curves, to the standard reports he gets. He likes his Citi-SunGard situation so much he has been suggesting that his other banks sign on to eTX as well. Think about 1,000 major corporate clients following Spickler's lead and one sees the immediate advantage for SunGard, one that SunGard may be able to sustain since smaller workstation vendors can't necessarily justify the expense of building their own networks.
Banks are understandably touchy about why some of their largest customers avoid Internet cash management. Even though bank data can be downloaded into treasury workstations from bank Internet platforms in scheduled FTP sessions, it can't be done conveniently. "Web-based technology is not well built for systems integration," concedes Greg Malosh, vice president and senior product manager at Pittsburgh-based Mellon Bank.
Ultimately, according to Charles Doran, delivery channel manager for Citigroup's global transaction services, the "group of mostly large corporations that see the banks' Web services as less relevant than integration with their own systems" is starting to segment the marketplace.
For smaller companies that work with one cash management bank, no such worries exist. Take, for instance, Juniper Networks Inc. of Sunnyvale, Calif. All of its cash management is done with Bank of America.
The manufacturer of computer networking equipment has annual revenues of $550 million, a staff of 1,600 (three in treasury) and shared service centers in Dublin and Hong Kong. It needs sophisticated cash management services, but it can work with just one bank. Because it was able to shift from using installed software to the Internet for cash management, Juniper has seen major improvements in its treasury operation over the past year, says Catherine Portman, director of treasury operations. "We had people in different places initiating payments and handling local collections. They were using silos of locally installed software. We had little visibility into what finance and accounting were doing," she recalls.
A year later, after moving most activity to Bank of America's Web platform, BofA Direct, access is easy to spread and control and doesn't rely on software silos. "We control what products and services are available to which people," Portman reports. "We open access to lockbox images to East Coast folks. We give accounting access to our staffs in Dublin and Hong Kong. We use the same bank online portal for A/P, so anyone in the A/P group can sign on and see images of paid checks. Positive pay and some trade finance services are available through the same portal."
But even with smaller companies, there is still a degree of customization. "Our goal was to leverage technology, online or offline, to get the best result," Portman says. "We didn't buy a package; our solution evolved." And as it progressed, online activity kept increasing. Still left to tackle: Bulk payments from the A/P group are sent to BofA over the Internet using FTP, but the fairly small number of treasury-initiated payments (tax payments, inter-company transfers and investments) still are sent to the bank on the old dial-up, but that could change, she suggests.
Freedom from software is not so much a personal convenience as it is a major management tool and cost-cutter: Juniper will save 10% to 15% on banking fees. The savings come from lower fees for BofA Direct users and the ability to use non-treasury staff in the field more efficiently.
Juniper is hardly alone. After a slow start and in spite of corporate resistance, Internet cash management is catching on. For example:
o At San Francisco-based Wells Fargo Bank, more than half the cash management customers now actively use the Internet. Nearly 60% of the wire initiation business and 90% of the positive pay exception decisions are done via Internet.
o Volumes of cash management activity on Mellon Bank's Internet channel practically doubled in 2002.
o Pittsburgh-based PNC Bank is adding 1,000 individual users a month to its Internet cash management system and more than 10% of its ACH origination files and more than 20% of its customer service inquiries now come in by Internet.
Virtually all cash management banks have the same game plan: move everything to the Net platform as soon as possible without upsetting customers or even losing customers. Many banks are gradually weaning customers, refusing to upgrade the old system and offering price incentives to switch; some are simply eliminating the dial-up system. "We're shutting off that channel" in June, says Wells Fargo's Ellis. "Of more than 5,000 corporate customers, we have potential issues with only two."
For the large corporate users, few can afford to be quite that uncompromising. In the end, the various players will have to take a cue from the SunGards and Citibanks of the world and find a middle ground where everyone can do business. For right now, however, there are only a few pioneers willing to work together for a solution.
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