GOLD CASH MANAGEMENT WINNER
PepsiCo Inc.
In 2005, PepsiCo Inc.'s treasury helped develop a sophisticated system that provided a single view of its global cash in bank accounts. But while treasury was dealing with euros and rupees, it also had its hand in tackling the problem of nickels and dimes facing its Frito-Lay division. At 47,000 of the 430,000 retail locations, sales representatives would deliver orders of Frito-Lay snacks, generate an electronic bill on the spot and then wait for the clerk to count out the money to pay for the delivery. Needless to say, the reps ended up carrying increasingly more cash–collecting cumulatively about $1 billion annually. At the end of the day, they would convert it into money orders and overnight the deposits to the corporate lockbox. The process was dangerous, time-consuming and error-prone. For the corporate treasury, it meant delayed access to funds.
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So, PepsiCo's treasury posed a question: Would these merchants be willing to move to electronic payment if the right program were offered to them in the right way? Although the assumption was that these customers–convenience stores, Mom-and-Pop grocers and delis–would be a hard group to convert, treasury discovered that many of these enterprises already had entered the world of electronic banking by accepting state Electronic Benefit Transfer cards or selling state lottery tickets. The decision became obvious: build a payment system that was easy to use, secure and helpful to the merchants. The answer was SmartPay, a campaign to get merchants to authorize ACH debits from their bank accounts by signing the slip from the hand-held electronic device.
PepsiCo decided to launch SmartPay in one of the nation's highest crime areas–inner city Detroit–where the safety premium would be most conspicuous. It was a street-smart pilot with surveys, letters and promotional literature written in English, Spanish, Korean and Arabic. PepsiCo decided to offer just direct debits, because they were the simplest, cheapest way for PepsiCo to collect and because merchants generally preferred not to leave cards with clerks, reports Juliet Armstrong, senior treasury manager for cash management.
What the PepsiCo team found was that small merchants were surprisingly receptive. SmartPay turned out to be a time-saver for stores that often only had one or two people working on a shift and little time to count cash. On the best route, 95% of the customers converted to cashless payments; overall, 35% in the Detroit pilot territory converted. Customer retention in the pilot zone was 100%. With SmartPay, the Frito-Lay reps also saved time since they no longer had to count cash, buy money orders and prepare overnight deposits; they simply had to download the data into the mainframe sales system, which then created a direct debit file for secure transmission to Frito-Lay's concentration account at JPMorgan Chase.
Although the cash-handling problem was not completely eliminated in Detroit, the surprisingly brisk uptake encouraged PepsiCo to jump into full U.S. rollout, starting in other high-crime areas. By the end of this year, the service will be offered to 50,000 customers on 4,000 routes. If the program maintains a high acceptance rate, PepsiCo plans to expand the program globally.
Another important and unexpected byproduct of the program: Sales increased faster among customers using SmartPay because merchants were no longer limited to cash on hand. From treasury's point of view, it is a total win-win: processing a direct debit is 75% cheaper than processing a cash transaction, and the funds are available overnight as opposed to the next day. "We're seeing multimillion dollar savings just from hard costs like postage and buying money orders," reports Renee Garbus, vice president and assistant treasurer. "And that doesn't count gains from increased rep productivity and higher sales."
SILVER AWARD WINNER
INTEL Corp.
Intel Corp. won its award for splitting transaction processing off from its core treasury function. Similar to a shared service center, but in this case entirely run by a special team in treasury, the new Treasury Operations group–based in Bangalore, India–does nothing but process transactions and develop ways to automate that processing so that 90% of trades will settle via straight through processing.
The new back office supports transaction activity in China, Israel, Japan, Malaysia, Philippines, Singapore and the United Kingdom. Five members of the staff were hired locally, and three members of the corporate treasury staff in Santa Clara were assigned exclusively to support the center. By offloading transactions that were spread out among corporate treasury staff, Intel managed to free up more than 400 hours a month that the front office could use to pursue value-added activities like repatriating $5 billion in 2005 and floating a $1.3 billion convertible debt offering that same year. The new back office also handles all of Intel's U.S. bank account management, trade confirmation, trade settlement and operational reconciliation tasks.
A big factor in the productivity gain was the development of a system that linked trading and settlement across all Intel entities, trade types, currencies and counterparties, and populated the settlement systems automatically with details needed to settle cash and securities transactions. With several hundred legal entities, 400-plus bank accounts and transactions in dozens of currencies, "achieving straight through processing was a challenge, " says David Francl, Intel's director of treasury operations. " But we were able to build links so data flowed automatically between our treasury system and our SAP GL, our legal entity database, our bank account database and settlement systems." Linking the systems was a cooperative effort between the Indian team and Intel's treasury systems staff, he adds.
BRONZE AWARD WINNER
Capital One Financial Corp.
If you collect more than $150 billion annually in consumer payments, what would it be worth to you to invest even 10% of those funds one day sooner? That question challenged treasury staff at Capital One Financial Corp. The problem was that Capital One already was squeezing deposit float aggressively and converting incoming checks to ACH debits under the ARC program. To improve, treasury would have to get same-day availability on ACH deposits, and that seemed flat out impossible with batch processing.
However, a tenacious treasury team brainstormed its way to an answer. What if the McLean, Va.-based company could strike a deal with some of the banks where large numbers of its customers had their checking accounts? What if it could send an ACH file directly to that bank and pay the bank a fee to transfer funds that same day from the customer accounts to a Capital One account and then sweep those funds into an overnight investment until Capital One could wire the funds to its concentration account?
Capital One's what-ifs soon became reality, inventing direct-send ACH. Although this means negotiating contracts with individual banks, the rewards outweigh the trouble, at least for a depositor on Capital One's scale. "We talked to a lot of our peers and, to our knowledge, nobody had tried direct-send ACH until we did," reports Steve Winston, vice president for corporate treasury cash operations.
Capital One expects to expand the program, but even at the current level, the company has been realizing a multimillion dollar net present value savings over three years.
Now that direct-send ACH has been discovered and proven to work, look for companies to follow Capital One's lead. "This project has sparked significant interest in the payments industry," Winston reports, "and may be the tipping point for expansion to same-day process- ing and availability of electronic payments."
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