Hans Janssens, head of treasury and securities services in Japan for J.P. Morgan takes a reassuringly down-to-earth view of the role of cash management in the banking system.
“You could argue that cash management is like the plumbing supporting economic activity,” he said. “Without efficient plumbing, liquidity cannot flow the way it needs to. It is about the nuts and bolts, but is also very, very important.”
“In fact, it’s critical,” he added.
Cash management services help companies make and collect payments and manage liquidity on both a domestic basis, and in cross-border transactions. Apart from payroll payments, these transactions may also include mundane, but equally necessary outlays, such as those on utilities.
At the same time, companies need to regularly collect funds, such as those related to checking accounts, while also using idle cash by placing it in time deposits and mutual funds.
“Our clients make tons of payments each month,” said Hiroyuki Soejima, director and treasury and trade solutions head for global transaction services at Citi in Japan. “Our mission is to accommodate or facilitate these payments.”
Japan has not traditionally been a hotbed of innovation for the big international cash management providers, such as Citi and J.P. Morgan. Most local companies prefer to do business in Japanese and have little need for global payments solutions. It makes sense for most customers to rely on their traditional Japanese financial partners, which typically means one of the three megabanks.
But, as Japanese companies build bigger overseas operations to escape sluggish growth at home, they are increasingly turning to banks that can follow them around the world.
“What we need to do to be successful in this business is to be able to say, ‘Okay, we have all these tools, we are present in all these countries, not only can we provide you with global solutions, but we also have the local expertise,’” J.P. Morgan’s Janssens said.
J.P. Morgan operates in approximately 60 countries and one of its major strengths is the firm’s standing as the largest US dollar clearer with more than 20% of the global market, and 30% of the Japanese market. The Tokyo dollar clearing system was established in 1986 and allows for US dollar settlements to take place during the Asian time zone. Most Japanese banks are members of J.P. Morgan’s clearing system, according to Janssens.
“This dollar clearing system is unique to J.P. Morgan in Japan,” he said.
The company has also invested more than $100 million in an international image deposit centre that allows clients to clear dollar cash letters and lower cheque transportation costs, without altering their basic operations. Original paper check documents are available once the items clear.
For its part, Citi Japan has established a unique relationship with Japan Post Bank, the world’s largest bank with assets of around $3.7 trillion, which arose from the privatisation of Japan Post on October 1, 2007. It has 24,000 branches throughout Japan, dwarfing the Japanese megabanks, which have so far viewed the privatized bank as a competitor and not entered into joint arrangements as a result. But it makes for a good partner for Citi.
“Our clients can easily collect petty cash using Japan Post Bank branches or ATMs,” Citi’s Soejima said. “When picking up petty cash, a client can channel this cash through Japan Post Bank and the cash will be swept to their account with Citi.”
Japan Post Bank fee levels are also relatively cheap compared to the megabanks, Soejima noted.
Citi brought Japan Post Bank access to its portfolio of multinational corporations and their subsidiaries in Japan and overseas. Expectations of incremental business from such companies are viewed as an attractive incentive for the former post office bank to do business with a global bank, such as Citi.
“Cash management is complex because there are a lot of layers, and each country has its own rules and regulations,” William Michael Reuben, managing director and head of global transaction services at Citi in Japan said. “The cumulative experience of Citibank operating in all these markets provides us with the advantage of being able to provide solutions for clients on either a regional or global basis.”
J.P. Morgan chose to partner with NTT Data Corporation, Japan’s number one systems integrator, to develop a new service for local banks to help them with their cross-border business. The jointly developed platform is fully automated and banks can send requests without any data re-entry requirements, helping to reduce costs and improve risk controls.
Cash management targets increased transparency and efficiency in fund operations, and the financial crisis of 2008 served to sharpen those needs.
“The Lehman Crisis was instrumental in initiating this dialogue,” said Reuben. “It made people sit up.”
That dialogue had been discussed prior to the financial crisis, but the events of autumn 2008 gave it new resonance.
“There is a lot more interest in the way the plumbing works now,” J.P. Morgan’s Janssens concluded.
This story was first published in the Japan Report 2010 supplement to the December/January issue of FinanceAsia.
