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Canada’s magazine of Corporate Finance

Spring 2014 •

Purchasing management: Canadian businesses should focus on competing globally


Technology: What you need to know about tablets


5 ways to make networking work Shake up of financial market structure overdue Pricing, billing solutions help banks reap financial rewards


Canada’s magazine of Corporate Finance

Departments & Columns

Spring 2014 •


Industry Watch

Table of Contents Features



Five ways to make networking work


Canadian businesses should focus on competing globally


Negotiating fair purchase agreements


Shake up of financial market structure overdue


Pricing, billing solutions help banks reap financial rewards


What you need to know about tablets Mobile devices are fuelling a new ear of banking, cash management


Equipment finance professionals provide specialized advice


Sound infrastructure is essential to expansion


16 Spring 2014





Industry Watch

Mitigating unexplained volatility--IIROC The Investment Industry Organization of Canada (IIROC) published for comment proposed guidance that would establish a framework for marketplaces to adopt price thresholds. Together with other IIROC measures, the marketplace thresholds are designed to mitigate short-term, unexplained price movements in the trading of individual stocks. The proposed guidance is principlesbased, allowing each marketplace the flexibility to tailor its thresholds to the type of trading on the market. While the proposed guidance does not prescribe levels of acceptable price movement, marketplace thresholds must generally prevent trades that would otherwise trigger regulatory intervention by IIROC. “Together with related IIROC initiatives, including circuit breakers and new risk controls at the dealer level, marketplace thresholds are important to enhancing investor confidence and market integrity,” said IIROC Senior Vice President,

Market Regulation and Policy, Wendy Rudd. “These mechanisms will help to reduce the number of erroneous trades and unexplained price movements, and lessen the need for IIROC intervention.” This initiative complements a series of reforms that IIROC has introduced to maintain fair and orderly markets. Other related measures implemented by IIROC over the past two years include: ◉◉ controls at the participant level introduced through implementation of third-party marketplace access rules in March 2014 and electronic trading rules in March 2013; ◉◉ direction to dealers in July 2013 on the use and management of stop loss orders; ◉◉ update in February 2013 to marketwide circuit breakers; ◉◉ clarification in August 2012 of policies and procedures on erroneous and unreasonable trades.

The proposal is out for comment until July 3, 2014.

Canadian banks at risk Canada escaped the last great financial crisis relatively unscathed - at least compared to other major economies like the U.S. However, a report published today by The School of Public Policy heeds the warning that the next crisis could cause serious damage to the country’s financial sector and overall economy because regulators have not addressed some key areas. “Canadian regulators are part of a class of international regulators who jointly develop initiatives to maintain stability of financial systems,” Chant writes. “The class, as a whole, has spent too much attention on how to pick up the pieces of financial failures and not enough on how to prevent this breakage in the first place.” One potential hazard that Chant identifies is the overall size of Canadian banks and the risk that carries. “The Canadian financial sector has a few large banks - some with assets ranging up to 50percent of GDP - that could be categorized as “too big to fail,” he writes. “Deposit insurance rates remain low and insurer’s reserves are not sufficient to shield the Canadian public from the costs of institutional failure.” Because Canada’s banks are so large, their failure would be devastating to the national economy. As such, Chant advocates higher capital standards to safeguard against this scenario.

Spring 2014 Volume 25 Number 10 Publisher & Editor-in-Chief Steve Lloyd Contributors Kevin Johnson, regional vice president of Robert Half Management Resources Jeff Hayward, general manager of marketing at OfficeMax Grand & Toy Nicola Raycraft, manager of strategic sourcing at Medbuy Corp.

Jonathan Madger, manager within Deloitte’s Corporate Consulting practice David Dawson, Partner in Deloitte’s Strategy and Operations group Diane McGuire, founder of NAPCP

Bob Park, President and CEO of FINCAD

Andrew Deichler, writer for AFP of Canada

Christopher Kenney, Product Lifecycle Management for Financial Services at Deloitte

Hugh Swandel, senior managing director of The Alta Group in Canada

Creative Direction / Production Jennifer O’Neill Photographer Gary Tannyan Corporate Sales Manager Mark Henry Advertising Sales Representative Brent White Chantal Goudreau President Steve Lloyd For subscription, circulation and change of address information, contact Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to:

Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 • f: 905.201.6601 Subscriptions available for $40.00 year or $60.00 two years. 2014 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada Reprint permission requests to use materials published in Canadian Treasurer should be directed to the publisher. Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit



Spring 2014

Industry Watch

Only 41percent of companies approach divestments strategically, despite benefits: EY report Only 41percent of executives said that their strategic portfolio review drove their last divestment decision — despite the fact that 80percent of companies that based divestment decisions on portfolio reviews experienced a higher valuation multiple in the remaining business, according to EY’s 2014 Global Corporate Divestment Study. “Divestments are taking on greater strategic importance than ever before,” says Doug Jenkinson, Partner in EY’s Transaction Advisory Services practice. “Companies are beginning to better understand the long-term value and growth that strategic selling can create — it’s no longer about short-term gain.” More than half of survey respondents have divested

an asset in the past two years and yet opportunities to fully optimize value remain. Many are still leaving money on the table, adds Jenkinson. “Companies that consistently conduct portfolio reviews and dedicate resources to make better informed decisions will be best positioned to act strategically, rather than opportunistically, and achieve the most successful divestments,” says Jenkinson. Selling is an especially big focus for some sectors in the year ahead, including: ◉◉ Consumer products: The main driver for divestments is an off-trend product (58percent), followed by 44percent who said reduced demand or market share would make them consider divesting.

◉◉ Life sciences: This is expected to be the most active sector, with 41percent expecting to divest in the next two years. Fifty-seven percent identified regulatory change as the main reason for selling. ◉◉ Oil and gas: Sixty-three percent of oil and gas executives have divested over the last two years, primarily as a result of technologies such as horizontal drilling and hydraulic fracturing. ◉◉ Power and utilities: Low growth was cited as the main reason for divestment by 49percent of sector executives, with 57percent saying they would reinvest in fast-growth areas, such as alternative energy. ◉◉ Technology: Half of executives said the biggest trend prompting them to consider

divestments is big data and analytics developments, followed by cloud computing innovations and mobile devices.

Divestments will be a vital part of the M&A story for 2014 — 33percent of companies already have plans to divest in the next two years. Competition for assets may increase but so could competitive positioning among would-be sellers. Within this changing deal economy, there will be even greater stakeholder scrutiny to ensure divestments are efficient and effective to extract maximum value and support the longer-term growth agenda of the business. EY is a global leader in assurance, tax, transaction and advisory services.

FTSE acquires MTS’ indices business FTSE TMX Global Debt Capital Markets has confirmed that it has acquired the indices business of MTS, whose indices track the performance of the largest and most widely traded government issued securities in European bonds. MTS is one of Europe’s premier electronic fixed income trading markets and is majority owned by London Stock Exchange Group (LSEG). FTSE TMX Global Debt Capital Markets is a joint venture between FTSE Group and TMX Group’s information services division, TMX Datalinx. As a result of the acquisition, MTS will initially hold a three per cent stake in FTSE TMX Global Debt Capital Markets. FTSE will retain a 72.7 per cent majority stake in the joint venture, with TMX Group holding a 24.2 per cent stake. Access to fixed income indices continues to grow rapidly, driven by the demand for multi-sourced prices, high-governance standards and low-cost strategies. FTSE TMX Global Debt Capital Markets is the third-largest global provider of fixed income exchange traded fund (ETF) indices. FTSE TMX Global Debt Capital Markets is also well-positioned to seek to benefit from further growth opportunities in this space. Mark Makepeace, CEO of FTSE Group: “FTSE continues to expand its global fixed income operations, which present a significant growth opportunity for the Group. MTS’ indices business will add to the attractive portfolio of fixed income products managed by FTSE globally, developing its offering in this space. Jack Jeffrey, CEO of MTS: “MTS is a leading electronic market in Europe for the trading of European wholesale Government Bonds enabling the calculation of MTS Indices to be based on highly-transparent, real-time, executable prices. MTS Indices has built an attractive portfolio in the European bond space, which will be further enhanced by combining with FTSE TMX Global Debt Capital Markets’ distribution network.” Following the acquisition, existing MTS index products will transition to the FTSE MTS brand name. FTSE is a global leader in indexing and analytical solutions. FTSE calculates thousands of unique indices that measure and benchmark markets and asset classes in more than 80 countries around the world.



Spring 2014

Regulatory news



Spring 2014


Regulatory Networking news

Five ways to make networking work By Kevin Johnson


he British novelist E.M. Forster famously prefaced his novel Howards End with the words “Only connect.” Fair enough — fostering our human connections is crucial for every area of our lives, including our work lives. But Forster probably wasn’t up to his neck in covenant compliance spreadsheets and cash flow forecasts. Today, of course, we have at our fingertips more ways to connect than Forster could possibly have dreamed. Yet finding the time to make the connections that support and enhance our work life is, in many ways, more challenging than ever before. We can instantly search through hundreds of names in our contact list and send a referral to a friend practically in real time — no more fumbling through stacks of business cards. But get any group of treasury and risk management pros together to discuss networking strategies — especially attending high-commitment, face-to-face events — and it won’t be long before you hear: “Who’s got the time?” For time-strapped finance execs, electronic forms of networking are gaining favour. In a new survey by Robert Half Management Resources, we asked 270 CFOs from Canadian companies: “How do you prefer to network professionally?” Email correspondence was the most popular method, chosen by 42 per cent. Another eleven per cent reported that they prefer online networking. At the same time, many of these finance chiefs still see value in the traditional, time-intensive meet-and-greet; one-third said they prefer to network by attending professional events, meetings and conferences. There’s no instant gratification when it comes to networking; success calls for a significant investment of time and energy, and a long-term one at that. But it can pay off handsomely in that it raises one’s professional profile and increases one’s

Spring 2014

resiliency against career setbacks. It also offers the satisfaction of lending a helping hand to others. Here are five ways to produce a respectable return on networking investments:

Timid networkers can look for events where the primary focus is not networking: classes that offer credits for recertification, volunteer opportunities, even professional associations’ golf tournaments.

1. Strategize, don’t improvise. Like any other goal-driven activity, networking requires careful planning and attention to progress. A haphazard approach tends to produce inconsistent results, which may lead to underestimating the positive impact networking can have. Take some time to set goals and develop a strategy. Want to expand C-suite contacts, perhaps with a view to a future career move? Look beyond LinkedIn; as our survey shows, online networking takes a backseat to email and in-person events for these executives. To build these relationships, grab a drinks ticket and a name tag.

4. Build it before it’s needed. Keep the network active even during times its support isn’t necessary. It’s a mistake to treat it just as a hunt for people who can help one’s career; instead, think of it as a process of cultivating mutually beneficial relationships over time. The worst time to start networking is when a strong network is needed the most.

2. Go deep, not just broad. The quality of connections is just as important as the quantity. The classic advice — always sell yourself, hand out business cards at every opportunity, never eat alone, and so on — is fine as far as it goes. A more targeted approach can produce stronger results, however. Focus efforts on the individuals who interest you most. With just a small amount of interaction, decide whether a person is someone who might be able to help you, and whether you’d be interested in helping him or her. 3. Make it personal. With the rise of online connections, it’s much easier to find networking avenues that are appealing to people who aren’t natural glad-handers. But a well-balanced strategy should include a solid segment of face-to-face interactions. Don’t underestimate the value of live events, meetings and conferences. Face-to-face interactions produce stronger, more lasting connections.

5. Maintain. Networks are not steadystate systems. They require regular attention. Schedule a half hour each week to review networking activities, tie up any loose ends, follow up on requests from contacts, and plan for the upcoming week. Similarly, take a couple hours to review goals, assess progress, and research networking events. Preregister, block them out on the calendar, and set up reminders to prepare. Network maintenance is an area where social media excels. Use LinkedIn, Facebook or Twitter to catch up with former colleagues or connect with a friend who couldn’t attend the last National Association of Corporate Treasurers conference. Follow up with an email and an invitation to lunch. The best time to start networking, of course, is right now. Networks develop by a process of gradual accumulation of goodwill and steadily expanding lines of communication. So send an ex-colleague that news link, offer some advice in a discussion group, drop a comment on a friend’s blog. These connections will compound their value over time. Kevin Johnson is regional vice president of Robert Half Management Resources.



Purchasing Regulatory news Management

Canadian businesses should focus on competing globally By Jeff Hayward


Encouraging the C-suite level to learn more about this area of business enables them to better understand ways it can contribute to overall success. 10


e are now six years into ongoing global economic turmoil and, while we may be past the true crisis stage, we are by no means out of the woods. Given the interconnectedness of global businesses, especially supply chain and procurement, a slight adjustment halfway around the world can cause ripples that turn into tsunamis at home. Many global companies are still placing a significantly high emphasis on cost reduction as a means of lessening their risk profile at the likely expense of innovation in other parts of the business. No place is this reaction more acute than in supply chain and procurement (SC&P), two areas many organizations, especially those in Canada, still view as having purely tactical value within business. While the importance of continuously reducing cost should not be minimized, a singular focus on lowering expenses can put organizations at a distinct disadvantage when operating globally. In a nutshell, what got us here today won’t necessarily be what gets us where we need to go in the future – especially when it comes to competing on a global scale. OfficeMax Grand & Toy examined this last year by researching the status of SC&P in Canada. The results of the study were released as a Supply Chain and Procurement Insights Report. While there were several positive discoveries, the report’s overall findings illustrate that Canadian organizations are falling behind, continuing with a tactical focus in SC&P as the global trend sees this area becoming a strategic part of business operations.

A similar global survey, The Challenges Ahead for Supply Chain, commissioned by McKinsey & Company, asked respondents to identify their top supply chain challenges over the next five years. The most frequently cited response was increasing pressure from global competition. When the same question was asked of 500 Canadian SC&P executives in the OfficeMax Grand & Toy study, it didn’t even crack the top-ten. The number-one challenge cited was increasing cost pressures in logistics and transportation. In short, the number-one goal was reducing operating costs, while competing globally wasn’t even on the radar. Given the Canadian survey findings, these responses are logical. More than 80 per cent of the executives said their organization’s supply chain costs represent more than five per cent of revenue. Fully one-third put that cost at more than ten per cent of revenue. On the other hand, the top-quartile of global supply-chain performers reported supply chain costs at less than five per cent of revenue. However, while cost reduction is an important and necessary goal, it is only one piece of the supply chain puzzle. It has the potential to severely limit business innovation if it becomes the primary goal. Also extremely limiting is the practice of keeping SC&P siloed. Participants in the Canadian study agreed that it is important for supply chain and procurement departments to forge deeper relationships with the Chief Executive Officer. Creating and maintaining relationships with C-suite level executives not only creates a stronger, unified corporate culture but also helps to frame SC&P as more than just

Spring 2014

Purchasing Regulatory Management news a tactical business process. Encouraging the C-suite level to learn more about this area of business enables them to better understand ways it can contribute to overall success, beyond simply reducing purchasing costs. With CFOs increasingly taking the helm of corporate supply chain management, they are well positioned to take a leadership role in transforming this part of the business to become more strategic rather than continuing in a purely tactical role. As mentioned, the Canadian report did find some good news. There was a dramatic increase in those who said procurement will have a stronger strategic role over the next five years compared with the past three years (24 per cent, up from 15) and 30 per cent said procurement is a

Spring 2014

strategic link to help the organization move into new and emerging markets. Having said that, it is apparent the vast majority of organizations have not begun to rethink the role that SC&P can play in their success. In today’s competitive global economy, to succeed is to adjust to market requirements. One place Canadian organizations can start is by making supply chain and procurement part of a business’s strategic processes and there is a role for senior financial officers to take the lead in this transition. Being purely tactical, regardless who is at the helm, will no longer suffice. Jeff Hayward is the general manager of marketing at OfficeMax Grand & Toy.



2013 Winners: HSBC International Business Awards

Canfor Corporation

International Business of the Year, Large Enterprise

Issued by HSBC Bank Canada.


International Business of the Year, Small-to-Medium Enterprise

Bassett & Walker International, Inc.

Excellence Award For Leadership in International Trade

BioteQ Environmental Technologies Inc.

Leadership in International Trade, Asia-Pacific

Energold Drilling Corp. Leadership in International Trade, Latin America

Defining the art of global business. The HSBC International Business Awards recognizes Canadian companies that have excelled in growing their business around the globe. Congratulations to all of the winners. See their stories and more at HSBC Global Connections

Regulatory Management Purchasing news

Negotiating fair purchase agreements By Nicola Raycraft


he art of negotiation, considered more of an inherent skill than a true art or even a science, has had a certain connotation associated with it: tough or hard line strategies where one side was considered the victor and the other the clear loser. The word “fair” wasn’t mentioned very often, when talking about process or outcome. In fact, many of the definitive books on the subject were authored by the legal profession, based on years of experience in fierce adversarial courtroom battles. Fair negotiation is ethical, moral and reflects the culture of an organization; it does not mean negotiators should use all the tactics at their disposal to build an agreement. What has changed that allows for fair and equitable negotiations to take place in the procurement arena? The simple answer is everything. The marketplace and the supply base have also evolved to level the playing field for both sides. In the early days of the industrial revolution, purchasing agents or sole proprietors negotiated for commodities largely based on supply and demand. The relationship between these two business partners may have been limited to the single transaction for supply at that time. The evolution of industry has led to more specialized manufacturing and the need for firms to rely on their supply base for more than just widely-traded commodities. The need for long-term relationships and shared success was



the key driver in the establishment of a climate which might support a more fair and equitable approach to negotiation. The other side of this change, though we desire long term relationships and believe they can promote effective cost control, is the belief that exposure to the marketplace prevents the incumbent supplier from becoming complacent, helping them keep their competitive market edge. The majority of products and services are driven by open markets in some way, either by base commodities or changes in overall economic conditions. If the business climate has changed, it should be worth noting that procurement itself has evolved as a strategic tool of the current business entity. But has it really? The danger with a focus on fair or mutual gains bargaining (MGB) is that this approach on its own is not enough in most negotiation checklists. Can we reach a fair agreement without being unethical or deceptive? If we look to only MGB we can certainly reach fair agreements but are we reaching the best agreement possible? The use of open and honest declaration of a company’s interests and budgeted target prices can lead to quick resolution of a firm’s problems but does it set the stage for long-term competitiveness? That depends on the desired outcome from the negotiation. The outcomes or targets could be a key starting point in determining the tactics used. If the goal is to preserve an existing relationship and conduct oneself in a manner which emulates the culture of the organization, purchasers

Spring 2014

Purchasing Regulatory Management news may wish to use as little deception as possible while being ethical in any and all disclosures made. This is an important clarification in what “fair” means. Fairness in negotiation means being willing to share what can be disclosed in order for a supplier to better understand the organization’s interests and needs, without revealing the limits it is prepared to spend or endorse to achieve those goals. In collective bargaining, the use of deception and concealment is a given and expected, but there is an unwritten understanding about what falls within the guidelines and what is immoral or unethical. The agreement reached should maintain opportunities and protections that support both firms, especially if it is attached to a working relationship which may last a number of years. The use of escalator clauses and cost adjustments based on a market index of critical cost drivers can ensure both supply and competitiveness are achieved. A skilled procurement professional always understands the drivers for the product they purchase and ties any pricing relationship to a fair adjustment to the contract price to this index. The use of widespread consumer price indices as an escalator tells a supplier that the buyer does not understand the market and is really negotiating a supply relationship which can be easily budgeted year after year. This practice is quite common in public and distribution procurement because of limited exposure to manufacturing and costing. If fair and equitable procurement negotiation is looked at as being a ‘kinder

If we look to only MGB we can certainly reach fair agreements but are we reaching the best agreement possible? and gentler’ approach to negotiation, it can also raise a basic concern as to whether the best possible deal has been negotiated for the organization. Despite changes in the skill sets of today’s supply chain professionals, there is still a need to be viewed as a shrewd and tough negotiator by the senior management group, which expects the old school purchasing agent to negotiate hard and win at the table. The key elements to finding a fair and equitable approach to all purchase agreements can be summed up in the use of a number of integrated tactics: Understand objectives – what would a good agreement include? What are the expectations for the other party? What are the best alternatives to a negotiated agreement (BATNA)? Understand the limits – what can actually be negotiated and what is nonnegotiable? Identify limits in the Request for Proposal/Quote (RFP/RFQ). Understand the needs of the other side – make an effort to understand the limits within which the other side can negotiate. Understand who the decision makers are – deal with the decision makers. Understand when to walk away from the deal – know the options before you begin. Fair negotiations have a place in today’s business climate and in procurement and supply chain there is a need to maintain

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both working relationships and business integrity. Experienced supply chain professionals rely on honesty and fair and equitable treatment of suppliers as an important part of their career foundation. A firm which protects its brand positioning and mirrors the ethical values of the society it serves will operate more easily in the marketplace than one that is perceived as unethical or immoral. Purchasing professionals negotiating fair purchase agreements can assist in establishing that reputation by portraying their organization in a favourable light and reflecting the organization’s positive cultural attributes within the marketplace. Nicola Raycraft, MBA, CSCMP, is the Manager of Strategic Sourcing at Medbuy Corp. After 15 years in procurement roles across industries including automotive, heavy equipment manufacturing, distribution, food manufacturing and packaging manufacturing, she now works in public purchasing. A highly respected practitioner and academic, Nicola has made an outstanding contribution to the advancement of the Purchasing Management Association of Canada’s (PMAC) education programs, serving as a program instructor and final exam marker as well as participating in program review and content development. She currently sits on the Instructor Support committee with the PMAC National office and is a director on the Ontario Institute of PMAC’s (OIPMAC) board of directors.

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Spring 2014

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Financial market Regulatory news

Shake up of financial market structure overdue By Bob Park


n Chinese astrology, 2012 was the year of the Dragon. Dragon years are reportedly characterized by the dramatic and unpredictable, and the past year was no exception. 2012 has drawn to a close, taking with it some of the regulatory uncertainty that so prominently dominated the financial landscape–but only some. We are just starting to see the effect of the complex and onerous rules of DoddFrank, EMIR and Basel III. This really is only the tip of the iceberg now; the full impact of these regulations is unpredictable and there are still more rules to follow. If there is one lesson we should take away from the financial crisis, it is to not lose sight of the purpose of the banking system. This purpose was especially lost in the boom years leading up to 2008. In those years the banking industry seemed infallible–the focus seemed to be almost exclusively on enabling the banks and other related financial firms to generate ever-increasing profits through financial and technological innovation, regardless whether or not those innovations



served the larger purpose of the markets. An analogy I like to use here is a casino–if it was run for the benefit of the croupiers, and not the customers, nor the house.

Let’s take a moment to examine the history and fundamental purpose of the banking industry. In essence, the banking industry, including both traditional and the more

modern investment banking, is a service industry. Being in the tertiary sector, it is neither the business nor purpose of banks to create capital wealth (except for the banking employees and

Spring 2014

Financial Regulatory market news shareholders, but that’s a very small piece of the pie). The history of banking is very old; there is evidence of the existence of banks in a form similar to that as we know them today as early as 2000 BC. Originally banks served as holding places for the safekeeping of deposits, as well as providing loans to those who would repay them later, at a higher rate. This still holds true today and remains the underlying purpose of the

banking industry–essentially to distribute capital from those who hold it to those who need it, to enable them to operate their businesses and create wealth. In turn, the banks

Spring 2014

receive revenue by providing these services for a fee and from earning an interest rate spread. Banks are simply enablers; they do not make their revenue by developing resources or manufacturing goods, but by acting as a conduit between the holders of capital and those who need it. The primary function of the banking industry has been overshadowed, especially during the bubble years leading up the recession. In fact, proprietary trading and other non-traditional banking businesses grew to such an extent that in 2007 financial services accounted for 40 per cent of all US corporate profits. While technically not the wealth generating part of the real economy, banks certainly appeared to create wealth. With the new activities and responsibilities banks created, the rest of the financial community became increasingly dependent upon them. However, this dependency is changing; new regulations Dodd-Frank, EMIR and Basel III place restrictions on much of the banking industry. In some cases, such as in proprietary trading, banks are legally prevented from undertaking certain activities (Volcker Rule), while other activities are simply being made prohibitively expensive for them. An effect of these regulations can be seen in the bond markets. The inventories of US corporate bonds held by banks for trading purposes have drastically decreased in a span of four years, from USD$250 billion in 2007 to USD$50 billion in 2011. This decrease occurred with a simultaneous surge in new corporate bond offerings, which totalled USD$8 trillion in 2011. The reduced ability of

banks to take on new inventory will, in turn, have an impact on the liquidity in the market– potentially impairing the ability of investors to find new counterparties, thereby raising spreads and costs. Dodd-Frank’s stated purpose is to “…promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices…”–essentially to protect all the users of the capital markets. However, with the increased costs and reduced liquidity brought about by the new regulations, it may in fact have done the opposite (at least in the short term). While regulatory intentions were sound, we are starting to see some counterproductive consequences. This begs the question: What should be done to avoid unintended consequences? And the even harder question: How can one create regulations to protect both the market and users, without hurting the industry? To achieve this, there needs to be a shake-up of the financial market structure. As large incumbent investment banks exit the niche markets they so recently monopolized, new and smaller entrants need to take their place. These new entrants could range from smaller broker dealers and investment banks, to even the evolution and creation of new electronic markets that eliminate the middle men, allowing end users to deal directly with one another. If these smaller firms do falter, while they will suffer

the consequences themselves, there shouldn’t be a large ripple effect in the market (they are not ‘too-big-to-fail’). MF Global is a recent example of a smaller firm that went bankrupt without notably affecting others in the capital markets. With markets populated by a large number of smaller firms, the industry would be safer and stronger–no more ‘too-big-to-fail’ firms, no more bailouts. Let’s not forget the fundamental purpose of the banking industry; to connect the holders of capital to those who can use it, thereby enabling them to grow the wealth of society by operating and growing their businesses. The job of the regulator is no easy task. There are numerous stakeholders to consider, with so many different interests and potential consequences. With no way of satisfying all market participants at the same time, creating new regulations to protect capital market users is a monumental undertaking. While the regulations may be well intended, there is no guarantee that they will benefit the people that they actually are supposed to. Before instituting further regulations and financial policies, careful examination, introspection and foresight is needed. If the Chinese zodiac is any indicator, 2013, the year of the Snake, should be less unpredictable and volatile than 2012. Snakes are said to possess wisdom, focus and attention to detail–qualities that are much needed in today’s marketplace. Let’s hope that this year, as predicted by the Snake, brings about steady progress, focus and rationality. Bob Park is the President and CEO of FINCAD.



Financial services

Pricing, billing solutions help banks reap financial rewards By Christopher Kenney, David Dawson and Jonathan Magder


n the financial services industry, one-to-one customer pricing and product development has long been the Holy Grail. Yet, until recently, most financial institutions lacked insight into the total profits generated by their cash and treasury management clients. Absent this holistic view, banks cannot offer relationship-based pricing or products—and corporate treasurers cannot effectively assess the overall cost of their relationships with their banks. New banking software solutions are changing this equation. By giving financial institutions visibility into their total customer relationships, these systems position banks to offer relationship-based pricing and configurable billing, improving their ability to enhance both customer loyalty and revenue capture. On the flip side, companies are rewarded for the full value of the business they bring their banks, enabling them to both reduce costs and enjoy an enhanced service experience. The cash management landscape is experiencing significant change. In an environment of tightening margins and heightened competition, commercial clients are becoming increasingly sophisticated. These factors are making it more important for banks to gain improved visibility into their customers’ behaviour. The trouble is that most financial institutions lack complete insight into the total profits generated by their cash and treasury management clients. To gain this insight, they need a 360° view of their customer relationships.



Spring 2014

Financial Regulatory services news Without this 360° view, it becomes very difficult for banks to offer customers pricing based on the entire relationship. At the same time, banks cannot fully anticipate new products or trends, respond to mounting regulatory demands, strengthen brand loyalty or offer new solutions to today’s more complex marketplace. Yet gaining this 360° view is no simple matter. Operational silos make it difficult to achieve a holistic view of customers, as do rigid and hard-to-integrate legacy billing and transaction systems. As a result, pricing is inflexible and sometimes irrational, financial institutions experience revenue leakage, customer service agreements remain unenforced and customer confidence erodes. This situation also prevents corporate treasurers from clearly determining the overall cost of their relationships with their banks. This is particularly challenging for large companies that generate a significant amount of business for their financial institutions. These companies want to understand the nuances of their bank’s pricing structure and have full fee transparency. They want to be rewarded for all the business they do with a financial institution—not just for purchasing a single product or operating in a single geographic region. Without access to appropriate packaged and bundled relationship pricing, corporate treasurers and CFOs are not rewarded for bringing more business to the bank—at least not in a consistent or managed fashion. For this to change, banks need to determine how to: ◉◉ use the rich data they have accumulated to offer holistic customer pricing that rewards loyalty; ◉◉ develop accurate bills based on the entire range of products customers use; ◉◉ optimize pricing and billing without replacing or retiring mission-critical technology; ◉◉ augment their lending-based models with a fee-for-service based model.

In response to these needs, new technology solutions are now available that consolidate data from a variety of siloed systems to deliver a more holistic view of customer behaviour. More flexible technologies provide visibility into a

Spring 2014

financial institution’s plethora of legacy applications, enabling complete product and pricing lifecycle management for a customer. By consolidating the entire customer relationship into a 360° view, banks can engage in more intelligent modeling based on profitability, offer more targeted products and enhance their billing processes. Relationship managers can review customer accounts in minutes, rather than taking weeks or months to consolidate disparate data sources. Similarly, product managers can more easily determine which contracts are in danger of breach. By supporting new product rollouts, these next generation solutions also position banks to improve customer service. By gaining visibility into the total value each customer generates, banks can begin to offer value-based pricing—essentially rewarding the best customers. This allows financial institutions to reduce their dependence on lending spreads by augmenting revenues with fee-based income. By mining their rich warehouses of client financial data, financial institutions can offer products customized to particular client needs, positioning them to differentiate from the competition. It also empowers them to price based on relationship-driven criteria as opposed to ad hoc product driven initiatives. For their part, corporate treasury departments gain a more accurate understanding of their bills and can begin getting credit for all the corporate business they drive, no matter where it originates. By accessing a shared 360° view of their product data, they can also make more informed spending decisions. With this kind of program in place, both financial institutions and companies can assess the ROI of any relationshipbased pricing initiative. Banks no longer have to delve into lengthy and expensive annual pricing changes gated by IT or modify legacy code to make product pricing changes. Instead, they can proactively model new product offerings to improve both cross-selling and up-selling opportunities. They can create reward programs that incent corporations to buy specific products of interest to them—

increasing both wallet share and customer satisfaction. And they can begin to retire older systems and measure personnel based on profitability and customer satisfaction, rather than inconsistent or subjective metrics. At the same time, rather than sifting through countless bank statements and invoices to capture consolidated data, corporate customers can see transparent electronic bills that comply with new processes released by the Transaction Workflow Innovation Standards Team (TWIST) for bank services billing. Treasurers can also reap financial rewards by consolidating their financial relationships with the bank best prepared to offer the most favourable pricing and billing options. A strategic pricing and billing platform is a critical component of any bank offering, particularly for banks engaged in global transaction banking and cash management. To remain competitive, financial institutions should begin by benchmarking their pricing and billing platform against best-in-class solutions. After uncovering gaps, organizations can size the opportunity, assess the consequences of inaction, identify the capabilities required and then determine a strategy. Regardless of the stage they are at, one thing is clear: financial institutions need to take decisive action to ensure they do not price themselves out of the market. Jonathan is a manager within Deloitte’s Corporate Strategy Consulting practice and has over eleven years of growth, product, channel and marketing strategy experience in the financial services industry – specifically payments. Jonathan works primarily with payments and retail banking clients to develop and execute strategies to increase their market competitiveness. Chris is a thought pioneer in the space of Product Lifecycle Management for Financial Services and has spent over 16 years in the software industry focused on banking solutions. Chris is passionate about his family of 4 kids and wife of 22 years. David is a Partner in Deloitte’s Strategy and Operations group.  He has over 20 years of experience in Financial Services and has worked with leading firms around the world to define their strategies and improve operations across a broad range of functional areas including payments, cash management, trade finance and commercial banking.



Technology Regulatory news

What you need to know about tablets Mobile devices are fuelling a new era of banking, cash management Today, globalization, increased regulation and the expectation of 24x7 availability has fuelled the banking industry’s massive investment in technology. Few industries have harnessed technology as aggressively as the financial services sector, where there is now a vast interconnected network of correspondent banks, clearing houses and payment systems capable of processing trillions of transactions each and every day. In fact at Citi we sometimes refer to ourselves as ‘a technology company with a banking license.’

Experts predict the tablet will outsell PCs and laptops by 2015

By John Landry


rom the days of the ancient Egyptian Pharaohs, the tablet has been the tool of choice for treasurers to record their daily transactions. Admittedly the form-factor has changed over the years, with the silicon chip replacing clay as the medium of choice, but the basic premise remains – a handheld device is the ‘musthave’ accessory for the busy, on-the-go finance executive.



At the heart of this technology lies the tablet – the handheld device that Gartner and other technology analysts predict will eclipse sales of PCs and laptops by 20151. This year, Gartner estimates tablet sales will rise by 54.3 percent compared with 2012, to 184 million units globally, while traditional desktop and laptop computer sales will fall by 11.2 percent to 303 million units over the same period. One of the key drivers for the tablet’s popularity is the proliferation of Apps that are being developed, not just for consumers, but for business executives including bankers and treasurers. Citi’s Treasury and Trade Solutions (TTS) leads the way in offering the

industry’s most comprehensive range of digitally-enabled treasury, trade and liquidity management solutions. Earlier this year Citi’s TTS business won numerous prestigious accolades at The Banker’s 2013 Innovation in Banking Technology Awards, including the Innovation in Cash Management Award for its ReceivablesVisionSM and Payment Analytics solution, Most Innovative Transaction Bank from the Americas, and Most Innovative Global Transaction Bank. These solutions are accessible through Citi’s online banking portal, CitiDirect BESM (Banking Evolution) and CitiDirect BE Mobile, which, as the name suggests, connects corporate, public sector and financial clients to an array of mobile banking services. Uptake of CitiDirect BE Mobile has been nothing short of spectacular as the service is rolled out country by country in smart phone and tablet form. The keys to its success are its intuitive dashboard display and analytic functionality that allow senior executives to initiate payments, authorize transactions, analyze payment trends and maintain the business intelligence necessary to optimize working capital, wherever they are in the world - be it a mine in the North West Territories, a board room on Bay Street or a hotel in Dubai.

Albert Einstein once said: “If I had 60 minutes to solve a problem, I’d spend 55 minutes defining it and five minutes solving it.” Citi has worked hard to create the framework for this technology leadership,

Spring 2014

Regulatory Technology news

an example being the creation of Citi’s Innovation Labs in San Francisco, Dublin and Singapore, and software production studios in Miami and Singapore. As Albert Einstein once said: “If I had 60 minutes to solve a problem, I’d spend 55 minutes defining it and five minutes solving it.” Einstein’s quote reflects the spirit of Citi’s technology innovation process. At Citi Innovation Labs we bring together clients, product teams and technology experts to define the needs and examine the aspirations and behaviours of those for whom these solutions are being designed. This is how CitiDirect BE Tablet and BE Mobile came to fruition. We first focused on the problem through intensive research, then explored possible solutions, developed a prototype and finally pilottested and scaled the solution. It’s not enough simply to have a smart idea. Success is determined by how well that idea is executed, which in turn depends on how smartly and thoroughly the problem was originally defined. Case in point is ‘going mobile.’ Many financial institutions have simply tried to emulate the online banking experience by copying it to a mobile device. However, Citi’s research showed users didn’t want this. They didn’t need the full functionality of online banking, they just wanted easy (and secure) access to a few ‘Must Have’ features while away from the office.

Mobile executives don’t need full online banking functionality – they want easy (and secure) access to a few ‘Must Have’ features while away from the office These ‘Must Have’ mobile features include the ability to perform activities such as accessing account balances and the status of transactions, authorizing and releasing payments, initiating preformatted payments for domestic and international fund transfers, and receiving event notifications. But it goes further than that. It’s not as simple as developing a single mobile solution. Smart phones and tablets demand different applicationdevelopment models and present different opportunities to customize the user experience. CitiDirect BE Mobile for smart phone for example looks and feels different

Spring 2014

from the tablet version and offers quite different functionality. Major corporations around the world, including many in Canada, are adopting CitiDirect BE to manage accounts and transactions globally. For example, a financial clerk in Toronto can enter a series of payments into CitiDirect BE for the purchase of heavy machinery in Chile, then submit them for approval to the regional treasurer in Vancouver. The treasurer, while on a business trip to India, can review and authorize the payments using a mobile phone, only hours after they were entered. Meanwhile it’s morning in London, where the CFO is preparing for the CEO’s weekly management meeting. From the boardroom, the CFO can use CitiDirect BE Tablet to quickly check the company’s global cash position and see that the series of payments have been made in Chile. With a few taps he (or she) can drill down on a map or graph to see the resulting balances and then subsequently confirm the execution of the company’s strategy at the meeting. Canada is a world leader when it comes to the adoption of mobile banking functions in the corporate space. Last year, one of Citi’s clients – a Canadian gold mining company – was the largest single maker of payments from a handheld device anywhere in the world. This year, that company has once again made more than $1 billion in corporate treasury payments via Blackberry. This isn’t just a testament to Citi’s technology-based platform, but it also serves to underline the progressive thinking and willingness to adopt new approaches that is culturally engrained in corporate Canada. Recently I visited more than 20 clients at their head offices throughout Europe. Nowhere did I find the same level of openness to corporate treasury management and transaction initiation from the handheld device as I see from our Canadian clients. This type of up-to-the-minute business intelligence would have been unthinkable just a few short years ago - now it’s set to become the norm. At the touch of a button, finance executives and treasurers can get answers almost instantaneously to questions about market positions, currency risk, funding sources and operating needs,

from almost anywhere around the world – the type of information that can often provide a competitive advantage. Significantly, some of the fastest growth in mobile services comes from countries where transactions were previously dominated by cash or where banking penetration has traditionally been low. In many of these countries, for example in Africa, Latin America and Asia, mobile technology is being used to leapfrog a generation of banking infrastructure. This is good news for Canadian companies doing business in these countries, where monitoring counterparty risk, liquidity, supply chain management and supply chain finance are part and parcel of the treasurer’s role, and where mobile banking technology simplifies this process. But Canada’s finance executives and treasurers can’t afford complacency. If they fail to embrace new mobile banking technology themselves, they may miss out on the benefits of dynamic business intelligence, streamlined payment processing, optimized working capital and improved risk management, and find themselves being leapfrogged by those who have ‘gone mobile’ and achieved that business edge. Right now, Canada is well placed to take advantage of new mobile technology. We have good penetration of tablets at the consumer and corporate level (26 percent of Canadians over 18 owned a tablet in Fall 20122) and a strong track record in m-commerce. With CitiDirect BE Tablet and Mobile now available in Canada, our corporate treasurers have the tools and expertise to take advantage of this brave new world of banking and cash management. About the Author: John Landry is the Head of Citi’s Global Transaction Services business in Canada. He is responsible for GTS’ team of professionals across Toronto, Montreal, Ottawa and Calgary and their delivery of class-leading Fund Services, Custody, Cash Management and Trade Finance & Services. He was appointed President and CEO of Citibank Fund Services Corporation in November 2012 1. Forecast: Devices by Operating System and User Type, Worldwide, 2010-2017, 1Q13 Update”, Gartner, March 28, 2013. 2. The Rise of Tablet Computers: CBC Media Technology Monitor, February 2013:



Leasing and equipment financing Regulatory news

Equipment finance professionals provide specialized advice By Hugh Swandel


tatistics Canada projects that Canadian business will acquire $114 billion of machinery and equipment in 2013 and this growth is expected to continue in 2014. Much of this equipment is acquired by lines of credit, term loans and leases provided by industry firms that collaborate closely with their customers. But Canadian businesses face many challenges when managing the acquisition, maintenance and disposal of the equipment they use in their businesses. Obtaining advice and financing from knowledgeable professionals is an invaluable tool to address those challenges. The right equipment finance company can tailor a solution that provides value-added tax and accounting information and address specific equipment-related issues. An equipment finance specialists can provide structure and terms that are financially and practically beneficial to the borrower. During the most recent economic downturn, many companies delayed the upgrading or replacement of equipment and vehicles. The delay in replacing assets was due in part to the global credit crisis and the resulting lack of available financing for corporate Canada. The consequences of these delays were higher maintenance costs, greater business downtime

equipment finance company can tailor a solution that provides value-added tax and accounting information and address specific equipment-related issues. 22


and a reduction in overall productivity. As the economy recovered, several sectors (including agriculture, construction and manufacturing) had rapid growth in sales. The growth in equipment and vehicle replacement coincided with the recovery of available financing from the equipment finance industry. It is fundamentally important to find a lessor who understands the unique requirements of a company’s equipment needs since leasing terms for aircraft, rail cars and mining equipment, for example, vary greatly. The right equipment finance company has specialized knowledge of both the equipment used by a company and the financing structure that can address the useful life of the equipment and provide terms of financing that are practical and economical for the client. The right lease structure can accommodate the normal wear and tear of the specific equipment and environment in which it is used. Companies that acquire considerable amounts of equipment would be well served by time spent to solicit proposals from equipment finance industry specialists. The options available to businesses are numerous and the potential benefits go beyond finding the lowest interest rates. A good partner will provide structures and services that address tax, accounting and equipment acquisition budgets. Even the search process can provide valuable insights into new or under explored options for one’s business. Hugh Swandel is the senior managing director of The Alta Group in Canada. The Alta Group is a global consultancy practice specializing in the asset based finance industry. With extensive North American contacts in the equipment finance and leasing industry, Hugh has a strong reputation as an effective negotiator of win/win agreements involving mergers and acquisitions, business development, market entry, operations and analysis, securitization and other matters of importance to finance companies.

Spring 2014

Corporate cards Networking

Sound infrastructure is essential to expansion By Diane McGuire


ccounts payable process cost savings, greater visibility into organizational spend, convenience and flexibility—the reasons for launching a purchasing card (P-Card) program are compelling. Since the late 1980s, many organizations have established commercial card programs and now, after experiencing the rewards of card use, the natural progression is program optimization and/or expansion—actions that move above and beyond daily program management. However, an organization should first evaluate its program infrastructure. Growing a program before the infrastructure is sound will only compound any existing problems. Optimization and expansion (O&E) can be mutually exclusive, but are often pursued and occur together for the greatest rewards. While a program may realize ongoing process improvements and growth from the earliest months of implementation, pursuit of full-fledged optimization and expansion can require a concerted effort. When embarking on an O&E path to any extent, an organization must keep a fundamental question and concept in mind: will a particular optimization or expansion method increase efficiencies and provide additional cost savings? Adopting something new purely to boost revenue-sharing (rebate) incentives can be a poor practice if it actually complicates a process, raising process costs for the organization or its suppliers.

or compliance with program policies and procedures. A vast array of options could be considered within this realm. The following are some examples, but not an exhaustive list: ◉◉ ensure procurement and payment practices have been re-engineered; ◉◉ allocate sufficient resources (NAPCP survey results show one full-time equivalent for program management staffing when a program reaches 400 cards but many factors influence what level is most appropriate for a particular program); ◉◉ implement technology and automated processes (like auditing and receipt imaging); ◉◉ integrate commercial card/electronic transaction data into the financial system; ◉◉ source suppliers strategically, choosing those who accept cards and educating others on the benefits of card acceptance; ◉◉ optimize revenue sharing (rebate).

Target everything from new spend categories to global payments By the simplest definition, expansion is about increasing card utilization, making cards a bigger part of the organization’s payments strategy. Expansion initiatives could range from something modest, such as switching a particular category of suppliers to P-Card, to a full-fledged expansion campaign. Expansion might include:

and track progress toward goals.

Evaluate before expansion Before an organization pursues program expansion, it should first evaluate its program infrastructure since growing a program before the infrastructure is sound will only compound any problems. Even if an organization has no plans to expand its card program, an infrastructure evaluation will help ensure that the existing program is sound. When evaluating a program, consider it from all angles including whether the organization utilizes an appropriate purchase-to-pay (P2P) process for P-Cards. Most often, this means reengineering traditional P2P processes, which commonly includes empowering cardholders to make purchases (and not requiring pre-purchase approvals for every purchase) and eliminating the invoice, encouraging suppliers to charge the card when the order is fulfilled. Unfortunately, some organizations do not implement these best practices in conjunction with program implementation. Before forming the NAPCP in 2000, Diane McGuire implemented and managed Cargill’s award-winning Purchasing Card program and has also held several financial manager positions within Cargill’s business units. Diane received her undergraduate degree in accounting from the University of Nebraska at Lincoln and her MBA from Rutgers University. She is a frequent speaker on Purchasing Card and

Improve processes for increased efficiency, savings, compliance

◉◉ broader card distribution; ◉◉ additional spend categories; ◉◉ additional card types, such as ePayables, travel, prepaid or fleet; ◉◉ electronic commerce/eProcurement systems; ◉◉ global expansion; ◉◉ capital/fixed asset purchases.

At a high level, optimization within a P-Card program centers on tactics to improve one or more processes for increased efficiencies and savings and/

Similar to program implementation, when an organization pursues O&E, it should establish measurable goals, assign appropriate resources to execute the plan

Establishing and Managing a Program, available

Spring 2014

other electronic payment strategies and is often a quoted source for the print media. Diane and Laura Flandrick founded the NAPCP in 2000 to exercise their passion for the Purchasing Card process and to drive the industry forward. This article was based largely on excerpts from Purchasing Card Essentials: The NAPCP’s Guide to for purchase. For more information about this topic and other resources relating to corporate payments, please visit



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Canadian Treasurer Magazine Spring 2014