By Pieter Cronje, Director and Head of Cash & Liquidity, TreasuryONE

In-house banking has historically been associated with large corporations due to the perception that it was too costly and complex for smaller and medium-sized organisations to implement. However, the landscape has evolved significantly in recent years, making in-house banking solutions accessible and cost-effective for a broader range of businesses. This transformation is largely driven by the availability of advanced technology infrastructure and outsourced treasury services that can be tailored to meet the specific needs of finance departments and treasury operations. Scalability is the key to making in-house banking a viable option.

Identifying Suitable In-House Bank Activities – Plus Their Potential Benefits

In-house banking encompasses a wide range of finance activities, and its applicability varies depending on factors such as a company’s core business, transaction volumes, risk exposures, and operational inefficiencies. Here are some examples of how in-house banking can bring value to different business situations:

  1. Cash Management:
    • Centralised visibility and control of cash resources.
    • Automated collection and validation of balance and transaction data from various domestic and foreign bank accounts.
    • Error detection and correction, leading to accurate cash allocation.
    • Enhanced cash positioning, minimising borrowing costs and optimising surplus cash investments.
    • Reduction of manual effort, freeing up finance teams for strategic tasks.
  2. Cash Pooling and Sweeping:
    • Managing account sweeping and pooling operations to maximise cash utilisation.
    • Tracking contributions of pool members and applying interest calculations.
    • Efficiently controlling the process for improved cash management.
  3. Cash Forecasting:
    • Collecting cash forecasts across the organisation.
    • Creating projections of future cash positions, considering outstanding borrowings, investments, and committed cash flows.
    • Providing insights for informed decision-making regarding funding and investments.
  4. Subsidiary Finance:
    • Offering low-cost financing to operating subsidiaries.
    • Enabling efficient financing activities, including inter-company loans, while complying with tax regulations and transfer pricing rules.
    • Streamlining administrative processes through automation.
  5. Multi-lateral Invoice Netting:
    • Simplifying inter-company invoice netting to minimise external transfers and FX transactions.
    • Efficiently settling invoices in compliance with relevant regulations.
  6. More Efficient Deal Execution:
    • Centralising external FX and money market dealings on behalf of subsidiaries.
    • Leveraging natural offsets and amalgamating deals for better price execution.
    • Reducing costs, overheads, and risks associated with decentralised dealing operations.
  7. Central Risk Management:
    • Using central visibility to provide cost-effective and accurate hedging services.
    • Leveraging concentrated expertise for superior risk management.

Establishing an In-House Bank – Making the Case

The decision to implement an in-house bank should be based on a systematic cost/benefit analysis tailored to the company’s unique structure, transaction volumes, risk profile, and operational priorities. 

To build a compelling case, consider the following steps:

  1. Collaboration:
    • Engage internal and external finance consultants and specialists.
    • Discuss solutions with industry peers who have faced similar challenges.
    • Identify specific issues and tangible improvements to justify the investment.
  2. Cost/Benefit Analysis:
    • Analyse how in-house banking can address urgent issues, such as inefficient cash management, lack of financial transparency, or poor risk management.
    • Focus on which treasury and finance solutions can yield the most valuable benefits.
  3. Risk Profile:
    • Recognise that growing companies often face increased risk profiles.
    • Consider in-house banking as a solution to manage these risks effectively.

Building the In-House Bank

Implementing an in-house bank involves harmoniously integrating three key components:

  1. Technology:
    • Utilise robust treasury management technology to provide scalable functionality.
    • Automate support for cash, treasury, financial risk management, and treasury accounting.
    • Ensure compliance with operational, management, and regulatory requirements.
  2. Communications:
    • Establish infrastructure for seamless information flows between the in-house bank, operating subsidiaries, and third parties.
    • Manage data, including bank statements, deal requests, cash forecasts, and custom reports.
  3. Human Resources:
    • Assemble a skilled team, including dealing, administrative, and specialist staff.
    • Consider outsourcing treasury services to fill expertise gaps.
    • Ensure adherence to treasury policy, controls, and risk management.

The Strategic Benefits of In-House Banking

Implementing an in-house bank not only addresses immediate financial challenges but also positions an organisation for future growth and change. 

Some strategic benefits include:

  1. Future-Proofing:
    • Establishing a flexible platform to adapt to changing business needs.
    • Streamlining processes and integrating new acquisitions efficiently.
  2. Efficiency Gains:
    • Leveraging contemporary technology and professional services for process improvements.
    • Enhancing productivity, quality, and profitability through in-house banking.

In conclusion, the surprising accessibility of in-house banking solutions, driven by technological advancements and outsourced services, offers a cost-effective path to superior financial performance for many corporate organisations.

By systematically building the case for in-house banking and strategically implementing the necessary components, companies can unlock the potential for enhanced operations and financial management.