An Underappreciated Treasury Management Tool
A well-structured and integrated in-house bank (IHB) can drive efficiency and cost-savings for your entire organization. At its core, an in-house bank should offer services comparable to those provided by external banks. This allows participating subsidiaries to streamline and standardize treasury operations while gaining bank independence. Additionally, it provides organizations with benefits in cash flow visibility and risk management, both domestically and globally. An in-house bank can drastically improve operations and provides a true return on investment via the benefits an IHB provides.
Many well-managed organizations have the required tools and technology in place; however, they lack the guidance to implement the organizational changes required to support an IHB. This post provides an overview of the steps necessary to assess an In-House Bank for your organization, and Elire’s recommendations for implementing.
Why Implement an In-House Bank?
The concept of an in-house bank is not new. Most large organizations that actively manage many subsidiaries implement some form of internal banking. However, organizations fall short of reaching their full potential when it comes to true in-house banking.
At a high-level, an organization will see improvements in cash flow, fraud risk reduction, automated workflows, bank independence, currency risk management, and centralized cash liquidity.
(Benefits of an IHB graphic)
These benefits can only be realized by taking the proper tactical steps to build an operational foundation. To truly find value in in-house banking, an organization must have a clear understanding of its banking relationships across all its subsidiaries. It must also understand the relationship between its subsidiaries. Surprisingly, this is not always as transparent as one might think. An organization must have complete visibility of cash activity and be able to comprehensively forecast that activity. Having a treasury management system (TMS) in place can help with this, as does having a thorough understanding of the IHB structure.
In-House Bank Structure
An in-house bank requires organizations to consider their operational structure globally as well as regionally. It requires a stronger approach to centralize treasury operations by implementing Global, Regional, and Corporate Treasury Centers.
(IHB Structure Table)
On a regional level, an in-house bank can be established where treasury teams are able to monitor their in-country cash and liquidity positions. Subsidiaries operating in the region can have access to automated Payments on Behalf of (POBO) operations that will streamline payment processing and provide easy reporting for accounting purposes. On a corporate level, an In-House Bank provides organizations with efficient global cash management, as well as bank relationship management. On an international level, an IHB enables organizations to utilize a nominal cash pooling structure and multilateral netting architecture.
An IHB has built-in centralized liquidity and investment management, cash forecasting, foreign exchange management, and hedging functions that can all be monitored and managed by treasury teams. The table above outlines how an In-House Bank can add value to existing treasury operations for each of the three levels within an organization. For a deep dive on IHB structure and benefits, view the Elire Treasury Experience 2024 recording of “Maximizing Efficiency and Control with In-House Banking Solutions” here.
Elire’s Recommended Next Steps
As a Trusted Advisor, Elire has helped its clients navigate the complexities of an in-house bank by setting a strong foundation that goes beyond evaluating the technology that is being leveraged. A foundation must start with a truly comprehensive evaluation of your current business processes. Taking a strategic approach to assessing treasury operations is critical to successfully identifying the benefits that can be gained. We can accomplish this by asking:
- Have your current business processes grown organically over time and do they follow leading industry practices?
- Are your business operations changing or getting more complicated at a pace you can no longer keep up with?
- Have shifting strategic priorities led to a misalignment of organizational policies and procedures?
- Do your employees have the right tools and skills to perform within the process design?
At Elire, we’re here to help assess these questions and considerations as you evaluate a move to the underutilized though highly useful in-house bank system. Our SaaS Treasury team works to identify the best approach for you based on the unique qualities and attributes of your organization.
For more information on how our treasury team can help your organization, visit the Treasury Management Services page of our website where you’ll find an overview of our expertise. Also available for download is our IHB informational whitepaper, “In House Banking – The Divergent Shift from Traditional Banking”.
