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A New Money Market Platform Leverages JPMorgan’s Depth in Technology and Innovation

The abrupt stampede to safety in financial markets unleashed by COVID-19 in March 2020 created chaos and concern for investors, financial institutions and regulators. And it put extra scrutiny on the ability of digital solutions, systems and tools that underpin global trading, execution and settlement to serve and satisfy millions of financial professionals trying to do their jobs from home.

Among the digital solutions facing its first real-world crisis was Morgan Money, a web-based, open architecture money market trading platform with state-of-art technology designed by J.P. Morgan Asset Management that launched at the Association for Financial Professionals’ annual conference in Boston in October 2019. Four months after AFP, the liquidity crisis sparked by the pandemic sent many institutional investors rushing to sell risk assets—including prime money market funds (MMFs)—and park cash in lower-risk government and treasury funds. Money fund assets swelled and now exceed $5 trillion, according to Crane Data.

The abrupt stampede to safety in financial markets unleashed by COVID-19 in March 2020 created chaos and concern for investors, financial institutions and regulators. And it put extra scrutiny on the ability of digital solutions, systems and tools that underpin global trading, execution and settlement to serve and satisfy millions of financial professionals trying to do their jobs from home.

Among the digital solutions facing its first real-world crisis was Morgan Money, a web-based, open architecture money market trading platform with state-of-art technology designed by J.P. Morgan Asset Management that launched at the Association for Financial Professionals’ annual conference in Boston in October 2019. Four months after AFP, the liquidity crisis sparked by the pandemic sent many institutional investors rushing to sell risk assets— including prime money market funds (MMFs)—and park cash in lower-risk government and treasury funds. Money fund assets swelled and now exceed $5 trillion, according to Crane Data.

In March alone, institutional investors plowed $821 billion1 into government MMFs. That massive flight to quality sent monthly trading volume on Morgan Money surging about 40% to $120 billion2 , fueled in part by inflows into the JPMorgan US Government Fund, whose assets reached $228 billion.

1 Source: Crane Data
2 Source: J.P.Morgan Asset Management

Through it all, Morgan Money never missed a beat—exactly as its creators expected. One reason: The surge in activity in March didn’t approach what the technology team had thrown at the system in periodic stress tests in which the platform is subjected to trading and connection requests significantly higher than what would ever happen in reality.

“We had zero downtime during the COVID pandemic, not a single minute of downtime intraday,” said Paul Przybylski, Head of Product Development and Strategy for JPMorgan’s global liquidity business. “When clients asked for money, they got the money. When they invested with us, the money was invested.”

And in the weeks that followed, Morgan Money clients had no issues using the platform from home. “The fact this platform is web-based allowed us to really be resilient throughout this,” Mr. Przybylski added. “It allowed our clients to use their own personal computers and log on to the platform. Working from home had no impact at all. Things worked as intended.”

A treasury analyst at a US aviation company is among Morgan Money’s proponents in the wake of the outbreak. “Morgan Money has been essential in enabling me to fully execute my role, especially since we started working from home,” she said. “Having access to all my accounts in one place and being able to trade with the peace of mind that JPMorgan cybersecurity brings has been indispensable.”

Investing in tech, talking to clients

Today, Morgan Money has about $124 billion in assets under management, more than 1,000 unique clients, 4,000 active users and 20,000 registered users. In addition to JPMorgan MMFs, short-duration and ultra-duration funds, the platform offers MMFs from third-party fund families in the US and EMEA. JPMorgan is leveraging the bank’s investments in technology (nearly $11 billion annually) and cybersecurity—combined with its deep reservoir of products, services and relationships—to get an edge in a competitive market where banks and nonbanks provide treasury teams and other investors with portals and platforms that allow them to select and trade money funds from multiple asset managers.

“Throughout our history, JPMorgan has helped clients navigate changing environments and challenging markets,” said John Donohue, CEO of Asset Management Americas and Head of Global Liquidity. “Our significant investments in innovation and technology will enable Morgan Money to continue to meet clients’ needs, both immediately and as they evolve and transform over time.”

To better serve those investors, JPMorgan drilled deep into what they really want. The Morgan Money team initially conducted client interviews where they asked portal users, “What is your ideal state? What’s broken? How can we make things better?” The mission became clear, Mr. Przybylski said. “We had to build a platform that offered the easiest way to execute a trade so someone in treasury can purchase a product in fewer clicks. It’s all about trade flow and settlement, and how easily you make those work.”

Trading carts, analytics and APIs

Eighteen months and some 200-plus additional client meetings later, Morgan Money offers treasury investment managers a look and feel that’s familiar to anyone who has purchased something online: a trading cart (patent pending) that allows users to easily create trades and save them for future execution. They can make multiple trades with one click as opposed to processing each one separately. Also familiar are tools that let investors hover their cursor over a fund name and have information like the minimum investment pop up on the screen.

Morgan Money’s risk analytics tools have all been designed in-house to give users a powerful, intuitive and visual way to analyze their holdings and compare them to other funds on many levels. Investors can examine their investment exposures by instrument type, issuer, maturity, country and rating, down to the individual holding level.

They can drill down and filter to show the CFO their exposures to, say, China and Canada. A what-if analysis function allows them to model the potential impact of a trade—either buying or selling—and see how it might affect exposures at an account, company or full relationship level. And they can export everything to Excel in a raw, pivot ready format.

Morgan Money’s creators say their system stands apart from some competitors’ because it allows users to do real-time transactions and reporting, thanks to application programming interfaces (APIs). That functionality can pay off when an investor needs to make a trade close to cutoff. “Morgan Money has the ability to connect to our clients and their systems via APIs, which are instant connections, sending information back and forth in real time,” Mr. Przybylski said. “Most connections out there are done through secure file transfer protocol (SFTP), where you send a file every few minutes. We have the ability to send a trade instantly rather than waiting for the next batch.”

APIs also open the door to integrating Morgan Money with a client’s treasury management (TMS) or enterprise resource planning (ERP) system, a trend JPMorgan expects to accelerate in the post-pandemic world as seamless connectivity becomes more essential for trade execution. “I think everything is going to be on a shorter timetable,” Mr. Przybylski said. “We all saw working remotely as the future before the crisis. Now I think things are going to be accelerated. Everyone wants the flexibility and automation. So having the digital integration capabilities is going to be a big point going forward.”

Morgan Money will also provide, when necessary, so-called tech credits that help platform users defray TMS and other expenses, including payments to Bloomberg and Clearwater Analytics. That’s critical for some investors, including one NeuGroup member who said, “That’s the model we’re used to, having tech credits that offset other expenses within treasury.”

Looking ahead

In the wake of the pandemic, tools like Morgan Money that have given clients a greater sense of control when doing their jobs outside of the office and outside of their comfort zones—a situation that could last for months—may enable treasury teams to transform how and where they operate.

“When you’re trading large amounts, a lot of people are cautious in terms of doing this anywhere but from the office,” Mr. Przybylski said. “I think this current experience is going to open people’s eyes to their ability to do these things at home, especially considering the security levels are so high and that we have the same cybersecurity throughout the JPMorgan system, wherever you use it.”

This new mode of operation will require Morgan Money and other digital solutions to keep innovating to offer finance teams more options to do more kinds of work remotely, efficiently and safely. And that fits perfectly with JPMorgan’s vision of the future.

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Life Sciences Treasurers Speak to Capital Market Strategies, Insurance and Payment Fraud Mitigation

By Joseph Neu

The NeuGroup Life Sciences Treasurers’ Peer Group completed its H1 meeting series last week, sponsored by Societe Generale. Here are a few takeaways I wanted to share:

Three types of companies with three capital markets crisis strategies. Life sciences businesses, like those in most sectors, fall into three general capital market strategy buckets:

  1. Those needing rescue capital in order to survive through this crisis.
  2. Those looking to fortify their balance sheets.
  3. Those looking to be opportunistic to monetize high stock volatility and build acquisition capital to diversify their growth portfolio.

By Joseph Neu

The NeuGroup Life Sciences Treasurers’ Peer Group completed its H1 meeting series last week, sponsored by Societe Generale. Here are a few takeaways I wanted to share:

Three types of companies with three capital markets crisis strategies. Life sciences businesses, like those in most sectors, fall into three general capital market strategy buckets:

  1. Those needing rescue capital in order to survive through this crisis.
  2. Those looking to fortify their balance sheets.
  3. Those looking to be opportunistic to monetize high stock volatility and build acquisition capital to diversify their growth portfolio.

Most members saw the crisis as a reason to build liquidity to give themselves the option to fund R&D, have dry powder for an acquisition and fund share buybacks or dividend payments.

  • That means the majority of companies in this group have one foot in the balance sheet fortification strategy and the other in the opportunistic and strategic bucket.

Pandemic pushing traditional insurance out. A session on the insurance market impact of COVID-19 revealed that the market is driving retention increases, with as much as 60 percent increases on renewal quotes.

  • But higher retention is not leading to the expected premium relief, especially on D&O and property coverage.
  • Some corporates are not even able to get competing quotes on D&O.

The feeling that the insurance market is broken is compounded by the lack of direct and indirect pandemic coverage found in current policies. Some of this is still to be determined by legislation and litigation. Plus, members are told that outright pandemic exclusions should be expected going forward and pandemic coverage, if offered at all, will come at a very high price.

  • These circumstances have more members weighing creative coverage and alternatives to traditional insurance, such as captives and group captives, perhaps even for D&O.
  • They are also allocating more lead time to the renewal process to consider all options. 

Payment fraud prevention in focus. Cyber risk of all kinds has risen during the work from home phase of the virus and remains high as more workers return to the office. But payment fraud is top of mind. One member presented to the group a layered approach to preventing payment fraud.

  • A key insight was the focus on contractual language now embedded in their supplier portal to put the onus on all vendors to comply with their cybersecurity requirements, including immediate notice of a business email compromise.
  • Plus, the supplier portal allows the firm to use credentialed logins to identify the right person to confirm remittance discrepancies.
  • Another popular best practice is to implement after-action reviews to go over any issues or events to make them into a teachable moment.
  • These reviews complement well a reward system where anyone who takes the extra step to confirm a potentially fraudulent payment or prevent a real one is acknowledged.

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Smooth Sailing: One Investment Manager’s Painless Adoption of CECL

Taking a qualitative approach and doing no discounted cash flow calculations produced a calm CECL debut for at least one investment manager.

At a recent NeuGroup meeting, the only investment manager whose company adopted the new accounting standard for estimating credit losses in the first quarter described a relatively painless process, giving comfort to some of his peers. The meeting, sponsored by BlackRock, included a presentation by Aladdin on FASB’s current expected credit losses (CECL) methodology. Aladdin offers risk management software tools and is part of BlackRock.

Qualitative vs quantitative. Among the CECL decisions facing corporates is whether to assess their credit investment portfolio on a qualitative basis or to use a quantitative approach that requires the use of models and, often, discounted cash flow (DCF) analysis. One of the Aladdin presenters said clients with larger portfolios often do a quantitative analysis or combine it with a qualitative approach.

Taking a qualitative approach and doing no discounted cash flow calculations produced a calm CECL debut for at least one investment manager.

At a recent NeuGroup meeting, the only investment manager whose company adopted the new accounting standard for estimating credit losses in the first quarter described a relatively painless process, giving comfort to some of his peers. The meeting, sponsored by BlackRock, included a presentation by Aladdin on FASB’s current expected credit losses (CECL) methodology. Aladdin offers risk management software tools and is part of BlackRock.

Qualitative vs quantitative. Among the CECL decisions facing corporates is whether to assess their credit investment portfolio on a qualitative basis or to use a quantitative approach that requires the use of models and, often, discounted cash flow (DCF) analysis. One of the Aladdin presenters said clients with larger portfolios often do a quantitative analysis or combine it with a qualitative approach.

  • The NeuGroup member whose company adopted CECL uses a qualitative method as an initial screen; if the qualitative assessment indicates that a security is “not money good,” then a quantitative assessment will be performed. The company’s accountants are comfortable with this approach, he added. 
    • In response to a question, the member said that in the event of needing to do a DCF analysis he will have Clearwater run the analysis. In practice, this is unlikely because any security with a credit loss will likely have been out of compliance and sold, he said.
  • The investment manager said his portfolio assessment includes making sure that every security is investment grade and then looking closely at any “outliers” that have dropped below a certain price level. He receives feedback and guidance from external managers when an issuer is downgraded. “Is it still money-good” is what he wants to know.
  • One investment manager said the perspective offered by the member who doesn’t expect to have to do any DCF analyses provided some relief. “The additional work may not be as bad as I thought it would be,” he said.
  • Another member of the group would like to see a survey showing if peers are taking a quantitative or a qualitative approach. He said the qualitative process described earlier “doesn’t sound vastly different from an “OTTI regime,” referring to the other-than-temporary impairment approach used to account for credit losses before the adoption of CECL. 

Adverse or severe? Companies using models as they adopt CECL face other decisions, including which economic scenario to use—particularly challenging given the uncertainty created by the COVID-19 pandemic. An Aladdin presenter said the relevant scenarios today include:

  1. Baseline
  2. Adverse
  3. Severely adverse

The presenter said most, but not all, of the companies he’s seen are using the adverse scenario assumptions. That surprised at least one member who has run scenarios in preparation to adopt CECL. He said, “We asked ourselves, if this isn’t severe, what is?”

  • That same member, in response to a question about what his scenario testing had revealed, said it was “super interesting to watch.” He said the company initially had no credit losses on its books; “now, suddenly it’s everywhere.” An Aladdin presenter later said CECL could have an impact on earnings for some companies that have adopted the standard. 

Final thoughts. That said, the member whose company has adopted CECL said that “our general stance is that CECL is not targeted to us,” a sentiment that echoed statements heard in at least one of the meeting’s earlier breakout sessions on projects and priorities, where CECL was deemed “sort of a non-event for everyone,” as the NeuGroup leader in the group described it. We’ll see if that sentiment holds up through the next few quarters. 

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Differing Opinions About Audit Opinions

Internal auditors use a variety ratings or opinions for their reporting, despite a trend of not using them.

There is a growing trend of internal audit departments moving away from using audit opinions, or ratings, to rate the progress of a mitigation effort. The idea is to focus on the audit issue itself and mitigate it. Despite this trend, many auditees and audit committee members are happy with the current system and push back against suggestions to get rid of ratings.

Following an audit of a process, the auditee gets a rating or opinion on the progress they’ve made on fixing the process – the audit issue. Ratings methods differ; some employ colors.  Green generally means good while colors like yellow or orange mean “needs work” or “needs improvement;” red means things are bad and not being addressed at all. “I’ve never seen a red since I’ve been an auditor,” one member said at a recent virtual meeting of NeuGroup’s Internal Auditors’ Peer Group (IAPG).

Internal auditors use a variety ratings or opinions for their reporting, despite a trend of not using them.

There is a growing trend of internal audit departments moving away from using audit opinions, or ratings, to rate the progress of a mitigation effort. The idea is to focus on the audit issue itself and mitigate it. Despite this trend, many auditees and audit committee members are happy with the current system and push back against suggestions to get rid of ratings.

Following an audit of a process, the auditee gets a rating or opinion on the progress they’ve made on fixing the process – the audit issue. Ratings methods differ; some employ colors.  Green generally means good while colors like yellow or orange mean “needs work” or “needs improvement;” red means things are bad and not being addressed at all. “I’ve never seen a red since I’ve been an auditor,” one member said at a recent virtual meeting of NeuGroup’s Internal Auditors’ Peer Group (IAPG). 

In the meeting, members described their various rating scales – no two the same – and said in some cases they were asked to move away from them. One reason for this was that many of the functions being audited focused too much on the rating and not on the underlying issue. “The (audit) finding gets lost,” said one auditor. 

  • But auditors say they get pushback when they discuss moving away from ratings. “Execs like the overall rating because they don’t have to read the whole audit report,” said one IAPG member. Added another member, “Audit reports sometimes have too many pages. [AC members and executives] will read through them and then ask, ‘what’s important here?’ So the ratings and colors are needed.” 

And despite the industry effort to drop ratings, some IAPG members have actually added more rating categories to their scales. Several members who have three ratings for findings, typically along the lines of “satisfactory,” “needs improvement” and “ineffective” or “unsatisfactory,” have added more nuance. In a few cases they have split the middle rating, “needs improvement,” into “moderate improvement opportunity” and “needs significant improvement.” 

Language matters. Members also mentioned that there’s sometimes pushback over the language of ratings. 

  • For one member, the legal department made IA change the red rating “ineffective” to “major improvement needed.” This was because, in the case of a lawsuit, ineffective could be misconstrued and create a problem.
  • Another member mentioned that sometimes auditees, particularly millennials, take issue even if their mitigation efforts are good or get the top rating. In this member’s case, that rating is “satisfactory,” which to some ears sounds mediocre or worse. But the auditor said it’s not his job to say it’s anything more than that. 
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Goldman Sachs’ Bold Vision for Virtual Accounts and the Future of Cash Management

Goldman Sachs is entering the cutthroat and increasingly crowded world of corporate cash management determined to play the role of innovative disruptor—no easy task. A cornerstone of Goldman’s strategy is a product whose name is familiar to many corporate treasury professionals but that is not fully understood by all of them: virtual accounts.

That state of affairs has put Mark Smith, Goldman’s Transaction Banking head of global liquidity, on a mission to answer every question treasury teams have about virtual accounts, particularly as the bank has just launched its own Virtual Integrated Account (VIA) offering in the US, with plans to roll it out internationally later in 2020. “Virtual accounts are a foundational product for us and we’re conscious that awareness and understanding of them is inconsistent,” Mr. Smith says. “We’re here to change that.”

Goldman Sachs is entering the cutthroat and increasingly crowded world of corporate cash management determined to play the role of innovative disruptor—no easy task. A cornerstone of Goldman’s strategy is a product whose name is familiar to many corporate treasury professionals but that is not fully understood by all of them: virtual accounts.

That state of affairs has put Mark Smith, Goldman’s Transaction Banking head of global liquidity, on a mission to answer every question treasury teams have about virtual accounts, particularly as the bank has just launched its own Virtual Integrated Account (VIA) offering in the US, with plans to roll it out internationally later in 2020. “Virtual accounts are a foundational product for us and we’re conscious that awareness and understanding of them is inconsistent,” Mr. Smith says. “We’re here to change that.”

The Basics

Virtual accounts began in the Asia-Pacific region in the early 2000s and started being used extensively in Europe in the last 10 years. In the last five years, they’ve become more mature in Europe, where there is less dependency on cash. They’re a relatively new concept in the US, presenting Goldman with an opportunity to help corporate treasurers who are seeking more efficient liquidity solutions.

“At their most basic,” Mr. Smith says, “virtual accounts are simply a way of organizing and reporting data within a real bank account.” Traditionally, he explains, companies have organized cash flow information by having separate physical bank accounts. He cites an example of a corporate with 10 divisions, with each division having its own bank account; in this instance, the cash balance, incoming receipts and outgoing payments can be tracked for each. “But that means maintaining 10 bank accounts,” Mr. Smith says. One alternative is to have one bank account and tracking information on an Excel spreadsheet with 10 tabs. The trouble with the Excel model is that “correctly allocating the incoming receipts and outgoing payments can be time-consuming and error-prone.”

Unique Identifiers

Virtual accounts organize data within a bank account so that it looks as if it’s divided into mini-accounts or sub-ledgers (i.e., virtual accounts). Just like a real bank account, each virtual account has an opening balance, a closing balance, incoming receipts and outgoing payments. The key to achieving this is assigning a unique identifier to each incoming receipt and outgoing payment so that the bank’s VIA solution can attribute it to the correct virtual account, and in turn the bank account with which it is associated. These identifiers can be reference numbers, in which case each payment instruction needs to contain the real bank account number and the reference number.

Alternatively, the virtual account identifiers can be configured as a clearing-recognized account number, such as an International Bank Account Number or IBAN. This method means that the payment instruction only needs to contain the clearing-recognized account number; no additional reference number is required. When the bank receives the incoming payment, the VIA system automatically posts it to the relevant real bank account and (simultaneously) reflects it in the correct virtual account. Virtual accounts and the real account are always kept in sync.

Mr. Smith says the benefits of the reporting capability of virtual accounts have helped fuel their growth among corporates. This is particularly true in Europe, where many cite the typical treasury need for better control and visibility over cash and liquidity. But the potential of virtual accounts goes far beyond reporting and visibility.

Rationalization

Virtual accounts are a great tool for tackling the challenge of bank account and bank rationalization. Treasuries worldwide have witnessed a proliferation of bank accounts over the past several decades as customers and supply chains have expanded globally. This has brought with it the time and cost required to open and maintain all those accounts.

With virtual accounts, once the master physical account has been established, any number of virtual accounts can be opened—all with minimal additional documentation, if any. This will be one of the main features of Goldman‘s VIA offering. “The Goldman Sachs offering is self-service, putting the full power and flexibility of virtual accounts in the hands of the treasurer,” Mr. Smith says. This means treasurers “can effectively open and close virtual accounts instantly, and update hierarchies in real time. It’s a totally different experience to managing traditional bank accounts.

At their most basic virtual accounts are simply a way of organizing and reporting data within a real bank account.

In certain situations, virtual accounts can eliminate and replace real bank accounts, but with no loss of reporting detail. What’s more, Mr. Smith asserts that a virtual account could end up costing at most a tenth of what a traditional account would cost—and in many cases, virtual accounts may be free altogether. Consequently, rationalizing traditional accounts into virtual accounts should save both time and money.

Goldman Sachs’ offering can also function across ERP systems. This means users will have the ability to send information using all industry formats; it’s also API-enabled and integrated across all the firm’s product offerings, real time if required. This is unlike incumbent payment mechanisms, which many banks use, and which use a host-to-host connection or node. Moreover, once the SWIFT structure is implemented, it’s hard to change.

More than Just Accounts Receivable (AR)

Arguably the most documented use case for virtual accounts is in receivables management, which is how virtual accounts got started in Asia over a decade ago. Virtual accounts address an inherent problem with traditional receivables structures in which many receipts are received into one bank account, requiring significant manual intervention to reconcile.

Breaking up a traditional bank account into virtual accounts can, Mr. Smith says, drive much higher rates of straight-through reconciliation if, for example, one virtual account is assigned per client. Reconciling receipts vs. open accounts receivable in the one-to-one relationships in virtual accounts is, Goldman says, more straightforward than in the “many-to-one” relationships typical in traditional account structures.

Nikil Nanjundayya, Goldman’s Transaction Banking head of emerging products, says that using virtual accounts this way eliminates the need to dedicate personnel to manual reconciliation, resulting in potentially significant cost savings. Furthermore, faster reconciliation can mean faster cash application and better working capital availability. Faster reconciliation can even lead to a better client experience.

Payments/Receipts On Behalf Of (POBO/ROBO)

Virtual accounts also drive significant efficiencies within a given legal entity, but they can be a powerful on-behalf-of tool when applied to corporate structures, Mr. Smith says. Subsidiaries no longer need to maintain their own bank accounts. Instead, they can maintain virtual accounts with a parent entity or treasury center. In this case, the virtual account becomes an intercompany ledger, recording the parent entity’s or treasury center’s position with the subsidiary, as well as all the underlying transactions.

If a treasury center makes a payment on behalf of a subsidiary, that outgoing payment will bear the subsidiary’s virtual account number and will reflect simultaneously in that virtual account and post to the physical account. Incoming receipts similarly can be reflected on behalf of a subsidiary to the relevant virtual account.

Goldman Sachs’ offering can also function across ERP systems. This means users will have the ability to send information using all industry formats; it’s also API-enabled and integrated across all the firm’s product offerings, real time if required.

While virtual accounts can drive POBO/ROBO structures, clients will still need to organize their payment and receipt operations centrally. This may require a time investment up-front, but the time and cost savings of POBO/ROBO structures will be well worth it and are well documented.

Virtual accounts can therefore sit at the heart of an in-house bank. Here, Mr. Smith is keen to reiterate the advantage of the Goldman Sachs virtual account offering. “Goldman virtual accounts can be configured to be clearing-recognizable, which some other in-house bank solutions cannot,” he says. He adds that other “engines” for virtual accounts rely on reference numbers, but those numbers can be mistakenly omitted or transposed, resulting in the inefficiency of manual intervention.

Some European banks, and even European corporates, believe virtual account structures may be a convenient way to address regulatory pressure on notional pooling. In Europe, Basel III requires capital to be held against the gross assets in a notional pool, not the net position. This has made notional pooling more expensive for capital-intensive European banks, which are subject to the supplementary leverage ratio; it has even called into question the future of notional pooling altogether.

“Single currency notional pools can absolutely be replicated virtually,” Mr. Smith explains. This is done by assigning virtual accounts to subsidiaries within the same physical accounts, he says. Mr. Smith adds that individual virtual accounts can be overdrawn, but if the physical account maintains a positive balance, no overdraft charges are incurred. The virtual pool is also self-funding and self-collateralizing. Crucially, only the net balance on the physical deposit is reflected for general ledger and regulatory reporting—including capital reporting. “There’s no risk of gross-up as you have with a notional pool,” Mr. Smith says. Finally, pooling in this way doesn’t require cross guarantees as the bank faces only the one physical bank account.

Pooling Not Out Completely

Virtual multicurrency notional pools should also be possible through multicurrency virtual accounts, in which the parent physical account is denominated in one currency while the virtual accounts represent wallets in different currencies. The currency balance on the virtual accounts is translated into the nominal currency of the parent account but isn’t converted via any FX trade—they remain in source currency. The economics should be like a traditional multicurrency notional pool, where net negative balances are charged a cost-effective collateralized overdraft rate. But again, cross guarantees aren’t required as the bank faces the net position on the parent physical account.

Because cross guarantees aren’t required, virtual notional pooling should be significantly more straightforward to establish than traditional notional pooling. Theoretically, more clients should be able to benefit from the cheaper funding costs and lower FX fees as a result, Goldman argues.

There is one important difference between traditional notional pooling and virtual notional pooling. In a traditional notional pool, there are no intercompany balances between entities. In a virtual notional pool, all participating virtual accounts represent an intercompany relationship with the entity that owns the physical account. For some corporates, avoiding intercompany balances is an important objective in pooling. Such corporates will need to weigh the potential advantage of avoiding cross guarantees against any potential disadvantages of intercompany balances.

KYC Questions

Both banks and their corporate clients have wondered whether virtual accounts can ease the burden of know your customer (KYC) and anti-money laundering (AML) rules when physical accounts are replaced with virtual accounts. The use of virtual accounts may streamline customer onboarding obligations, with a focus on the customer—the physical accountholder. Still, it is reported that in South America, local regulations are requiring KYC by legal entity. “A certain level of due diligence will always be required on any participant in the US financial system, whether they participate physically or virtually,” Mr. Nanjundayya says.

Mr. Smith and Mr. Nanjundayya maintain that Goldman’s VIA is cutting-edge, and will continue to evolve, offering a best-in-class user experience, including full self-service capability as well as the ability to scale. As Mr. Nanjundayya explains, “Clients can open a million or more virtual accounts effective instantly themselves, should they need to—and to close them.” Further, he says, Goldman Sachs clients will be able to structure accounts into hierarchies and adjust those hierarchies using the same self-service capability. This ability to scale isn’t possible with traditional bank accounts, Mr. Nanjundayya says. Additionally, traditional cash structuring, including account opening, typically involves more engagement with the bank than is necessary with virtual structuring.

But Goldman doesn’t just want to be at the leading edge when it comes to virtual accounts; it wants to define that leading edge and drive it forward. “We are also future-proofing our product,” Mr. Nanjundayya asserts. While the bank is not willing to divulge specifics, Goldman’s offering will include capabilities expanding into FX, analytics, cross-border activity and even M&A management.

Virtual accounts drive significant efficiencies within a given legal entity, but they can also be a powerful on-behalf-of tool when applied to corporate structures.

It’s All About the User

Goldman Sachs believes that the benefits of virtual accounts can benefit all clients and that its offering is not a segment-specific solution. That means it is flexible and can be adapted to corporates that have a variety of use cases, i.e., different corporates will use the accounts in different ways. For example, a property manager may use them to track the cash flows for each building, while a software company may use them to manage developer payments.

Migrating to virtual accounts need only be as complex as changing bank accounts, although structuring them into more sophisticated solutions will need careful planning in partnership with the bank. However, the benefits of moving to virtual accounts should outweigh the costs many times over, Goldman says. In short, the bank says that virtual accounts should be at the heart of treasury transformation.

Transaction Banking is business of Goldman Sachs Bank USA (“GS Bank”) and its affiliates. GS Bank is a New York State chartered bank and a member of the Federal Reserve System and FDIC, as well as a swap dealer registered with the CFTC, and is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (“Goldman Sachs”). Transaction Banking services leverages the resources of multiple Goldman Sachs subsidiaries, subject to legal, internal and regulatory restrictions. Transaction Banking has compensated NeuGroup for their participation in the drafting of this white paper.   

© 2020 Goldman Sachs. All rights reserved.

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Financing the Fight Against COVID-19: Sustainability Bond Deals

Corporates and banks fuel gains in social and sustainability bond issuance amid the battle against the coronavirus.
 
The coronavirus pandemic may have dampened green bond issuance in the first quarter of 2020, but it has also pushed some corporates to use proceeds from sustainability bond offerings to help fight the virus. Case in point: Pfizer.

  • Heather Lang, executive director of sustainable finance solutions at ESG ratings firm Sustainalytics—which is being acquired by Morningstar—named Pfizer as one of the institutions using proceeds from recent sustainable debt deals to address the effects of COVID-19. She spoke at a recent NeuGroup meeting for assistant treasurers. Sustainalytics provided Pfizer with a so-called second-party opinion supporting the deal.
  • Pfizer—already in the process of preparing to issue a sustainability bond when the virus began—said some of the $1.25 billion in proceeds from its 10-year March offering will be used to “address the global COVID-19 pandemic and the threat of antimicrobial resistance.”

Corporates and banks fuel gains in social and sustainability bond issuance amid the battle against the coronavirus.
 
The coronavirus pandemic may have dampened green bond issuance in the first quarter of 2020, but it has also pushed some corporates to use proceeds from sustainability bond offerings to help fight the virus. Case in point: Pfizer.

  • Heather Lang, executive director of sustainable finance solutions at ESG ratings firm Sustainalytics—which is being acquired by Morningstar—named Pfizer as one of the institutions using proceeds from recent sustainable debt deals to address the effects of COVID-19. She spoke at a recent NeuGroup meeting for assistant treasurers. Sustainalytics provided Pfizer with a so-called second-party opinion supporting the deal.
  • Pfizer—already in the process of preparing to issue a sustainability bond when the virus began—said some of the $1.25 billion in proceeds from its 10-year March offering will be used to “address the global COVID-19 pandemic and the threat of antimicrobial resistance.”

Big Picture. Sustainalytics, according to its slide presentation, has expanded its “internal taxonomy to explicitly identify potential use of proceeds related to the virus, targeting two main areas – healthcare and socio-economic impact mitigation.”

  • Sustainalytics said, “Social bonds are ideal instruments for allocating capital to specific groups impacted by the pandemic and/or the wider population impacted by the economic crisis,” one reason that “there has been an uptick in social and sustainability bond issuance since the COVID-19 outbreak.”
  • In mid-May, Bank of America issued a $1 billion bond aimed at financing not-for-profit hospitals, skilled nursing facilities, and manufacturers of health care equipment and supplies.
  • At the time of that deal, Bloomberg reported that borrowers globally had raised a record $102.6 billion of debt this year to combat the coronavirus including development banks, sovereigns and corporates. It reported that Chinese companies have issued the most so-called pandemic bonds.

Multiple uses of proceeds. During the meeting, one NeuGroup member said that public bond offerings are inherently sizable, “so unless you have major sustainability projects, it’s kind of hard” to use all the proceeds for environmental, social or governance activities.

  • But Ms. Lang pointed out that proceeds from one offering can be allocated to multiple uses.
  • For example, she said, a company could use the money for a pair of renewable energy projects, a Leadership in Energy and Environmental Design (LEED)-certified headquarters office, and several social initiatives. “It doesn’t all have to go into one bucket.” 

Loans are the rage. Volume in the fastest-growing segment of the sustainability market, ESG-linked loans, leapt 168% over the last two years, exceeding $122 billion last year. One big draw: They offer the flexibility to use the proceeds for general corporate purposes.

  • They’re designed to promote the pursuit of sustainability goals by linking the interest rate on the loan to the achievement of those goals.
  • They’re available to investment grade and non-investment grade companies, including “browner” companies not previously eligible for an ESG bond, Ms. Lang said. They can be structured as revolvers, term loans, bilateral or syndicated.

She said Sustainalytics has recently worked on transactions for shipping companies, which struggled to enter the green market but have “a lot of potential for reducing carbon emissions for their fleets.”

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Founder’s KTAs from NeuGroup for European Treasury Peer Group 2020 H1 Meeting

By Joseph Neu
 
The European Treasury Peer Group 2020 H1 meeting took place last week, sponsored by HSBC. Here are some takeaways that I wanted to share:
 
COVID-19 validates regional treasury centers. HSBC said the case for regional treasury centers has been further validated by the pandemic. In comments on how clients have shown resilience and are preparing for markets to reopen, the bank noted the importance of real-time global exposure information, including a centralized liquidity and risk management framework; but also critical is the existence of treasury hubs to execute in regional markets.

By Joseph Neu
 
The European Treasury Peer Group 2020 H1 meeting took place last week, sponsored by HSBC. Here are some takeaways that I wanted to share:
 
COVID-19 validates regional treasury centers. HSBC said the case for regional treasury centers has been further validated by the pandemic. In comments on how clients have shown resilience and are preparing for markets to reopen, the bank noted the importance of real-time global exposure information, including a centralized liquidity and risk management framework; but also critical is the existence of treasury hubs to execute in regional markets. 

  • The value of regional centers stems from the need for MNCs to be agile and respond quickly in the new normal. That’s because the predictability of cash flows, FX markets and thus exposures are substantially diminished. So are the diversification of risk portfolios, natural hedges and the capacity to take risk more generally.
  • One result is that the comfort zone in which treasurers can wait for local context to get relayed to headquarters and for risk managers there to respond is likely to be gone for a while. 

Work from home works. All members reported that working from home (WFH) has worked well and better than expected. But some participants admitted to missing the office. Two reasons:

  • The ability to communicate on small things without scheduling a phone call or web conference is a disadvantage of WFH. 
  • Onboarding and training new hires remotely remains a big challenge. 

At the next meeting, members will share how their plans to return to the office have evolved. Most expect the additional flexibility of working remotely to persist post-pandemic. How this plays out for regional centers located in tax advantaged locations with substance requirements will be something to watch.
 
The virtues of virtual accounts. Two members shared rollouts of virtual account (VA) projects in EMEA. All members noted that their banks have been selling them hard.

  • The tangible advantage described so far is for companies with multiple ERPs, since virtual accounts allow them to identify payments and separate account statements, helping to automate posting and reconciliation across various systems.
  • VAs can bring more efficiency to liquidity sweeping arrangements with fewer accounts to manage and audit. 

Tax departments at several member companies are leery of assigning virtual accounts to multiple entities, which would help transform pay-on-behalf-of and receive-on-behalf-on structures, and allow in-house banks to fully leverage them. But the bottom line is that virtual account penetration in EMEA continues. 

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C2FO Showcases Scope Expansion to AT Leaders

Working Capital Cycle

By Joseph Neu

C2FO sponsored our recent Assistant Treasurers’ Leadership Group Meeting on Zoom. Their scope expansion, which is indicative of ways working capital platforms can support business ecosystems in this crisis, is my first of three takeaways from that meeting.

Working capital platforms expand their scope. Platforms such as C2FO’s focusing on intermediating between buyers with access to capital and a wide range of suppliers with working capital needs have a vital role to play in this pandemic.

  • C2FO is focusing on bringing more small and medium-sized businesses to their platform to better access working capital.
  • They can use their platform to connect suppliers with buyers in a position to offer early payment directly in reaction to the Covid-19 triggered economic downturn or to connect suppliers with their buyers’ banks and other financial providers to fund their working capital using the buyer’s superior credit.
  • C2FO is also advocating for government stimulus aimed at small businesses to get channeled through its platform.
  • Finally, to get access to working capital sooner, platforms are looking to offer pre-invoice, or purchase order financing in response to this crisis.

Either way, C2FO says, firms helping suppliers with earlier payment are generating stickiness and loyalty.

By Joseph Neu

C2FO sponsored our recent Assistant Treasurers’ Leadership Group Meeting on Zoom. Their scope expansion, which is indicative of ways working capital platforms can support business ecosystems in this crisis, is my first of three takeaways from that meeting.

Working capital platforms expand their scope. Platforms such as C2FO’s focusing on intermediating between buyers with access to capital and a wide range of suppliers with working capital needs have a vital role to play in this pandemic.

  • C2FO is focusing on bringing more small and medium-sized businesses to their platform to better access working capital.
  • They can use their platform to connect suppliers with buyers in a position to offer early payment directly in reaction to the Covid-19 triggered economic downturn or to connect suppliers with their buyers’ banks and other financial providers to fund their working capital using the buyer’s superior credit.
  • C2FO is also advocating for government stimulus aimed at small businesses to get channeled through its platform.
  • Finally, to get access to working capital sooner, platforms are looking to offer pre-invoice, or purchase order financing in response to this crisis.

Either way, C2FO says, firms helping suppliers with earlier payment are generating stickiness and loyalty.

Insurance renewals won’t be fun. Several members noted working on insurance renewal projects and hearing from peers that it is a nightmare, with premiums going higher for less coverage, starting with D&O. 

  • In response members are working more closely with their brokers, even changing brokers to seek better advice, as well as focusing internal risk teams on coming up with solutions. 

Bond economics are key to positive bank relationships. In a session where members narrated their recent bond deals to shore up liquidity for the crisis, all mentioned more attention than ever being paid to using bond economics to reward banks:

  • in the RCF,
  • who indicated a willingness to step up with new lending, or
  • who had helped advise on pre-crisis capital structure and capital plans.

There was also attention paid to familiar faces who had been actives on a bond deal with them before, given that everyone had to do this remotely.

  • Passives who lost out due to this “familiar-faces” bias, might also have gotten some make up money.

Such is the importance of bond economics to bank relationships these days.

Stay safe and well.

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Goldman Sachs’ Bold Vision for Virtual Accounts and the Future of Cash Management

As it enters the corporate cash management market, Goldman looks to revolutionize virtual accounts with better tech, more familiarization and streamlined processes.

Goldman Sachs is entering the cutthroat and increasingly crowded world of corporate cash management determined to play the role of innovative disruptor—no easy task. A cornerstone of Goldman’s strategy is a product whose name is familiar to many corporate treasury professionals but that is not fully understood by all of them: virtual accounts.

That state of affairs has put Mark Smith, Goldman’s Transaction Banking head of global liquidity, on a mission to answer every question treasury teams have about virtual accounts, particularly as the bank has just launched its own Virtual Integrated Account (VIA) offering in the US, with plans to roll it out internationally later in 2020. “Virtual accounts are a foundational product for us and we’re conscious that awareness and understanding of them is inconsistent,” Mr. Smith says. “We’re here to change that.”

As it enters the corporate cash management market, Goldman looks to revolutionize virtual accounts with better tech, more familiarization and streamlined processes.

Goldman Sachs is entering the cutthroat and increasingly crowded world of corporate cash management determined to play the role of innovative disruptor—no easy task. A cornerstone of Goldman’s strategy is a product whose name is familiar to many corporate treasury professionals but that is not fully understood by all of them: virtual accounts.

That state of affairs has put Mark Smith, Goldman’s Transaction Banking head of global liquidity, on a mission to answer every question treasury teams have about virtual accounts, particularly as the bank has just launched its own Virtual Integrated Account (VIA) offering in the US, with plans to roll it out internationally later in 2020. “Virtual accounts are a foundational product for us and we’re conscious that awareness and understanding of them is inconsistent,” Mr. Smith says. “We’re here to change that.”

The Basics
Virtual accounts began in the Asia-Pacific region in the early 2000s and started being used extensively in Europe in the last 10 years. In the last five years, they’ve become more mature in Europe, where there is less dependency on cash. They’re a relatively new concept in the US, presenting Goldman with an opportunity to help corporate treasurers who are seeking more efficient liquidity solutions.

“At their most basic,” Mr. Smith says, “virtual accounts are simply a way of organizing and reporting data within a real bank account.” Traditionally, he explains, companies have organized cash flow information by having separate physical bank accounts. He cites an example of a corporate with 10 divisions, with each division having its own bank account; in this instance, the cash balance, incoming receipts and outgoing payments can be tracked for each. “But that means maintaining 10 bank accounts,” Mr. Smith says. One alternative is to have one bank account and tracking information on an Excel spreadsheet with 10 tabs. The trouble with the Excel model is that “correctly allocating the incoming receipts and outgoing payments can be time-consuming and error-prone.”

Unique Identifiers
Virtual accounts organize data within a bank account so that it looks as if it’s divided into mini-accounts or sub-ledgers (i.e., virtual accounts). Just like a real bank account, each virtual account has an opening balance, a closing balance, incoming receipts and outgoing payments. The key to achieving this is assigning a unique identifier to each incoming receipt and outgoing payment so that the bank’s VIA solution can attribute it to the correct virtual account, and in turn the bank account with which it is associated. These identifiers can be reference numbers, in which case each payment instruction needs to contain the real bank account number and the reference number.

Alternatively, the virtual account identifiers can be configured as a clearing-recognized account number, such as an International Bank Account Number or IBAN. This method means that the payment instruction only needs to contain the clearing-recognized account number; no additional reference number is required. When the bank receives the incoming payment, the VIA system automatically posts it to the relevant real bank account and (simultaneously) reflects it in the correct virtual account. Virtual accounts and the real account are always kept in sync.

Mr. Smith says the benefits of the reporting capability of virtual accounts have helped fuel their growth among corporates. This is particularly true in Europe, where many cite the typical treasury need for better control and visibility over cash and liquidity. But the potential of virtual accounts goes far beyond reporting and visibility.

Rationalization
Virtual accounts are a great tool for tackling the challenge of bank account and bank rationalization. Treasuries worldwide have witnessed a proliferation of bank accounts over the past several decades as customers and supply chains have expanded globally. This has brought with it the time and cost required to open and maintain all those accounts.

With virtual accounts, once the master physical account has been established, any number of virtual accounts can be opened—all with minimal additional documentation, if any. This will be one of the main features of Goldman‘s VIA offering. “The Goldman Sachs offering is self-service, putting the full power and flexibility of virtual accounts in the hands of the treasurer,” Mr. Smith says. This means treasurers “can effectively open and close virtual accounts instantly, and update hierarchies in real time. It’s a totally different experience to managing traditional bank accounts.”

In certain situations, virtual accounts can eliminate and replace real bank accounts, but with no loss of reporting detail. What’s more, Mr. Smith asserts that a virtual account could end up costing at most a tenth of what a traditional account would cost—and in many cases, virtual accounts may be free altogether. Consequently, rationalizing traditional accounts into virtual accounts should save both time and money.

Goldman Sachs’ offering can also function across ERP systems. This means users will have the ability to send information using all industry formats; it’s also API-enabled and integratedacross all the firm’s product offerings, real time if required. This is unlike incumbent payment mechanisms, which many banks use, and which use a host-to-host connection or node. Moreover, once the SWIFT structure is implemented, it’s hard to change.

More than Just Accounts Receivable (AR)
Arguably the most documented use case for virtual accounts is in receivables management, which is how virtual accounts got started in Asia over a decade ago. Virtual accounts address an inherent problem with traditional receivables structures in which many receipts are received into one bank account, requiring significant manual intervention to reconcile.

Breaking up a traditional bank account into virtual accounts can, Mr. Smith says, drive much higher rates of straight-through reconciliation if, for example, one virtual account is assigned per client. Reconciling receipts vs. open accounts receivable in the one-to-one relationships in virtual accounts is, Goldman says, more straightforward than in the “many-to-one” relationships typical in traditional account structures.

Nikil Nanjundayya, Goldman’s Transaction Banking head of emerging products, says that using virtual accounts this way eliminates the need to dedicate personnel to manual reconciliation, resulting in potentially significant cost savings. Furthermore, faster reconciliation can mean faster cash application and better working capital availability. Faster reconciliation can even lead to a better client experience.

Payments/Receipts On Behalf Of (POBO/ROBO)
Virtual accounts also drive significant efficiencies within a given legal entity, but they can be a powerful on-behalf-of tool when applied to corporate structures, Mr. Smith says. Subsidiaries no longer need to maintain their own bank accounts. Instead, they can maintain virtual accounts with a parent entity or treasury center. In this case, the virtual account becomes an intercompany ledger, recording the parent entity’s or treasury center’s position with the subsidiary, as well as all the underlying transactions.

If a treasury center makes a payment on behalf of a subsidiary, that outgoing payment will bear the subsidiary’s virtual account number and will reflect simultaneously in that virtual account and post to the physical account. Incoming receipts similarly can be reflected on behalf of a subsidiary to the relevant virtual account.

While virtual accounts can drive POBO/ROBO structures, clients will still need to organize their payment and receipt operations centrally. This may require a time investment up-front, but the time and cost savings of POBO/ROBO structures will be well worth it and are well documented.

Virtual accounts can therefore sit at the heart of an in-house bank. Here, Mr. Smith is keen to reiterate the advantage of the Goldman Sachs virtual account offering. “Goldman virtual accounts can be configured to be clearing-recognizable, which some other in-house bank solutions cannot,” he says. He adds that that other “engines” for virtual accounts rely on reference numbers, but those numbers can be mistakenly omitted or transposed, resulting in the inefficiency of manual intervention.

Some European banks, and even European corporates, believe virtual account structures may be a convenient way to address regulatory pressure on notional pooling. In Europe, Basel III requires capital to be held against the gross assets in a notional pool, not the net position. This has made notional pooling more expensive for capital-intensive European banks, which are subject to the supplementary leverage ratio; it has even called into question the future of notional pooling altogether.

“Single currency notional pools can absolutely be replicated virtually,” Mr. Smith explains. This is done by assigning virtual accounts to subsidiaries within the same physical accounts, he says. Mr. Smith adds that individual virtual accounts can be overdrawn, but if the physical account maintains a positive balance, no overdraft charges are incurred. The virtual pool is also self-funding and self-collateralizing. Crucially, only the net balance on the physical deposit is reflected for general ledger and regulatory reporting—including capital reporting. “There’s no risk of gross-up as you have with a notional pool,” Mr. Smith says. Finally, pooling in this way doesn’t require cross guarantees as the bank faces only the one physical bank account.

Pooling Not Out Completely
Virtual multicurrency notional pools should also be possible through multicurrency virtual accounts, in which the parent physical account is denominated in one currency while the virtual accounts represent wallets in different currencies. The currency balance on the virtual accounts is translated into the nominal currency of the parent account but isn’t converted via any FX trade—they remain in source currency. The economics should be like a traditional multicurrency notional pool, where net negative balances are charged a cost-effective collateralized overdraft rate. But again, cross guarantees aren’t required as the bank faces the net position on the parent physical account.

Because cross guarantees aren’t required, virtual notional pooling should be significantly more straightforward to establish than traditional notional pooling. Theoretically, more clients should be able to benefit from the cheaper funding costs and lower FX fees as a result, Goldman argues.

There is one important difference between traditional notional pooling and virtual notional pooling. In a traditional notional pool, there are no intercompany balances between entities. In a virtual notional pool, all participating virtual accounts represent an intercompany relationship with the entity that owns the physical account. For some corporates, avoiding intercompany balances is an important objective in pooling. Such corporates will need to weigh the potential advantage of avoiding cross guarantees against any potential disadvantages of intercompany balances.

KYC Questions
Both banks and their corporate clients have wondered whether virtual accounts can ease the burden of know your customer (KYC) and anti-money laundering (AML) rules when physical accounts are replaced with virtual accounts. The use of virtual accounts may streamline customer onboarding obligations, with a focus on the customer—the physical accountholder. Still, it is reported that in South America, local regulations are requiring KYC by legal entity. “A certain level of due diligence will always be required on any participant in the US financial system, whether they participate physically or virtually,” Mr. Nanjundayya says.

Mr. Smith and Mr. Nanjundayya maintain that Goldman’s VIA is cutting-edge, and will continue to evolve, offering a best-in-class user experience, including full self-service capability as well as the ability to scale. As Mr. Nanjundayya explains, “Clients can open a million or more virtual accounts effective instantly themselves, should they need to—and to close them.” Further, he says, Goldman Sachs clients will be able to structure accounts into hierarchies and adjust those hierarchies using the same self-service capability. This ability to scale isn’t possible with traditional bank accounts, Mr. Nanjundayya says. Additionally, traditional cash structuring, including account opening, typically involves more engagement with the bank than is necessary with virtual structuring.

But Goldman doesn’t just want to be at the leading edge when it comes to virtual accounts; it wants to define that leading edge and drive it forward. “We are also future-proofing our product,” Mr. Nanjundayya asserts. While the bank is not willing to divulge specifics, Goldman’s offering will include capabilities expanding into FX, analytics, cross-border activity and even M&A management.

It’s All About the User
Goldman Sachs believes that the benefits of virtual accounts can benefit all clients and that its offering is not a segment-specific solution. That means it is flexible and can be adapted to corporates that have a variety of use cases, i.e., different corporates will use the accounts in different ways. For example, a property manager may use them to track the cash flows for each building, while a software company may use them to manage developer payments.

Migrating to virtual accounts need only be as complex as changing bank accounts, although structuring them into more sophisticated solutions will need careful planning in partnership with the bank. However, the benefits of moving to virtual accounts should outweigh the costs many times over, Goldman says. In short, the bank says that virtual accounts should be at the heart of treasury transformation.  

Transaction Banking is business of Goldman Sachs Bank USA (“GS Bank”) and its affiliates. GS Bank is a New York State chartered bank and a member of the Federal Reserve System and FDIC, as well as a swap dealer registered with the CFTC, and is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (“Goldman Sachs”). Transaction Banking services leverages the resources of multiple Goldman Sachs subsidiaries, subject to legal, internal and regulatory restrictions. Transaction Banking has compensated NeuGroup for their participation in the drafting of this white paper.  

© 2020 Goldman Sachs. All rights reserved.

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How Corporates Tapping Capital Markets Use Minority and Diversity Firms

NeuGroup members discuss benefits, challenges and process as treasury promotes diversity and inclusion.  

Many treasury teams at multinational corporations strive to include firms owned by women, people of color and disabled veterans when selling debt, buying back stock or issuing commercial paper. At a recent NeuGroup meeting focusing on capital markets, members shared their insights on the process of including minority and diversity firms in various transactions.

Formalize the process. The member who kicked off the discussion described her company’s path toward formalizing the process of using minority and diversity firms to underwrite bond deals. Using diversity firms as junior managers initially encountered resistance from some lead managers who declined to fill their orders, she said. But in 2013 the company mandated the inclusion of five to six of the firms in each debt issue, allocating 1% to 2% of the bonds to them.

NeuGroup members discuss benefits, challenges and process as treasury promotes diversity and inclusion.  

Many treasury teams at multinational corporations strive to include firms owned by women, people of color and disabled veterans when selling debt, buying back stock or issuing commercial paper. At a recent NeuGroup meeting focusing on capital markets, members shared their insights on the process of including minority and diversity firms in various transactions.

Formalize the process. The member who kicked off the discussion described her company’s path toward formalizing the process of using minority and diversity firms to underw