EuroFinance

In today’s high-interest-rate environment, multinational companies are increasingly focusing on developing in-house banking capabilities to optimise internal liquidity. Treasurers are collaborating closely with strategic partners to streamline payments, collections, and intercompany loans, ensuring efficient financial management across subsidiaries. Equinor, a global energy company specialising in oil, gas, and renewable energy solutions, is at the forefront of this trend. By leveraging advanced ERP and TMS technologies, Equinor is enhancing its in-house banking platform to improve liquidity management and strengthen its financial operations worldwide.

At the 2024 EuroFinance International Treasury Management conference in Copenhagen, Lena Myklebust, Head of cash management infrastructure at Equinor shared valuable insights and strategies for developing in-house banking capabilities, emphasising that establishing effective in-house banking facilities necessitates close collaboration between treasurers and internal strategic business partners. 

The need for change

In the late nineties, Equinor was experiencing rapid growth, expanding into new markets and establishing operations in various countries. However, this expansion came with challenges, As the company had numerous banking partners spread across different regions, this created inefficiencies and drove up costs. Additionally, Equinor’s treasury and accounting functions were fragmented, with local autonomy prevalent in various subsidiaries. “We had different payment types, multiple bank accounts, and large cash swings,” explained Myklebust. “There was no zero balancing or cash pooling structure, so getting cash back to the headquarters was difficult.”

At that time, Equinor recognised that a unified system was crucial to centralising operations and reducing the complexities associated with multiple banking relationships. This was the catalyst for implementing an in-house bank and overhauling their treasury processes.

The project vision: streamlining treasury

The primary driver of the project was to optimise global financial operations, and the critical first step was selecting a unified ERP (Enterprise Resource Planning) and TMS (Treasury Management System).. “We rolled out SAP, entity by entity and country by country. It became our main ERP system and also integrated our treasury functions into a centralised system,” noted Myklebust.

Equinor then was able to centralise payments and introduce a payment factory to streamline payment processing. This system enabled the company to adopt standardised payment formats, centralise operations, and significantly improve payment security. A key motivating factor for senior management was a fraud attempt that highlighted the need for a more secure payment infrastructure. “The incident raised awareness about the importance of secure payment processing, which drove home the need for this project,” said Myklebust.

The implementation of the in-house bank allowed Equinor to centralise and manage intercompany payments more efficiently. This innovation resulted in a 100% reconciliation match and reduced operational risks. “With an in-house bank, we eliminated the need for external banking services for intercompany payments, which also helped us cut costs,” Myklebust explained.

Another vital aspect of the project was setting up a global zero-balancing cash pool structure. Equinor selected core cash management banks and implemented cash pools in the major currencies where it operated. “This structure allowed us to centralise cash on top accounts daily, which significantly improved our liquidity management,” says Myklebust.

In addition to the in-house bank and cash pooling, Equinor also centralised all payment and treasury operations within a single shared service centre. This team oversees daily payment flows, cash reconciliation, and cash forecasting for the entire company. “This centralised approach gives us a comprehensive view of our liquidity and allows us to manage payments efficiently and securely,” she added.

Overcoming challenges

As with any major project, Equinor faced several challenges during the implementation of its in-house bank. One of the biggest hurdles was convincing the organisation, particularly the local subsidiaries, to relinquish their autonomy. “Convincing the local business units to adopt a centralised system was not easy,” Myklebust recalled. “But with the support of senior management, including the CFO, we were able to push the project forward.”

Another challenge was mapping out the payment infrastructure and establishing the necessary connectivity with banks. “This remains a challenge today, especially in countries with unique payment infrastructures or restrictions on cross-border transactions,” said Myklebust. Despite these challenges, Equinor successfully partnered with its banks and consultants to overcome the technical obstacles and build a robust system.

Achievements and benefits

The benefits of building an in-house bank and centralising treasury operations were substantial. The project resulted in annual savings of $3.5 million and had a payback period of just 18 months. “It was a smart decision, and the results speak for themselves,” said Myklebust.

In addition to cost savings, Equinor achieved more efficient liquidity management by concentrating cash in centralised accounts. The centralised treasury organisation provided a clear, group-wide view of the company’s cash position, making it easier to manage liquidity and reduce risks. “Having a common ERP platform for all entities made managing transaction flows, accounting, and other treasury processes much more straightforward,” Myklebust noted

The payment factory, which handles all payment flows, helped reduce the number of interfaces with external banks and improved the security and compliance of payment processing. Meanwhile, the in-house bank allowed for efficient intercompany payment handling, cutting external banking costs and enhancing automation. “Reducing our reliance on external banks for intercompany payments was a big win,” said Myklebust.

A lasting legacy

Equinor’s in-house bank has stood the test of time. “Even today, we still operate the same centralised model for treasury and payments,” Myklebust added. “The centralised payment processing, the zero-balancing cash pool structure, and the in-house bank continue to be the backbone of our treasury operations.”

One of the most critical success factors of the project, according to Myklebust, was the competence of the team involved. “We had experts in-house who understood both the business and the systems, and that made all the difference,” she emphasises. The collaboration with banks, consultants, and SAP was also key to the project’s success.

Today, Equinor continues to build on the achievements of this pioneering project, demonstrating that a well-executed treasury transformation can deliver lasting benefits.