• cash pooling
  • ISO 20022
  • payments factory

The Road to Consolidation

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By consolidating its EMEA banking structure, FCA has automated and streamlined cash management – with benefits ranging from cost savings to harmonised terms and conditions.

by Rebecca Brace

Published: 21 September 2020

Fiat Chrysler Automobiles Group (FCA), the global carmaker that owns numerous brands ranging from Dodge and Jeep to Maserati sports cars, might be expected to use dozens of banks as well. But following a decisive move towards consolidation, the group’s European operation consolidated almost everything to a single bank relationship, slashing fees and freeing up cash.

Before and after

In the past, FCA had worked with local banks in each of its countries of operation. As a result, the daily centralisation of cash in EMEA was a manual undertaking, with funds coming from around 15 different banks across 20 countries, in six different currencies. This fragmented structure resulted in a number of challenges: FCA was unable to leverage economies of scale with individual banks, while documentation was difficult to negotiate and maintain. “Every time we had to make a change, it had to be defined across a large number of counterparties,” says Enrico Zecchini, Head of Treasury Operations at Fiat Chrysler Automobiles NV.

Where bank connectivity was concerned, the company was using XML files sent over the SWIFT network for the execution of payments and receipts, with FIS TRAX acting as a connectivity tool. But again, every change had to be defined and tested for all 15 banks.

Consequently, FCA set out to appoint a single bank to cover all the relevant countries, while also harmonising terms and conditions across those countries. “The target was to have common documentation serving all the various countries – so basically having a master agreement, and then some addendum with some specification for each of the countries,” says Zecchini. “And in terms of bank connectivity, to make one implementation that would work across Europe.”

For FCA, which reported cash and cash equivalents of €15 billion in 2019, another goal was to overhaul and simplify the model used to concentrate cash, both by automating the process and by taking advantage of the ability to offset positive and negative balances in different countries. In addition, the company planned to design an effective, scalable in-house bank using a payments-on-behalf-of and collections-on-behalf-of model, and leveraging virtual accounts.

At the outset, Zecchini says there was some uncertainty about moving to a single-bank model, adding that while the company’s North American operations are managed centrally by J.P. Morgan, Europe presents a more complex landscape.

“When we did some preliminary benchmarking, we did not find many large corporates choosing to manage all their cash management operations with one single bank provider for the whole of Europe,” he says, noting that many large groups were using a multi-bank approach, while others had rationalised their structure just for one currency, or just for Northern Europe. Similarly, none of the banks invited to participate in the request for proposal (RFP) had a project of this magnitude, scope and complexity in their pipelines.

Consolidation and automation

Following the RFP, FCA appointed Citi to create a new banking structure that would consolidate over 95% of the company’s EMEA banking services with a single bank – an exercise which involved opening around 150 bank accounts, as well as onboarding 15 country units and more than 100 subsidiaries. As a result, FCA has been able to harmonise pricing, terms and conditions and account opening across 15 countries.

Putting the new structure in place was a sizeable undertaking. “We had to go country by country, company by company, opening new accounts, establishing the new connectivity and cash pooling and setting up the new payments factory,” says Zecchini. “Culturally, we also had to demonstrate to the various companies that they could manage 95% of their transaction business, including payroll, with one bank partner, instead of with their previous domestic providers.”

Where liquidity is concerned, the new structure includes automated multicurrency cash pooling, which allows FCA to centralise all currencies in its London-based regional treasury centre. Also included is a regional payment and collection factory, which uses host-to-host connectivity based on SWIFT ISO XML 20022 messages. Around 100 virtual accounts are used to enhance reconciliation across multiple payment intermediaries, with each intermediary paying into a separate ID linked to the company’s main accounts.

On the payments side, rolling out the solution involved some sensitivity, as the scope included payroll payments for 70,000 employees in Italy, as well as 10,000 in other European countries. “This involved sitting down with the local teams and demonstrating that we could manage this with a new bank partner, without disruption,” says Zecchini.

The benefits

Among the benefits of the solution is a 40% reduction in FCA’s transaction banking costs, which has been achieved by a reduction in fees, as well as in the number of bank accounts, communication channels and file formats in use.

Indirect cost savings have also been made by streamlining cash management processes across the countries in scope, while FTE efficiencies have been achieved across 15% of the workforce previously engaged in cash management activities. By connecting FIS TRAX to the bank’s system, FCA has achieved straight-through processing and reconciliation, thereby eliminating manual processes. In addition, automatically concentrating liquidity has enabled the company to increase the availability of cash in EMEA from 85% to 95% – an improvement of around €200-300 million.

“Another big advantage is that from a documentation perspective, opening, closing or making any change to our bank accounts is now much faster because we have a single team to deal with instead of 15 different banks,” Zecchini comments. “Having visibility over all these accounts is even more important than the cost savings – and we have more control, because we can immediately see who our users are.”

Last but not least, Zecchini says the new set up has left the treasury better prepared to face the challenges brought by Covid-19. With more effective cash consolidation, the company is better placed to make investment decisions – “so this project has really helped us in meeting the constraints of the Covid-19 liquidity crisis,” Zecchini concludes.

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