Global Cash Management in Europe

GlobalCash-Europe96 was the second pan-European study of large corporations and non-bank financial institutions’ cash management and electronic banking practices. EuroCash94 was undertaken by The Bank Relationship Consultancy and Cranfield University School of Management in 1994. For this, the second survey in 1996, The Consultancy worked with the School of Management at the University of Bath.

Breaches of security in computer-based treasury systems (CTSs)¹ which result in losses are believed to go largely unreported because companies fear the adverse publicity of such incidents. Price Waterhouse (1994) suggest that approximately 20 per cent of major companies have suffered some direct loss as a result of failure of computer control and security systems. Another 10 per cent have suffered consequential losses and a further 35 per cent have suffered both. If this trend is indicative of all computer users, then 65 per cent of UK computer installations have experienced some financial loss in recent years. The causes of these losses are often found to be natural hazards, systems failures or errors. Nevertheless, around 10 per cent relates to the theft of confidential information and a further 10 per cent to fraud. It should also be said that a pound lost is a pound lost, whether it arises from intentional fraud or unintentional error.

Over the past few years, competition between European banks for corporate customers has become increasingly tough. There are many reasons for this tendency. On the one hand, there has been more intense competition from American banks that are targeting and opening up new markets. On the other hand, within companies, financial management and cash management developments can be observed that influence the nature and standards of product services delivered by banks.

The financial systems in Central and Eastern Europe have been completely transformed in the last decade, and continue on a path of radical change to a market-based system. The importance of the region, as well as advances in its banking markets, is reflected in the inclusion of Poland, Hungary and the Czech Republic in GlobalCash-Europe96 for the first time.

This chapter utilises data taken from GlobalCash-Europe96, with particular emphasis upon the largest European and Scandinavian companies. The chapter sets out to describe what practices one would expect such companies to be undertaking and then compares these expectations with actual practice in the UK, Sweden, Scandinavia and Europe.

Market segmentation is one of the most fundamental concepts in business. Rather than being treated as one homogeneous mass, customers are grouped by particular characteristics and then targeted with tailored marketing offerings in the hope that a more focused approach generates a more favourable response. Wind and Cardozo (1974, p. 155) summarised the nature of the market segment as: ‘A market segment is a group of present or potential customers with some common characteristic which is relevant in explaining (and predicting) their response to a supplier’s marketing stimuli’. Whilst the concept is simple, its successful implementation is not always so straightforward in many types of organisation. Industrial marketers, such as cash management banks, may argue that the concept and its related techniques are fine for mass markets, for retail banking and financial services, for the emotional and irrational domestic purchaser. For the cash management bank, segmentation may be seen as irrelevant as each customer may be seen as a distinct ‘segment’ in their own right, as Evans (1994, p. 329) states: ‘the trend in segmentation is towards closer relationships with customers — even on a personalised basis’, which he set in the context of the increased use of databases in fast moving consumer goods marketing. The cash management bank may concur with this statement in the context of their individual relationships with large and unique (in terms of many of their most important characteristics) customers.

At present most European banks can only be considered domestic banks in the sense that they are operating in one country only. However, this situation is changing because the integration of Europe makes borders less important, and both the banks and their customers tend to become more internationally oriented. Further, the European banking sector is becoming more concentrated and many banks must consider not only their home market but also the whole of Europe as the potential market.

What criteria do companies and non-banking financial institutions use to choose their domestic cash management bank(s)? Are there differences in these criteria across different countries? Which countries have like and dissimilar patterns of criteria in their choice of domestic cash management bank?

The purpose of this chapter is to analyse the development of cash management services within the broad field of the bank/customer relationship, using data from the GlobalCash-Europe96 survey. This kind of analysis is important because it may give empirical support to theoretical studies on bank/customer relationships.

In Chapter 8, ‘service quality’ was shown to be the most important criteria in allocating business between domestic cash management banks. Service quality in Chapter 8 was not treated as a single criterion but was shown to have strong connections to technology, reputation and commitment. The question in GlobalCash-Europe96 that allowed such an analysis covered broad headings of service delivery but was not targeted specifically at the nature of service quality. Fortunately, specific questions were asked in GlobalCash-Europe96 about the importance of specific quality issues and how banks were rated on the quality of their staff expertise. Analyses of these question areas help to build an understanding of the nature of service quality delivered by domestic cash management banks, and go beyond stating that it is the most important choice criterion.

In Chapter 10, it was contended that, as the cash manager works in specific cultural and industrial contexts, service quality should reflect these conditions, rather than relying on generalised definitions of service quality taken from other industries or situations. It showed that the measurements of service quality in GlobalCash-Europe96, plus the follow-up interviews, went a long way towards reflecting these conditions.

This chapter will assess the relationship between the perceived quality of cash management services as measured in the GlobalCash-Europe96 study and the duration of bank relationships. In addition to the responses received from Norwegian companies to the GlobalCash-Europe96 study, a panel data set was used containing annual information on the bank connections for virtually all Oslo Stock Exchange (OSE)-listed companies for the period 1979 to 1994.

This chapter will encapsulate the complexity of gathering data for GlobalCash-Europe96 and describe how the problems faced were overcome. The key component of the study was a questionnaire which was completed by 1129 respondents, in 19 countries and 10 languages (Czech, English, Finnish, French, German, Greek, Hungarian, Italian, Polish and Spanish). The questionnaire was followed up with 60 in-depth interviews throughout the 19 countries. This chapter will start with an outline of the methodology used. It will then go on to describe characteristics of the sample of respondents. With a broad understanding of the nature of the enquiry and the type of respondent, the chapter will look at the interplay of qualitative and quantitative methods used. The problems of conducting research in 19 countries will be discussed, which will lead into the final section on how the data was analysed.