Announcer: You’re listening to the Scotiabank Market Points podcast. Market Points is designed to provide you with timely insights from Scotiabank Global Banking and Markets’ leaders and experts.
John Hunter: Welcome to Market Points. I’m John Hunter, Managing Director and Head of U.S. Cash Management at Scotiabank.
Stephen Wilkinson: And I’m Steve Wilkinson, Managing Director, Global Co-Head of Corporate and Multinational Sales, and today we’re going to be talking about navigating cross-border success.
JH: With over $1.7 trillion in annual cross-border payments across the Americas, treasury teams are navigating a high stakes, fast moving landscape. You add in the uncertainty of tariff fluctuations, new trade policies, shifting economic alliances, and the complexity only grows.
So how do treasurers stay ahead of the curve? That’s exactly what Steven and I are going to break down in today's episode.
To set the stage, Steven, let’s talk about why the Americas corridor is so critical and why this is an important focus for multinational corporates.
SW: Yeah, absolutely and clearly a lot going on with the recent announcements, but really worth taking a step back in terms of thinking about the actual size and the scale of this region.
The cross-border transactions and the trade flow are tremendous. You mentioned there’s over $1.7 trillion of cross-border payments and that amount is growing year over year. And that trend we expect to continue.
If you’d layer in the trade between Canada and the U.S., you’re looking at about $762 million, and that’s just last year. And then also, when you look south of the border from Mexico and the U.S. trade, that’s equally impressive. And even more at $840 billion of trade.
So, when we think about the scale and how integrated the supply chains are, the actual opportunity across the region and the movement of goods and payments is very, very significant, and clearly what we’re seeing and what corporates are having to navigate with these shifts in trade policies is going to be of top of mind for our treasurers within our corporate and multinational clients.
JH: And tariffs are beginning to play a major role in shaping the dynamics of these markets, right? Companies have had to adjust rapidly, they’re on, they’re off.
So, you know, based on all the volatility and all of the challenges in this particular market for the, the U.S., Canada, Mexico corridor, what should treasurers be thinking about? What cash management strategies should they be implementing?
SW: Volatility at times like this creates a lot of risk. So, the number one top of mind concern most likely at this time is going to be risk mitigation. And sort of risk management amid tariff fluctuations and trade policy shifts the mitigation of all those risks are, are ultimately going to be top of mind at, at this time.
JH: Absolutely, and I think we’ve heard a ton about it. It’s kind of the elephant in the room right now.
Independent of all the challenge going on with tariffs. What other things are treasurers dealing with? What other pain points do they see right now kind of in this market?
SW: There’s quite a lot to unpack in there, John, because beyond what we’re seeing day-to-day, our treasurers are grappling with real-time visibility of their working capital. All treasurers are looking to optimize that working capital cycle. And then also managing, particularly those that are working cross-border, how are they managing that trapped liquidity in each respective market?
JH: You know, I had a really interesting discussion with a client the other day about this, and they were talking about how they have accounts in Canada, accounts in the U.S., accounts in Mexico, and they use three different banks. And across those three different banks, the only way to move money across those banks is through using the market infrastructures, wires, et cetera.
And they said if I had one institution that could link Canada, U.S., and Mexico together and be able to give me the visibility across that and help me manage my liquidity better, right? Because then I wouldn’t get trapped liquidity in Mexico because the Mexico market infrastructure’s down.
SW: And I would say having that cross-border visibility is key and why we have such a huge opportunity.
But beyond the visibility you’ve obviously got, and somewhat related to what we’re seeing in the current environment, is that FX volatility. And again, having a banking partner that has local knowledge in each market that have access to the currencies, really enables us to support treasurers in the mitigation of some of those fluctuations in the currency value, whether that’s in the Canadian dollar, U.S. dollar, or in the Mexican peso.
Also, as you’re dealing across markets and independent of any trade policies, is you’re dealing with very different regulatory environments, oftentimes all having different payment rails, different requirements, and different formats in terms of enabling treasurers to meet their local obligations within that environment.
JH: And even just understanding what those are, are difficult sometimes for corporates.
JH: What do I need to do to participate in a market where maybe I don’t have a strong footprint?
But having a partner that can help you with that is really a key value proposition that banks can help bring to their corporates.
SW: Yeah, absolutely. And picking up on that word partner, having a banking partner and the partnership both locally and then at the pan-regional level is really the recipe for success.
Enabling you to provide cross-border visibility in each market but also working with the trusted advisor locally to be able to access those local nuances that may not be clear at the global level.
JH: Yeah, and it’s hard, right? I mean how do you get all the information.
SW: Yeah, and what we’re seeing also is we’ve got a huge opportunity. Corporates are taking opportunity of new technology and really looking to move towards centralized treasury models that provides them that ability to look beyond their home market, to be able to drive those efficiencies in their operations through their ERP and TMS systems. Both to access the markets, but then also to reconcile and to validate where their cash is at any point in, in time.
JH: Yeah, there’s a huge amount of efficiency that can be drawn through centralized treasury.
And I know many of the corporates I talked to have some kind of hybrid model, right, where they keep the treasury and kind of the big bulky payments at the corporate level, but then let the subsidiaries kind of do some of the accounts payable and receivables, et cetera. Is there a value proposition for consolidating those payables and receivables up at the corporate level?
SW: Absolutely. Whilst corporates will always want to empower their local operations, the ability to pull back whether that's liquidity through having that visibility will create efficiencies at the overall level, which hopefully they can then pass back to the subsidiary level. But it comes back to economies of scale. Having visibility cross-border, having the ability to pool funds in one currency or the other will really help drive efficiencies. And on that point, on working capital optimization, facilitate a more efficient treasury operation.
JH: So, there’s a number of pain points, right? There’s real time visibility, there’s navigating the FX volatility, how do you manage the regulatory framework across multiple environments and multiple countries. And then there’s what is your right treasury model and how do you get the most efficiency out of it while allowing some autonomy, right?
SW: Absolutely.
JH: You know, let’s spend a minute now and change gears. Let’s talk a little bit about the elephant in the room.
So, tariffs aren’t just an abstract challenge. They directly impact a treasury team’s bottom line. Like one moment, trade policies shift and, and suddenly costs rise, supply chains are disrupted, cashflow forecasting needs to be redone, needs to completely be recalibrated.
These are real challenges that tariffs bring in. Any thoughts or any examples that you can share around how our corporates should be thinking about managing these types of tariff challenges.
SW: Yeah, so we’ve been working very closely with our clients and under the spirit of thought leadership and bringing what our knowledge of the local markets are to our clients.
What we are seeing is independent of sector, whether that’s auto, healthcare or technology. Fundamentally, our corporate clients are preparing for various different scenarios. And these scenarios include, as you mentioned shifting supply chain models, looking at where they're sourcing their goods, but also the fundamental operating model of our clients' production is also changing.
So what corporate clients are telling us today is they’re looking at going forward, where do they want to have their base? Where do they want to be producing the goods and which market to help mitigate the impact of some of these tariffs and trade policies. And what we’re doing at Scotiabank is opening up our teams and providing access to the local market.
So, as our customers are thinking through those scenarios in different markets that we're ensuring that we’re bringing the expertise and the local knowledge to help facilitate that decision making as our corporate and multinationals look to mitigate some of the volatility that's in the market today.
JH: I do believe that it’s something that corporates are going to have to just continually to focus on.
SW: Yeah.
JH: Like there’s a lot of uncertainty. We don’t quite know how it’s going to all play out, flexibility, agility, the ability to have partners that can help you understand what’s happening in the market and where it goes and what it’s going to mean, help you identify additional suppliers and other things that you might need in your business, become ever paramount, right?
SW: Yeah, and building on that from a practical perspective, these trade policies are creating obligations in each local market. So having access to the local payment rails, to the local beneficiaries of some of these funds, having, as we mentioned before, a local banking partner with a global reach to help facilitate those obligations is going to be, and is, of critical importance at this time.
JH: So that’s a natural lead-in to kind of where I wanted to take us next to talk about partnership. What are some of the key roles and what are some of the key things that a corporate should look for as they’re seeking banking partners?
SW: Yeah, so what’s critical at this point in time is that local market expertise as well as a more broader pan regional. Insights so that that advice can be provided both locally and across multiple markets, particularly where supply chains are heavily integrated, like in Canada, U.S., and Mexico.
So having a banking partner that’s open to sharing the local knowledge in each of these markets to help you as a corporate treasurer and most importantly manage and navigate those FX risks is really, really important at this time.
Building on top of that you’re going to be thinking about how can you integrate and have integrated cash and liquidity management solutions. And based on what we had discussed before, having that real time access across accounts, across currencies, and across geographies is going to be critical to ensuring an optimal working capital cycle.
And then finally, there’s clearly a lot John going on in the market as various countries are upgrading their payment systems as banks like ours are upgrading their payment platforms, ensuring that the treasurer has access to best of breed, whether that’s local or, or global, corporate treasurers should always be challenging their banking partner about how we can remove some of the pain points from day-to-day treasury. So, helping use technology to support and drive efficiencies, whether it’s in a tariff environment or non-tariff environment, everyone should be seeking that from their banking partner.
JH: Yeah, and I love that kind of idea of scalability and innovation, because you need a partner that’s not only going to help you today, but someone that’s going to help future proof you for tomorrow. So, you want to look for a partner that not only has the existing capabilities, but one that’s investing in their platforms, in their services, continuing to be in the market as a leader, and going after some of these more interesting things that eventually may become very mainstream.
It was making me think while you were sharing those insights about a particular client that I recently saw, manufacturing client, really solid business. They have parts suppliers in Mexico. They have a manufacturing facility in Canada, and they have a distribution arm in the U.S. And when you talked with that institution, they’re like, yeah, we have three separate banks that support us across that footprint.
And one of the problems they said is that there is a challenge of having visibility into the entire footprint because they have different products and services. Their regional expertise were one-offs like they knew Mexico very well, but didn’t understand the U.S., didn’t understand Canada, and that they were looking for a partner that could provide them something more holistic. And I think that when you look at a banking partner, it’s not only about their specific capabilities in a specific country or region, it’s how can they help you across your footprint?
And yeah, you’re going to have more than one bank. You’re going to have multiple banks that are going to participate in your revolver, you’re going to have multiple banks, but can you have one primary bank that can provide you insights across your footprint? I think that’s something that treasurers really need to think about.
SW: Yes, absolutely John. And that’s obviously a core part of the Scotiabank strategy is we’re looking to build our platform in the U.S. It’s really to connect the dots between Canada, U.S., and Mexico to be able to facilitate exactly what you’re mentioning, that one single entry point, that single access to be able to provide and see where the liquidity is in each of those markets. But to see it in a pan-regional basis, so independent of currency, independent of business activity or payment flow, you’ve got a one-stop-shop that enables a decision making based on a holistic view of liquidity at any point in time.
And what we’re seeing a lot at the minute, John, is a lot of clients launching RFPs. And in the past, it may have been a global RFP that focused on country-by-country capabilities and comparing one bank against the other. Now it’s more looking at whether that’s in North America, across Canada, U.S., and Mexico, or whether that's across the Pan-Latin America region.
But it’s taking more of a regional and holistic approach to liquidity management and payment evolution across multiple markets to drive efficiencies in working capital.
JH: You know, we’re not only seeing that in the RFPs, we absolutely are, but we're also seeing it in our clients' treasury strategies.
They’re moving away from having a single treasury per country, and they’re saying, let me manage North America as a holistic region. Let me manage South America or Latin America as a holistic region. Because there’s benefits and there’s so many efficiencies that can be made by doing that.
And do they need the local expertise? They do. But the value of looking at it more broadly has really changed the way that corporate treasurers are organized.
SW: Absolutely. And a key trend and what is top of mind for a lot of corporate treasurers is, as we mentioned, we discussed earlier around centralization of the treasury function, at a global level, is driving a lot of investment in treasury transformation within the treasury operations.
So, to be able to realize the investment in, whether that’s a new ERP system or a new treasury management system, it’s actually to provide that connectivity across markets. So, through that single entry point that you're able to access multiple markets from one workstation and then reconcile in the same way, so that at any point in time the liquidity is actually visible, and then decisions can be made on that. So, whether that's through pooling at the regional bases or at the, at the specific FX, that's facilitated by having that holistic view.
JH: Yeah.
SW: So, we need to support the investment that our clients are making in their treasury operations, and we need to come as a banking partner to be aligned with how they’re organizing themselves.
JH: Love it, Steven. You know, it reminds me of, of an example, I literally just had a discussion a few weeks ago with a client.
And they were sharing with me that they have multiple treasuries per country. And they were saying how frustrating it is when they find out that they’re buying Euro in one country and selling euro in another. Right. And so, the ability to have that single view, they could have just hedged that naturally within their own environment, but instead they're buying and selling.
So, this idea of being able to have this kind of pan-regional view of corporate treasury is real.
SW: So, John, this is the kind of impact the strategic banking partner, a pan-regional banking partner can have. When treasurers work with a partner bank like Scotiabank that understands the nuances of both cross-border operations as well as local operations, it transforms treasury from being a reactive function into a proactive driver of business growth.
JH: Yeah. It doesn’t have to only be a cost center, right? It can actually be a revenue center in many ways.
SW: Absolutely. So, as we wrap up, John, what’s your advice for treasurers looking to improve their cross-border operations?
JH: You know, I think we’ve hit a lot of them. But if I could just summarize really into three, the first would be continue to build out your corporate treasury strategy. Like don't assume that what you’re doing is good enough. Don’t assume that you can just stay status quo. You have to continue to ebb and flow, and you have to identify where there's gaps, and you have to identify how you can fill those gaps.
Second thing I would say is work closely with the right partners. There's a lot of change in technology. There's a lot of change in the industry. There’s a lot of change in the regulatory environment. You got to pick the right partners. So, continue to look at who you're picking, and which partners you’re doing business with.
And then third, I’d say, listen, stay informed. The tariffs continue to shift. You know, for example, we know that tariffs are going to cause changes in people’s operating environments. They may move from one manufacturing location to another to help avoid or have a more favourable tariff.
You need to be part of that shift, right? Not let it happen around you from an operating perspective, but how do you look at that and understand what it means to you from a treasurer’s perspective, and then how do you build that into your treasury strategy, right?
And then lastly, there’s also these massive industry trends, ISO and these other things that are happening and allow you to be more efficient and effective. So, it’s have a strategy, work with the right partners, and then stay informed.
SW: That’s great advice, John. And what I would say to any of our corporate or multinationals listening today, or for anyone that's looking to navigate the cross-border environment at this time, and for those that are looking to create efficiencies in their treasury operations, do reach out to your treasury management officer at Scotiabank or visit gtb.scotiabank.com.
JH: Thanks for the discussion, Steven, as always, I love chatting with you and the fact that we get to do on our podcast now is amazing. I’m looking forward to covering these topics and many other topics related to treasury in the future episodes.
SW: Absolutely, John. Thanks a million, I’m looking forward to it.
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