Few companies come close to Visa in terms of the number of daily foreign exchange transactions, yet the company struggled with a hidebound spreadsheet-based system to assess the effectiveness of its hedging strategy.
Visa's credit cards are used in more than 200 countries, and its volume of transactions reached $4.4 trillion in 2009. But its processes for managing the related FX risks were antiquated. "We were beset by a historically and manually intensive FAS 133 hedge accounting process that was partially outsourced to a third-party vendor and globally distributed, with the accounting work done in four different places around the world," says Alan Weindorf, Visa's senior business leader for treasury. "It was very cumbersome, to say the least." He adds that from his perspective as the person in charge of FX risk management, "it was also untenable."
Treasury and accounting functions were segregated across multiple systems, which required numerous human-to-system interactions to input, replicate and interface data between subsystems, exposing Visa to operational risk and inadequate controls. Moreover, the valuation, risk assessment, accounting and reporting processes were performed using spreadsheets, which fostered significant valuation, accounting, operational and control risks. "We ended up with an overly complex hedge accounting process without any benefit to accounting or financial reporting," Weindorf says.
Weindorf wanted to centralize and move the process in-house, but didn't have the internal expertise on the accounting team to attack the challenges effectively. The company opted to deploy Reval, a derivative risk management and hedge accounting solution, as a single, integrated platform for FX derivatives portfolio management. "We're now able to take hedge accounting in-house, which is what we wanted," Weindorf says. "We can manage the entire FX derivative portfolio, marking all derivatives and performing hedge accounting, with the pressing of a few buttons. We've also integrated the Reval system into our front-end treasury management system and the Oracle back-end general ledger."
Best of all: "No more spreadsheets or manual processes," says Weindorf. "In their place we're leveraging value-added processes like stress-testing and scenario analysis."