Cash Management has been around since the beginning of trade and business – it is basically a simple concept – Making sure that your cash is optimally utilized and ensuring that it is at the right place at the right time. It has all been about finding ways
to optimize the receipts and stretch out the payments so that the organization enjoys maximum float while simultaneously earning optimum returns.
Many Corporates and SMEs look to their bank to solve the problems like this and that is why banks also needs to keep abreast with changing times and provide state of the art, innovative, digital ready solutions for today. This helps the bank also to retain/augment
their customer base, increase their non-interest income and get more corporate business through cross-sell/up-sell.
Today, the cash management is at a cross road and the methods employed for cash management is set for an upheaval and may as well be indistinguishable in a few years. There are multiple factors which are impacting the same and a few are listed below:
Payment innovations: Faster payments is now being adopted in many countries around the world and is changing the way the world functions. Cross border payments too can’t lag behind for long and it is this realization that has led to multiple changes
in this space. Banks and corporates have started working together to leverage new innovations like SWIFT gpi which, with its end to end tracking, faster settlements, stop and recall service etc. is bringing in a long awaited and slightly delayed revolution
in cross border space. With payment schemes like SCTInst in Europe, real-time payment schemes are becoming more prevalent leading to 24/7 processing and visibility, thereby putting more focus on optimal cash management. RTP in US is intrinsically designed
to cater to corporate payments as well with options for messages like Request for Information on top of normal pacs.008 or such payment messages. SWIFT is also looking to wed their gpi with faster/real-time payment systems in each country to provide same day
credit across the globe. Corporates and Banks needs to be equipped to handle such changes as the turnaround time between an invoice generated and payment made/received is bound to reduce there by putting more stress on the liquidity position whereas traditionally,
corporates could have spaced it out.
Open Banking/APIs: From an era of proprietary apps, Private API and a close network, banking is evolving into an open space with developments like open API, Fintech collaborations, Cross industry partnerships, regulatory changes like PSD2 etc. all
driving to a superior banking experience. This has repercussions all across and Corporate banking too needs to be digitally enabled and API ready. Multi bank cash management, which today takes hours or sometimes days to process, is set for a massive upheaval
with APIs and will transform the way cash management works today.
Changing corporate expectations: Corporate banking has been lagging behind retail banking in adoption of latest technology and user experience. Corporate users are retails themselves and so they have access to modes like mobile banking which is still
not open to a large number of corporate users. On top of that, retail real time payments, faster payment systems etc. have now lead to a revolution. Corporates now want similar digital self-service experience, faster payments etc. to help with their business
too. Another area where corporates have invested heavily either in man power or in systems is reconciliation. Adoption of solution like virtual accounts will help the corporates in this space.
Regulatory changes: Regulatory changes like the upcoming Basel III norms, tightening norms related to BEPS, thin capitalization rules in various jurisdictions etc. have now made some of the traditional products like Notional Pooling and Domestic/Cross
border sweeping less appealing and very complex as well as costly to maintain. Reverberations of certain norms like IFRS IAS 32 Presentation norms on offsetting and cash pooling is impacting the traditional liquidity management products like Notional Pooling.
Wolfsberg guidelines, exhaustive AML/KYC norms etc. makes it a cumbersome process to have multiple accounts or entities defined. It is in this backdrop that Banks as well as corporates are looking to rationalize their accounts and operational costs. This is
where solutions like Virtual Accounts and on-behalf of payments/collections is gathering momentum. In fact, virtual account is now at the fore front of changes in treasury and cash management.
Virtual Solutions: Virtual Account Management has been around for some time but usage was either restricted to reference based reconciliations or in case of bigger companies, for use cases like IHB. There is a second wind for VAM now with “Virtual
Ledgers”, considering the challenges and opportunities being driven by regulatory changes. Corporate treasures focus on factors like efficiency, fund optimization, cost reduction, STP operations etc. Rationalisation of bank relationships is one the key areas
and VAM solutions enable this for Corporate which will in turn helps banks too. With Virtual accounts and on-behalf of operations, there is a value proposition which caters to all segments of corporate customers. Benefits are multiple, like reduction in cost,
risk and administration, easier liquidity management etc. due to the lesser number of accounts. Moreover, onboarding/opening of virtual accounts is must simpler compared to opening new accounts which has its own associated know your customer (KYC) aspects.
DLT/Blockchain: Adoption of DLT in banking is on the rise and there have been numerous POCs in cross border payments, Trade Finance etc. currently underway in the market. Some of them have now reached production ready status and this is leading to
a sea change in the way corporates and banks work. Cash management too is primed for accruing the benefits of DLT and this along with the other payment initiatives can potentially lead to more secure but faster settlements.
Artificial Intelligence and Advanced analytics: Getting the required amount of information is the key to good decision making. Use of AI and advanced analytics in cash management is on the rise as it can ensure availability of data and knowledge throughout
the business to make better decisions. Predictive and prescriptive analytics can help the corporates mine the mammoth amounts of data they have to further improve their business output and financial performance. Predictive analytics techniques like statistical
analysis, rich data modelling, real-time processing and scoring etc. can be used to detect trends related to forecasting. Scenario modelling using techniques like prescriptive analytics can help the corporates analyse different courses of action, rank them
and take the most suitable one. AI algorithms have been proved to be more capable at data crunching and is ideally suited for cash management.
Using solutions like virtual account will further help in analytics as there is more information and data available in real time with straight through reconciliation, virtual account level statements etc. This can be used for analytics and insights on aspects
like liquidity and risk, intercompany reporting etc.
RPA, OCR and Machine Learning: Robotic Process automation combined with machine learning techniques are set to completely change the way corporates operate today. There are a lot of activities like remittance advice generation, payment advice application
etc. which happens currently in a manual + system mode. These kind of activities are prime candidates for applying machine learning practices to help streamline the whole process. A fully integrated system effectively using OCR based tools can help in various
activities like A/R, A/P and reconciliation, thereby helping in much improved cash flow and visibility.
NLP/ Chatbot: Voice is the new touch and increase in voice based interfaces as well as systems are well documented. Adoption of Siri or Alexa the world over is an indication of how the world is moving. Machine learning based Natural Language Processing
tools can also be used to offer real-time, chat-bot based assistance to corporates. This is especially essential as most of the activities in the near future will be carried out either on wearables or mobile phones or tablets and most of the triggers, commands
etc. will be voice based in the coming years. Robo advisory is already catching up and can be used effectively in the area of cash management where the bank with its expertise in this field can act as an advisor and not just a service provider.
Internet of Things: Internet of Things is making the world more connected and can help the banks as well as corporates. Apart from the most obvious use case of tracking goods in transit thereby helping to streamline cash management and trade services,
there are other innovative use cases too. One of the most vital capabilities of IoT is the real time data feed and communication which when combined with virtual accounts and blockchain technology has resulted in potentially disruptive cash management use
cases. There have been initiatives using the concept of machine identity through blockchain which enables assigning virtual accounts to Machines (which otherwise cannot have accounts) and performing transactions at a machine level.
Moreover, such data being accumulated along with the other applications like analytics, machine learning, Robo advisory etc. can help provide better solutions.
Neural network and self-learning algorithms: It is an ultra-competitive world and any corporate with inflexible and stringent payment terms can find themselves in difficult situations. They may be doing this to manage their liquidity risk but
may lead to lose of business. It is very critical for suppliers to ensure effective utilization of their cash which is critical to their survival. Neural network based systems can help identify and inform the corporate on aspects like when to make a payment,
cost of delay, where and how to pay etc. and action based on the same to automate the entire process. The amount of data available couple with the capabilities of AI to evaluate them make for better decisions because they can learn from previous experience
and identify behavioral patterns.
Conclusion: As evident, the cash management as we know today is set for a major digital upheaval and banks needs to be ready to leverage the opportunities arising out of it. Due to the chance or design convergence of factors like regulatory changes,
market dynamics, changing customer expectations and leap frog in technology usage, a new generation of liquidity and cash management solutions are changing the landscape and changing both the bank’s and corporate’s responses. Banks who utilizes the wave to
offer products like fully integrated virtual accounts with extensive self-servicing, integrated A/R, A/P, cash management, OCR based reconciliation, advisory services etc. is bound to be the choice partner for corporates. It is in the paramount interest of
banks to be equipped and ready for this corporate banking transformation with a fully digital, front to bank integrated, API ready platform.