There is a lot of change going on in the cash management industry. Payment modernization, increased regulation and market and consumer 24/7 expectations are seen as four catalysts causing a distinct structural shift. Dynamism and forecasting of cash management
are key to staying ahead of these changes, and yet there is little appetite for risk within treasury and cash management functions within corporates. This makes successful cash management a complex and ever-evolving business.
The current backdrop of payment modernization, real-time payments and APIs, clearly creates opportunities but also presents challenges. Corporates need to keep their global positions up to date in real-time, but to avoid fragmentation they need to move liquidity
in real-time where it is needed. This requires a blend of interoperability, flexibility and configuration methodologies to enable corporates to move funds 24/7, collect liquidity from several sources and forward that liquidity to where it is needed.
Whereas a number of corporates have embraced a centralized and global approach to cash management, benefiting from a single, consolidated view into cash positions from multiple banking partners around the world, liquidity management and the reduction of
liquidity risk in today’s real-time world continues to put pressures on the treasury function itself.
Liquidity fragmentation is the enemy of global treasuries, and as it persists, reachability of desired liquidity continues to be a challenging task. And with multiple payment services and schemes in place - that are often not interoperable - this only compounds
the bad news from a treasury perspective.
Reachability has been somewhat addressed by the introduction of the ECB’s TIPS (TARGET Instant Payments Settlement) service which enables payment service providers to offer central bank fund transfers in real time, 365 days a year and offers the overriding
value proposition of reachability. Organizations using TIPS can be guaranteed that 100% of the banks in Europe can be reached, and most importantly this ensures that liquidity is kept in one place, thus reducing fragmentation.
Fragmentation of liquidity aside, it is a must that corporates have the capabilities to move money in real-time, and it is clear that it will take technology combined with innovation and modernization of the entire chain to achieve this. SWIFT gpi tracker
has been launched to partly address the issue of increasing what is essentially STP of funds transfer, by providing end-to-end tracking of payments using a unique end-to-end tracking reference [UETR] in SWIFT gpi payments. This scheme is significant as it
begins to tackle the thorny issue of data. With a single UETR, all data and all information can be matched up and down the chain within a repository type environment.
Interestingly, the impact of differing standards on treasury capabilities has little place in the quest for improved liquidity. The pain point instead, is not so much what standard is being used, but rather how quickly a bank can on-board new corporates.
One of the strongest competitive points therefore for banks lies within being able to successfully facilitate connectivity from the corporate to the bank’s systems quickly and easily, regardless of whether ISO 20022 or another financial message standard is
being used for the transfer of payments data.
Technology clearly holds the key to ensuring that the issues of liquidity fragmentation, reachability and connectivity to banks and corporates are improved. Once these issues have been addressed, banks can help corporates achieve the required flow of money
and data to execute on cash management strategies and improve reconciliation, while offering the value-added services that corporates so badly need. This in turn helps banks to truly differentiate themselves from their competitors.
Simply put, if treasury teams can deal with corporates in real-time while in turn providing them with a good service and have the capability to forecast, then the current issues around liquidity risk and fragmentation start to fall away. Banks who partner
with firms that understand technology, the business functionality and the interaction between banks and corporates, will be the ones that ease liquidity fragmentation across the spectrum.
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