Today, information regarding a bank’s payment details – particularly for those held in Nostro accounts – must pass through one function after another, in a specific order, for validation before another function can process the information. The time and resource required to pass the information in turn through credit risk, settlement messaging, reconciliation, cash management, exception management, customer service, error correction, accounting and regulatory via an interdependent serial process translates into additional cost, less efficient management of liquidity and longer exposure to risky positions.
But with an integrated real-time information service, these information flows could be transformed into an independent flow process, where every function can access the information simultaneously. This in turn would enable the bank to reduce the time-frames in which decisions are made and take the necessary steps to reduce risk and improve liquidity management.
Moreover, it would enable the bank to re-engineer some of its processes and structures to move away from what has traditionally been an internally-dominated, clerically-entrenched environment to a more externally-focused, customer-oriented environment. By reducing back- and middle-office functions, banks will have more opportunity to focus on external and customer-related developments while retaining their ability to absorb growth. The banks could also reduce their costs relating to the scope of implementation across the impacted operational areas by as much as 20% to 50% (although these savings will naturally vary by bank depending on the scale and impact analysis).
So what is it about real-time information that allows banks to so dramatically improve the way they do business? To deliver on its rich promise, real-time information must conform to three important characteristics: it must be delivered on a continuous basis, so that the bank can act on it intra-day rather than after the market has closed; it must be content-rich so that every function can access the data it requires instantly without having to wait for it to be validated through a series of resource-intensive processes and it must be interoperable: that is, it must use open-standard formatting, so that it can be interrogated by applications rather than viewed passively.
Cable & Wireless has identified a new way for the payments industry to share Nostro account data, across multiple currencies, bank accounts, systems and time-zones. Cable & Wireless Real Time Nostro is a shared repository of information, hosted centrally, aggregated and normalized by Gresham software and delivered in an industry-standard format over SwiftNet or any other IP network for ready access and integration with banks around the world.
The subscription-based service, launched at Sibos this week, enables Nostro account holders to take a single view of all their positions held with participating agent banks. It enables them to monitor foreign currency balances and counter-party exposures in real-time, to view cleared and uncleared balances and revocable and irrevocable transactions. It enables them to receive real-time alerts by transaction, balance and account, to reconcile payments within the day, ending reliance on end-of-day advice statements and to automate processes by connecting the standardised data into reconciliation and liquidity management tools.
In a study for a major global clearing bank, Cable & Wireless calculated the bank could improve its liquidity management by reducing its core liquidity by as much as 10%, reduce unnecessary overdraft charges by as much as £6 million per annum and avoid exceptional liquidity costs where single event losses can exceed £250,000.
At an operational efficiency level, the number of transaction-related enquiries to be handled alone could be reduced by up to a staggering 70%, through the automation of reconciliation processes. And the provision of a single source of clear, validated, auditable data conforms to the intensifying regulatory climate that is introducing risk mitigation initiatives such as the Basel II Accord, which requires banks to demonstrate a three-year track-record.
Cable & Wireless Real Time Nostro already has the support of banks like ANZ, Barclays, JPMC and Mizuho and we expect to make more announcements over the next few days regarding support from more banks and from the applications development community, who are adapting their services to accept real-time Nostro information feeds.
Ultimately, there will come a time when banks could look to move all of their liquidity management tools into a shared environment where all real-time systems including Terget, RTGS and also proprietary systems as well as their Nostro applications could be brought together, providing a virtual consolidation of their positions in real-time. This would give the banks a single view of all of their liquidity positions from just one desktop. In addition, banks could dispense with the time, resource and money required to integrate and manage these applications and focus instead on their core business.
For more information on how your bank can stop deferring until tomorrow what it can now do today and move towards a fully integrated real-time environment, visit the Cable & Wireless stand 4041 and speak to Alister Hoad