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EBAday 2020: Cash visibility still an issue for corporate treasurers in 2020

EBAday 2020: Cash visibility still an issue for corporate treasurers in 2020

Today, non-bank entrants such as PSPs and TPPs are entering the payments space to tap in to the lucrative and stable business that is transaction banking. To remain competitive and avoid disintermediation, financial institutions must support legacy core banking infrastructure and a resource-intensive, scalable delivery model – success is tied to relevancy in the corporate market and ensuring clients’ problems are resolved.

Virtual accounts have the potential to remedy issues such as cash visibility, as a single integrated platform, which incorporates accounting, payment, cash management and channel functionality, is offered up to the market. Therefore, with virtual accounts, existing core banking architecture can deliver completely new capabilities without changing underlying systems.

Industry experts from Deutsche Bank, HSBC, JP Morgan and Cash Dynamics take to the virtual stage on the final day of EBAday 2020 to discuss whether virtual account management will be the catalyst for an entirely new model for global cash management, questioning whether virtual accounts can improve the way data is combined, utilised and reconciled and in-house banks can continue to achieve greater levels of centralisation and efficiency.

A rich instrument for cash management

Joost Bergen, owner, Cash Dynamics kicks off proceedings outlining that virtual accounts are emerging as a “rich instrument for people to use, but what is the rationale for banks to provide these to their clients?” Priyanka Rath, head of EMEA liquidity/account services, product solutions specialist, JP Morgan, provides an answer.

“With organisations and treasury functions evolving, the way cash is managed must evolve also. That is the fundamental aspect driving banks to virtual accounts, virtual cash management, whatever it is called, it is one powerful concept.”

Rath goes on to explain that the success of this evolution lies in how virtual account reference numbers have been able to ensure efficiency and interconnectivity and in time, become “in-house banks in a box” that enable “segregation of activity,” but retain “visibility needed for reconciliation.”

Dirk Kronshage, global head collection products, Deutsche Bank agrees but explains that real change is dependent on the “virtual account solution range” that must be “extended and made available to customers as they are pursuing new opportunities for efficient treasury operations. The corporate treasurer is in a permanent search of ways of becoming better at what they’re already doing.

“Smartly designed virtual accounts can help customers or corporates see the opportunity to centralise treasury operations,” Kronshage says.

He adds that there are three drivers for use of virtual accounts: the desire to rationalise existing banking account structures, having cash visibility and full insight into where liquidity sits - this has entered centre stage over the past few months as a result of the pandemic, and thirdly, there is growing interest in virtual accounts as we move into the age of instant payments.

Vibhor Narang, senior product manager, HSBC, agrees with Rath and Kronshage but states that the best part of virtual account management is that “there is nothing virtual here and there is no account involved.” Narang highlights that traditionally, banking products that are rolled out are “unidimensional” and resolve one problem. Virtual accounts, on the other hand, can resolve liquidity issues, rationalise cash positions and support reconciliation, to name a few examples.

He adds that virtual accounts also allow for manoeuvring around multi-currency and multi-entity structures: “what worked in January of this year, wouldn’t have worked in April.” Following this, Bergen asks: “with my corporate treasurer’s hat on, how can bring value with virtual accounts?”

The future of bank agnosticism

Rath explains that the true value of virtual accounts is the interesting dynamic that emerges with a “bank agnostic framework,” helping to mirror sub-ledger activity within corporates and resulting in a degree of consistency across reporting with the use of APIs. However, Kronshage believes that there are three key factors at play here.

Banking services with underlying transaction processing rails are required to implement the virtual account solution. There is also a need for technological capability on the client side - while the corporate would say that they are in favour of centralisation, there are some tech limitations within the corporate organisation that would permit them from reaping the benefits.

Thirdly, the organisation structure on the client side also needs to be considered; when leapfrogging from operating on a decentralised to centralised environment, there is a danger of becoming inundated with transaction data.

Narang adds: “corporates need to have multi-bank relationships by choice or by compulsion.” He goes on to say that while virtual accounts can provide centralisation tools, currency restrictions or regulators requiring local accounts will result in a hybrid structure, not fully virtual.

On the topic of multi-bank structures, Rath believes that “virtual account management is not a standalone offering, it is an integral part of the full solution that allows for interconnectivity with other capabilities,” making it a “one-stop shop that is attractive to corporates.”

Nevertheless, Kronshage says that Rath’s answer should have come from a different angle. “Ultimately, the client’s problem is what needs solving and that might be multifaceted. What is still proving to be challenging is [the provision of an] up to date, accurate, comprehensive picture of how much liquidity they have with which bank, currency and what department.”

While it might be strange to suggest that in 2020, cash visibility is still a problem, Kronshage posits that this is the feedback that he has received. “If only I knew what I already know now. I have tons of data, but I don’t have it at the right time or the right place to make the right decision.”

Finextra’s The Future of Payments report explores how new business models, new operating models and new forms of collaboration are the catalyst for the 2020 payments ecosystem. Click here to download.

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