Johannes Sackmann

Liquidity management, as we know it today, will change

The global march toward real-time payments continues to accelerate. While banks prepare to make this a reality for their customers, one important factor is often overlooked—the issue of liquidity management.

Because of its real-time nature, instant payments processing is turning liquidity management on its head. Traditionally, there was a predictable and manageable flow of liquidity through the bank based on the processing of “batches” of payments at certain times and on certain days. This allowed banks to implement accounting-driven strategies to monitor and forecast liquidity and enabled them to report their liquidity position with accuracy at any given time.

With instant payments, cash receipts and disbursements no longer take place at fixed times, but at unpredictable times. As a result, it’s far more difficult for banks to predict cash volumes, inflows and outflows. Moreover, the batch world operated on a five-day week. Real-time payments require 24/7 availability, requiring the bank and its supporting systems and processes to radically change.

Of course, the move to instant payments doesn’t just affect banks; corporates also are impacted. However, corporates are in a better position. Corporates estimate their cash positions on the buying and selling of their goods and services, which, to some degree, is easier to predict or at least control through specific rules and assumptions (they know, for example, when they sell an item and how many times they may or may not sell). A caveat to this, however, is the move to online commerce and digital offerings, which creates more uncertainty in terms of when “deals” will be made, and they can certainly be made outside normal business hours.  

The move to online represents a major change for most corporations. To take full advantage of real-time payments and avoid unpleasant surprises, corporate treasury departments need to be constantly proactive and observant, which places a huge demand on employee time, skills and, of course, budget. This is not sustainable over the long term.

So what’s the way forward?

The effective management of liquidity will be possible only through the deep integration of business transactions into a company’s ERP systems, 24/7. While the right solutions are yet to be developed and a corresponding partner ecosystem established, there is a very real value-add opportunity for banks, and, of course, for FinTechs as well.

With the advent of the open API economy, the relevant data and systems within the bank can be accessed. Some FinTechs already have recognized this and are offering complete accounts receivables and accounts payable management business process outsourcing services with certifiable transactions to corporates—a direct attack on traditional banking.

However, given their longstanding relationships with corporates, banks are equally, if not better positioned, to offer liquidity-management-as-a-service to their valued corporate customers. By actively pushing cash and liquidity management, banks could provide additional value to corporates that are challenged with managing their liquidity position in real time and gain a competitive edge over FinTechs and other banking players.

To learn more about these liquidity management challenges and opportunities, feel free to contact me. 

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