A combination of macroeconomic uncertainty and geopolitical turbulence has presented businesses with the perfect storm. An unpredictable interest rate environment, marked out by disparities across the region is increasing the cost of funding. With current market insights indicating that rates are set to stay higher for longer than was recently envisaged, many are experiencing competitive cost pressures and revenue compression.
With this tricky operating environment, businesses must try to keep pace with evolving customer expectations and the need for greater efficiencies, reduced costs, and an improved experience. More than ever, they need to be cognisant of the latest technology trends to provide the best-in-class solutions needed to address these emerging demands.
In a cost- and resource-constrained environment, driving a digital transformation strategy is not easily achieved, with treasury departments and portfolio managers often lacking the necessary expertise or capabilities to move the needle. As a result, these businesses are looking to banking partners who can accelerate innovation to achieve real-time, 24/7 operations across payments, liquidity, and cash management – all while improving business resiliency and ensuring regulatory compliance.
Embracing new technologies in payments
The payments space is rapidly evolving, thanks to the proliferation of a host of new and increasingly real-time payment methods. These are both quicker than traditional methods and can offer greater transparency than legacy options. With the shift to 24/7 payments, enabled by solutions such as BNY’s 24/7 US dollar clearing for high value payments, businesses can efficiently deploy working capital between domestic and international legal entities without concern of local market operating hours to optimize use of short-term cash obligations.
As these methods continue to mature, businesses are performing a front-to-back assessment of their operations to discover their readiness for a real-time environment. Many are finding that implementing instant payments, while navigating legacy cash systems, will bring significant challenges.
Application programming interfaces (APIs) can play a central role in meeting these challenges, by enabling the integration with existing systems and platforms to ensure a smooth transition while minimising disruption to operations. They also allow treasurers and portfolio managers to unlock the real-time collection, sharing, and analysis of data to serve clients’ needs across payment initiation, status enquiry and tracking and reporting. In doing so, APIs play a fundamental role in automating payment processes and laying the foundations for real-time payments.
For instance, transaction and notification API services are used by payment providers, empowering them to initiate wire payments automatically via the existing MT103 and MX format in an API message, trace payment processing in real-time, and receive notifications when payment statuses change. In combination, this unlocks the company’s automated workflows and improves operational efficiencies.
Innovative cash management
Treasurers and portfolio managers need the most up-to-date information available to effectively optimise and deploy cash for the businesses they serve. In an ideal world, there would be no delay between the time a payment is received and when a client has visibility into the resultant impact on their liquidity position. In reality, this is rarely the case and delays in information can negatively affect a treasurer’s liquidity management performance.
As they adapt to an increasingly real-time ecosystem, modern banking infrastructures and solutions are helping to provide greater visibility and more informed decision-making. Virtual account-based solutions can, for example, be deployed to design flexible account structures without requiring multiple physical accounts. This, in turn, helps to facilitate reconciliation, automation, and centralisation of payment and collection functions. Notional pooling and automated sweeps allow companies to consolidate capital across multiple accounts to minimise interest expenses and optimise returns, reducing the time spent managing balance positions across multiple accounts. Treasurers and portfolio managers may also look to deploy artificial intelligence (AI) solutions to uncover more accurate insights into their cash flows, which, in turn, can support more effective and timely liquidity decisions.
Once businesses have a comprehensive view of their liquidity, they can look to strategically invest their excess cash. When doing so, treasurers and portfolio managers demand flexibility, allowing them to balance their desired yield and their risk appetite. For example, in the current environment, superannuation funds in Australia are increasingly looking to the safety and resiliency of highly rated banks to invest excess cash in a range of different on and off-balance sheet solutions.
Fortunately, investing excess cash has been made easier with innovative solutions offering businesses the ability to earn a higher yield from their excess liquidity with minimal extra operational cost. These solutions collectively enhance the ability to manage liquidity efficiently and make well-informed financial decisions.
Preparing for the future
For treasurers and portfolio managers handling cross-border and multi-currency operations, the effectiveness of real-time payments and liquidity management will be restricted unless Foreign Exchange (FX) exposures can also be managed in real time. Managing in-house is not only expensive, but increasingly complex – especially as the US, and other markets around the world move to T+1 settlement.
To support round-the-clock FX, businesses are turning to banking partners that offer a full suite of FX capabilities, including 24/7 USD transfers. This not only lays the foundations for T+1 settlement today, but also for atomic cash settlement of tokenized assets and cross-border FX transactions in the future. Furthermore, businesses can leverage the data analytics provided by banks to gain real-time visibility into cash positions and liquidity, helping them optimize funding strategy and enhance treasury operations.
When combined with today’s turbulent economic landscape, treasurers and portfolio managers are becoming more selective when choosing banking partners. Businesses seeking to not only retain but grow their client base must be at the forefront of innovation, offering automated solutions with advanced capabilities. In doing so, they can improve their businesses’ efficiency and resiliency, reduce costs, make liquidity more accessible, and optimize available cash balances to ensure that they continue to grow and prosper amidst external challenges.
Aaron Jennings is head of treasury services Australia and New Zealand and deputy branch manager for Australia at BNY
