Cash Management: It’s A Whole New World

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: Gone are the days when cash management services (CMS) offered by banks meant just collection of receivables and disbursement of payables of a business entity. With rapid strides in technology and evolving customer needs, the overall CMS scenario is undergoing a paradigm shift. The CMS is a more dynamic and a fluid concept than ever before.

The evolution of payment systems like the Real Time Gross Settlement (RTGS), though enticing, poses tough challenges for CMS providers. It is imperative now that the banks make a shift in terms of earnings from float to fees. CMS providers that have factored in float money, while pricing their products will take a hit. “This will also throw up opportunities in terms of service offerings as banks can collect and disburse payments on-line across the banks,” says Samir Bhatia, country head (corporate banking), HDFC Bank.

This means that banks will have to look elsewhere. Rajeev Handa, head (cash management business), IDBI Bank, believes: “The CMS market will now become largely fee-driven and banks will have to focus on newer avenues like payment outsourcing to survive.”

Does this mean that the focus will now shift to making transaction businesses more efficient and correct pricing? Agrees Cherian Varghese, CMD, Corporation Bank: “Banks enjoying other people’s money will have to focus on earning through correct pricing of services.

The integration of RTGS will see the transaction business become more efficient, and consequently, banks will enjoy less float. The absence of float should be adequately compensated by fee-income.

The implementation of RTGS has compelled banks into leaning towards fee-based income, and we expect the cash management business to move to pre-dominantly fee-based business.”

“Better initiatives, speedier access to money through the RTGS, will eliminate the float that bankers enjoyed. While the legacy effect remains, fee-based transactions are becoming more transparent. The corporates are now insisting on more transparency in charges of banks,” feels Kaushik Shaparia, head of cash Management, Deutsche Bank.

Cash Management In India
India has traditionally been a paper-based clearing system that necessarily involves high cost of processing, fragility of the system and security risk.

The Reserve Bank of India (RBI) has been emphasising the need for upgrading the technological infrastructure and some of the initiatives in this direction include cheque imaging, RTGS, integration with enterprise resource planning (ERP) system and electronic banking.