Rigid liquidity structures, fixed product setup, with limited or no cross-border, cross-currency capabilities, coupled with batch-based payments processing, can cripple the complex liquidity flows of corporates.
By Siva Subramaniam
Corporate banking customers across the world are becoming increasingly digital in their operations and sophisticated in their demands from their banking relationships. In these uncertain times they are prioritizing comprehensive remote self-serve capability. Increasingly, they will also demand sophisticated digital solutions from their banks to enable them to manage their cash and treasury optimally. Rigid liquidity structures, fixed product setup, with limited or no cross-border, cross-currency capabilities, coupled with batch-based payments processing, can cripple the complex liquidity flows of corporates. They will seek innovative liquidity planning and forecasting capabilities, coupled with real time cash flow views. To remain relevant, corporate banks need to provide a comprehensive range of integrated cash management services, across channels.
Today, besides innovating on products, services, and experiences to differentiate themselves, corporate banks are using regulation to their advantage. Take the example of a global regulation, Basel III, which says that banks must know how much of their customer’s cash is operational and non-operational, and what they can do with each. Prior to the 2008 financial crisis, all cash was equal, and banks would park money that clients did not need for running their business into very long-term instruments, such as 30- year mortgages. When the crisis caused a run on the banks that had no cash on hand, their governments had to bail them out. Now that the regulations dictate how operational and non-operational cash may be deployed, banks are coming up with innovative propositions for each. For example, banks can provide additional rewards for customers who maintain certain levels of operational cash, however rather than penalise customers who need to park excess non-operational cash short term they can offer alternative short term investments which can be liquidated at short notice as and when the customer requires it.
Although this activity of categorising and deploying cash is often being performed manually, there is a strong case for using digital technology instead – a system that monitors and identifies a customer’s cash inflows and outflows and sends product recommendations over corporate banking channels.
Several banks are collaborating with fintechs to come up with a solution that passes muster with both regulators and customers. Further, for corporate banking operations, the ability to virtualize accounts represent a fundamental transformation in the service model to support cash management operations. Virtual account management (VAM) ensures increased treasury agility by setting up virtual account hierarchy based on emergent business needs and liquidity structures.
In general, banks must design their cash management solutions with the customer journey in mind. Even today, the corporate channels of many banks have silos – for liquidity, for payments, for supply chain finance and so on – when their customers would much rather go about their daily journey using a unified interface, starting from checking account balances, forecasting cash, consolidating money across accounts automatically, and at the end of the day, sweeping excess funds into an investment vehicle. This means that corporate banking channels must be fully integrated at the front end, even if the back-end systems sit apart, so that as far as the customer is concerned, there is only one experience.
Today, corporate banks – which lag retail institutions in tech adoption – are undergoing legacy transformation. New-age banks are leapfrogging others by working with fintechs, using open architecture, adopting real-time payments, and devising great user experiences. They are also co- innovating with fintechs in emerging technologies such as artificial intelligence, machine learning and blockchain to create better services and solutions. Banks are recreating treasury management functions on customer channels for the smaller enterprises that cannot afford such systems, thereby opening a new revenue opportunity for their own organisations.
- Siva Subramaniam is Senior Principal-Product Management, Infosys Finacle. Views expressed are he author’s own.