Volatility is at record levels, with so much uncertainty in the markets due to the pandemic. This extreme volatile landscape is forcing every business and business leader to restructure processes, reassess risks and, more importantly, it’s urging them to be more agile to get prepared for multiple scenarios.
This is no different, and it is even more crucial for treasury professionals. It is now a fact that the traditional treasury management methods aren’t able to cope with the volatile, agile and the “real-time world” where payments happen 24/7, in high volumes. It is therefore obvious that treasury needs a more modern approach to keep pace with the following trends:
The Key Drivers of Real-Time Treasury
Accelerated Instant Payments
With currently 45 schemes live worldwide (and further 14 in development); real-time or instant payments are increasing widely and leading the way to real-time treasury. In addition to domestic transfers, the speed of payments is also accelerating in cross-border payments and new systems emerge such as SWIFT’s gpi (global payment innovation).
With the help of open banking and advanced technologies, instant payments are further simplifying payment processes. The benefits of real-time payments are already clear for many organisations; enabling them to support more streamlined and dynamic supply chains, accelerate customer experience and improve customer satisfaction. And when high-volume funds are constantly flowing onto accounts, we can’t expect treasury management to remain reckless to this situation. The need for automation of treasury management and real-time treasury becomes imperative at this point.
The Increase in Total FX Volume
Due to many contributors such as e-trading that enables fast transactions, the huge network connections of FX markets globally and the innovative technologies brought by FinTechs, it is no surprise that daily FX volume increased up 40% over the last decade.
For treasurers and middle office professionals operating across currencies, the value of successfully monitoring, identifying, and managing FX exposures is undeniable. Therefore, the concept of real-time treasury also interconnects strongly with FX management (hitting larger volumes more than ever), urging treasurers to integrate instant FX conversions or establishing instant cash.
Needless to say, real-time treasury is also strongly driven by the accelerated pace of innovation. Enhanced by machine learning and artificial intelligence (AI), new technologies are becoming more integrated through APIs, building a digital ecosystem which catalyzes real-time treasury.
Soon-To-Be The New Normal: Real-Time Treasury
With these developments already in place, treasurers need to revise and redefine the way they work in order to keep up with the “real-time” world.
The transformation of dated and inefficient treasury operations into real-time management holds enormous potential, with a chance for treasurers to step back from repetitive tasks and fulfil their risk and liquidity operations in a more strategic way. Furthermore, real-time treasury has the great potential to drive better investment returns, improved credit and FX risk management, while being more transparent than previous processes.
The Current and the Potential Value in Real-Time Treasury
With thousands of deals and transactions per day, it is not feasible to monitor all types of limits and compliance checks and investigate each deal or transaction to spot operational errors or attempted fraud. With the current up and running systems and the potential of the future technologies, real-time treasury will provide organizations with many benefits through capabilities such as real-time limit excess notifications and real-time pre-deal conformity checks for all compliance and limits:
1- More accurate cash-flow forecasting: More consistent, timely and complete cash-flow forecasting information and notifications will allow the treasurers to:
- Better forecast cash flow
- Identify the exact time and amount of borrowings that may be required
- Have better cash visibility across countries
2- Streamlined liquidity management: Faster and more transparent payment flows will enable treasures to:
- Monitor a variety of operational indicators in real-time and save significant time on the daily cash management processes by reducing the liquidity management buffer.
- Automatically invest surplus cash and surplus funds according to treasury-determined preferences.
3- Limit utilization: Through real time-checks, treasurers can keep the transaction limits under control even though the transaction volume increases. This reduces cash management efforts, risks and financial costs while eliminating the cut-off times.
4- Advanced Outlier Detection: With real-time treasury, suspicious transactions can be swiftly detected and this allows treasury management to focus on fewer but more important deals.
5- Accelerated FX management: When combined with automated functions, real-time capabilities enable treasurers to address instant FX exposures and can provide the ability to hedge on a dynamic basis. This way, organisations minimise financial and reputational risk.
Image source: Deutsche Bank, The Road to Real-Time Treasury Whitepaper
Real-time systems might bring real-time fraud to the mind. Thanks to artificial intelligence and machine learning capabilities, fraud can be automatically detected by performing a real-time analysis, monitoring more data and noticing anomalies better than any human.
The Shifting Role of Treasury Professionals
Within every sector, there is a similar growing concern: will machine learning and AI replace jobs? In this case, the answer is no.
Treasury professionals do not add value by simply managing bank accounts and processing transactions, but rather by bringing their expertise to the table for business growth. That being the case, emerging technologies bring “operational effectiveness” to real-time treasury processes which will allow treasurers to focus on:
- Developing and executing the treasury strategy in line with their organisation’s business strategy
- Diversifying investment strategies to maximize capital profitability
- Increase trading profitability while taking into account the bank’s credit policy/risk
- Optimise liquidity and risk management
- Oversee a successful and efficient hedging strategy
while ensuring compliance with regulations.
In summary, a fully real-time treasury offers great opportunities in terms of speed, transparency and efficiency in treasury operations. And this will only accelerate with the collaboration of the whole financial ecosystem.
While this looks like a vision for the future, treasurers should acknowledge that real-time treasury is not just a passing hype, but that it will become the “normal” in the real-time world. There are already plenty of developments and catalyzers in place, and treasurers should act soon to be best-positioned to leverage these opportunities.
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