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New opportunities in cash management

The recent availability of open APIs has led to significant improvements in real time and near real time connectivity, visibility and processing performance in corporate treasuries. Open APIs are enabling several advances in cash management quality to be achieved. Another agent of change, the emerging technology of distributed ledgers and blockchains will enable cash management solutions to evolve to new levels of functionality, transparency and performance, offering multiple spin-off benefits.  

(Roger Comins CTP, Senior Product Manager at GTreasury, provided expert commentary for this article.) 

Connectivity is the Key

Historically, corporates faced a series of complexities and inefficiencies in their daily communications with banks. The emergence of open APIs (‘application programming interfaces’) means that it is now possible to implement much more efficient and robust solutions, for business functions such as the import of up to date bank balance and transaction statements, and for payments processing.  

“The publication of APIs has effectively facilitated the outsourcing of the bank connectivity role and has provided a standardized environment in which communications and information flows are fully authenticated,” explains Roger Comins. Accordingly, the corporate treasurer enjoys higher levels of assurance about the timeliness and completeness of cash information, on which to base cash positioning, mobilization, funding, risk management and liquidity planning decisions.  

Today’s cash management solutions make real-time STP automation efficiency a reality; and if full STP is not required, functions such as cash position updates are available on demand. As the connectivity workflows are fully secured and standardized, the maintenance overheads and levels of operational risk are sharply reduced, so the organization’s technology budget can be cut, perhaps sharply. The outsourced solution manages the complexities of different – perhaps many - file and message formats and of communications and security protocols. A further benefit with open APIs is that flexible workflows can be implemented, providing the opportunity to design and implement effectively customized cash management processes. Additionally, the workflows can be secured according to policy requirements, with the implementation of specific controls, segregation of duties, fraud prevention and risk analysis functions.  

The enhanced connectivity environment has yielded benefits in several business areas. For example, Roger Comins notes the much-improved environment for making cross border payments: “This is a problem area, with very poor visibility and efficiency, but we are starting to see new innovations in connectivity begin to change this,” Comins states. “It can take days to get a payment through, with customers having to call banks to chase down the status.”

Comins explains that GTreasury enhanced their Payments solution in 2018, to enable SWIFT gpi, and is likely to participate in pilots for emerging, disruptive clearing technologies. Comins adds: “These technologies offer new gains in cash visibility and processing speed. They enable the corporate Cash Manager to see exactly where a payment has presently reached in the processing chain.” 

Enhanced performance is today’s reality

The European Union’s Payment Service Directive 2 is a major catalyst driving the adoption of open APIs, for both bank statement and payment management. The disruption to the corporate treasury technology world that PSD2 and open banking will foster goes beyond the usual headline of providing real-time integration; corporates will soon be able to self-subscribe to bank information services they need. There are no more lengthy waits for a request to be processed: as soon as a bank has access to new information such as the arrival of a receipt, so does the corporate. Once a corporate is signed up it can start initiating payments, and the cash manager enjoys instant sight of each payment’s status. They can see if a payment has been acknowledged or rejected by the counterparty. Waiting for files to be delivered, running payment batches and ‘flying blind’ cash management are now consigned to history.  

The cash manager can take advantage of the opportunities for faster decision taking based on dependable real time information, facilitating gains in many business areas, including effective cash utilization, interest management, funding and investment, market and risk analysis, and security and fraud management.  

The next generation

The emerging technology of distributed ledgers and blockchain offers future potential for further enhancements in the end-to-end visibility of financial processes, with related efficiency gains. Banks will be able to share any aspect of a transaction’s lifecycle with appropriately-authorized and authenticated client executives through robust and secure connections.  

Roger Comins anticipates that the emergence of real-time distributed ledgers will result in the elimination of effectively unproductive corporate control functions such as reconciliation, as transactions are synchronously updated in the records of all parties involved and cannot be unilaterally repudiated. He points out that information exchange is being revolutionized via distributed ledger technology with open APIs and blockchain, and that the corporate world is perhaps 5 years behind consumers’ adoption, so there is significant further potential.  

There are scalability constraints on blockchain adoption, but this is less of a factor with smaller ecosystems such as the bank-corporate treasury relationship. Comins sees the potential for further expansion through broadening the scope of real-time settlements domestically and internationally, and through accelerating bank-bank funds transfers. In organizations in which treasury is the payments service provider to the organization, new technology can take advantage of the visibility of all payment messages by providing real-time updates to all stakeholders and the cash position. The sometimes-overlooked added benefit of Treasury centralizing the payment function is that the additional integrated data (AP, AR, Claims Processing, etc.) provides critical information to commercial forecasts and other data to provide a powerful liquidity forecasting tool.  

Supply chain management is a business area that has started to embrace blockchain technology, and this indicates that the collections process is an area which can benefit. Comins comments that the way in which companies process invoices, collect/pay and reconcile undergoes a complete paradigm shift via a real-time distributed ledger ecosystem – one which leads to very substantial efficiency gains on a global scale.  

The issue of fraud

Avoiding and detecting fraud is a top priority today for corporate treasurers and CFOs.  According to PwC’s Global Economic Crime Survey 2018, 50% of UK businesses experienced some kind of fraud over the year.  

Fraud can be eliminated or controlled through locking down workflows, restricting access to sensitive processes, segregating duties, adopting appropriate HR policies, and by intelligent monitoring of sensitive workflows. The emerging technology of machine learning provides a powerful real-time means of detecting anomalies in transactions with banks and corporate customers, such as changes in the pattern, size, geography or nature of transactions. Technology offers the means to detect phishing, account takeover and other scams, and to issue urgent alerts to the appropriate individuals.  

The rapid adoption of sophisticated technology by criminals, terrorists and unfriendly governments demands that fraud management and security solutions and practice should be continually reviewed and updated.  

In conclusion

Technology advances are leading to several radical improvements in the power and scope of corporate cash management, through newly flexible business solutions. Roger Comins points out that for the potential benefits to be fully realized, there would be great value in the adoption of industry standards for authentication, protocol, file/message format and content to secure the new environment for corporate financial processes.  

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