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Moving real-time treasury from theory to reality

Moving real-time treasury from theory to reality

While real-time technology is most popularly associated with the payments space, there are applications right across the treasury. Shahrokh Moinian, Head of Cash Products, Deutsche Bank, explains how treasurers can implement the solutions that are already available and start laying the foundations of their own real-time treasury

Real-time payments are proliferating widely – with 45 schemes up and running worldwide – while the rise of open banking, powered by advancing technology and regulations such as the second Payments Services Directive (PSD2), is further simplifying payments processes and enabling treasurers to aggregate banking services onto a single, API-empowered dashboard to achieve a clear overview of cash positions.

Yet the potential impact of real-time technology reaches beyond the payments space, with use cases arising in other everyday treasury functions, such as liquidity and foreign exchange (FX) management, and cash-flow forecasting.

A recent survey commissioned by Deutsche Bank and carried out by Euromoney reported that 85% of treasurers would value the ability to manage liquidity in real time, while a further 87% responded that they foresee instant payments having a positive impact on liquidity planning, forecasting and placement. [i]

But, of course, treasury transformation is not straightforward. In order to extract the benefits from advancing technology, treasurers must work with their existing legacy systems – finding the right solutions to fit with their existing infrastructure and adapting this over time to come in line with real-time capabilities.

Fortunately for treasurers, there are tangible steps that they can take now to start building their real-time treasury capabilities – whether it involves implementing real-time conversion of foreign-currency payments, real-time – or near-real-time – FX hedges, or establishing instant cash concentration through solutions such as virtual accounts. New technologies, such as robotic process automation (RPA) and artificial intelligence (AI) can help – reducing costs, creating additional value, and freeing the treasurer to focus on strategically managing liquidity.

Steps towards real-time liquidity management

Nearly 50% of treasurers responding to the survey identify liquidity management as the area with the most immediate need for automated functions. When combined with real-time capabilities, this could enable corporates to reduce their working capital buffer and borrowing requirements – instead putting funds to work on new investment opportunities.

As real-time payments and collections gain traction, and treasurers seek to support the global liquidity and risk management needs of their business more proactively, the demand for intra-day cash pooling is rising – and banks are now developing the capacity to provide it.

While most cash-pooling arrangements, such as zero balancing and target balancing, involve an end-of day sweep between the master and participant accounts, intra-day cash pooling allows for multiple sweeps during the working day. This ensures that cash is centralised at a group level, is accessible immediately, and can be moved to where it’s needed to plug a gap or where it generates the most return in a matter of seconds – reducing borrowing costs and optimising interest returns.

The next step will be carrying out these sweeps in real time – enabling an almost constant zero balance on subsidiary accounts. For this to come into effect, however, the maximum cap on instant payments will need to be lifted, since most schemes are currently restrictive in terms of the amounts that can be transferred instantly. In Deutsche Bank’s recent whitepaper, The road to real-time treasury, Carola Schmitz-Becker, Vice President of Corporate Treasury at Deutsche Post, highlights that these sweeps are vital in “ensuring that subsidiaries receiving instant payments outside business hours do not trap cash in low-yielding accounts”, further illustrating the strategic focus that real-time technologies are catalysing in treasury.

FX in real time

Another significant area of strategic focus for any treasurer is managing FX. For multi-national corporations operating across borders and currencies, real-time visibility over FX exposures are central to unlocking the full benefits of real-time payments, collections and liquidity management, ensuring these benefits are not fragmented across geographies and currencies.

The FX conversion and booking process is often disconnected from the rest of the transaction, making it hard to check when the cross-currency payment was executed, and what rate was used, and thereby potentially creating significant exposures for corporates without their being aware. By leveraging real-time technology, however, banks are able to provide  time-, date- and rate-stamps for each transaction as it happens.

But the impact of real-time technology on FX management need not be simply reactive. Dynamic workflow automation platforms, such as Deutsche Bank’s DB Maestro, are able to generate responsive risk management solutions in real time. Powered by a rules-based engine, these platforms aggregate data from multiple sources (including enterprise resource planning (ERP) systems, treasury management systems (TMS) and other internal systems) to calculate the treasury’s net currency exposure, and executive tailored hedges derived from the treasurer’s predefined risk profile.

However, the move to registering and feeding exposure data to a platform in real time may be a gradual process. Treasurers can begin by using the data they already have available, in whatever frequency their systems can support. Once the data is fed in, the platform can begin calculating and executing hedges in a matter of seconds. As companies, working alongside their bank provider, adapt their internal systems and processes, treasurers can begin to utilise faster and more comprehensive hedging. Eventually, this process can be shifted into real time.

Collections and cash-flow forecasting

The credit and collection, or receivables function, is a prime candidate for AI-backed operations, reducing non-performing debts, creating metrics for customer credit, minimising administration costs, and providing effective cash-flow forecasting, all in real time. Companies such as US-based HighRadius, Receivable Savvy, and Germany’s collectAI now use self-learning solutions to provide greater intelligence in receivables management, from setting data-driven customer credit limits to prioritising and identifying the best method to contact debtors. Others, such as YayPay, look at customer payment habits and apply machine learning to predict payment dates, forecast cash flows and enhance liquidity planning.

PwC’s Global Treasury Benchmarking Survey reports 75% of treasurers still struggle to produce an accurate cash-flow forecast at a given point in time, let alone in real time.[ii] Fintechs, such as CashLab, Taiga and Cashforce, however, are now using rules-based logic to collate process and visualise large volumes of data extracted from multiple internal and external sources and layer on different factors to create a real-time cash-flow forecast.

These platforms enable users to simulate a series of alternative future cash-flow scenarios, and immediately see the impact of changing key variables (such as the historic payment behaviour) on future cash flow. While rules-based cash-flow forecasting is not new, the latest AI tools can bring together far larger data volumes than many previous systems, learn and refine rules and recommendations over time, based on forecast accuracy, better highlighting rising or falling risk in the forecast, and identifying optimal liquidity management strategies and countermeasures.

New opportunities

As treasurers seek new ways to support and partner the business, and fulfil their liquidity and risk obligations, they should be looking to take early advantage of some of these new opportunities. The immediate value of, and ability to realise, the real-time treasury vision will vary across industries and individual organisations, their commercial and financial drivers, international exposure and technological sophistication. However, treasuries will inevitably, incrementally, be forced to operate in real time, allowing treasurers to partner the business in new ways and add demonstrable value to the organisation.

And it’s not just corporates who are looking to form thoughtful, technology-driving partnerships: in the interim, banks, too, will be looking to team up with fintechs to ensure they have the full range of capabilities to support their clients’ real-time operations. Take, for example, Deutsche Bank’s recent partnership with Mumbai-based API specialists Quantiguous, which aims to combine the fintech’s technical know-how with the Bank’s extensive experience and client base to develop an efficient API-based treasury dashboard.

It is increasingly evident that the road to real-time treasury is one that we must travel together as an industry, and the journey is already well under way.

To read Deutsche Bank’s whitepaper “The road to real-time treasury” in full, please click here.

[i] See Euromoney report “Treasury Non-Stop: Excitement builds for real-time” on the impacts of real time and APIs on treasury, published July 2018

[ii] See, p24

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