In today’s fast-paced financial landscape, characterised by an always-on technological environment and the shift toward 24/7 payments, maximising liquidity and gaining real-time visibility into financial positions is more crucial than ever for banks and non-banking financial institutions (NBFIs).
According to Bottomline’s recent Competitive Banking Report, 66% of financial institutions believe that access to full cash visibility and real-time balances is vital for optimising cash management and maximising liquidity.
The Challenge of Legacy Systems
Despite this recognition of importance, many institutions find themselves reliant on outdated technologies and cumbersome manual processes to ascertain their cash positions.
Mark Sutton, Senior Manager at Zanders, emphasises that most financial institutions continue to utilise legacy messaging systems such as Swift MT 940 and MT 942. These methods often lack automation, resulting in a reliance on manual processing, including cumbersome spreadsheets that complicate the cash management process.
As the financial industry transitions to the ISO 20022 messaging standard, institutions face a pressing need to adapt. This new framework enriches transactional data, providing opportunities to enhance reconciliation processes and improve overall cash visibility.
Sutton notes that the optimum strategy is to have timely and accurate balance and transaction information to make informed real-time decisions. He advocates viewing ISO 20022 as a chance to remove legacy barriers and establish a technology stack that meets regulatory and environmental demands.
Bridging the Gap: Connectivity and Cash Management
The benefits of streamlining cash management processes are significant. Leo Gil, Vice President of Product for Cash Management at Bottomline, points out that while banks and NBFIs have made strides in digital transformation, internal finance teams often miss out on integrating these advancements into their operations. These teams could leverage the capabilities developed for customer-facing services to enhance their cash management and liquidity strategies.
In this context, having access to a comprehensive view of accounts payable (AP) and accounts receivable (AR) is paramount. With better visibility into AP and AR, institutions can predict and react to changes in market conditions, enabling data-driven decisions that enhance operational efficiency.
Better reconciliation processes can alleviate common financial challenges, particularly during the month-end and quarter-end closing efforts that can plague finance teams—especially those in regulated sectors like banking and non-banking financial institutions.
The Importance of Real-Time Visibility
Effective cash visibility is not merely a technological need; it is foundational to every financial decision a bank makes. As Sutton said, the focus on real-time reporting should also include integrating API technologies to accelerate processes. Cash visibility enables institutions to identify surplus cash for investment, manage debt more effectively, and allocate resources strategically. It is especially crucial in light of increasing acquisitions, which complicate data consolidation.
Having all relevant data in one place equips institutions to respond swiftly to industry trends and shape internal strategies that offer a competitive advantage.
Recent high-profile mistakes by major banks illustrate the stakes involved. Incidents such as a large global bank erroneously crediting a client account with $81 trillion highlight how lapses in cash management can have potentially catastrophic consequences. Institutions must prioritise rectifying operational controls as part of an overarching strategy for enhanced cash visibility.
Poll Insights: The Barriers to Cash Visibility
The poll taken during our recent Bottomline webinar How Can Banks Maximise Liquidity While Improving Cash Visibility, revealed that a staggering 70% of financial institutions lack an automated method to ascertain their cash positions. In the second poll of the session, 40% identified disparate systems and a lack of investment as significant barriers to achieving cash visibility, further underscoring the challenge of achieving an integrated financial overview.
Achieving Real-Time Cash Visibility and End-to-End Payments Management
To capitalise on the potential of real-time cash visibility, banks need to take decisive action:
- Adopt ISO 20022: As banks migrate to more modern messaging standards with rich, structured, and enhanced data ISO 20022 offers opportunities to simplify technological architecture, develop better compliance, and improve customer analytics.
- Automate Processes: Institutions must modernise their cash management practices by automating data processes to provide real-time insights into cash positions and flows.
- Break Down Silos: A cohesive cash management strategy requires aligning disparate systems across departments. By enhancing collaboration between internal teams, institutions can create a unified view of cash flows.
- Leverage Data Analytics: The transition to structured data formats opens the door to advanced analytics that can help identify trends, anomalies, and opportunities to improve cash management.
- Focus on Strategic Alignment: Financial institutions must ensure that the strategic objectives of the C-suite align with operational goals. This ensures that investment in cash management technologies reflects the institution's overarching business goals.
- Invest in Mindset Shifts: Success requires not only investment in technology but also a cultural shift within financial organisations to connect strategic objectives with operational realities. Prioritising cash management within the Office of the CFO can be a key driver toward higher revenues and profitability.
The Road to Enhanced Liquidity
For financial institutions, effectively managing cash visibility and maximising liquidity is essential for sustained growth. By embracing modern technology, automating processes, and fostering strategic alignment, banks can position themselves competitively in a dynamic marketplace.
The journey may be complex, but the reward will be enhanced operational efficiency and improved financial health, which is undeniably compelling to all. As Leo Gil aptly noted, with the right tools and insights, financial institutions can improve their cash forecasting capabilities and enhance their decision-making processes regarding accounts payable and receivable.
In doing so, they become not just reactive players in the market, but proactive strategists, able to navigate industry changes and emerging trends while driving their own objectives forward.
As the financial landscape evolves, now is the time for banks and NBFIs to invest in and implement robust cash management practices that not only boost efficiency but also ensure they remain resilient and adaptable amidst shifting market conditions. In an era where every decision counts, developing a real-time view of cash, fostering an integrated approach to payments management, and leveraging enhanced multi-lateral payment rails will be key to achieving sustained success.
Click here to watch the webinar How Can Banks Maximise Liquidity While Improving Cash Visibility in full.