Keeping track of treasury in a world of faster payments
Cloud-based treasury risk management systems were once considered a dream for the future, explains Jerald Seti, VP, Financial Services Product Management at OpenLink, and now, that future is here…
There once was a time when someone in Europe who wanted to trade with China had to endure a journey of thousands of miles. Sending goods and payments across treacherous terrain could take months, and there was no guarantee they would get there at all. In modern day banking, transactions are still a laborious process—sending money across the globe involves time, effort and risk. As money is in transit, it is hard to know where things stand. Payments moving across borders are slow, as they typically hop from one correspondent bank to another, each sitting on the funds, collecting a float for who-knows-how-long.
Now, though, all of that is quickly changing. Of all the ways technology has altered the world of finance in recent years, one of the most significant innovations is faster payments. The ability to exchange money instantly and easily has done more than just enable payments to arrive to their recipients at a moment’s notice. It has profoundly altered the landscape for CFOs and treasury professionals.
By combining faster payments and open API’s, payments are executed and settled more quickly. And the collection and reconciliation of this flurry of activity is happening faster too. With open API’s, treasury has a real-time window into activity that is taking place at their custodians. When set up correctly, the time-consuming process of collecting information primarily through intraday and prior day statements can be eliminated, granting finance teams a real-time view of where they stand. Currently, in many of the world’s largest corporates, it’s not uncommon to see the generation of a cash position taking close to 2 months!
But where technology gives, it also takes away. Faster processing times reduce the window during which fraud can be detected, so fraud detection systems must be enhanced to work faster. It also means that fraudsters have a smaller detection window during which they can ‘take the money and run’ since funds can more quickly be withdrawn from conventional financial systems and moved to new cryptocurrency/blockchain systems which promote anonymity.
As money changes hands more quickly than ever before, the pressure to more quickly deliver goods and services will continue to mount. Faster payments means goods will no longer have to sit around waiting for payments to clear before they are released to the buyer. In fact, faster payments will put pressure on the supply chain to have goods ready for delivery, pronto.
Fortunately, there are new tools and systems available to help treasury and procurement keep pace in this environment. Cloud-based treasury risk management systems have arrived in full force, evolving from a once far-off concept to reality in only a few short years. These systems give treasurers a comprehensive view of risk across their enterprise, allowing them to analyse and effectively hedge market risks at a moment’s notice.
This kind of visibility and control is essential for firms that wish to manage their risks and successfully operate across borders in today’s fast-paced business landscape. A unified platform can break down silos and function as a single source of truth. Firms that don’t possess this speed and agility are likely to suffer, constantly being left one step behind as markets move forward without them.
Although comprehensive cloud-based treasury risk management systems were once considered a dream for the future, the future is here. Real-time payments and the downstream requirements for real-time reporting and risk management make cloud-based solutions a viable, secure and necessary option for effective treasury management.