Getting Solid with What’s Liquid: Why Banks Need to Revise Their Corporate Liquidity Strategy11.06.2017
In a click-and-consume world, customers demand instant fulfillment. To keep pace with the escalating demand, corporates are transforming to hyper-scale businesses. They must expand their supply chains to source global requirements, streamline processes to reduce costs and work across multiple time zones, currencies and channels.
Naturally, this multiplies the level of operational complexities for businesses. Take for instance an online retailer: It has to manage a global yet highly localized customer base, mammoth supply chain logistics that seamlessly scale up/down and adapt to local nuances, 24-7-365. This complex network can run efficiently and on time when the retailer possesses a clear view of and immediate access to its funds.
This vital requisite has triggered a radical reshaping of the treasury landscape and how enterprises interact with banks. Liquidity management has risen to the forefront of management challenges—and it has become increasingly important for banks to help corporate clients maintain clear links to global cash, while helping them to enhance their liquidity positions.
Greater Liquidity Equals Higher Efficiency
Liquidity management may hold the key to a company’s survival in today’s highly regulated, globalized economy. That’s especially true in a highly competitive environment where shareholders want to see healthy utilizations and balanced exposures in corporate books. According to Deloitte’s bi-annual Global Corporate Treasury Survey, global corporations are starting to note liquidity management, working capital management and FX volatility ranking as crucial areas of focus for treasuries worldwide. By any litmus test, it’s clear that liquidity management is top of mind for companies of all shapes and sizes.
To maintain modern operating procedures and reap profit, corporations look to banks to provide effective liquidity management strategies and solutions. To that end, banks must enable business efficiency by measuring and monitoring liquidity, which will enable corporates to reduce risks that affect their finances.
With advances in technology, banks should facilitate:
- Real-time access
- Global view of cash at any given point
- Faster processing
- Enhanced capabilities to use cash pooling and other important mechanisms for cash flow management
The time is now for banks to invest in technologically advanced solutions and help corporate customers bolster their liquidity positions.
So how does this translate to success in the evolving corporate banking landscape? We have identified and tracked three key trends that have gained significant traction.
Liquidity Management, from Globalization to Diversification
As liquidity becomes a more important (and complex) function to manage, stable and successful corporations will incorporate most—if not all—of these into their day-to-day operations to sustain growth. Taken together, these trends indicate a clear shift in how banks should look into corporate liquidity management:
Globalization: As corporates expand globally, either organically or through acquisitions, they aspire to expand channels, garner new segments, serve international customers and expand their geographical footprint. Banks should play an important role in corporate’s efforts especially in the areas of cash management, foreign exchange exposure, and investments. Banks can address these challenges by managing liquidity distributed across markets, currencies, and businesses, along with the need to handle regional liquidity nuances and regulatory issues.
Automation: Often a buzzword, automation is vital to liquidity management systems that aim to improve user experience. Visibility into global cash position is invaluable to corporations and banks should provide this information in real-time. With automation, banks can access readily available, real-time insights into cash positions without tapping limited human resources. Banks can also reduce operational complexity by automating processes and back-end systems. Corporates are leaning on banks to bring about this change. Furthermore, banks should think about creating segmented, tailored and bundled offerings that prove flexible and effective for each customer.
Diversification in banking relationships: With corporate globalization the need arises to have diversified banking relationships. In an increased risk environment, having the right banking relationships and account structure can make the difference between survival and success. Corporations today are keen on diversifying their operating bank accounts to mitigate bank counterparty risks. Corporates will look for the right partner(s) and take advantage of efficiencies in new banking technology, which can help them manage and control liquidity.
Management That Is Ahead in the Clouds
Taking a step back, how can banks help corporates take the right next steps to effect change geared toward globalization, automation and a new level of diversified banking relationships?
It begins with opting for a global solution that should provide an enterprise-wide framework malleable enough to adjust to market conditions—but stable enough to act as a central hub for all liquidity management activity.
Furthermore, to help minimize cost companies increasingly opt for balanced banking wallets while exploring low-cost deployment models: namely, the cloud. The industry is moving towards reducing capital expenditure and taking on more operating expenses, and this leads to a proliferation of cloud-based, SaaS (software as a service) solutions, in all areas including liquidity management.
Putting It All Together: Innovation, Integration, Information—In Real Time
Clearly, banks need to invest in solutions that improve the efficiency of their liquidity management capabilities for global enterprise. The solution should enable banks to provide fast, integrated and innovative offerings to manage the ever-increasing complexities of global corporates. Banks can enhance their existing liquidity management system or replace it with a more specialized and advanced one. Either way, the banking solution will have to play a dominant role if corporate businesses are to make the right decisions with real-time access to relevant liquidity information.
The right solution can minimize costs, optimize investments and maximize the ability to manage liquidity. Or if you prefer, there’s nothing like heating up on liquid front get global business boiling.
Chet Kamat is CEO and managing director of Oracle Financial Services Software Limited. Reprinted by permission from BAI Banking Strategies, a publication of BAI, a Chicago-based financial services association and a leading industry partner for breakthrough information and intelligence.