BankingDigitisation: Helping cash management in many ways

Digitisation: Helping cash management in many ways

Justin Silsbury, product management lead at Infosys Finacle, explains the timely importance of cash management and digitisation

Post coronavirus, how well a corporation manages cash will become even more critical to their survival than before. In a March 2020 survey, the pandemic’s impact on capital and liquidity was the second most important concern of CFOs, after global recession. Seventy percent of respondents said they were curtailing costs to conserve cash, and nearly sixty percent admitted to putting off investments.

Some have narrowed their focus to home markets, closing down their not-so-lucrative international businesses; this has increased domestic competition on one hand, and on the other, created a vacuum in overseas markets for big competitive banks to step into.

Major regional banks are doing the opposite, capitalising on their strong balance sheet and international network to expand their footprint. These banks are investing large sums in digitising their capabilities across the front, middle and back office to improve the cash management experience for customers across channels.

Smaller banks, especially in the consolidating US banking market, are enhancing their cash management capabilities in order to compete with (even) bigger banks.

Digitisation is key

In all these strategies, a key enabler is digitisation. Digital technologies are impacting all aspects of cash management. To the corporates, they offer a consolidated view of cash in all their accounts worldwide; higher yields by automatically sweeping excess funds into money market instruments; timely alerts and recommendations; and seamless, customer-centric experiences on banking channels. And to their banks, cost efficiency through automation; customer stickiness and wallet share; opportunities to cross/ up sell; and the ability to collaborate and co-innovate with third parties.

Besides innovating on products, services and experiences to differentiate themselves, corporate banks are using regulation to their advantage. Take the example of a global regulation, Basel III, which says that banks must know how much of customer cash is operational and non-operational, and also what they can do with each. Prior to the 2008 financial crisis, all cash was equal, and banks would park money that clients didn’t need for running their business into very long term instruments, such as 30-year mortgages.

When the crisis caused a run on the banks that had no cash on hand, their governments had to bail them out. Now that the regulations dictate how operational and non-operational cash may be deployed, banks are coming up with innovative propositions for each.  For example, banks can provide additional rewards for customers who maintain certain levels of operational cash, however rather than penalise customers who need to park excess non operational cash short term they can offer alternative short term investments which can be liquidated at short notice as and when the customer requires it.

Although this activity of categorising and deploying cash is often being performed manually, there is a strong case for using digital technology instead – a system that monitors and identifies a customer’s cash inflows and outflows and sends product recommendations over corporate banking channels.  A number of banks are collaborating with fintechs to come up with a solution that passes muster with both regulators and customers.

New solutions

In general, banks must design their cash management solutions with the customer journey in mind. Even today, the corporate channels of many banks have silos – for liquidity, for payments, for supply chain finance and so on – when their customers would much rather go about their daily journey using a unified interface, starting from checking account balances, forecasting cash, consolidating money across accounts automatically, and at the end of the day, sweeping excess funds into an investment vehicle. This means that corporate banking channels must be fully integrated at the front end, even if the back end systems sit apart, so that as far as the customer is concerned, there is only one experience.

Today, corporate banks – which lag retail institutions in tech adoption – are undergoing legacy transformation. Emerging market banks are leapfrogging others by working with fintechs, using open architecture, adopting real-time payments and devising great user experiences. They are also co-innovating with fintechs in emerging technologies such as artificial intelligence, machine learning and blockchain to create better services and solutions. Banks are recreating treasury management functions on customer channels for the smaller enterprises that cannot afford such systems, thereby opening up a new revenue opportunity for their own organisations.

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