Five cash management essentials banks cannot afford to ignore

20-May-2019

Commercial banking has been one of the most profitable segments for banks traditionally. However, with the rising competition from innovative FinTechs and technology giants, banks are fast realising the need to protect their margins in this crucial line of business. After a slow response to digitalisation and disintermediation in retail banking, banks the world over are strengthening their solutions and value propositions for their corporate business clients. They have the advantage of long-lasting customer relationships with their corporate clients, and they must deepen these relationships by offering enhanced digital solutions to avoid getting marginalised. In this article, we shine the spotlight on five such solutions.


1. Digital self-service

In retail banking, the rapid adoption of new digital channels is visibly evident. The multiplication of digital channels is driving self-service, and leading banks such as Capital One in the US are already offering banking services on smart voice assistants. The growing trend and preference for self-service is on the rise in corporate banking too, where leading and progressive banks are introducing innovative, user-friendly solutions that can be accessed on the customer’s channel of choice. Increasingly, corporates require a single portal from where they can view and manage all their operations across the globe. An example is Santander UK. The bank offers cash management, cash forecasting and payment services that its corporate customers can access on any device. Seamless integration of banking services with the ERP systems of large corporates is another solution proving to be a multiplier of organisational effectiveness and productivity for businesses.

2. Data-rich cash management and forecasting

Large corporates in most countries are faced with the dual challenge of allocating cash reserves efficiently in times of negative interest rates and managing liquidity resourcefully for their growing international business presence. Corporate clients are looking for solutions that can help minimise liquidity risk and provide a real-time view of their global cash and liquidity positions.

Banks on their part, are tapping into the new open-banking possibilities and enriching their offerings with data to deliver more value to their business clients. Firstly, as account aggregators they can now offer their customers a centralised view of funds across all banking relationships, and also allow customers to extract this real-time information to perform fund transfers for improved liquidity management. Secondly, with data-driven insights banks are augmenting their cash management solutions with superior cash-forecasting capabilities. For instance, modern cash and liquidity management solutions allow a corporate business with multi-country operations to move surplus funds from an account in one country and manage future working capital requirements in another country efficiently. These forecasting solutions provide a unified view of cash forecasting and working capital needs, and allow fund movements for local as well as international operations through a single self-service portal.

3. Virtual account management

Enhancing the centralisation of operations and self-service further is a solution called Virtual Account Management (VAM). Virtual accounts reduce administrative overhead significantly by simplifying reconciliation and enabling greater straight-though processing through efficient in-house banking. They allow corporates to build their own hierarchy of accounts that aligns to their structure of business units or subsidiaries. Enhanced liquidity management techniques such as payments-on-behalf-of and collections-on-behalf help a corporate treasurer manage payables and receivables using a minimal number of external accounts.

4. User-friendly liquidity dashboards

Growing businesses looking for efficient liquidity planning solutions demand single-view dashboards that provide a global view of domestic and international accounts across multiple banks. Progressive banks are enhancing their cash management solutions with intuitive analytics-driven dashboards. In addition to a comprehensive view of future cashflow and liquidity positions, these dashboards make recommendations for next best action, provide suggestions and trigger alerts. They allow corporates to set up and manage rules for automated action. For instance, a corporate can set up rules for the movement of surplus funds into money market or foreign investments. Using the information about the risk profile of a business and the defined rules, the liquidity management solution can move funds and make investments to manage surplus efficiently.

5. Integrated software solutions for small and medium businesses

The cash management requirements of small and medium businesses are very different from those of large corporate giants. Although the sector promises attractive returns, it has been long-neglected by banks. However, emerging digital technologies are now helping banks provide tailored solutions to their small and medium business clients.

Small and medium businesses (SMBs) seek cash forecasting and working capital management solutions that can be accessed and used on-the-move on channels such as mobile and tablets. Enhanced self-service, instant approvals, and quick transactions are the key considerations for an SMB looking for cash management solutions. Apart from multi-channel capabilities, a bank’s solutions to its small business clients such as mom-and-pop stores should be easy to integrate with accounting packages. For instance, a solution that integrates with accounting packages such as Intuit – used by mom-and-pop stores typically – allows a shop owner to carry out transactions through e-banking conveniently. These solutions also increase the ease-of-use and adoption of cash forecasting tools.

Conclusion

FinTechs and nimble digital upstarts are already fast becoming the preferred providers of lending and payment services for businesses in the small and medium business segment. Although not as rapid, the early signs of disruption in corporate banking have also begun to appear. An established customer base is one the most significant assets for banks, and banks must find sources to deliver enhanced value or risk losing these relationships. They must act fast, and they must act now.

Banks looking to augment their revenues from the corporate and SME segment must build capabilities such that they can serve the diverse needs of corporates as well as SMBEs equally well. Their solutions for SMBs should allow quick, easy and on-the-move cash management capabilities to their time-pressed small business customers, and their solutions for large corporates should provide insight-driven flexible and comprehensive cash management capabilities. Going forward, corporates expect to be empowered with a relevant digital cash management offering that will be able to manage their operations with agility, and optimize their working capital.