Optimising liquidity in times of trouble

In today’s volatile and interconnected world, companies need more than just be able to transact in real time. They require a dynamic and complete digital view of their liquidity positions, credit facilities and utilisation, and status on documentation related issues.

Now more than ever, corporate treasurers need to ensure that they are able to fund their working capital requirements, and to them, real time banking is not simply about speeding up information flow, but rather being able to monitor their businesses continuously and to be able to react immediately when conditions change. They have been looking to banks to be able to help them co-create, sometimes with fintechs; interactive and innovative solutions that will help them meet their KPIs and deliver value to their businesses

At the same time, banks face competition from fintech firms constantly churning out faster and cheaper innovative solutions. Keeping up with technological change can be an expensive gamble for banks, especially under pressure from regulators who, as part of various open banking initiatives, want to allow third parties to access customer account data and provide payments and other value-added services.

"To bridge this real-time gap, banks must first understand what corporate clients want in order to create—in collaboration with fintech firms, where necessary—innovative solutions that address key customer pain points, but also benefit the banks themselves," said Krishna Sampath, head of liquidity advisory for Asia Pacific at BNP Paribas (pictured above).

 What do corporate banking clients want?

In our discussions with corporate clients, they were unequivocal in their expectations of banks providing them with one-stop digital solutions that can:

• Simplify and speed up time-consuming and duplicative processes such as KYC documentation, on-boarding, and tracking the opening of new, and closing of dormant accounts.
• Provide real-time access to vital information such as liquidity positions, FX and interest rates, utilisation of existing credit facilities, and statuses of service-related issues.
• Enable real-time payments, settlements and liquidity solutions.
• Facilitate real-time collection and reconciliation of receivables and payments via e-wallets.
• Deliver seamless data transfers between banks and corporate treasury management systems (TMS) and enterprise resource planning (ERP) platforms.

Real-time solutions for real-world problems

Over the past year, BNP Paribas has worked with corporate clients and fintech firms to co-create several digital tools to address specific pain points.

Documentation and account tracking: In Europe, we recently launched WELCOME, an interactive tool that can digitalise the KYC and account maintenance processes, provide on line status reporting and eliminate manual document submissions. WELCOME complements Cashboard, our online dashboard that gives corporates a complete view of their relationship with BNP Paribas.

Open API collaboration: Many corporates no longer want to wait for banks to issue MT942 statements to get periodic updates, at a cost, on their liquidity positions. By embracing an open application program interface (API) architecture, we can standardise API specifications to facilitate inter-operability across different regions and even different financial services providers. Corporates can raise authenticated banking queries in real time via their TMS or ERP platforms and improve their cash flow forecasts and potentially minimise the need for expensive overdrafts.

Reconciling receivables: Reconciliation of cheques continues to be a major headache for corporate treasuries, hindering real-time visibility of corporates’ cash positions. To address this, BNP Paribas collaborated with a fintech firm and a corporate client to create a rapid prototype of a mobile phone application that uses artificial intelligence to automate the reconciliation of cheques and invoices that provides significant efficiency gains with reduced errors and a shorter cash-conversion cycle

e-commerce solutions: The boom in the e-commerce and the alternative payments industry (cards, e-wallets, and real time proxy-based payment networks) has created opportunities that allow merchants and manufacturers to reach out to a global buyer base. However, at the same time corporates must grapple with discrepancies associated with a myriad of agreements, regulations, settlement cycles and reporting formats.

Banks can aggregate these connections for corporates to synchronize settlement cycles; provide a single point of entry for multiple payment networks and conduct report aggregation and harmonization, among other value-added services.

BNP Paribas has co-created tools to aggregate information from various e-wallets—such as those offered by Alibaba’s Alipay and Tencent’s WeChat Pay—into a single reporting format that can be fed into a corporate’s ERP system for reconciliation. The tool is well suited to corporates working with multiple e-wallet players in Southeast Asia, China, India and other countries as it eliminates the need to customise the ERP for each e-wallet.

Active liquidity management saves costs, boosts efficiency

Access to real-time data gives corporate treasurers better visibility and control over companies’ finances, enabling them to create accurate forecasts of their daily, 30- and 90-days liquidity requirements. By actively managing liquidity, treasurers stand to lower liquidity costs by deploying cash more efficiently thus improving interest yields and, in some cases, reducing the need to maintain expensive overdraft limits.

Banks too stand to gain from having to provide corporates less intraday liquidity through overdrafts, for which they must maintain liquidity reserves. These reserves come at significant funding costs that can run into hundreds of millions of dollars annually for large banks. By enabling more real-time transactions and data access to corporates, banks stand to reduce the demand for intraday overdrafts, optimise their own liquidity, improve risk management and deploy scarce funds more productively.