The Rising Velocity of Cash and Data: Establishing a Real-time Treasury

As real-time payments and collections gain traction, the velocity of cash is accelerating. In turn, treasurers must move away from outdated systems and batch processing, while exploring the possibilities of real-time investing. They must also learn how to handle and analyse swathes of data ‘on demand’, to make the most of the 24/7/365 environment. Four experts from HSBC share practical insights to assist in building a truly real-time treasury.

Turn back the clock to 2007 – the year that Apple launched the first iPhone and Netflix began its TV and film streaming service called ‘Watch Now’ . In many ways, these two innovations kickstarted the ‘on demand’ consumer mindset, which soon began to change the face of the payments industry. Indeed, the following year saw the launch of the UK’s Faster Payments Scheme , aimed at supporting the growing culture of instant commerce.

Since then, over 55 countries have gone live with real-time payments schemes, and more are in the pipeline – with Canada set to go live in 2021 . Money can now be moved in a matter of seconds, 24/7/365, and with this shift to instant payments has come the notion of real-time treasury.

According to Kee Joo Wong, Managing Director – Regional Head of Global Liquidity and Cash Management, Asia Pacific, HSBC, ‘real-time treasury’ is about “empowering clients to have the digital payment/collection channels, connectivity options, and data reporting to enable them to make fast, efficient and accurate business decisions.”

But how can corporates work towards this goal? What are the challenges and opportunities of real-time treasury? And do treasurers always need to operate according to an instant timetable, or is there a happy medium to be found?

Laying the foundations

Tom Halpin, Managing Director, Global Head of Payments Product Management, Global Liquidity and Cash Management, HSBC, says that the cornerstone of real-time treasury is instant payments and collections. “Where real-time payment capabilities were once seen as solution mainly suited to consumer-related interactions, with rising value limits and increased digitisation, instant payments have gained importance for business-to-business space [B2B] too.” Adoption is growing steadily, he says, with Covid-19 acting as a catalyst for change as new digital business models have helped corporates discover the value of real-time payments (RTPs) and collections – beyond just the transactions themselves.

Additional innovation in the RTP space is yet another driver of adoption. Halpin explains: “Initially, RTPs simply looked to increase payment velocity and availability. With that increased speed, corporates began to explore the benefits of just-in-time payments, without the limits of cut-off times. Treasurers also explored digital cash on delivery options, together with ways to improve customer service using RTPs, such as faster refunds or insurance pay-outs.”

Now, though, RTPs are evolving. Extra services are being layered on top to improve the value proposition around instant payments, leading to increased corporate usage and more sophisticated treasury strategies around RTPs. Examples of such additional services, says Halpin, include embedded security features such as ‘confirmation of payee’, which involves pre-validation of the beneficiary. “This capability has already been implemented in the UK and other markets across the globe are following in their footsteps. With payments being transmitted in seconds, this kind of functionality can help to increase trust and reduce both errors and fraud, which can be tougher to catch in a real-time environment,” he notes.

While such steps are intended to improve security, they can add a little friction into the payments process. But another interesting trend – the growing use of ‘aliases’ in the real-time payment world – is helping to streamline processes once again as payers no longer have to focus on the account number, but can instead use an email address, for instance. “This enables real-time payment schemes to be more flexible and more user-friendly. Potentially, it also creates a strong foundation for increasing the velocity of cross-border payments too, with the notion of a universal ID,” comments Halpin.

Wong echoes Halpin’s enthusiasm around corporate adoption of instant payments, and treasurers’ increasingly sophisticated and creative approach to them. “In Asia Pacific specifically, we have seen the rise of RTP schemes is in response to technology advances, client demand, as well as progressive regulatory policies to remove inefficiencies, increase payment velocity and encourage competition.”

RTPs are now live in 12 markets in Asia and Wong has witnessed – and helped enact – various innovative use cases of real-time payment solutions, leveraging overlay technologies such as application programming interfaces (APIs)*, which are helping to transform business models. For example: “We support a new-age digital company operating in the food delivery space that uses RTP to pay their drivers and restaurant commissions, leveraging APIs and features like payment validation,” says Wong. “Using real-time payments, the company is now able to make regular immediate payments, which was not possible using previous payment methods. Ultimately, this solution provides a better experience for their drivers and restaurants, as well as building competitive advantage.”

* To find out more about the rise of treasury APIs, please read our article The Resilient Treasurer: Building a Digital Armoury for 2021.

Revolutionising receivables

The benefits of real-time capabilities are also coming into their own on the receivables side, says Halpin. One solution that has been particularly popular during the pandemic is HSBC’s Omni Collect offering. Live in over 10 markets, the solution leverages API connectivity to enable merchants to offer multiple payment options to consumers, including instant payments, e-wallets and cards. “The solution has helped to minimise the use of physical cash, and boosted the profile of RTPs enormously,” he comments.

What’s more, the solution offers a comprehensive view of collections across different channels. “Omni Collect brings multiple data sets together in one place and companies can consume that data in real-time, by having it transferred back to them by the bank via an API. Of course, if they don’t require that in real-time, they can have an end-of-day batch update instead – but this limits the potential for truly real-time treasury.”

Elsewhere, solutions which leverage the open banking revolution and APIs to enable real-time payments direct from customer bank accounts are emerging. “Pay-By-Bank in the UK, for example, allows corporate customers to present a payment experience that is an alternative to cards, essentially offering the customer an opportunity to make a payment directly from their bank account, via an authorisation in their banking app. This gives consumers the secure experience they expect, while the merchant benefits from improved control since they receive a real-time payment with a reference that they generated to begin with. This means that they can immediately reconcile the incoming funds,” says Halpin.

Another way of speeding up reconciliation is to combine real-time collections capabilities with technologies such as QR codes, which increase the amount of information contained within an incoming payment. Here, Wong highlights the example of an HSBC client: “A major utility company in Hong Kong has leveraged a QR code-enabled payment process to eliminate manual and paper-based payments. By embedding QR codes on both paper and online statements, their customers can initiate payment upon scanning the QR code. This streamlines the reconciliation process as QR codes capture key reference information. Cash velocity is increased, since payments are settled instantly.”

Of course, real-time collections are not without their considerations. Wong notes: “Treasurers need to truly understand the end-to-end impact of real-time collections on their businesses. For example, what happens if a payment/receivable arrives after business hours or during the weekend? How will their systems handle it?”. The cost of running a real-time collections operation could also be significant, without the correct technologies in place.

Beyond the basics

Another area where greater thought is required is the impact of real-time data and real-time liquidity management on treasury functions. “Master data sets will evolve significantly with the addition of enriched data from RTPs and new elements such as payment aliases. Data is rapidly becoming a valuable corporate asset and treasurers must consider how they keep pace with that data, how they store it, manage and process it,” says Halpin.

Having this data consolidated and displayed in easily consumable ways will also be important, if treasury is to turn it into real-time insights, says Kalati. “In recent years, and in particular throughout the pandemic, it has become essential for treasurers to have access to tools that enable them to visualise where their cash is in real-time – and in an intuitive way.”

Previously, he says, clients would organise that information through Excel or offline sources, and ultimately transpose it into a visual front-end, through manual processes. “Now, nobody has the time to sift through spreadsheets or bank statements; they expect to be able to consolidate data in much smarter ways – and with the same speed that they anticipate in the real-time operating environment.”

One tool that is enabling treasurers to achieve this instant visibility is HSBC's Liquidity Management Portal (LMP). Kalati comments: “Through our technology developments, we are building a real-time ecosystem for treasurers. At the heart of this sits the LMP which provides the treasurer with a toolkit to manage their cash in the most effective manner imaginable.” This online service brings together historical and current views of the corporate’s cash in a single dashboard. Layered on top of this are analytics capabilities, which enable visualisation of past and present cash trends in a dashboard. And treasurers can quickly and easily drill-down from a consolidated view of their organisation’s balances globally, to an individual account.

He also says that there is a great deal of flexibility in how the treasurer can organise information depending on the company’s own set up: the tool can consolidate cash at a unit-, project-, company- or regional level. “Customisation is easy and the tool flexes to accommodate attributes used within the client’s organisation – ranging from entity names or numbers to invoice details, depending on the corporate’s own set up,” he notes. Furthermore, it is possible to plug in data from ERP systems into the LMP to bolster the level of visibility beyond balances held with HSBC.

A forward-looking view of cash can then be added, via the new cash flow forecasting tool that HSBC has rolled out. The tool, which was developed in conjunction with a fintech, enables treasurers to compile a forecast of all cash movements that impact their organisation’s day-to-day cash position, from the present day to any chosen time horizon in the future – leveraging predictive analytics. “From there, scenario analysis and stress testing can be performed to help determine the correct level of cash that the organisation needs to keep at hand,” says Kalati.

Commenting on some of the tool’s capabilities, Kalati says: “It is AI-ready, and brings functionalities to treasurers that would likely be cost-prohibitive for many to implement themselves. And the capacity to visualise cash flows and use the in-built presentation layout is helpful for at-a-glance updates, and briefing the C-suite.”

This cash flow forecasting tool, Kalati believes, is critical to the creation of a truly real-time treasury environment. “When corporates attempt to forecast without a specialist tool, the amount of time it takes is unthinkable. Employees might be inputting to the forecast from every level of the organisation ¬– and gathering spreadsheets is a painstaking, and often error-prone, task. Having a dedicated, easy-to-use tool, not only speeds up that process but standardises it at the same time.”

Investing at speed

With visibility achieved over the backward, current and forward-looking cash positions, Kalati says the next step is connecting this insight with the tools treasurers require to execute liquidity decisions, in particular in relation to short-term investments.

“Historically, investment processes have been disjointed from cash flow forecasting workflows,” he explains. “Treasurers have had to switch between systems and drop down a few gears in order to invest any excess cash. Now, those investment capabilities are built in to the LMP, so that cash and liquidity management duties can be performed in one place. This is much more efficient and enables quicker decision making and execution, as is required in the real-time treasury environment.”

Within HSBC’s LMP, parameters can also be set up to enable automated investment of excess cash flows, whereby surplus monies are swept into pre-selected money market funds or deposit products when predetermined cash levels are met. This adds another layer of efficiency, and increases the velocity of investment.

“Of course, there are treasurers who like to be more involved in investment decisions, and it’s absolutely possible to manually invest surplus cash. The beauty is having the option of automating the process when it suits the treasurer to do so,” notes Kalati.

As an aside, he mentions that one of the newer deposit products treasurers have the option of investing in via the LMP is HSBC’s green deposit. “The ESG agenda is becoming an integral part of business success, and customers and suppliers expect organisations to demonstrate authentic action in this space. As such, the role of treasury is changing, and treasury teams must find ways to support the wider business to meet its ESG goals – green deposits can be a great option,” he adds.

New treasury paths

Ramsay picks up on this notion of the changing role of the treasurer, elaborating on the impact of real-time transactions on treasury’s remit. “Treasurers now need to consider the consequences of their actions much more closely in terms of the impact on overall cash flows – they no longer have 60 or 90 days to pay. Much faster reactions are required,” he says.

As such, an ability to embrace new technologies that enable treasury to thrive in the real-time environment is paramount, Ramsay believes. “Take distributed ledger technology (DLT) or blockchain as an example. Smart contracts can be deployed on the blockchain to automate payments when pre-agreed parameters are met. This kind of technology minimises treasury’s workload and increases the velocity of treasury’s reaction time.”

And as much as DLT may seem still futuristic, some corporates are already using it. “We have one client who is using blockchain technology through an ERP system to allow the movement of cash 24/7 – both in terms of making and receiving payments. This particular corporate believes that using blockchain, rather than traditional payment rails, is a more efficient way of operating in the real-time environment.”

The US banking regulator, the Office of the Comptroller of the Currency (OCC), has also recently endorsed blockchain as a means for making payments – thanks to its approval of the use of stablecoins for the settlement of financial transactions by banks . Stablecoins are a type of cryptocurrency, but their value is tied to an asset, like the US dollar, to help minimise volatility. Many market commentators see stablecoins as a bridge between the unstable and unregulated world of Bitcoin and the pipeline developments of central bank digital currencies (CBDCs) as part of the ‘on demand’ ecosystem, says Ramsay.

“Regulators and governments are looking at whether CBDCs can be used to help facilitate the distribution of digital cash, in real-time. It’s highly likely that regulators will leverage CBDCs to help reduce fraudulent activity in the system too,” he comments. CBDCs also hold great promise in the cross-border payments space, says Ramsay, essentially acting as a building block for real-time international transactions – without the friction sometimes encountered by banks in different jurisdictions. This could help enable a truly 24/7/365 global operating environment, he believes. Nevertheless, “while the technology is there, the legal aspects of such a solution still require work – and this is arguably the most significant hurdle.”

In the nearer-term future, HSBC is looking at different ways of enabling ‘always on’ treasury operations. One possible answer, Ramsay believes, is to help corporates embed financial processes into their business processes – as a means to reduce friction and inefficiencies. This is where the concept of Banking-as-a-Service (BaaS), also referred to as ‘embedded finance’ comes into play. This is a growing market, estimated to be worth $7 trillion by 2030 for those who enable it.

Driven by open banking and APIs, BaaS essentially involves banks enabling corporate clients to embed financial services in their own products – to benefit the customer’s customer, and indeed their suppliers. This could range from payments capabilities to lending, insurance and investments. “And while BaaS may currently be seen as more of a trend among Business to Consumer [B2C] organisations, especially in the tech sector, we see its application growing in the Business to Business [B2B] space, and into a whole range of industry sectors,” confirms Ramsay.

BaaS enables clients to service their own customers in a more integrated way. “Take a manufacturer of large consumer goods, that works with distributors who, in turn, work with other distributors. All that could be streamlined by creating a marketplace for those distributors, and then embedding a financial services into that marketplace.”

This level of integration allows much greater efficiency in business flows, thereby increasing the velocity of cash and data, says Ramsay. And “there are wins for everyone involved - from lower interest rates on finance to stickier business relationships.”

For those treasurers who are not yet ready to explore BaaS, the good news is that slightly more familiar tools such as robotic process engineering (RPA), artificial intelligence (AI) and machine learning (ML) are also critical components of real-time treasury, according to Ramsay. And, here, he even calls for caution in the use of too much creativity.

“Before looking to sophisticated uses for these technologies, I would urge treasurers to first use them to create time savings within their daily workflows – not least by capturing data. After all, clean, accurate and timely data is essential to the proper functioning of algorithms.” He adds that “mundane and low value tasks are ideal to apply ML and AI to. In turn, this releases time for the treasury team, enabling them to be more strategic – which is precisely what’s required in the real-time environment.”

Making a success of real-time treasury

Against this ever-evolving backdrop, Ramsay’s parting words of wisdom for treasurers are to “not be afraid to ask questions about new technologies and to explore how technology can be applied to your business to help it perform better and faster.” But he adds that treasurers must also be aware that they will be undertaking a different role in the real-time environment – and that “everything has to move on”.

There is also a delicate balance to be struck here, says Ramsay. “The challenge comes not so much from change itself, but from managing the continuum of change. This requires treasurers to master new technologies and real-time operations, while managing existing treasury processes and systems – potentially across new customer segments and in new geographies. In short, the treasurer will need many strings to their bow.”

Halpin meanwhile, cautions that it is not only the treasury function that must adopt real-time practices; it’s the entire financial supply chain. “This means your accounts payable department, your accounts receivables department, the operational areas of your business, and your counterparties. As such, taking a holistic, ecosystem view is critical.”

In a moment of candour, he also says that it's important to remember that ‘real-time’ isn’t always the answer. “Sometimes, it can be an excellent solution to a particular problem, but other times it can be overkill.” We are also still at the start of the real-time journey, he notes, and there is much more to be achieved before all of the instant transaction and data benefits can be gleaned.

Nevertheless, Wong believes it is important for treasurers to prepare for the advent of truly real-time treasury – especially by getting ready to manage and store real-time data. “As the velocity of treasury operations increases, mastering data will be just as important as mastering payments,” he concludes.