- Christof Hofmann
- Head of Cash Management, Deutsche Bank
- Lena Myklebust
- Head of Cash Management Infrastructure, Equinor
The Reality of Real-Time Revealed
The corporate world has never before had access to so much rich data and fast connectivity. But will this exciting new terrain really change how treasury operates? A recent TMI podcast recorded at Treasury 360 in Gothenburg, Sweden, uncovers the reality of real-time. Lena Myklebust, Head of Cash Management Infrastructure, Equinor, and Christof Hofmann, Global Head of Cash Management, Deutsche Bank, are your guides.
The arrival of APIs, AI, and RTPs, alongside the standardisation boost that is ISO 20022, appear to be solving some of treasury’s most pressing issues, commented Hofmann. But he suggested that these specific solutions are not operating in isolation. “They are only ever complementary to the ongoing work around centralising structures, establishing in-house banks, implementing payments and collections on behalf of, and ensuring treasury is in control of liquidity.”
As a collective response, Hofmann believes it brings a new opportunity “to add tremendous value and really move treasury to the next era”. A case in point is Equinor, which has significantly improved cash visibility and efficiency through the centralisation of its treasury. As Myklebust explained, it now has one ERP for all group companies, an IHB and a cash-pooling solution serving as “a really good starting point for optimising liquidity today”.
Self-service data
The current process within Equinor is largely batch-based, using next-day or end-of-day confirmations and bank statements as its guide. The advantages of real-time treasury will come with “the next big change”, which Myklebust revealed will see the firm’s operations leveraging real-time updates. “Being able to see payment status and confirmations across time zones will help us considerably,” she stated.
Equinor works in the US, LatAm, APAC and Europe, and timely confirmation of payments in each region, especially in its trading organisation, is critical to the release of cargoes, she explained. In a real-time set-up, Equinor’s business areas can now access an internal self-service tool to directly see the status of payments and receivables instead of having to call the firm’s central payments unit. “The dream scenario now is to have a fully bank-agnostic solution for real-time balance and transaction reporting for all bank accounts.”
To this effect, Equinor has implemented Swift instant cash reporting (ICR) to enable it to receive real-time data. While it has already achieved this through one Swift API integration supported by Deutsche Bank, ICR potentially provides real-time visibility of the firm’s account balances across all its Swift integrated banks. With a single API approach, Hofmann said there is real value in standardisation and scalability that can be used across banks, rather than maintaining many bank-specific connections.
In support of Equinor’s push for a scalable solution, he admitted that “sometimes as banks, we make it too difficult for our corporate clients to adopt”. He urged other banks and corporates to follow this example of ICR adoption. “Let’s make corporate access easy. As banks, we acknowledge that many of our corporate clients multi-bank. We know, too, that they will never use just one bank. So, let’s make it easy for them to leverage the data that we provide.”
Noises off
There is often an assumption in the treasury tech space that faster equals better. For Myklebust, real-time data “really adds value during the day”. This, she said, is about real-time visibility and transparency enabling treasury to act quickly on errors or anomalies, receive real-time payment confirmations, and adjust short-term liquidity planning as needed. But, she suggested, it doesn’t work for long-term liquidity planning. “With access to real-time data, you don’t want to create unnecessary noise, false urgency, and over reaction. You should use real-time data only where it matters.”
She continued: “You don’t want to micromanage your liquidity down to each and every cent on a daily basis. For us, it’s about seeing the bigger picture. We want to be in a position to manage our balances so we can keep smaller buffers in our bank accounts, but still be able to trust our intraday data.”
While the benefits of real-time are clear, the potential of real-time to generate noise and complexity in treasury certainly need not be an issue, said Hofmann. “I believe treasury organisations typically act in a rational way. It’s never a matter of acquiring and analysing all the data at once: they should start by defining what they want to accomplish.”
Taking as an example the payment traceability of Swift G4C, Hofmann commented that although corporates will want to look closer at delayed payments and other exceptions, “there is no value in tracing every single payment; instead, create alerts to identify those service disruptions”.
Of course, banks can push account information every couple of minutes if really needed, but the treasurer ought to have a clear purpose for this information. “It’s not about acquiring all the data possible, but about integrating real-time data to support relevant use cases and decision-making with the most recent information,” he clarified. “This means real-time data flows must be thought of in combination with the organisation’s critical processes.” By adopting this approach, he believes it will ensure data delivery is “not a distraction but a value-adding service”.
Taking the digital initiative
The maturity of real-time treasury developments differs significantly among corporate clients, observed Hofmann. While some are yet to begin exploring the advantages, Equinor and others have “a very clear roadmap guiding them towards real-time treasury”.
As an example, one Deutsche Bank client has recently started using instant payments in Europe at scale and now executes payment runs every weekend. “It is leveraging the fact that it can benefit from holding the liquidity a bit longer by making weekend payment runs when it needs to. It’s optimising liquidity by moving it around the world 24/7.”
The bank’s clients are taking different paths with AI adoption too, noted Hofmann. He cited two of the most prominent use cases as cash flow forecasting, and order-to-cash reconciliation. “There are other instances showing how real-time information is being used on the reporting and decision-making side, especially when combined with APIs and embedded into treasury processes,” he added.
Despite the best aims/claims of AI, a 100% accurate cash flow forecast is “probably not likely”, said Myklebust. “There will always be surprises. There will always be incoming payments that are late, for example, and that you cannot control.”
Nonetheless, she feels that treasury can begin to “optimise with AI”, using technology to track any deviations and anomalies, for example, “and chase that customer that didn’t pay on time”. With this in mind, she is of the opinion that AI will eventually “become a lot smarter and more accurate than it is today”.
However, even now, if there is a cash flow forecasting error, once immersed in a real-time treasury world, Hofmann pointed out that mistakes “might be much less relevant when you can move liquidity when and where you need it”. It means treasurers can still fund accounts, “even if their short-term cash flow forecast didn’t materialise as anticipated”.
AI-enhanced cash flow forecasting is now on the Equinor to-do list, Myklebust revealed. “We have one common system, so we have the data easily available. Now we need to optimise it with smarter tools. We have a group looking into digital initiatives with the different AI tools, and cash flow forecasting is one of the first use cases, as it is with many corporates.”
Value at its heart
When practical real-time steps are afoot, Myklebust’s advice is to start small. “Don’t overdo it in the beginning because you really need to find where it adds value and where you can reduce risks and complexity for your day-to-day operations.”
Equinor has put into practice its quest for real-time visibility into payment status, delivered through a self-service tool and the adoption of Swift ICR , which provides easy access to intraday balance and transaction reporting. “Now our teams responsible for daily cash reconciliation can clear open items on vendor and customer accounts during the day,” said Myklebust. “This saves time as the process becomes more predictable and less dependent on end-of-day manual follow-ups. It will also reduce workload at end-of-month and quarter ends as we have the data available earlier. And with intraday bank clearing, we will have intraday visibility into counterparty exposure, and be able to release credit lines intraday to enable more trading.”
But Myklebust warned that the use of real-time data demands good governance. Equinor has put in place highly structured treasury policies for each team so that they know how to operate to optimal effect within the real-time world, she confirmed. “When you have real-time visibility into your balance and transactions, you should have a clear mandate on what you can and can’t do with that data, ensuring no one is micromanaging liquidity. You need to focus on material risks and have clear decision rules. If not, then real-time can become information without intention.”
