Real-time Treasury: What’s the Reality?

Published  4 MIN READ

Far from being confined to the payments space, real-time technology has the potential to transform operations rights across the treasury, writes Shahrokh Moinain, Head of Cash Products, Deutsche Bank.

The concept of a real-time treasury has begun to permeate the corporate consciousness. Driven by progressive regulation, advancing technology, and the popularity of real-time payments, it promises a new vision of treasury functionality. But what is the reality of this vision and where do we stand now?
Technology is shifting the tectonics of the banking landscape – but there are still auxiliary mechanics – and legacy upgrades – that must be developed before the real real-time treasury can be claimed. The end goal is a treasury with fully automated routine processing, leaving the treasurer to focus on exception handling and strategy.

The realisation of this vision is still some way off, but many of the building blocks are already in place, and treasurers can already take advantage by exploring foundational solutions such as intra-day sweeping, virtual accounts and advanced cash-flow forecasting, as well as real-time FX conversion and hedging.

Moving towards real-time liquidity

Since standard sweeps involve far greater sums of money than the current upper limit on most instant payment schemes, corporates would be forgiven for thinking this halts their access to real-time liquidity management. However, there are still steps that can be taken.

For instance, progressive treasuries can get ahead by implementing solutions such as intra-day sweeping, with timed sweeps from local accounts to a liquidity bank ensuring cash is centralised on a more regular basis. This earns an extra day’s interest on investments, gives treasury a clearer picture of overall liquidity positions, and prepares the infrastructure for the eventuality of real-time sweeps once payment caps are raised.

The option of virtual accounts is also compelling – replacing the network of physical accounts with a single physical master account overlaid with a network of sub-accounts. This sees money paid into or out of multiple account numbers that all feed into the same master account, resulting in instant cash concentration, without the need for sweeping.

Upgrading the cash-flow forecast

Cash-flow forecasting is also set to benefit from a real-time upgrade. PwC’s most recent Global Treasury Benchmarking Survey reports that 75% of treasurers still struggle with producing accurate forecasts[1], but new technology and richer payment data are set to address this.

Transparent solutions such as SCT Inst and SWIFT gpi also stand to provide clearer, more up-to-date information for analysis, while the latest artificial intelligence (AI) technology can collate far larger data sets than previous rules-based logic systems. With the right set-up, treasury can use AI to process and visualise data on the timing of payment runs, recorded customer payment behaviour, historical patterns, rebate schedules and more, to create unprecedentedly fast and accurate forecasts.

FX management

In terms of FX management, currency conversion and hedging can also start shifting to real time.
Traditionally, batch processing underpins cross-currency transactions, generating significant exposure to rate fluctuations and a lack of visibility over conversion rates. Multinational corporates working in multiple currencies will not see the full benefits of real-time payments until FX conversion and hedging receive real-time treatment too.

Often, cross-currency conversion and its booking process are disconnected from the rest of the transaction, creating ambiguity over when a payment is executed and what rate was used. The most effective solutions to this challenge leverage real-time technology to time-, date-, and rate-stamp each conversion – providing unprecedented visibility over a traditionally opaque area of treasury.

Real-time technology and artificial intelligence can also be combined to execute hedges based on user-defined rules. For example, Deutsche Bank’s hedging solution, Maestro, has the capacity to respond to exchange-rate fluctuations in real time – although this is dependent on how quickly the treasury’s systems can feed information into the platform. Real-time events could even be configured to trigger automatic hedges, in line with the treasurer’s pre-defined risk profile. This not only generates high-quality hedges with minimal delay, but also frees treasurers to focus on adding value elsewhere.

Time for treasurers to act

These are just the first steps on the road to building a fully-fledged real-time treasury, but they offer their own short-term and long-term benefits. In the meantime, there is work for banks to do – particularly when it comes to knitting together real-time solutions into a single, manageable interface. The use of application programming interfaces (APIs) will be essential here and proactive banks are already aligning themselves with software developers, as Deutsche Bank has done with Mumbai-based Quantiguous[2], in order to drive these facilities to market.

So, while the real real-time treasury remains a number of years away, treasurers can begin upgrading their treasuries now – and reap the rewards of gaining a head-start.