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The Role of Cash Management in Banks
The administration of daily monetary activities that take place within an institution or between various organizations is known as cash management. It is one of the core services provided by the banks to their clients.
The banks’ customers consist of sole traders, Small and Medium Enterprises (SMEs), Mid-Market Enterprises (MMEs), MSMEs and extends up to the largest and most complex of global corporates and financial institutions. Thus, making banks the organizations handling the highest amount of cash flows compared to other institutions.
Banks are responsible for managing deposits received from all their clients. For effective cash management, banks ensure that their clients’ liquid assets are managed well while optimizing liquidity at minimal costs and earning profits to run the bank effectively. Hence, a cash management system is one of the major and important aspects of the banking sector.
Digitalization of Cash Management Systems
The technological evolution is causing a tremendous rise in customers using digital services and their expectations. This increases the complexity of cash management operations in businesses. This can be an opportunity for banks to serve their corporate and retail customers. But banks need to level up their cash management systems to be in tune with the hyper-digital era. So, the digitalization of cash management systems has become vital.
However, this isn’t the only reason for digitalization. Digital cash management systems are flexible enough to address dynamic market needs. The comprehensive digital cash management solutions enable banks to customize experiences specific to customer’s requirements.
Its self-service capabilities allow customers to manage collections and payables and forecast cash flows. It equips the bank staff with intuitive dashboards that can present information like payers’ health, top ten customers, and payment overdue. Banks can deliver a superior digital experience to their customers using the AI-enabled micro-service architecture.
How Will Technology Shape the Future of Cash Management in Banks?
Effective cash management has become a strategic priority for banks which can further improve margins, support global liquidity, address pain points, and create a competitive advantage. Below are the four focus areas of next-generation cash management services that will help banks become integrated and innovative extensions of their clients’ treasury teams.
1. Streamlined Onboarding
According to a banking survey, customer onboarding takes nearly two weeks. The onboarding process includes gathering client information, documentation, due diligence, and verifying signatures. Streamlining this process can reduce the cycle time, leading to the faster conversion of prospects to revenue-generating clients.
Dealing with the papers and documentation involved in the manual process is the most cumbersome task. Adoption of next-generation document solutions can not only increase the efficiency of the overall process but can also reduce operational costs. These advanced cash management services can provide enhanced client portals with detailed dashboards that allow clients to drill down specific items and track milestones.
2. Improved Insights
Today, treasurers or financial managers require access to actionable information to make strategic and tactical decisions in real-time. There are many areas in which bankers can make effective use of improved insights. In foreign exchange risk management, bankers can look up economic data for each country and analyze the currency to determine the necessary time for hedging.
Using advanced analytics, banks can provide more dynamic and accurate cash forecasting capabilities to their clients. These analytic capabilities can also support the proactive prevention of fraudulent activities.
3. Enhanced Client Experience
Corporate clients are demanding an omnichannel experience, where their banking partners can provide different approaches to transact based on the type of activity. For instance, treasurers may require online self-service capabilities and mobile applications for routine transactions. Whereas, for more complex and tailored activities they may need a platform where they can communicate with their partners.
Using artificial intelligence and APIs, advanced cash management solutions can provide customized digital channels for different patterns of cash flows. This technology will also enable a seamless integration of banks and clients’ enterprises.
4. Product Innovation
Banks in partnerships with FinTech firms can come up with innovative solutions to support treasurers with their core responsibility of cash and liquidity management. Virtual accounts and faster payments are two such examples.
Virtual accounts are accounts within banks for corporate clients to optimize their working capital processes. VAM (virtual account management) solutions can be used to streamline and automate the reconciliation of account receivables and cross-currency transfers. Faster payments allow businesses to transact round the clock; more transparently, securely.
New Challenges for Bankers
Along with technological advancements, bankers will have an increased role in cash management activities. The bankers will have to get rid of the legacy systems that they have got accustomed to over many years. They will have to open appropriate assistance channels for consulting with their customers while offering new tools.
Although cloud-based architecture can protect data at a larger scale, bankers will be dealing with security issues all the same to prevent cyber-attacks.
Digital disruption in banking will change the face of cash management services as new payment methods and service models continue to develop. Banks are committed to providing effective cash management to their clients. In this transformation journey, technology providers and Fin-tech firms will act as long-term partners for banks. These firms can help the banks in meeting their customers’ expectations in this digital age.