01 October 2006 Comments

 

Real Time Cash Reporting: the Business Case

We live in an age where technology enables us to demand, and often get, instant gratification. Cash from a hole in the wall; global mobile connectivity and pay-per-view movies. How much more could one want?

In the business of batch process in international money transfers, there are many who want more. Regulators, corporate customers, treasurers, money traders, equity dealers and even the banks themselves want to see what is going on. And they don’t want to know tomorrow. They want to know now.

Managing risk, and knowing what has and hasn’t happened against expectation is key. If you know what is happening intraday, you will more easily meet best practice in this area. For example, real-time information can support an organisation’s calculation of operational losses as required under Basel II. The availability of real-time information also supports Sarbanes-Oxley compliance, which requires the verification of deposits and movement of monies between accounts, one of the main processes affected by this regulatory framework.

Beyond compliance, a simple way to start thinking about the additional value that real-time information can bring is to look in hindsight at a set of troublesome transactions. Thinking back, what could the bank have done differently if the information had been more timely? With a liquidity cut-off fast approaching, the bank might determine it is short and so goes into the market and borrows. Then it receives an unexpected amount that covers its short position and more. But with overnight processing this wouldn’t be identified and the bank unnecessarily bears the cost of borrowing.

Real-time information supports the earlier identification of transaction failures/non-receipts and the raising of the associated investigation process. The administration and management cost of handling compensation claims and non-receipts is significantly more costly after the event.

Another benefit is that users of real-time information have reported very positive customer feedback as a result of being able to transparently identify and fix any shortfalls or erroneous trades before the customer has realised the error exists. While it is difficult to put a tangible financial number on the benefits of improved customer service, this is often the prime reason that banking relationships endure over the long term. And it is a great defence mechanism against price erosion.

The benefits can be about trading the efficiencies as well as managing inefficiencies in a bank’s processes. For example, one major UK bank has been able to perform more trades and generate more revenue through better monitoring of real-time information against client trading limits. In this instance, either existing limits can be utilised more, or lower limits with greater utilisation can be set.

These are just some of the advantages that banks have already recognised when developing business cases for the adoption of a real-time cash reporting service. However, only when senior management see the potential for a real-time strategy across all the business units will the full impact of cash reporting be fully appreciated.