The banking industry is highly-regulated, complex, and challenging to operate in. Numerous compliance standards govern the storage of customer funds through day-to-day operations.
Cash management is an essential function for almost every bank. A cash management system company can help banks easily manage their daily cash flows by transferring funds domestically or internationally, offering bill payment services, and ensuring the accuracy of payments.
Why Do Banks Need Cash Management Services?
Banks are looking at ways to escape the burdens of traditional cash management responsibilities such as coin and currency collection, counting large volumes of paper money, and handling physical deliveries in an increasingly digitized world.
There is growing pressure to buy secure and efficient cash management solutions for banks by leveraging IT resources and software without investing in their own infrastructure.
A bank’s cash management approach can be divided into three main areas: managing liquidity costs, reducing foreign exchange risk, and complying with regulations.
Managing Liquidity Costs
Banks are constantly balancing their commitments to deliver high levels of customer service while controlling operating costs. Liquidity is the lifeblood of any financial institution.
The more efficiently banks can control cash, the more time they invest in other business-critical activities. Banks that can manage liquidity effectively can give customers greater value for money by prioritizing how they deploy their capital.
Reducing Foreign Exchange Risk
Banks are exposed to foreign exchange risk when dealing with cross-border transactions, which is why many banks need assistance when buying and selling currencies. As transactions increase in number and frequency, managing foreign exchange risk becomes more complex.
Banks rely on a cash management system company to buy and sell currency in bulk using a single relationship to minimize exposure and improve liquidity risk management.
Compliance With Regulations
Banks are bound by strict regulations governing the storage of customer funds. They are required to ensure all funds move through their accounts transparently and securely.
Cash management solutions for banks can help meet these goals by proactively monitoring daily cash flows, providing alerts to customers about important payments, returning any cash that has not been collected within agreed-upon timeframes, reducing the total amount of capital held in inventory.
Choosing the Right Cash Management Solution
The best way for banks to reduce costs and risks associated with cash management is by selecting an experienced cash management services provider. Banks should consider their capabilities and customer needs and ensure that providers offer end-to-end solutions, including:
Proactive Monitoring of Daily Cash Flows
Cash management includes proactive monitoring of daily cash flows to detect any possible problems early. Banks should look for solutions that can automatically monitor their accounts and transfer funds if needed while giving the option to send alerts to other business units when certain events occur (for example, when an account is low on money).
Sophisticated Cash Forecasting
Successfully managing cash flows requires accurate forecasting of daily receipts and payments. Banks should look for solutions that incorporate sophisticated forecasting so they can allocate the right amount of funds to accounts before transactions take place.
For example, banks can forecast monthly customer activity levels and allocate funds based on expected volumes rather than wait for actual transactions.
Effective Multinational Cash Management
Cash management includes a process that physically moves cash from one bank account to another. Banks should look for the most efficient and cost-effective way to carry out multinational cash management, considering factors such as the geographic location of accounts, batch processing with minimal human intervention, automated reconciliations, and same or next day delivery with little or no packaging.
Easy Setup and Configuration
Banks should look for providers that offer easy integration with existing systems, such as core banking systems. They should also ensure they get access to training and documentation related to setup and configuration before going live, including release notes and communication protocols.
Banks should look for providers that offer solutions that meet their requirements in terms of data security, business continuity, and verification, including:
Full segregation of customer account balances, e.g., “all or nothing” principle, is not permitted within the same bank, but only between different banks, i.e., from independent third party accounts to customer accounts
Transaction monitoring, i.e., detect balances or unusual activity
Calculation of available balance for all customer accounts using verified information on movement in volume and value
Cash letter services include reconciliation of final balances, query resolution & reporting
Many banks are looking to benefit from cash management services and improve their overall cash management processes. Banks should look for providers that can help them manage their cash more efficiently while providing a cost-effective solution to continue growing the business.