JPMorgan: Strong Dollar Prompts Cross-Border Rethink of Idle Cash, Liquidity Strategies

Among the surprises in 2022 — a year full of them in the financial realm — the strong dollar is now a challenge (and opportunity) that corporates must wrestle with as they make $140 trillion in cross-border transactions annually and manage daily liquidity.

Cat Moore, head of EMEA payments solutions for J.P. Morgan Chase Commercial Banking, told Karen Webster that if there’s one constant, it’s that adaptability, when it comes to payments, is critical.

More than ever, Moore said, J.P. Morgan Chase Commercial Banking’s corporate clients want visibility into their “full payments picture” and to discover how they can optimize payables and receivables. Without real-time insight into cash positions, treasurers and other financial professionals don’t have the ability to make the right investment decisions to minimize the volatility of foreign exchange (FX) rates.

The urgency to better manage payments is palpable, given the fact that the biggest firms, multinational and even global in scope, hold at least 30% of their liquidity in idle cash. And that idle cash isn’t in one centralized, easily accessible place; instead that cash is held in numerous accounts, domiciled in different countries.

Real-Time Goals

At a high level, financial executives want the ability to make real-time payments securely anywhere in the world with any currency and with immediate payment notification.

“We’re making progress, but we’re not there yet,” Moore said.

Application programming interfaces (APIs) can help cover some of that ground to streamline all the interactions, and machine learning can help address pain points and manage payments exceptions.

The readiness to embrace such advanced technologies is growing, as “managers want to ‘grow out’ of their Excel spreadsheets,” Moore said, “and they need to have fast and accurate payments data.”

Moore noted that the pressures that are in place are set to continue. The U.S. dollar is likely to keep rising against other currencies, especially if we see more Fed-driven rate increases and improving jobs reports.

For the companies that are transacting in U.S. dollars internationally, sourcing goods from overseas can keep expenses relatively low, Moore said. But without having visibility into those transactions, it’s been increasingly difficult to separate FX transaction costs from associated cash transfers.

Against that backdrop, there has been an increase in the use of multicurrency notional pooling, which entails having a master account with a bank to better manage cash balances across the globe and better manage liquidity, Moore said.

“The pool gives the real-time visibility needed to create a single liquidity position across multiple accounts, without the need to transfer money back and forth” or trigger expensive FX conversions, she said.

Simplicity Is Innovation

As we move toward real-time interoperability between payments systems and countries, Moore told Webster that cross-border payments executives should keep one guiding principle top of mind: Simplicity itself is innovation.

Messaging standards such as ISO 20022 and straight-through processing help improve the quality of data and speed of transactions. Along the way there’s significant opportunity to take B2B transactions fully into the digital age.

And drilling down a bit, those improvements can help multinationals change their own business models as, for instance, they may look to engage with end customers directly rather than with wholesalers. In doing so, Moore said that in a cross-border, eCommerce environment, companies will have to use and offer the prevalent, local payment methods. Consumers and vendors will want to see prices in their own currencies, and that segmented pricing can be affected through APIs (with providers such as J.P. Morgan Chase managing any issues on the back end, rather than trying to do it all themselves).

“Everyone wants these payments to be easy, to be familiar — and as frictionless as possible,” Moore told Webster.

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