Can Outsourced Treasury Solutions Ease Rising Concerns About Liquidity?

Liquidity Strains Show Treasury-as-a-Service Benefits

Liquidity is front and center — not just because of cryptocurrency.

To be sure, the recent FTX disaster in the crypto space has been bringing the term “liquidity” to everyone’s lips as traders pull their bitcoin off exchanges, trading platforms file for bankruptcy, and worries mount that other crypto-focused firms will do the same.

But liquidity is a universal concern. Liquidity is what we might think of as the “oil” that keeps corporate engines humming. Cash, short term assets — and the ability to convert the latter to cash — and loans are critical in helping companies meet their short-term obligations.

There are several reasons why executives, and specifically treasurers, are more focused than ever on maintaining healthy balance sheets and cash flow. Inflation is at levels not seen in decades. Capital is more expensive, and tapping traditional financing conduits — bank loans among them — is not as easy as it was only recently.

As the New York Federal Reserve noted in a recent research paper, “banks act as though their intraday reserve balances are a scarce resource, even when total reserve balances in the U.S. banking system are well over $1 trillion.” The reserves may be there, but caution is a key byproduct of today’s macro uncertainty.

Money Is Expensive

In any period where money flows less freely, where events like a pandemic and supply chain disruptions strike suddenly, advanced technologies — and specifically, Treasury-as-a-Service (TaaS) — can help corporates better manage day-to-day challenges, especially as business is, increasingly, done on a global stage.

A few months back, joint research from PYMNTS and Citi in the report “Navigating the Unexpected: Developing a Long-Term Treasury and Trade Risk Management Strategy” found that everything from tariff barriers to foreign exchange (FX) volatility to black swan events can impact liquidity (negatively, of course).

At a high level, enlisting providers — including big banks and independent providers — can automate the back-end processes that typically consume the workday, while enhancing cash flow visibility. In part, the improvements come from data and analytics that provide a holistic view of a company’s real-time financial health.

In a recent interview with Karen Webster, Colleen Ostrowski, senior vice president and treasurer at Visa, said: “We all have to be worried about liquidity,” and added that direct connectivity through application programming interfaces (APIs), Visa B2B Connect and other direct account integrations ensures that critical data helps track everything from invoices to currencies.

Separately, Amit Agarwal and Debopama Sen, global co-heads of payments, Citi Treasury and Trade Solutions, told Webster in a panel discussion that for the TaaS providers themselves, the opportunities are there to ensure that corporate/banking clients can (through banking rails) sell online, pay and be paid across modalities and manage risk effectively.

Meanwhile, Goldman Sachs has expanded its Transaction Banking (TxB) to Frankfurt, Germany, before heading to Amsterdam. TxB exists as a cloud-based platform to address clients’ treasury needs, including deposits and payments and managing liquidity positions.

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