EBA: Corporate Treasurers’ Hit Roadblocks Using Real-Time Data to Manage Liquidity

As demand for faster payments increases around the world, financial institutions (FIs) in Europe are having to beef up investment in real-time data and payment processing infrastructure to meet the needs of their corporate clients.

But it might take a while for those investments to pay off in the liquidity management space, where Director of Euro Banking Association (EBA) Daniel Szmukler and Krister Billing, chairman of the EBA Liquidity Management Working Group (LMWG), say corporate treasurers’ appetite for bank-supplied real-time data and payments remains extremely low.

Read more: The Corporate Treasurer’s Guide to Innovation

“When we investigated this, we found out that their internal processes were simply not designed for real-time payments. We were [also] quite surprised to see how far they lag behind some of the banks with regards to treating data in a real-time fashion,” Szmukler told PYMNTS in an interview, referencing insights captured in a EBA report on how companies use bank-supplied real-time data to manage liquidity.

Billing added that although there’s been a gradual move towards improving liquidity management with real-time data, the fact that the entire ecosystem of third parties that help support and facilitate instant payments processing does not operate 24/7 is a key reason corporate treasurers have not made the move to real-time a priority, not to mention the huge associated investments required to make that shift.

“It’s not just one little change [they need to make]. They have to completely configure their ERP [enterprise resource planning] systems and be able to move into cloud mode,” Billing noted, adding that the “big push” into a 24/7 mode of operation will come when “everything around them, like the FX [foreign exchange] market, is operating 24/7.”

The challenge of gathering and consolidating data in real time from the multiple financial institutions (FIs) most corporate firms deal with adds further complexity to the process, Billing said, and even when banks help by providing consolidated information, there is no guarantee that it can be delivered instantly upon demand.

Moving forward, however, what may accelerate real-time data use in the liquidity management space is the current interest rate environment, Billing explained, “because the opportunity cost of sitting with idle cash in many local accounts without having transparency on those positions will increase the alternative cost of those idle funds.”

ISO 20022: Building Block for Instant Payments Growth

The migration to ISO 20022, a new international standard for exchanging electronic messages which all global banking and financial service actors will have to adopt by 2025, has been touted as an important development in the international payment space and one that holds great promise for transforming global payments.

According to Szmukler, the common language for financial messages will also benefit corporate firms operating in highly fragmented environments across Europe with multiple banks connected to their systems across different geographical locations, often resulting in scattered application programming interfaces (APIs) and unsynchronized information.

“This is where ISO can become a game changer in harmonizing highly complex processes and allow for much richer data transmission,” Szmukler pointed out.

But as Alexandre Maymat, head of global transaction and payment services at Société Générale, recently told PYMNTS, European banks have their work cut out for them when it comes to convincing corporate clients to get on board with the new messaging system.

It’s a challenge Szmukler acknowledged, attributing corporate client reluctance to a strong attachment to legacy processes and systems. “None of the enterprise resource planning or the treasury management systems that corporate clients connect to is ISO-native. So, they need a lot of conversion of formats, and that is causing complexity.”

Against that backdrop, Szmukler said banks will need to increase efforts in educating and helping corporate clients understand the benefits of working together on the same format, including having less friction in cross-border message flows, and improving the overall control of payment transactions.

And while the journey to connecting the entire financial ecosystem to ISO will be long, Szmukler’s view is that the standardization initiative will be a catalyst to drive payments innovation.

“All of the future value-added services of banks are based on ISO. This is true for instant payments; this is true for any request-to-pay messaging format and this is true for other services of that kind,” he said.

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