When every second counts, you need real-time visibility

Planixs real-time visibility
Pete McIntyre, the liquidity expert

Written by Pete McIntyre

July 9, 2024

Speed only helps if you know where you are going, and how you will get there.

Safely.

T+2, T+1, T0, instant payments, it seems that financial institutions (FIs) are being forced to master the art of split-second efficiency. And despite FIs claiming confidence in managing intraday liquidity, scrutiny often reveals a different story. Many banks lack real-time visibility into their intraday liquidity positions, they struggle to update their intraday profiles or compare these profiles to forecasts. This gap can hinder their ability to respond effectively to market changes and stresses.

The proliferation of new transaction and settlement venues, driven by distributed ledger technologies, exacerbates this issue. Banks must manage liquidity across multiple platforms, spreading their reserves thinly and increasing the risk of liquidity shortages.

Best-practice intraday liquidity management involves using automated systems to handle tasks such as payment throttling and sweeping cash between accounts. For example, if you have too much cash in one account and too little in another, you can balance them by adjusting the timing of payments and transferring liquidity between accounts. When you start to address questions about running out of liquidity, it is very rare that a bank can confidently manage these challenges without real-time visibility and sophisticated automation.

The challenge of instant payment settlements

The move towards instant payment settlements has significantly heightened the challenges of intraday liquidity management. Regulatory bodies are starting to mandate that banks must have the capability to handle instant payments. 

The European Union’s Instant Payments Regulation (IPR) requires all payment service providers (PSPs) to ensure euro payments can be sent and received within seconds, around the clock, anywhere in the EU. This move is a key part of the Capital Markets Union, an economic policy initiative started in 2014. The European Council highlighted this regulation in their announcement in May 2023.

Finextra recently polled treasury, trade and payments professionals. 75% said that instant payments regulation is their priority, followed by ISO 20022 migration at 58%.

Instant payments are not just for retail customers.  They are likely to become a go-to method for business transactions because they offer several advantages. They allow funds to be transferred in seconds and are available 24/7, which is great for global operations. With high transaction limits, like up to a million sterling in the UK, they can handle large corporate transactions easily. 

For customers, instant payments reduce costs and streamline financial processes. The secure, reliable regulatory framework also boosts trust. Overall, businesses using instant payments can manage cash flow better, operate more efficiently, and offer faster service to customers and suppliers, giving them a competitive edge.

Instant payments also shift customer behavior towards more unpredictable patterns, making it difficult for banks to rely on past performance data for accurate liquidity forecasts. Additionally, the requirement for immediate settlement limits the opportunity for transaction netting over time, posing significant challenges for intraday liquidity management.

“As the use of real-time payment schemes expands, providing appropriate liquidity management and forecasting tools at an infrastructure level will become more and more important since liquidity needs will become greater and more complex, including during real-time gross settlement system (RTGS) closing hours when active liquidity management will not be possible.”
Hays Littlejohn, Chief Executive Officer, EBA CLEARING

Without real-time visibility, data and analytics, banks face uncertainty in predicting liquidity needs accurately. As a result, they often have to over-provide intraday liquidity to meet sudden demands from instant payments, further complicating liquidity management.

What does effective intraday liquidity management (ILM) look like?

Effective ILM is essential for maintaining stability and efficiency in financial operations. Here are the three key capabilities involved in successful intraday liquidity management:

Monitoring

Monitoring involves assessing intraday liquidity to understand current positions and determine necessary actions. This capability provides banks with real-time visibility into their liquidity status, enabling them to make informed decisions and respond promptly to any discrepancies or issues that arise.

Active Management

Active management influences the use of intraday liquidity in real-time or over longer periods. This includes implementing strategies such as throttling payments to reduce liquidity usage, setting up alerts for potential issues, and analyzing historical usage to identify the main drivers of liquidity needs. By actively managing liquidity, banks can optimise their resources and ensure smooth financial operations.

Risk and Regulation

Understanding intraday risks, identifying mitigations, and conducting stress testing are vital components of ILM. Banks must be able to recognize and address potential risks to prevent liquidity shortages and comply with regulatory requirements. Effective risk management ensures that banks are prepared to handle unexpected challenges and maintain financial stability.

Transform how you see and use data

When Planixs entered the ILM space 12 years ago, no bank possessed these capabilities. Planixs collaborated with clients to develop the Realiti platform, a best-in-class real-time ILM tool used by leading financial institutions such as Barclays, Deutsche Bank, Lloyds, Santander, and many others. While the largest banks invest $millions in creating in-house systems, Realiti offers smaller banks similar capabilities at a lower cost and fast.

“The perception that payment-related solutions must be exorbitantly expensive is a myth perpetuated, perhaps inadvertently, by the consultant market. In reality, payment systems aren’t inherently complex; they’re essentially about data processing. Contrary to common belief, they’re not inherently ten times more expensive than other technology endeavors.”
Peter Woeste Christensen, Director, LPA Germany

Realiti’s suite of tools put real-time visibility and intelligent liquidity management practices in the hands of every financial institution. The transformation in their operations can be remarkable:

  • Initially burdened with oversized buffers and regulatory add-ons due to limited visibility and manual processes, our clients have progressively adopted real-time data insights, advanced intraday stress testing, and proactive payment control mechanisms.
  • These enhancements significantly reduced their buffer requirements—saving millions in costs—and streamlined their liquidity management operations.
  • The shift has led to greater regulatory compliance, improved risk management, and enhanced financial stability. Clients now enjoy a more agile and responsive treasury function, capable of navigating market changes with confidence and precision.

What leading banks say

These three quotes are from partners of ours, banks like Santander, AIB, and Lloyds, demonstrating how implementing Realiti capabilities can generate value exceeding $100 million per annum:

1. According to one partner, “Companies not using Realiti are limiting their treasuries from tapping into this powerful source of real-time liquidity data, and therefore, they’re at a massive disadvantage. Choosing to manage liquidity the ‘old-fashioned way’ or manually when Realiti exists doesn’t make any sense.”

2. Another partner highlights that, “If you’re paying your treasury staff to manually manage liquidity data, essentially, you’ll be paying skilled professionals to do basic administrative tasks.”

3. Describing the platform’s benefits, a partner notes, “The platform’s additional features open up new opportunities by offering real-time visibility into counterparties, optimising fund transfers, and identifying spare liquidity for new products.”

We are seeing a paradigm shift in how financial institutions manage liquidity and navigate the complexities of modern-day transactions. Realiti has proven its value to financial institutions (FIs) repeatedly. The insight and analytics available from this data are transformational across all business units of the bank including Treasury, Operations, Risk, Front Office and Office of the CFO.

In short – don’t guess, know.

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