Whether it is inflation volatility, market volatility or interest rate volatility, the uncertain macroeconomic landscape has had a significant impact on cross-border cash management, forcing CFOs (CFO) and treasurers to adopt strategies that will help protect their businesses against today’s volatile market mix.
According to Anand Natarajan, Executive Director, Head of TMT Cash Management and FinTech, Transaction Banking at UK-headquartered Standard Chartered Bank, rising interest rates in particular have led to changes important in the investment strategy.
“Many treasurers are [now] focusing on investing in instruments that are less than two months old. They don’t want to tie up money for the longer term [debt] when there is an increased likelihood of rate hikes,” Natarajan told PYMNTS in an interview.
On the risk management front, as the dollar continues to strengthen against other currencies, it has provided a safe haven for US companies, and with that security, companies are finding the best way to manage their positions in different currencies.
“When possible [they try to] sweep [funds] in the US dollar [as a way to] bring it into a market where the regulations are less strict in terms of the use of funds and increase the return on the dollars they have,” explained Natarajan, in comparison to emerging markets where regulators are often more nuanced and difficult to understand. interpret.
From a banking operations perspective, companies also try to establish efficient liquidity structures to consolidate cash in as few locations and as few currencies as possible.
See also: Real-time cross-border payments open up new markets for SMEs
But it’s “easier said than done,” Natarajan explained, especially for e-commerce companies and marketplaces like Amazon that are heavily exposed to merchants from emerging markets where liquidity and risk management Foreign exchange (FX) is more complex.
To remedy the situation, a major tool that is always useful for treasurers is to develop solutions for paying and receiving in multiple currencies that will allow them to provide flexibility on both sides of the equation, he noted. .
Minimize compliance costs
When it comes to the highly regulated space of cross-border payments, compliance is key to success, not to mention the exorbitant fines that companies risk failing to meet.
But staying compliant in the face of changing rules and regulations can be challenging, as each country and financial institution working along the transaction chain has its own security and compliance protocols. According to some, this makes compliance even more expensive than the cost of transferring money.
While Natarajan acknowledged this challenge, he said that for companies and FinTech companies starting out in the payments space, the initial cost of setting up a system can “seem somewhat prohibitive,” but then “it pays for itself over time” as they build a system that is easily scalable across all markets.
He explained that “scalable” was nimble enough to adjust settings in terms of transaction screening, such as being able to check names immediately when sanctions lists are updated or getting money from point A to point B using as few banks as possible. .
From a risk and cost perspective, this process of minimizing the effort required to update systems each time new compliance rules are implemented is how corporate treasurers can ensure that Compliance and other back-end costs do not impede the delivery of fast, inexpensive, cross-border payments, Natarajan said.
Adopt the Metaverse
From a banking perspective, Natarajan believes that the next level of innovation in cross-border B2B payments will come from developing a comprehensive ecosystem that will enable financial institutions (FIs) to offer end-to-end banking services. ultimately, not only to customers but also to the entire ecosystem.
This means that it is easy for a market client to easily open a bank account, offer wallet services to their clients, or leverage the corporate relationships an FI has to access third-party financial services. .
He also pointed out that cross-border digital currencies (CBDCs) are “game changers” for how FIs and businesses settle transactions in real time and are among the new innovations that will dramatically change the payments landscape in the future.
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Finally, Natarajan spoke of the importance of betting on new trends such as virtual worlds, which saw Standard Chartered join other major companies in embracing the metaverse when buying virtual real estate earlier this year.
And while the metaverse is still being rolled out, the opportunity to integrate with larger players and develop seamless ecosystems that can be defined outside of the banking channel, but are still managed by banks, is Do not miss.
“That’s not to say that we know what we’re going to do end-to-end with the companies there, just the idea that the metaverse could lead to a whole different set of [online] payment options for businesses without having to go through banking channels, I think this presents a very interesting challenge and opportunity for us as a bank,” he said.
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