Treasury automation and the science behind fintech driving competitive forex rates

January 28, 2023 |
By - Sanjeev Gupta
3 minutes read
3 minutes read
By - Sanjeev Gupta

The world of cross-border payments is complex, to say the least. When such payments or remittances need to be made across 100+ countries across the globe, the complexity is further compounded.

In such scenarios, treasury plays a pivotal behind-the-scenes role by continuously analysing data and then recalibrating functions to obtain maximum performance in a completely safe and compliant way. Managing liquidity and foreign exchange risks as well as generating revenues via efficient capital management comprise the core functions of the treasury.
What’s more, in the current, rapidly changing geopolitical and regulatory environment, treasury needs to be more agile even as it keeps evolving continuously and optimising core functions to retain its overall competitiveness.

Against this backdrop, treasury automation provides an excellent advantage by replacing inefficient, labour-intensive manual procedures while simultaneously offering data-driven insights and facilitating instant payments together with higher transparency.

In the era of real-time payments, a growing number of remittance-senders are increasingly demanding more – quicker, safer payments – from their service providers. While the messaging elements of real-time payments have been augmented by APIs (Application Programming Interfaces), the focus has currently shifted to the tangible movement of funds to support scalability in payments companies.

Although cross-border payments may seem simple, the process is complex and delicate. When the movement of money is requested, treasury teams are tasked with the vital responsibility of ensuring adequate funds are kept ready in the receiving currency.

Consequently, treasury teams must have local market expertise, by-the-minute tracking, and seamlessly coordinated operations. Naturally, these three requirements cannot be met via manual processes alone. This is where digital tools come into play to assist treasury teams in ensuring safe and uninterrupted global money movement.

To build novel capabilities that support treasury teams, it’s imperative to recognise the treasurer’s interlinked practices. As a cyclical process, it occurs minute by minute when dealing with real-time environments and multiple currencies. Accordingly, Treasury Management Systems need to capture the intricacies and interconnectedness of such processes to get invaluable insights for the team.

Treasury processes include forecasting, reconciliation, forex as well as cash management and funding. In case of forex, margin remains a most critical and complex factor in attracting traffic flow, given the ultra-competitive payments landscape. It’s imperative to procure favourable rates, especially in local markets, and then pass these on to customers to enhance margins and boost cash flows.


Fintech – a game-changer

The emergence of fintech firms has benefitted the forex and global payments market. For years, forex was an extremely profitable business for banks, which had huge margins because of opaque business practices whereby their fees were camouflaged within exchange rates and passed on to customers.

By eliminating middlemen and processing orders through technology, payment service providers now offer customers more competitive forex rates. With technology, live exchange rates and wholesale interbank rates can be displayed for instant comparison along with real-time updates of payments.

Earlier, only large corporations possessed the financial purchasing power to access almost wholesale exchange rates in forex markets. With fintech firms, however, even individuals and SMEs can transact on the same competitive terms.

Fintech has emerged as a fundamental operator of forex in multiple ways. Major advances in financial technology now allow traders to access fast and secure payments, more robust market data visualisation, and a base for working in safer markets.

Previously manual tasks like reconciliation report verifications or settlement balancing can be done automatically. These processes will be done more efficiently, creating more transparency as well as giving complete insights.

Thanks to the growing popularity of fintech worldwide, information dissemination is faster and uniform in nature. This results in transactional efficiencies and lower costs for end users.

As the use of treasury automation keeps increasing, the need for human involvement in forex trades and settlement processes will decline to a large degree. Customers will benefit from faster fund transfers, lower charges, and higher transparency – making treasury automation a winning proposition for everyone.