Insight & Analysis

Collaboration crucial for creating real-time future

Published: Nov 2018

The demand for real-time clearing and settlement technology and infrastructure is growing but it will not materialise without wide ranging collaboration between all key industry players, ranging from central banks and institutions to corporates and clearing houses.

The ongoing, rapid transformation in transaction processing and management is undeniable, with developments such as instant domestic payments and faster cross-border payments fuelling the demand for ever faster settlement and reconciliation. The final destination implied by this trend is, of course, global real-time processing but that is unlikely to materialise without an industry-wide framework for liquidity management.

According to a white paper from Deutsche Bank, truly global real-time processing will only become possible if all the key players – central banks and regulators through to clearing houses, market information providers, financial institutions and corporations – agree standards, best practices and technology solutions for the exchange of liquidity.

The paper, which includes insights from industry experts including Sandra Laielli, Chair, Liquidity Working Group, Bankers Association for Finance & Trade (BAFT); Philip Stewart, Global Head of Cash & Banking, British American Tobacco; and Harry Newman, Head of Banking, SWIFT, says banks in particular must look to evolve their clearing and settlement architecture. They will need to collaborate with TMS and ERP vendors to ensure complete end-to-end efficiency of operational processes, as well as help corporates develop their own real-time-ready systems.

Friction free future

A global liquidity portal that spans the banking community could help solve many of the challenges associated with liquidity and unlock new opportunities, such as real-time currency conversion and hedging, instant cash concentration solutions, intraday cash pooling and optimised short-term investments.

“Real-time clearing and settlement mechanisms will become quite distinct from the familiar territory of cut-off times, end-of-day processing, and periodic updates to intraday liquidity positions. As such they will have a fundamental impact on liquidity and collateral management,” says Vanessa Manning, Head of Liquidity and Investment Solutions, Global Transaction Banking, Deutsche Bank.

“Banks, regulators and infrastructure providers need to prepare for this in their risk and liquidity modelling and forecasting. The issue now is to understand the extent to which the industry is prepared for this shift, and what more needs to be done.”

Recent, rapid industry successes such as SWIFT gpi are a demonstration that the wide-ranging collaboration that will be needed is indeed both achievable and effective to deliver a global liquidity management solution, it adds.

Horses for courses

The report authors, however, are keen to point out that “real-time” is likely be more nuanced than strictly implied. For many institutions – banks and corporates alike – the demand is not necessarily for “real-time” liquidity, but rather “just-in-time” liquidity, with the ability to forecast flows to meet financial obligations precisely without liquidity spikes or the need for large buffers.

BAFT’s Sandra Laielli explains: “Real-time is a word mentioned often in the context of payments and liquidity management. But the first issue to address is the notion of “real-time”. Just as banks have diverse liquidity needs, they may also define “real-time” liquidity in different ways. For some, it could mean providing updated intraday positions through MT941/MT942 messages every 30 minutes or as few as three times a day. There is no common standard. However, as instant payments schemes emerge and expand, real-time liquidity will increasingly be far more dynamic a concept.”

New and proven technology key

In considering the kind of technology and infrastructure that will be needed to develop real-time processing, the paper concludes that solutions are likely to be based on a combination of the proven and new, especially in areas such as transaction and data processing and analysis. In some cases, current industry participants and their technology vendors will develop these capabilities, while others will be created by fintechs, either independently or in partnership with existing industry players.

Specific technologies that have the potential to support real-time processing and infrastructure of the future include machine learning; robotic process automation; and artificial intelligence.

Distributed ledger technology (DLT) or blockchain based is more nascent in its application but is seen as having great potential in areas such as real time collateral management for post-trade settlement and tokenisation of liquidity settlement. DLT could also be instrumental in enabling real-time liquidity exchange between banks, and offers “huge opportunity for industry orchestration”.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks your personal data to enhance your browsing experience.