Open Banking: central liquidity management for corporate customers

Excess liquidity, whether as a demand or fixed-term deposit, not only brings in nothing, but it also translates into high annual losses for businesses. If banks were to use open banking to offer their customers the opportunity to view all their accounts in one portal and manage their liquidity centrally, they would help companies with their sustainability goals. Using a multibanking portal, banks can get an aggregated view of cashflows on a modular basis.

Liquidity management aims at striking the right balance. Of course, liquidity requirements and bottlenecks need to be identified at an early stage, but it is just as important that liquid funds do not accumulate in company accounts. As it is known that banks do not currently pay interest on the money or even charge penalty interest, the only option is to keep the buffers low in order to protect company assets. Michael Zaiser, head of liquidity and investment management at LBBW, estimates that every year companies lose money in at least the five-digit area because they do not make full use of their management options.

In times of crisis, liquidity management pays off

From his point of view, companies of all sizes – from SMEs to DAX-listed companies – should make the most of their money despite the limited scope: “Liquidity management prevents companies from having to watch their assets disappear”. After all, it is important to prepare for worse economic times. After a downturn, liquidity costs will rise which can have a significant impact on a company’s room for manoeuvre. On the one hand, the risk of bad debt losses increases; on the other hand, suppliers may pass on the pressure by tightening up their payment terms.

In this situation, it would be good to have access to reserves. A survey conducted by LBBW among more than 270 companies revealed that 11.7 percent of them had built up more liquidity than was necessary because they could not detect any investment opportunities. Just under a fifth of them “park” the money simply as a demand deposit and in current accounts. Nearly 18 percent stated that they use fixed-term deposits and time deposits as investment tools. In order to develop alternative strategies, companies would first have to know whether liquid funds are available for medium to long-term investments, and if so, which ones.

Double-digit sales growth with Open Banking

Here companies benefit from the EU Payment Services Directive PSD2, which obliges banks to open their online banking to third-party providers and to aggregate accounts. This allows companies to view and manage all their accounts through a single portal. In a global corporate banking survey, Accenture discovered that financial institutions are implementing open banking solutions for their corporate clients even without regulatory pressure. They expect double-digit revenue growth when they offer simplified services through ecosystem platforms and API interfaces, while retaining a focus on liquidity management.

Some 90 percent of banks want to offer open banking services. As such, they are responding to the expectations of corporate customers who, like private customers, are demanding more innovative processes and a better customer experience. In Germany in particular, financial institutions are under pressure to act; a quarter of the company representatives surveyed are already considering involving a non-bank provider as a partner. With our multibanking software, financiers can take advantage of the opportunity that still exists and become an open banking provider. The introduction of the basic Aggregation module, which enables customers to consolidate all their accounts into one portal, means that one important hurdle has already been overcome.

Better liquidity management with cash pooling

The basic module already allows employees to have an overview of their company’s financial situation and precisely estimate and forecast incoming payments and liquidity using various visualisations. The additional Liquidity Management module opens up further possibilities not only for managing existing funds, but also for using them to shape the company’s future. For example, cash pooling is supported with functions such as zero and target balancing. By pooling their liquidity, corporate groups are able to invest capital at better conditions and benefit from interest rate advantages when taking out loans. This has an impact on their overall financial situation and makes them more stable even in times of crisis.

If you want to learn more about the potential of multibanking in the corporate, retail and private sectors, then download our product brochure today!

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