LORI (00:59):

I'm Lori Schwartz. I work for JP Morgan as a managing director. I'm heading up our EMEA liquidity solutions business within treasury services, wholesale payments. I also look after our global product solutions specialists and today we'll be talking about liquidity management, what's happening, what's changing and what you need to be thinking about.

Speaker (01:22):

Perfect. Awesome. Okay. How are you? Great. So Lori, I think one of the first thing we should discuss is the idea of liquidity itself and how it might be evolving and in some cases being disrupted by the current environment globally that we see certainly from the pandemic and even from some economic headwind. So how is it may be viewed as an activity and maybe as a function before our current environment and what changing right now?

LORI (01:58):

Great. We talk a lot about this as a team, because of course the last five, six months have been extraordinary. And as a business that really operates in the day to day moving money, taking in payments, making suppliers payments happen, it's extraordinary important where your liquidity is.

Speaker (02:19):

And I think that the headline coming out from across the team is liquidity is absolute, right? It's absolutely at the core of everything that we're doing. We've seen market stress over the last few months. We've seen business models, change receivables, stop businesses, shut down. And the first thing across all the companies that we support, the first question any CFO or treasurer was asking is where is liquidity? How much do I have and how can I get access to it?

And that's a variety of different considerations first and foremost, where is it on my accounts? And as well as what do I have available? Where can I call my liquidity? But you know, across the board, liquidity, liquidity, liquidity..

When asking those same questions I think you're getting toward the idea of visibility, not just knowing where things are, but getting to view them and getting, I think, a good a handle on what's actually there, which means having all the information in one place. So at point they're being exposed when it comes to visibility.

LORI (03:28):

So I think you hit the nail on the head, absolutely visibility, right? It's kind of three prongs. Visibility leads to control, which enables optimization. And if you don't know what you have, you can't begin to use it. Sometimes it's as simple as timeliness of information and it's amazing walls in our personal lives. We're all very used to instant access.

I can pick up my mobile, I can go into my app and I can see my cash where I have it for global corporate treasurers. It's just not always that simple. I think a lot of technology is coming to the fore. That's helping that information exchange through API APIs real time is absolutely now real thing that, which it hasn't always been just as recently as a couple years ago, the cash statement would take years or tests already take days to actually cut them together.

Speaker (04:21):

When you talk a bit about the global nature of companies and certainly from treasury management, I think there's a few specific and maybe immediate concerns with managing a goal global business where accounts are domiciled in different countries, different currencies, different time zones. So what do you think might be the most visible and I'll use the term pinpoint again when it comes to managing operations across borders reporting wise?

Speaker (04:53):

Yeah, I think it starts with how centralized each, every, every company is. So if we keep on the journey of there's visibility first there's control second that a lot of times, and especially as you say, when you're operating across jurisdictions or across currencies, you might not always have that central access. And where we need to start is how do you start to bring in centralized functions? And what's really powerful about liquidity is that tends to be one of the first steps you can achieve in your journey decentralization because the operating activity can be separated. The counts can stay where they need to in the local markets in the local currencies, but you can start to flow that liquidity into a central location using techniques like physical cash concentration, or even virtual accounts. And that starts to create efficiencies within a company because you're creating that cash position to be deployed as, and when it's needed across your global activities. You mentioned virtual account, but for getting to more deeply in a minute, but it, it was corporate treasurers role in general, new, more conversant with technology. It's a wallet, self expanding in ways that maybe hadn't been seen before.

LORI (06:14):

"Oh, completely. I think the corporate treasurer is that such an important point of change. As long as I've been in this business, corporate treasurers have been striving to be value, add to the businesses they support with the rise of e-commerce with the, the exchange of information faster. With real time payment schemes coming to light with older business models, adapting to new business trends like wallets in traditional model, there is the opportunities for the treasurer to become the enabler of the products that their business lines are offering. That is only going to be achieved through proper liquidity management and technology, which is not just a result of what we want to do anymore, but more in enabler of where we're going to be able to take a business.

Speaker (07:08):

You said the opportunity is there for the corporate treasurer to embrace. And I think further some of that development that you said other headwinds, hesitation that may be, might play into, let's say a misconception about the role of technology and how do treasurers become more comfortable with them.

LORI (07:28):

I think there's always a hesitation points as you say, but, but I probably put it as some more thoughtful points of decisions because when you change and transform a Treasury's operations, oftentimes you're allowing that technology to take on the activities that used to be done by a person.

Speaker (07:49):

I think there's a lot of trust when you have good people within an organization executing on certain activities, gathering cash positions, doing forecasts. They're relying on that knowledge as you move that into technology, it's important to make sure that that transition is done thoughtfully, is done constructively and value add because actually by leveraging technology to aggregate that information faster, to apply data analytics and artificial intelligence, to predict cash forecasting, more precisely, you can use those same efforts of your team to up value what they're doing, because the information that used to take them a lot of time to gather and crunch is now at their fingertips, which allows them to do more of business value add.

Speaker (08:41):

So within that idea of information at your fingertips, and I think a real time analytics, let's talk a bit about the idea of virtual account more specifically. So let's talk a little bit about the evolution of that and maybe where we are at today and then where we're going. So take me through, you mentioned API as a moment ago, obviously to take me through what virtual account do in terms of plugging a gap in in the movement of money. And certainly what the advantages are that they get right now.

LORI (09:12):

Okay. So, so based on my experience, virtual accounts play a key role in helping centralization within a company because oftentimes one of the biggest inhibitors of combining activities, bringing your cash together is the risk of losing information.

So if all of my activities starts turning through one account, how do I understand exactly what related to project a or what payrolls I had across countries? You know, the beauty of a virtual account is it marries the centralization of liquidity whilst retaining the integrity of all that underlying information. Because by using the virtual accounts themselves, you can direct and separate different activities, different entities, different projects, but ultimately all of that cash is still centralized immediately and together, that's kind of a best of both worlds marriage.

Speaker 2 (10:10):

Now that gives me a bit of the mechanics of this. And I like that. I wonder if you can give me a hypothetical, okay. Let's say previously, okay. Process or use case, right. That worked okay before the environment we're in now maybe how you could in a hypothetical situation really see some some, some real benefit in terms of not just cost saving, certainly manual labor, intensive, backend savings as well. Take me through a hypothetical situation.

LORI (10:41):

And, just to clarify in your question, focusing on the hypothetical... Around cost savings, right?

Speaker (10:50):

Oh, well, I'm in a virtual account, right? The way it could sort of into my mind would say not just money to the bottom line, but we're talking a bit about streamlining the function of cash and liquidity gel, treasury management itself. I wonder if you can give me an idea of a process in particular, maybe low hanging fruit that virtual accounts could tackle most immediately and started to see immediate benefit.

LORI (11:13):

Absolutely. So, so intercompany lending, I think is the most straightforward example. So in any formulation of a centralized treasury, leading to potentially even an in house bank, one of the first activities beyond visibility, which we talked about is intercompany lending and management.

Speaker (11:33):

So by nature of a virtual account, or rather to compare and contrast first, if you were to in an old way, have all of the accounts by the individual entity, separate it's a manual activity every day to understand what the funding needs or what the surplus needs are of your entities, and then create payments, move the cash fund down.

Lori (11:55):

You've got to adhere to currency cutoff times. You've got to think about potentially if there's cross bank relationships in the mix, or even if you need to do cross funding across and across currencies, when you adapt that into a virtual account, you have that intercompany lending happening at the transaction level because all of your entities would have accounts within the virtual account structure and that funding essentially available immediately. So that activity of forecasting and moving cash isn't needed anymore.

New Speaker (12:28):

No virtual accounts, but one tool and we'll call it a digital tool box that I think certainly has room to grow. So I wonder if you could put this particular offering a virtual account offering within the context of a toolbox, maybe if it lead to a more comprehensive tool set, what does that look like?

Lori (12:49):

Yeah. So I'm really glad you asked that question because there has been a lot of excitement around virtual accounts, but ultimately what it is it's, it's part of a holistic cash management solution and what we spend a lot of time on. And I think we're where the value really extracts is how virtual accounts inter operate with all of the other techniques and solutions. So a really practical example of that is marrying a notional pool with a virtual account structure because what the notional pool can provide is currency fungibility across virtual accounts. I have euros, I need dollars. I have Sterling. I need yen within, if you combine that through a notional pool, you get this, this fungible cross currency liquidity, which is absolutely essential. And yet you then have the virtual accounts underlying all of those real currency accounts. So you can hold the value of the virtual accounts combined. I think it's about the layering of solutions and also how those solutions expand with your company.

Speaker (13:57):

Now, we've talked a little about technology, nuts and bolts. We talked about the intra company benefits of doing something like that, right. And we've talked about certainly the inter company, a benefit. We've talked a bit about liquidity as an a, as a process that's evolving, but I'd also like to see, is there anything that I missed that comes to your mind that you want to address top down or bottoms up? When we talk about liquidity and cash management and the evolving role of the treasurer, what have I missed it? We haven't addressed?

LORI (14:31):

So I think we've hit a lot of the headlines, but one thing that I always encourage is don't wait till you need it. What's really often not thought about when it, when we talk about liquidity structure is, is the, the work that needs to be thought through to actually enter into them. So when we talked about some things like inter company lending, right, which comes into space, both through virtual accounts, as well as physical cash concentration, putting structures like that in place requires tax reviews, legal reviews, lending agreements to be put into place. And if we consider that in light of the recent months in the market crisis, those companies that had done the work months, years ago to put these structures in place had this backbone, this kind of backstop of cash mobility that they could act on straight away it's would not have been as easy for someone to, or a company to put that in immediately within that moment.

Speaker (15:30):

So my encouragement, and I think to your question, the last point would be just, it's always a good thing to put in place of having an efficient look, the management structure, even if you're viewed as cash rich, even if your underlying entities are operating efficiently, there's always benefit to be gained by having those structures ready to go and put in place.