Setting up an in-house bank leads to operational and strategic benefits. But what are they actually all about? Let’s take a closer look at the 5 core benefits of in-house banking.
Usually, it is all about the cost – right? Cost and process efficiency are undoubtedly among the most important objectives for financial organizations when they are looking to centralize the management of cash flows. Lately, the strategic benefits of creating full visibility over group-level liquidity have started to overtake these operational benefits.
Whatever your ultimate target, taking control of cash management and financial processes with a modern in-house bank will reap both operational and strategic rewards. Here, I want to highlight some of the core benefits of in-house banking. For a more comprehensive picture of the advantages (trust me, there are more), why not download our in-house banking whitepaper.
1. Cash flow efficiency
A well set-up in-house bank will improve the efficiency of both internal and external cash flows. Having poor visibility over group-level cash is a frequent source of headaches for group treasurers and cash managers. With an in-house bank, you can take care of all accounts, internal transactions, payments, and account statement bookkeeping centrally.
Being able to better control and steer your subsidiaries’ cash flows gives you greater power to optimize working capital and use liquidity for common payments or investments. In addition, you gain valuable insight not only in terms of financial operations, but also business operations and decision-making. Would the management in your organization adjust budgets and development initiatives differently, if you could provide them with full visibility overall cash flows?
2. Lower risk of fraud
One of the most sought-after benefits of in-house banking for group treasurers today is tackling the omnipresent threat of payment fraud. The in-house bank structure can replace a myriad of external bank accounts and banking connections – or even remove local access to external banks. This puts treasury in control and mitigates the risks related to data security and handling of payment files, for instance. Concentrating external payment traffic in one place makes it easier to keep a close eye on payment abuse.
3. Automated workflows
When you use an in-house bank to replace external bank accounts, you can automate the cash flows between your subsidiaries and thus reduce the work involved in internal payment management. You will also make considerable savings on transaction costs. Automating related bookkeeping and month-end closing routines mean less manual work and more time for value-adding activities.
4. Independence from banks
When banking services, such as accounts, financing, FX risk management and hedging, are available to subsidiaries within the in-house bank, the group treasury has the freedom to choose banking partners to provide the necessary external banking and financial services for the entire group. No more subsidiaries’ cash being kept in bad banks or local loans negotiated with poor rates!
One of the core benefits of in-house banking is the reduction in costs. Avoiding transaction fees and value day losses and minimizing currency exchanges and financing expenses can generate to considerable savings if you take full advantage of the on-behalf-of functionalities and internal payment structure.
5. Improved currency risk management
With proper visibility of overall cash flows and reliable cash forecasts, you can also take responsibility for currency risk management at the group level. In an in-house bank setup, a clear overview of the whole company’s currency exposure and position enables you to take the necessary actions to hedge the FX risk. Did you know that in-house bank accounts can be multi-currency accounts? This means you could also be saving a pretty penny in currency exchange costs.
Next time we will take a closer look at the on-behalf-of functionalities, which are the aim of – or should at least be considered by – every ambitious cash management centralization project today.