The Finnovate Show
The Finnovate Show

Episode · 1 year ago

Bruce Hrovat: The Future of Liquidity is Perfect Forecasting

ABOUT THIS EPISODE

Bruce Hrovat, CEO of Intraday Inc. discusses the intricacies of managing your working capital in today’s fast paced, global marketplace. Gone is the era of float and being satisfied with end-of-day positions. Being short and long, even intraday, represent real costs. To stay competitive, today’s leaders need a finger on the pulse of their minute-by-minute liquidity. Learn about the changes happening in financial markets and how that impacts “banks” and businesses now and in the future.

...a za leader of your company. You must stay up to date with your strategies and execution or risk obsolescence. Welcome to the fin of it Show financial services Innovators. Bringing You the future Today on now here's your host Jerry Purcell. It's the fin of eight show brought to you by Innovation 3 60 Group. I am Jerry Purcell. Get ready to think about your biggest challenges and capitalize on your biggest opportunity. After this, executives depend on external consultants to fill knowledge and experience gaps or toe haven't experienced mine audit their thinking. Theo Innovation 3 60 Group brings together a wide range of proven thought leadership from around the globe, and cost effectively makes it available to you. Get the insights, advice and systems you need to succeed. Learn more at www dot innovation 360 dot com. E guest today is Bruce Rove at CEO of Intraday Inc Bruce is a veteran of the financial services and supply chain world and as such has been the CEO of AH Top 15, US Regional Bank executive vice president of global transaction banking for a top 10 bank payments and liquidity practice leader for Tier one systems integrator and leader of a European manufacturing organizations global supply chain. His focus for almost two decades has been on innovation and the management of intraday liquidity for both banks and Corporates all over the world. Bruce, welcome to the show. Thanks, Jerry. Really appreciate it quite to be here. We've known each other for a long time and you have an impressive career. Tell me a little bit about your view on liquidity today. Well, really. I mean, essentially the kind of the news flashes the interest rates are so well, they're essentially had zero and trending negative and areas, you know, such Aziz Europe. Consequently, you know, more than ever, kind of the velocity of money, the velocity of payments, kind of where everything is has become more important. You know, Thio, keep track of things. When I started my career in the physical supply chains, the idea was to track things more and more efficiently. The margins and that kind of business are very low. And so, trying to make sure that everything is tracked and traced and packed appropriately So you're not shipping any air is critical in that kind of business In the financial services area, the margins are so much higher that the industry has not had to do that until now. And in some cases, jury, When you have an interest rate that's effectively at zero, you'll still hear people within the industry say that you know, money really has no value because of the kind of the legacy it has tied to an interest rate. But there's always, ah cost of capital, so to speak. So essentially, with you know where we are today, you really need to make sure that you understand. You know where your money's are at all times. And if you have too much or too little in any in any place, great soul, the underlying implication that is that if you don't have it figured out just gonna cost you a lot of money. Yes, absolutely. You know, today it Z you know, many of the processes that we have in the financial services area. It's an end of day process, and it's an excel based process or, you know, are semi manual process. And as you know, technology...

...has kind of moved forward and you have, you know, now almost 60 countries with you know, kind of real time domestic payment systems and you see the consumer world being essentially kind of instant payments, real time payments. It's starting to bubble up to the financial services. The, you know, be to be world toe where managing money at the end of the day is not sufficient anymore. You need to have a better handle on where the money's are, you know, kind of during the day. And more importantly, you know, kind of forecasting what those are gonna be. So what are the implications of all this fragmentation and old fashioned, I guess, for two of us air Know what old fashion is? Eso some old fashioned ways of looking at money and the managing liquidity? Well, you know what you know kind of grew up, you know, as A as a young engineer, there was a lot of in the, you know, kind of physical supply chain. There was a lot of kind of scenario planning and a lot of forecasting things going on. So I learned a lot about the value of that. And now with a lot of you know, kind of mawr and Maura uncertainty, you know, with crash will seven oh eight with Kobe with other things happening today. You know the idea of, you know, really making sure you pay attention to more and more of the details to try to make sure that you understand where your inflows and outflows are and what the risks of those are and what you do about it. You know, as things change right, we live in an uncertain world that more uncertain than almost ever before. And so, you know, moving to kind of ah, more of, ah weighs a fair hands off end of day process to a more active whether your bank managing liquidity or you're a corporation, really? Managing your you're working capital becomes more and more important for your, you know, for the kind of risk of your business and managing it more effectively in your experience. How normal is it? Or what's the sort of potential that I see? CFO may or may not have actually thought of it that way or seen uh entered a profile or a minute, minute to minute sort of perspective of their of their holdings. Well, our experience cherry, really, is that almost 90% you know, 909 110 9.5 out of 10. CFOs and treasurers have never really seen an intraday profile Corporations, almost for sure, Never look at that. Banks, you know, with the crash will look at that a little bit, but they don't. There isn't really technology today out there that really has all these kind of piece parts all kind of worked together. Theis essence is that, you know, like any kind of process when you're when you are relying on kind of manual inputs, you know, manual feeds, and then you wind up with, you know, stressed events. They wind up being a little bit more difficult to reproduce. It's not that it's impossible, but it just really takes a heck of a lot of ah lot of work. And, you know, we've been around long enough over the last let's say, a decade or so we're you know, we're in this kind of data world, and so all the peace parts air there, you know, in terms of data to go ahead and and Thio, you know, if you're willing to kind of take the data and put it to piece together and with open a p I s and some of the new technologies Open banking, artificial intelligence, your machine learning you've now and start toe. See that? An automated, you know, always on demand, you know, kind of forecast of...

...your money. You know where it is, how much it is when it's going to run out and what you're gonna do about it, you know, that is is here today. So I just think that it zits one of those things. Like this podcast, for example, Cherry. I mean, it's, you know, it's an education system of trying to change people's paradigms and behaviors. Yeah, So I'm imagining that a lot of the vendors who are talking about machine learning and ai and those kind of things So I see that as the answer to everything. Yeah, s So tell me. Tell me why it's not Well, you know, again, we in all these stress events Cove in 19 knows just is one example is it You build a process around some machine learning or smart official intelligence, deep learning, and depending on what terminology used. But that is built on what's happened historically. And you use that as least a foundation to go ahead and build a prediction or a forecast. And in this particular case, in March of you know, 2000 and 20 essentially the world's economic conditions fundamentally changed Where those economic conditions drove revenues, they drove expenses. They drove activity almost destruct, you know, 50 60 80% over 100%. You know, in terms of plane travel, people buying, you know, things associated with travel people now not, you know, filling up their cars with gasoline because they were not going anywhere all of a sudden, those things that were typically had a pattern before and that you would use all of this technology, artificial intelligence and so on. All those things just didn't work anymore because the patterns had changed so abruptly. Yeah, I would imagine some changes in the interest rate regiment as well, like negative rates. And those kind of things have had a real impact on the actual value of money in today. Yes. So you know what you have is you have a lot of you have an uncertain event. You have a process that really wasn't built and you know, to be kind of a sustainable, repeatable process. And so now what? You're trying to do is you're really trying to scramble on what it is that you that you do, and you're trying to get more details. So you're moving mawr toe to your point on the intraday side, you're trying to get more details of what's happening during the day. And so you know, you're now trying to find, you know what's the best way to do that and in some places to point about negative interest rates. You know, there's a there's a cost now for if you're, let's say, a bank and your along at the end of the day just because you know of unforeseen circumstances now that winds up being and expense for you because you need to pay the central bank. You know, whatever it is, they've gone up about 10 basis points each increment, and I think it's around 50 basis points today, you know, So there's real cost there that have never been on your income statement of cash flow statement that have to be accounted for. So again, the market brings these new payment mechanisms that are sort of built on the premise of the speed of movement and the control, and like that How does that impact the marketplace? And what's the implication? If one side of the transactions got to figure out the other side doesn't? Well, I think, you know, people still get on the phone. Fortunately to try toe, try to understand this, but I think you know what your your question kind of alludes to the fact that you know within an organization. So when you think about your these larger organizations that you know have kind of a global view,...

...you know they can represent somewhere 30 40% of all the transactions that happening. So I think one of the first things that what we've learned with within organizations is that if you can kind of take care of your own house and keep it clean first and foremost by looking at all your internal transactions that you're paying, whether it's across, you know, one region or one country like, let's say, the United States or Canada or Europe or Asia. You know, some of these things are much easier toe to manage because you can take a large piece 34% of your entity and really have it well, you know, well understood. And it's all within your control for the for the peace, That's, you know, 50 60 70%. That's more external entities you're dealing with. You know, other, you know, suppliers, vendors, customers. Then it's really trying toe work with these new patterns and trying to make sure that you have the data at your, you know, at your fingertips in some you know, in some software, you know, whether it's excel or a lot of the other new tools, and by piecing the internal and then the external together rather than trying to all take it in one bite, you know, has really been the way that we've seen a lot of firms be successful in this kind of thing. This covert world, Theo World is moving fast. It's difficult to keep up. Your executive team routinely needs new ideas to keep them ahead of the competition. Imagine having a plan in place in 30 days to focus your innovation efforts, improve customer experience, accelerate your move to digitization or increased speed to market. Our guide to accelerating your innovation agenda provides you with insights and time saving resource is to plan your path forward, contact Jerry to book a quick call or for your complimentary copy at www dot linked in dot com. Backslash in backslash. Jerry Purcell g e r R Y P U R c e l l or email Jerry at jerry dot personal at innovation 3 60 group dot com. So it sounds like with all the changes going on and sort of the wrinkle on the uncertain that comes from Cove it that there's a real need to be thinking about the future on that means innovation. So what are some of the things that are ways of looking at the equity to think might change over the next little bit? I think again much like what happened in the physical supply chain world. Is it the way you and I and you know our households? You know? See, you know, packages for any holiday or special occasion or things that we just need now are delivered. We see those, and those are something that we can see on our phones or are you know, ipads and we contract those. We can see the location of the item we can see. You know how much it weighs. We can see it's you know it's being tracked in a little kind of visualization, and we know when it's expected to be delivered. You know, sometime today by five or whatever. Well, that's how money is moving. And the technologies that air starting toe, you know, be more and more accessible...

...to the people. You know, Those were things that you're going to now be able to see, you know, much more readily than ever before. What I mean by that is that you know, So you have the data analytics and you have like, uh, you know, Swift and you have, you know, real time systems. What they're doing is they're basically trying toe weave together these different pieces of information so you can see how your payment is moving from, you know, the U. K. To the United States, you know, from one bank to the next to your bank account. And when it should be and when it should arrive. Most of the pieces air here today, J area, and you can slowly see that you know that both companies and the technologies they're starting to merge together to allow people to see the actual real movement of you know, of monies and and when they arrived much, you know, much like they do today in the physical supply chain. Remember back when I had a real job, I used to make buckets of money for the bank and float eso. So are you telling me that floats gonna be gone? I'm saying the float will be replaced. You know, maybe it's going to take, you know, have a long tail, but it will be replaced by other fees. So today you know, the when we think of a fee on a physical package, we think of that fee being Do I want it today? Do I want it tomorrow? Do I want it in a week? And there's various fee changes if you if I want it faster versus I wanted swell er so being able to turn that on and off based on the customer's desire is really where the, you know, banks will will, you know, kind of migrate. They will keep the relationship, you know, with the customer because of the trust that they have in that in that institution. And then the you know, the banks will offer, you know, through would say intermediaries with through other partners, you know these various, you know, applications that can provide the different services that the customer wants, you know? So, yeah, float will be a thing that's going to definitely change, but it's going to be replaced with things that you know. Customers pay for things that they want, rather than something that the bank just offers them a za blanket. And you know, there's this float and you can't have your money for, you know, two or three days because they just held it. Those days are slowly fading. So how are customers needs changing? Or do you see any telegraphing of new products or new ways of approaching things? Whatever they're coming from, How things were evolving? Well, I think you know what we see is, you know, things like, you know, Zeland Demo Your in the United States is a good example of the real time payments network. You start to see that like anything, it's a it's a change in behavior and a change in expectation. I remember again going back to reading in the, you know, for Fred Smith when he received, You know, I think famous. We received a C on his on his college paper about his idea for Federal Express at the time. The paradigm and the behavior was why would I need a package delivered to me overnight or, you know, are in two days. But once people realized they could have that information and they could have access to it, sure enough, there was a demand for it. And the same thing...

...today is with a lot of the fin text. You know, Zeland, memo er are are examples of services that have grown out of the fin texts. Once people know that they can have money, you know, essentially instantly, you know, in a few seconds to see it in their pound and haven't moved irrevocably, we see that there is a demand for that look. And even though United States has puts happens slower to adopt in some countries, like so, for example, in the UK, they've been at faster payments for now over a decade, started with, you know, a few £1000 and it's kind of moved up now. About a million pounds, I think, is the transaction size. So you know, when money moves there to, you know, from once I have one institution, Thio College to pay someone's tuition, for example. It all moves less than five seconds and eh? So what? We You know what we see is again very similar, you know, kind of repeat on the physical supply chains, we just see the same kind of activity moving with financial systems and people saying, Okay, this is a great thing, you know? Why not do it ask for it today? Because, you know, even though before I didn't think about it, now that I can have it in some cases, you don't even need it today. But, you know, because you it's a choice. You can you can have it that way. Mhm. So let's take out our crystal ball. Let's think about, you know, 10 years from now, our little there about 20 to 20 thirties. What? What do you think is gonna change? What will the payments and liquidity environment looks like? Well, I think you know, I think everything keeps accelerating. I, uh You know, I read an article recently, and it just kind of walked through very quickly about, you know, when the landline phone was first introduced. Took 75 years for to reach 50 million users And then when electricity came about, it only took 46 years to reach 50 million users on. Then it fast forwarded into Twitter, where it hit the 50 million user milestone in two years and then, uh, the game application. Angry birds required 35 days. And so you continue to see the technology makes it easier and easier. Thio impact more and more people. So going back to your point about the crystal ball is that I think that trend continues. Everything around us will accelerate, and the financial industry is kind of no exception in, you know, today we have about 60 countries that are embracing real time domestic payment networks. You know, in another 10 years, I'm sure that, you know, two thirds of the 200 countries in the world will have real time payment systems thes air things that don't happen overnight. But I'm sure that that that happens when you have those domestic payment systems. That's the trigger for then having the ability to have cross border transactions happen in real time. So in 2000 and 38 you know, again through the crystal ball is that I'm sure that the banks the corporations are all going to be able to if you desire as a customer of these institutions, if you want real time visibility and you want really time delivery of your monies, um you will have it Request to pay is another, you know, example that's here in today, especially in Europe, that you know you can ask for when you want your you know...

...your receivables and agree on these things in advance. Eso thes air things that air you can see there are just on the cussed on and but in another 10 years this will be this will be commonplace and really perfect Cash flows will be, you know will be commonplace You can you'll pay for how much you want long or if you want to be, you know, short because of some strategic reason in your business, those are all things that today may not be options, but with more and more information. You definitely will have those those opportunities. So one final question for you. What advice would you give Thio leaders today and sort of leaders, you know, looking forward, thio the future Well, I would say that in any industry in any business. You know your cash flow or your you know, for a corporation or liquidity for a bank. You know, that really is your wife. What? And so trying Thio trying to find a way toe manage that you know as much as you can with you know, how you exaggerate here. But, you know, with perfect insight with perfect, you know, data feeding that, you know, actually touches all the people, all the employees, all the Squire's customers in your in your kind of ecosystem and improves the kind of the the wife. What of the organization? And it also gives everybody confidence around you that you you know, our managing, you know, efficiently. A kind of a well run, well run business. And with the technology that exists today, you know, it just is not that difficulty to do it. Especially if you take, you know, kind of a higher, you know, higher value of, you know, approach and get. You know, you get a very high return on investment very quickly. So I would say that that's where I would I would lean and I would encourage everybody toe thio, take advantage of the opportunities and the technologies and applications are out there. Sounds like also figure out a way of not counting on float. S E agree s. Some of us have to be a little more creative than that. So thank you very much, Bruce. That wraps up this episode. And, as always, I look forward to hearing thoughts from you, our listeners about today's show. Please keep the conversation going. If you like the show, tell your friends and please take a minute to radar show or to comment on LinkedIn. Go to www dot innovation 3 60 dot com or your favorite podcast site to find out more and to listen to Mar shows. Stay safe and see you next week and thank you very much for chatting with me today. Bruise. You're welcome way. You've been listening to the fin of eight Show with Jerry Purcell. If you like the show, share it on your network and subscribe on iTunes or wherever. You listen to podcasts, and you can go to www dot innovation 360 dot com toe. Listen to more shows. Download the transcription from today's show or to contact today's guest. This'll is the Innovate Show Financial services innovators, Bringing you the future today.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (25)