More than a payment method, wires facilitate the flow of money within the global financial ecosystem. Over 900 trillion in payment values move around the world each year.1 The monetary value of wires demonstrates their importance in moving money, managing liquidity and mitigating systemic risk. Consequently, corporates can benefit from a closer look at how to think about and approach wires as part of your treasury and cash management.
in wires moved around the globe daily by J.P. Morgan
As the largest U.S. dollar clearing bank in the world, we transfer the equivalent of the U.S. real gross domestic product each week.2
A narrow view:
Despite their essential role in the global financial system, wires are often overlooked and underappreciated as a treasury services solution. Relative to other payments they are maligned for their cost as a seemingly commoditized payment mechanism which lacks transparency for cross-border transactions. Often, they garner the least thought in a treasurer’s plan for cash management.
In reality, wires are a sophisticated mechanism for transferring trillions in value daily across the globe and they should be front and center in your cash management considerations. Here’s why.
An expansive view: optimizing strategic value, minimizing costs
The more wires are viewed as a value-added service, the more they can become integral to strategically managing payments, liquidity and risk. Increasingly, corporate treasurers are realizing efficiency, control and optimization by more closely integrating these areas of cash management.
Four areas that merit rethinking
Wires are often perceived to be a costly payment mechanism. A key component of cost is the use of the correspondent banking network. Payments typically involve a supply chain of banks that move money around the globe to reach the payee’s local account. Intermediary banks may take fees along the way that reduce the principal amount paid. You can manage the cost of wires proactively. Consider using a combination of tools and services that convert cost management into value-for-cost optimization.
Historically, the use of a network of banks across times zones created challenges for end-to-end payments visibility. Today, it’s possible to track and trace wires from the moment the instructions reach your bank until the payment reaches the beneficiary. This direct visibility into real-time status information, FX details and fees enables proactive management of escalations and issues.
Banks typically process payments on a first-in, first-out (FIFO) basis. A bank’s ability to automatically prioritize urgent payments instead of using FIFO allows you to manage your intraday liquidity and payment flows more efficiently.
Choosing the right banking service provider can be critical to the timeliness of wire payments and maximizing your liquidity.
As with other payment methods, wires may be targeted by malicious third parties. To help treasurers strengthen internal controls, banks are expanding the fraud management tools available to corporate clients. J.P. Morgan offers Wire Positive Pay, which adds a layer of security by enabling an authorized individual to review and approve wires through a separate channel prior to initiation.
1Source: Bank of International Settlements (BIS) Sept. 2014 Publication Page 463 Table 8 2015 CPMI Total
2Source: www.bea.gov Q2 2017 GDP figure of $19.2tn
For more information on our wire capabilities, contact your J.P. Morgan Treasury Services Representative.
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