Four Ways to Expand the Value of Wire Payments in Managing Treasury
A closer look at how to think about and approach wires
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.
$2.8 trillion 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
1. Cost management and transaction efficiency
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.
- The network. A bank’s transaction scale and its correspondent network size are important. They can reduce the number of intermediary banks required to reach the end beneficiary. The larger the network, the greater the ability to effect the fund movement through a book transfer rather than a series of external wires, enhancing efficiency and transparency.
- Cost management tools. It’s possible to ensure that payees receive full value by agreeing to an all-in price up front and including a code in the payment instructions that indicates no fees should be taken by intermediaries. This approach is often used for cross-border payroll, vendors, business partners and other sensitive beneficiaries. It’s also possible to take the opposite approach and pass fees for commercial and trade payments on to payees in order to reduce operational costs.
- Intelligent routing. Today, it’s possible to maintain a single bank account in your base currency and let your bank choose the best payment method based on your parameters and established business rules. For example, in certain jurisdictions and currencies where a local ACH payment can replace a wire, J.P. Morgan could debit your centralized account, automatically convert to the destination currency and pay directly into the local ACH system. This combines the cost benefits of a simplified bank account structure with intelligent, low-cost routing capabilities. Again, the number of options available depends on the number of direct connections a bank maintains in low-value clearing systems.
- Auto-repair. Automated services can fix formatting errors, which improves straight-through processing and payment speed and efficiency.
2. Payment transparency
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.
3. Liquidity optimization
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.
4. Fraud protection
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.
For more information on our wire capabilities, contact your J.P. Morgan Treasury Services Representative.
J.P. Morgan is the marketing name for the Treasury Services business of JPMorgan Chase Bank, N.A. and its affiliates worldwide
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