Real-Time Liquidity - Meaning, Importance and Challenges
The liquidity management paradigm in the commercial banking industry has undergone a drastic change. At one time, liquidity management was driven by constraints such as cut-off times and end-of-day processing. However, with the passage of time, the industry has witnessed continuous technological advancement. The industry now has the infrastructure as well as the regulatory mechanism in place to enable the real-time processing of transactions. As a result, the past few years have witnessed the migration towards the concept of real-time liquidity.
Real-time liquidity is very important for clients and provides several benefits. However, there are many challenges that commercial banks and companies have to face while implementing this real-time liquidity. In this article, we will have a closer look at the concept of real-time liquidity as well as how it is implemented.
What is Real-Time Liquidity?
Traditionally, there has always been a time lag between when payments were made and when they were actually realized by the beneficiary. This is because the sending and the receiving bank needed time to settle their books and then transfer the funds to the beneficiary. The clearing and settlement were manual processes till the late 1990s and early 2000s. However, the past couple of decades has witnessed advancement in information technology. As a result, most of the transactions can now be automatically cleared and settled with a high degree of accuracy.
The end result is that commercial banks all across the world are now able to enable their clients to make instant payments. The money gets instantly transferred to the beneficiary in case of domestic payments. However, in the case of international payments, there is still a small-time lag. This too is being eliminated with the implementation of the SWIFT global payments initiative.

Why is Real-Time Liquidity Important?
Corporations across the world expect their banks to provide them with real-time liquidity. This is because of the fact that real-time liquidity provides several advantages to corporations. Some of the important benefits which accrue to corporations have been mentioned below:
Challenges in Implementation of Real-Time Liquidity
Even though real-time liquidity theoretically seems like a good idea, there are many challenges that need to be overcome in order to make it a success. Some of the most prominent challenges have been mentioned below:
The bottom line is that real-time liquidity has become a very important aspect of commercial banking. It is quite important for corporate clients. However, the idea is still in its nascent stage and is likely to face many challenges in the future.

Authorship/Referencing - About the Author(s)
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