The world is changing in many ways due to the COVID-19 pandemic. For businesses, this means addressing new realities that come along with a slower, socially distanced economy. For many organizations, revenue streams have been disrupted and projections are getting increasingly murky. This uncertainty is causing them to rethink their cash reserve strategies, and many are leveraging fintech to solve some of the key issues that come along with increased liquidity needs.
Businesses need to protect their employees and customers.
The health and safety of employees and customers should be the top concern for business managers, and we have seen significant evidence of this in recent months. Many organizations have adapted their workforces to work remotely, while others are implementing stringent safety precautions to limit the spread of the virus.
To further improve safety, more businesses are looking to technology to streamline mobile operations and reduce touchpoints between their employees and customers. It makes sense then, that contactless payments have seen rapid adoption in recent months. Further, many companies are taking advantage of other types of fintech to better prepare for the next disaster.
Businesses need more liquidity.
This pandemic has provided a strong lesson in disaster planning for many organizations. Several high-profile bankruptcies have made the news in recent months, and other organizations are struggling to stay afloat. Many of the organizations that survive will look to grow their cash reserves to better prepare for a “second wave” or the next pandemic.
Increasing cash reserves is a good strategy to ensure a business can endure an extended economic downturn, but it comes with risk. When a company decides they need a large cash reserve, they must ensure that the funds are 100% safe, earning a competitive return and available when they need them.
Businesses need more safety for their cash.
When planning for the next emergency, businesses must now consider the real possibility of limiting operations for 3 or even 6 months. For many businesses, operating for this length of time without revenue would require millions of dollars in reserve cash. The problem with having that much cash on hand is protecting it.
As you are probably aware, the FDIC has limits on the amount of money they will insure at each member’s banking institution. And for many businesses, this $250k limit is not enough. There are ways to increase this limit, but those options have traditionally been cumbersome. However, with the emergence of fintech, businesses can easily achieve virtually unlimited protection for their cash.
Businesses are adjusting to lower interest rates.
As we see during most economic downturns, interest rates have collapsed across the board. This time, rates are at historic lows, and there have even been discussions around negative rates. For some organizations on the brink, extremely low rates can help them access cheap credit to save their businesses. But for well-capitalized businesses that maintain large cash reserves, low rates can hurt their bottom line.
For companies who need liquidity, the options are limited for improving the rate of return on their reserve cash in this environment. They could shop and monitor rates at a basket of banks and move their cash when they find a higher rate. But historically, that strategy hasn’t been practical due to the amount of work required to maintain a host of banking relationships.
However, in the past decade, financial technology has disrupted traditional business banking. This fintech allows businesses to access the benefits of hundreds of banking relationships, without the need to manage multiple banking accounts. It also allows banks to compete for your business cash which can help combat the impacts of an ultra-low rate environment.
Earn more, Risk Less with Marketplace Banking™ by ADM.
At the American Deposit Management Co. [ADM], we have developed proprietary fintech that addresses many of these problems at the forefront of business today. With a Marketplace Banking™ account by ADM, your company will have access to next day liquidity in addition to extended protection and nationally competitive returns.
To get started, contact a member of the ADM team. Our team is our secret sauce, and we look forward to protecting your cash.
If you’re looking for more valuable insights on banking, interest rates, and effectively managing your business cash, be sure to check out our Insights page and follow us on LinkedIn, Twitter and Facebook.
*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.