As Neobanks proliferate and grow, their treasury departments face critical demands

By Marc Salamé, Director, Solution Architecture and Arnaud de Chavagnac, Head of Product Marketing at Murex

Neobanks, also known as digital banks, are a fresh and disruptive force on the financial scene. These recently established financial institutions have distinct business models, operate entirely online and leverage modern technologies to offer an ever-growing range of innovative financial services through digital platforms.

Built for growth, neobanks have rapidly gained millions of retail customers despite competition from well-established institutions. Encouraged by success on the retail side, neobanks have set their sights on the corporate market. No barrier to entry seems too high for these very ambitious and agile organisations.

An aggressive growth strategy places critical demands on the treasury department of a digital bank. New customers create new needs for financial instruments across multiple currencies. Treasury has new risk exposures, hedging requirements, financing needs, investment opportunities and compliance obligations. The treasury constantly adjusts plans and resources to align means with objectives and assets with liabilities—it aims for the best return on investment and control of risk.

Murex has monitored this space closely as it has developed. As digital banks grow and thrive, Murex has built MXGO to enable their business.

MXGO is built for rapidly expanding banks seeking opportunities from new technologies. MXGO covers treasury processes from front to back office to settlement through middle office, risk management, and regulatory compliance. Delivered as a service, on cloud or on-premises, MXGO leverages the MX.3 platform with its comprehensive business coverage, open-source technologies, APIs, and the latest cybersecurity and resilience standards. MXGO enhances the accessibility and affordability of the MX.3 for Bank Treasury solution, currently used by over 200 financial institutions.

In 2024, Murex supplied a mobile-only bank in Asia with MXGO.

This bank was established in 2016 and is now one of the leading digital banks worldwide. With MXGO, the bank efficiently manages FX cash, money market and fixed-income activities for front office, credit risk and accounting. The bank integrates payments and settlements with downstream systems. The institution runs MX.3 on a PostgreSQL database for efficiency and cost savings and completed its MXGO project within seven months.

Digital banks often operate with a startup mentality, with all the speed that implies. Neobanks are laser-focused on time to market, and total cost of ownership—their treasury platform is no exception. They seek advanced business and technology solutions scalable from early stages. A modular approach to the treasury management system is often preferred: It offers an immediate solution while allowing growth in transaction diversity, complexity and volume. The capacity of a neobank treasury to quickly trade new products also offers a competitive advantage. Corporate financing requirements can be speedily addressed.

The initial phase of a neobank treasury setup typically focuses on core treasury components— secured and unsecured funding instruments, FX transactions and securities investments. MX.3 helps the treasury team identify and monitor liquidity and risk exposures across various assets, liabilities and maturities. This enables the evaluation of potential gaps that can be hedged with derivatives. However, derivatives trading mustn’t create unmanageable risks, operational delays or technical challenges. Market volatility adds complexity. Damage can occur fast and on a large scale and can even impact the bank’s solvency.

Neobanks must adhere to bank regulations and protect their license to operate. Such rules require the banks to meet capital, liquidity, and leverage ratio requirements, all missions that are part of the treasury mandate.

On the technical side, neobanks are cloud-native and operate with a DevOps mentality. Teams jointly build and operate developments. Continuous integration is the modus operandi: rapid, frequent and reliable delivery of software updates, enhancements and new features is ensured. Cybersecurity is another fundamental aspect of any IT initiative at neobanks. In a treasury, given large payments processed daily, access rights, encryption and other controls are very strict and designed to prevent any external or internal non-authorised usage—this is the case even though a treasury has limited web exposure.

In 2023, Murex assisted a Middle Eastern institution with its treasury approach as it transitioned from a digital wallet to a digital Islamic bank offering treasury services. The institution now uses Murex’s treasury solution for FX, money market Islamic instruments like Murabaha and Wakala placement and borrowing, and fixed income, such as Sukuk. With the treasury front-office, back-office and risk management teams running on MX.3, teams rapidly launch products and ensure market and regulatory compliance. This bank did not have any treasury management system before adopting MXGO. Treasury function establishment, supported by an advanced treasury management system, was mandated by the local central bank as a prerequisite for granting a banking license to this new venture.

Digital banks typically begin treasury activities on their core banking system, on which their initial business is established. However, the limitations of the core banking system quickly become evident in the state-of-the-art treasury processes adoption. In short, a core banking system is not built to manage treasury instruments, namely derivatives natively; allow smart collateral pledging; monitor the positions in real-time; stress test interest and FX risks; account for hedges under the local GAAP; and use modern APIs to integrate treasury functions with other digital banking operations.

Expertise and decades of experience from a trusted technology partner can boost treasury performance. Murex clients see benefits in terms of cashflow projections accuracy, explainability of the impact of the interest rates and FX rates moves, and hedge strategy effectiveness. On top of these indicators, precise calculation of return on investments and cost of funding gives additional levers to optimise treasury results. Neobanks want to achieve all this with minimum effort. All these cashflow ladders, risk exposures and profit and loss calculations can be made only with a holistic view of the treasury transactions. A treasury management system needs to be able to compute each figure that can measure, validate, aggregate, monitor, improve, hedge and report treasury activities reliably.

In 2024, a Southern Europe cooperative bank decided to replace its legacy treasury system and eliminate many manual processes with MXGO. Conventional banks like this one face increasing competition from new market entrants and seek to align with business and technological trends. Through MXGO, the bank will modernise its front-to-back processes, risk management, measurement and control.

Murex has seen several traditional institutions overhaul and digitise treasury activities in Western Europe and the Americas over the past 18 months. Established banks have clearly taken note of rapid neobank progress, including in the treasury domain.