The 2018 Forecast: Wear Sunscreen, Take Your Umbrella
By Steve Elms, EMEA Region Sales Head, Corporate and Public Sector, Treasury and Trade Solutions, Citi
Steve Elms continues his annual series in which he outlines his thoughts for the year ahead. In recent years, the focus has been managing risk and improving efficiency during an extended period of uncertainty and turbulence. As Steve describes, the forecast for 2018 seems brighter, and treasurers need to support and facilitate growth without being complacent about ongoing instability and risk.
For the past few years, our discussions have centred around global uncertainty and turbulence. To what extent does 2018 look different?
We have definitely seen an upturn in confidence over the past few months with improving economic conditions, such as GDP growth and the easing of the asset purchase programme in Europe. There are signs too that we may be moving from the ultra-low interest environment that has characterised the past decade in the US and more recently the UK. This more positive environment is being reflected in our interactions with customers and the projects in which they are engaged. While the past few decades have seen more of a focus on cost management and consolidation, we are now seeing a greater emphasis on top-line growth through expansion into new markets or customer segments, and we expect this to continue into the year ahead.
Despite brightening on the horizon, storm clouds are never far away, and geopolitical issues and areas of instability remain. In Europe, for example, populism continues to hold sway. Even though this was not reflected in the overall outcomes of the recent Dutch and German elections, the results themselves were telling and the outcome of the recent Austrian and Czech elections and events in Catalonia illustrate its influence on the political landscape. During 2018, we will see more clarity on the future relationship between the UK and Europe which in turn will drive corporate decision-making, including in treasury, which may have been held off so far. Protectionist policies also continue to play out in the United States, emphasised by the proposed tax reforms and renegotiation of trade deals, and an overall focus on national over global interests.
Even so, we are seeing greater momentum amongst clients to undertake new projects and embrace innovation, increasingly focusing on growing the top line. Consumer behaviour is changing, The shift from ownership to access, and changes in the way products and services are consumed, as evidenced by the significant growth of the sharing economy and changes to distribution of goods and services such as subscription models, all illustrate the rapid pace of change in consumer behaviour.
What does this mean in practice?
Whilst we can observe different rates of digital adoption, we should expect that all industries have or will undergo notable disruption in the coming years. These advancements have allowed for new entrants or fundamental changes within the business itself to emerge. Corporations will need to review and adapt how they do business to remain competitive and meet evolving customer demand. During discussions with corporate treasurers, we have observed three key areas of focus.
Adapting to real-time
The new generation of real-time versus ‘batch’ payment processes is just starting to emerge, but the consequences for treasury and finance teams will be tremendous. As real-time payment schemes are adopted, along with the exponential adoption of APIs to support real-time processing and data flows, the ability to accelerate processes such as reconciliation, cash positioning and liquidity management will be fundamental. To highlight the extent of proliferation, there are currently real-time payments in 18 markets globally and this is set to double in 2018. In addition take-up for these schemes will rapidly grow as the value proposition extends beyond C2C and B2C payments and collections into B2B, and we will see continued adoption of new market places and ‘as-a-service’ models. The impact to treasury will be significant and will drive further automation and straight-through processing that will ultimately result in an autonomous treasury function
Centralisation and automation
These themes are familiar to most treasurers, with the focus on ‘doing more with less’, but we are seeing an uptick in projects to improve financial and operational efficiency, control and cost management. We see an increase of treasury functions evaluating how to leverage systems and investments in infrastructure to increase automation and process efficiency, while others are rationalising account structures to improve visibility and control over cash and introducing virtual accounts with payments and/ or receivables on behalf of (POBO/ ROBO) techniques.
In addition, we see an increase of projects that are the result of mergers, acquisitions and disposals that are driving efforts to increase efficiency. Treasury plays a fundamental role in both the execution of the deal and the subsequent integration or spin-off of business flows and internal processes.