Treasury Convergence as a Launch Pad for Growth
The business world is in flux. Never has so much change happened at such a pace. Amidst it all, it has become incumbent upon the corporate treasurer to support the business in managing this change, creating order, efficiency and clarity so that opportunities can be captured – and so that risks can be mitigated. While more and more of the treasurer’s time is spent supporting long-term strategic plans, the rapidly shifting environment also means that they need to be able to quickly adapt to their businesses’ continually changing cash and liquidity management requirements.
Finance and treasury departments must, therefore, evolve. They need to navigate converging yet often apparently conflicting priorities. They must manage global financial value chains amidst anti-globalisation and protectionist policies. They have to harness technology while ensuring cybersecurity and data privacy. And they must remain competitive while participating in more collaborative business ecosystems.
Our recent paper, ‘Treasury convergence: technology- driven business model transformation’, explores these trends and discusses the implications for treasury management. How can it change to support the business, using technology to help? How can siloes of financial operations and data be amalgamated to gain central visibility, control and insight?
Fast-evolving macro trends
Powerful trends are forcing change on the business world. Most notably, a wave of populism and nationalism is stoking protectionist policies. The United States, in an effort ‘to make America great again’, is looking to protect its domestic industries by raising trade barriers with China. Then there is the ongoing debate about the post-Brexit trade agreement between the UK and EU.
Added to trade-related uncertainty is the rapidly changing regulatory environment. For example, the EU has introduced the General Data Protection Regulation. There may also be new regulations associated with what constitutes a ‘worker’ in the gig economy.
Then there are demographic changes. For example, the maturing of the millennial generation is leading to changing consumer tastes. Technology is part of this generation’s lives; the youngest were 11 years old when the original iPhone was released in 2007. At the same time, they have a thirst for authenticity in products and services.
These are but a few examples of the many new trends that have major implications on businesses. Corporate treasuries need to assess the possible effects of trade wars – whether fluctuating foreign exchange and interest rates, the need to identify alternative sources of supply, or the requirement to consider new markets for their products. They must consider new risks, and build agility into treasury systems in order to adapt quickly and keep pace with change.
Fast-developing technology and shifting consumer demands are transforming how we consume goods and services, work and, ultimately, go about our daily lives. Today, we are seeing the undeniable impact of new technology on business models.
For example, cars that connect to online platforms are creating new revenue streams. In time, vehicle ownership will also evolve into ‘pay–to–use’ models of ‘shared ownership’. In aviation, changing consumer demand is fostering a more online and real-time consumer experience. From searching and booking flights online, to on-the-ground services and in-flight purchases, how airlines generate, collect and consolidate revenues is changing.
Turning to entirely new models, online marketplaces, the ‘sharing’ and ‘gig’ economies, cryptocurrencies and ‘smart cities’ are all creating new opportunities and challenges. Treasuries are adapting to these new business models and opportunities on a continual basis, reassessing their strategies and operations.
While still in very early stages, forward-thinking treasuries are starting to explore how they will be able to enhance their firms’ likely new business models.
Five innovations for treasury convergence
For treasurers looking to prepare for business model transformation, treasury convergence is a prerequisite. It fosters control and visibility across revenue streams, subsidiaries and geographies. There are also diverse benefits – from cash optimisation via pooling techniques, a rationalisation of bank accounts, to greater insight from consolidated data on cash flows across the firm.
Our recent paper, ‘Treasury convergence: technology- driven business model transformation’, explores five innovations that businesses can leverage as they reassess their operational models:
- Next generation virtual accounts
These allow cash flows to be channelled for easy identification and optimisation, giving multinationals both operational savings and strategic flexibility.
- FX hedging and execution solutions
By separating and outsourcing the execution and conversion process from FX exposure management, it is possible to provide flexibility to customers and partners, while also benefiting from process efficiency.
- Payment initiatives
Industry infrastructure providers are launching innovative solutions such as SWIFT gpi that facilitate greater speed, flexibility and customisation in the distribution and presentation of cash flow data, enabling new treasury structures and techniques.
- Beneficiary self-management
Today, there is an increasing number of instances where a business needs to make a one-off payment. Through self-service tools on HSBCnet, businesses can easily initiate payment.
- HSBC Liquidity Investment Solutions (LIS)
Optimising cash balances while retaining access for cash flow purposes is a common challenge. LIS automates investment selection within defined parameters, enabling treasury managers to easily develop investment strategies while reducing treasury’s operational load.
A launch pad for growth
In conclusion, the convergence of treasury that new technology and techniques make possible is not only a prerequisite but also a launch pad for growth. Just as companies need to focus on innovation and digitalisation to adapt to a fast-changing world, so too they need to work with banking partners that combine this with a depth of experience across sectors and a presence in a wide range of markets.