Corporate Treasury at a Crossroads: The Challenges and Opportunities in Modernising Treasury Operations
By Steve Wiley, Vice President, Treasury Solutions, Corporate Liquidity, FIS
Treasurers are struggling to modernise treasury operations at a time when the consequences of technological weaknesses have never been greater. The expanding role of the treasury function, accelerated pace of innovation, and greater complexity of market and cyber risks have placed more pressure on treasurers than ever before. In 2020 and beyond, they’ll be forced to adopt new technologies, re-engineer processes and strengthen controls - or face the consequences.
A new global treasury modernisation study from FIS reveals just how profoundly treasury has changed and why departments must act now to address the challenges of the new digital treasury era. Sixty-eight percent of companies indicate that treasury’s scope of responsibility has expanded. At the same time, fundamental issues like risk management, regulatory compliance and operational efficiency are still keeping treasurers up at night.
Seventy-four percent of respondents have treasury technology initiatives under way, indicating that today, treasury departments don’t have sufficiently effective technology to manage their expanded responsibilities and associated challenges. To address these shortcomings, treasurers need to recognise their evolving business requirements, understand which new technologies can help, and create a vision for a more strategic and sustainable future.
According to 72% of respondents, risk management is the most challenging issue today, with only 29% of treasury departments considering themselves very effective at managing foreign exchange risk and 28% saying the same for interest rate risk. Cybersecurity risk is one of the most important emerging challenges, with the vast majority – 91% – of treasury departments facing hurdles in this area.
On the regulatory side, treasurers predict that LIBOR replacement, IFRS 9 and Brexit will have the greatest impact on treasury operations. LIBOR replacement is forcing treasurers to evaluate their financial instruments to understand the impact on risk and liquidity structures. IFRS 9 will create practical challenges, primarily in re-evaluating the impact of the accounting standard on all company financial instruments. And Brexit has already affected foreign exchange markets and will continue to concern treasurers as legal issues related to leaving the EU are finalised.
The technology tools that treasury uses to manage these challenges vary considerably by function. Fifty-two percent have automated cash management, and 34% have automated bank account administration and are using treasury management technology for both. Functions such as bank fee analysis and complex risk management are generally still managed using manual-based technology. The lack of technology to manage the full spectrum of treasury requirements has been a headache for treasurers, leading to higher overall costs, integration challenges, and a more operational-minded approach rather than a strategic one.
Based on the fragmented deployment of treasury technology, it isn’t surprising to learn that 61% of treasury professionals say their current technology isn’t meeting all of their needs. Considering the 74% of treasury departments that have treasury technology initiatives under way, simplifying technology delivery and set-up represents a major opportunity for technology providers and banks to improve the customer experience. Technology providers that can improve the customer experience through lower-cost, lower-effort and faster implementations will be best positioned to serve the next generation corporate treasury market.
Enter the digital treasurer
The next generation of treasurers will find more powerful, scalable ways to perform traditional treasury tasks such as cash management as well as newer treasury responsibilities such as cyberfraud mitigation. The ‘digital treasurer’ will operate a best-in-class treasury function, using the most secure, advanced and cost-efficient technology and processes – for example, receiving information in ways that minimise manual manipulation and automate decision-making.
The concept of a digital, best-in-class treasury is more important than ever today, because treasurers are struggling to achieve it, and the costs for not achieving it have never been higher. But many treasurers find it difficult to navigate the myriad of new digital developments. Separating hype from reality isn’t easy.
Which are the most beneficial and feasible technology innovations for treasurers? I would highlight four: digital or global payments; robotics; artificial intelligence (AI) and machine learning; and cloud computing.
The digital payments opportunity is at least somewhat important for treasurers according to 73% of respondents. New global payment channels and technology, including API and SWIFT gpi, can help corporates send payments faster while simultaneously reducing international processing costs.
Eighty-six percent feel that robotic process automation is an important trend, helping to automate activities including reconciliation, cash positioning, accounting, investment and borrowing. Additionally, analytic tools such as AI are available to help manage all areas of risk, including foreign exchange, interest rate, and cybersecurity risk.
AI is getting baked into bank and fintech solutions at a much faster rate, and advanced machine learning is already being adopted in areas such as payments, fraud prevention, and cash forecasting. Looking forward, robotic and machine learning technologies will help corporates further secure their payments – especially firms with decentralised financial operations, which are processing payments from multiple disparate systems such as online banking portals, Enterprise Resource Planning (ERP) systems and other specialised technology, with limited central oversight over those activities. Corporates that are not consistently using lowest-cost, fastest and most secure payment types across regions and business units also stand to benefit significantly.