It’s generally agreed that the profile of the corporate treasurer has steadily grown since the global financial crisis and he/she has the attention of the board. As the duties and responsibilities placed on the treasury have grown, so has the reliance on financial technology (fintech) and the steadily growing portfolio of regulatory technology (regtech). This has, in many cases, increased reliance on their colleagues in the IT department, but will tomorrow’s treasurer need to demonstrate an ability to work unaided with fintech? If so, how tech-savvy will they need to be, or will automation relieve them of this added workload?
The necessity of tech-literacy
In the wake of the last global financial crisis, maintaining strong cash-flows has become a top priority for many organisations. While corporates and financial institutions have implemented working capital optimisation methods to improve cash flows, effective working capital management remains one of the biggest issues corporates grapple with today.
Uncertainty around politics, financial markets and regulations today compound the problem. Treasurers are forced to rely on inputs and data from beyond the treasury. Further, with the gradual introduction of international regulations such as IFRS9 or Basel IV, traditionally siloed functions such as legal and compliance now play a more important role in feeding critical information to the treasury when it comes to matters of disclosures, capital requirements or foreign exchange risk.
This has led to increased reliance on fintechs and regtechs to help sieve through voluminous data for more value-added insights to make informed decisions faster. The corporate treasurer needs to be imaginative and innovative to drive strategic value for the organisation.
To what extent do treasurers need to be tech-savvy? Technology is expected to be used by treasury and the corporate treasurer has to deal with the ever-increasing amount of data to increase efficiency for the overall organisation. A myriad of technologies and treasury management systems exist today ranging from accounting to ERP to market information systems.
With the treasurer being spoilt for choice, the question to answer is really: which technologies lead to specific solutions that best suit the organisation’s needs? We explore three of the most talked-about technologies below.
Blockchain – transparency across the supply chain
Blockchain can best be described as a shared database that collates records together in a linear chain. It acts as a universal, decentralised ledger spread across multiple nodes, managers, and institutions.
Though blockchain is most closely linked to cryptocurrencies like Bitcoin and Ethereum, its main underlying concept – an open source, distributed ledger – offers enormous benefits to corporations and financial institutions due to its transparency and ease of integration. Indeed, a study done in July 2017 by UK research firm Juniper Research found that more than two-thirds of big businesses claim that they will have some form of blockchain integration by the end of 2018.
Blockchain’s distributed ledger technology allows treasurers to conduct international payments whilst maintaining inter-company transparency, greatly reducing time and resources spent in managing huge ecosystems of players by automatically tracking payments, transactions, trades, contracts and tasks. A corporate supplier could potentially create its own ‘permissioned blockchain’ where its buyers can store and retrieve relevant payment information to seamlessly match with the payment statements received from the bank.
However, this same attribute of transparency makes corporations wary about adopting blockchain technology. Corporations may understandably be wary in giving total visibility to their trade transactions. There is the challenge and risk of revealing too much information. A company does not want its competitors to know where it’s getting the goods and at what pricing.
Treasurers have much to gain from blockchain but they first need to be clear what processes/issues need to be fixed and then find the appropriate (blockchain-based) solution for it. Beware seeking technology for technology’s sake.
Big data for bigger dreams
Another area of technology that could prove especially beneficial to treasurers is big data analytics. It’s a key tool for future planning and performance measurement but general adoption of the technology has been slow. The common challenge is an overabundance of data paired with a lack of experience and resources in deriving meaningful insights that can be converted into action.
Consider – 90% of the world’s data was created in the past two years! However, most of that data is unstructured, such as videos, images, and audio data and difficult (though not impossible) to extract value from. What remains is structured data, such as sales orders, shipment info, invoice statements, phone records, etc., that could unlock business value. However, it is challenging to effectively harness, clean, and derive actionable insights from large amounts of data. A 2016 report from the Economist Intelligence Unit (EIU) and global sales and marketing firm ZS, disclosed that while 70% of business executives rated sales and marketing analytics as “very” or “extremely important”, only 2% could confidently state they have achieved “Broad, positive impact”. Hence, it is imperative for companies have to make the transition toward building a culture of continuous learning and building bench-strength to keep up with the still maturing and evolving field of data analytics in order to avoid being data rich, but insight poor.
Yet, treasurers have much to gain from big data analytics tools, which can help them glean deep insights into their companies’ performance, challenges and achievable targets – and visualise them. Big data analytics can be used when planning expenditures, mergers and acquisitions, or any future strategies designed to drive growth. It’s also a great way to pinpoint specific issues that companies must address, such as cash leakages, or underperforming divisions.
Artificial intelligence – making sense of data through learning
Last but certainly not least, artificial intelligence (AI). Today, AI is known as one of the most exciting and important forms of innovation out there. A particularly interesting subset of AI is machine learning, which can teach itself to keep improving performance by working on past examples rather than explicit programming.
Further, AI complements big data by combing for patterns within huge data sets, and strategic treasurers can use this technology to extract insights and streamline reporting. Through these technologies, companies can potentially complete more tasks than humans with fewer errors, resulting in a more productive and cost-effective experience overall.
For example, Flowcast, a San Francisco-based fintech startup, is providing machine learning algorithms to solve the manually-intensive dispute management for large corporations. By using a smart algorithm to predict and prevent dispute claims, they can automatically resolve more than 50% of incoming claims on average.
What is even more compelling is its ability to recover ‘cash leakage’, which is the set of disputes that the corporations could be getting back from their customers if they pay more attention to it. The ML model predicts disputes with the highest chance of recovery and directs resources to go after those disputes. In one case for a $50 billion revenue run-rate CPG company, there could be as much as $200 million in leaked cash.
What does this really mean for treasurers?
Fintech and regtech solutions work best for treasurers who can clearly see which parts of their business would benefit most. What the treasurer essentially needs are technologies that provide quicker access to accurate and complete information from all corners of the organization and the attendant data-driven insights.
When done right, the appropriate application of technology helps to relieve the organisation of manual tasks, manual reconciliation, and frees up the treasury’s capacity for high-level work. For instance, treasury could rely on regtech solutions to interpret regulatory changes and provide advice without time-consuming manual work. Treasurers can leverage technology as a major accelerator of their productivity, and thus the profitability of the business.
For example, DBS’ recently launched Treasury Prism is such a tool. Launched in October 2017, it is the world’s first digital cash management simulation and solutioning platform that puts treasurers in control of their cash management by providing technical, regulatory, and tax resources to compare various cash management structures across over 20 countries.
The challenge for treasurers is then not about being technically sound, but being cognizant and familiar with what technologies are available and then work with IT through the in-depth assessment, selection and implementation of the appropriate technology to achieve the most effective outcome for the organisation.
Despite their importance to the world economy, SMEs often face problems accessing credit when and where they need it. Their banking needs are often more complex than the usual retail banking customer and they don’t offer banks the revenue potential of larger corporations.
There’s no time to rest for financial services. The unstoppable wave of innovation and change that the industry is riding is showing no signs of abating, thanks to new challenges and opportunities.
So you’ve decided that it’s time to invest in a new treasury management system. What now?