World markets have changed rapidly over the course of the past few years. The opening up of new trade corridors, ongoing economic uncertainty, an increasingly complex regulatory environment and a host of other influences continue to impact global commerce.
The role of the corporate treasurer has similarly transformed. More than ever, senior management looks to their treasury to provide strategic guidance on improving efficiency, profitability and risk management – as well as insights for making better informed business decisions.
Simultaneously, the day-to-day problems treasurers traditionally face also remain. They must manage liquidity effectively and efficiently, ensuring that the right amount of cash is in the right place at the right time and implement strategies to ensure excess cash is working for the company.
Overcoming these challenges requires access to enriched and timely information flows, which depends on superior international connectivity.
Whilst modern technologies can achieve high levels of automation, the physical movement of money is still processed through a bank. This is true even with today’s emerging technologies – banks and their networks remain a critical part of the process.
Benefits of the bank
For seamless international connectivity corporate treasurers should look for an international banking partner with a substantial network; a bank that operates in the world’s most important markets and where the majority of global flows start and end. An ability to be on both sides of the transaction results in information that flows seamlessly between geographies, accounts and systems – providing faster access to enriched data on incoming payments results in better-informed business decisions.
Treasurers are also able to push more robust information out to suppliers. This facilitates reconciliation on the supplier end and can put corporates in a strong position to negotiate better terms for minimising risk, strengthening liquidity management and improving profitability.
Banks can also serve a crucial advisory capacity for corporate treasuries. That’s because regulators engage in-country banks to participate in industry discussions as well as serve on committees designed to drive industry change. As a result, these banks have a deep understanding of the shifting regulatory environment and can provide insight on what it will mean to the treasury.
For example, several markets have already adopted ISO20022 as a global payment standard and many others, including the US and Canada, are currently evaluating its potential. By staying connected to regulators and being involved in these industry discussions, banks can help their clients understand not only what they may need to consider to be prepared, but also what opportunities and challenges exist.
This is critical in an environment where the regulatory landscape is always shifting. As an industry, banks often focus too heavily on the process – getting the structure in place to comply by a certain date, for instance. While this is certainly key, their role should also focus on helping treasurers understand how the changes will support their goals of enhancing efficiency, improving risk management and increasing the immediacy and richness of information.
Banks also have a unique opportunity to be the voice of their clients in the committees on which they serve. With a clear understanding of what is important to treasurers, indirectly they can play an advisory role by advocating for their clients as structures and processes are examined and standards established.
This advisory role should also extend beyond helping clients understand the impact of regulations, to also focus on recognising which technologies to back and which to wait on and watch.
There’s been a great deal of attention paid to financial technology (fintech) recently, and the promise of each new technology can be enticing. As a result, banks and their clients sometimes rush to adopt it before fully understanding what problem it solves. We don’t always stop to ask what value it creates. Does it simplify cross-border transactions? Does it save time? Does it save money? Does it deliver enriched data? And does it create long-term value for the economy?
For example, SWIFT was the right technology at the right time – it was right for corporate treasuries, it was right for banks and it was right for the economy. Certain banks had more advanced technology in-house at the time, but if the banking industry’s members had all gone their own way and hadn’t got behind SWIFT, the process would have remained fragmented. While there might have been incremental value for individual clients, there would have been no real benefit to the industry as a whole.
It’s likely that we’ll see the same scenario unfold where fintech is concerned. It will become clear over time which innovations will drive mass adoption and support global standards, thereby furthering our aim to maximise efficiency industry-wide and delivering real value to the treasurer.
Further commentary on the transformation of the payments system by fintech is available in the newly-published Celent report ‘Breaking the Payments Dam: External Forces Transforming the Payments Ecosystem’, sponsored by HSBC.
While many still think the banking sector is characterised by legacy systems and lack of innovation, this could not be further from the truth. 2018 marks the year when a multitude of external factors will shake up the industry once and for all and reinvent the way people bank. Inevitably, this presents a threat, but also an opportunity.
There has been an uptick of treasurers inquiring about interest rate risk management in recent months as interest rates in the US and UK have started to show a rise in momentum, said Chatham Financial at the annual Bellin treasury conference.
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.