Rethinking treasury technology

This is the first part of our series on in which Damian Glendinning challenges you to rethink treasury technology! This full report comprises the first part of our series on Treasury Technology and consists of a presentation (recorded and summarised) together with the report from the two peer group discussions (between 15 senior treasurers from Asia, Europe and USA) which took place in June 2020.

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These sessions were a little different to normal. We presented a view: treasurers generally are disappointed by the type and scope of technology solutions available to them – despite everything we have been hearing over the last 10 to 15 years at treasury conferences. Nothing too controversial there.

Our attempt at being controversial (see recording below) was what followed

Our analysis says that the real problem is that we have simply used the technology to – marginally – increase the speed of the paper based processes on which all corporates continue to function today. But the processes remain what they were when they were using paper. A true use of today’s technology would involve a lot more real time, straight through processing. This would greatly reduce the cost of processing transactions, amongst other things, by eliminating many of today’s reconciliation processes. For example, we could imagine a situation where all suppliers are paid automatically as soon as the inwards receipt processes confirms what has been delivered is what was ordered, at the agreed price. This would reduce payables float – but greatly improve cash visibility and reduce transaction processing costs.

The response in the two sessions was not to disagree with, or challenge, this view. Instead, we had discussions about how these changes will come about. The main reasons for delay given below are:

  • The need for regulation to catch up (this from one of our participants, who is a fintech)
  • A true adoption of today’s technology requires a change in processes which affect the whole company. This is where silos become a problem, especially with IT itself.
  • CFOs need to fully back this kind of change. Often, it is not very high on their list of priorities.
  • This kind of change is simply not a high priority
  • Banks invest less in technology for corporate customers than they do for retail clients

Bottom line: we all see a need to move in this direction. But many reasons remain why it will not happen soon.

DISCUSSION.

ONE

  • We operate in the payment space and are close to what’s happening in China & exploring how what’s happening there is applicable to other markets. The possibility of this (ref WeChat / Alipay China) is legitimate.
  • The biggest difference is the regulations in China compared to the rest of the world.
  • China rebounded (from CV19) fast because of digital.
  • The challenge for the rest of the world is regulatory – how far are fintechs regulated compared to banks? – KYC and AML are the biggest barriers to this. It will take a long time.
  • For cross-border, blockchain provides a possible solution but you need to get the regulators comfortable with how it is regulated.
  • Digitisation is absolutely on – most focus is on consumer and peer to peer (P2P) but not yet in high value low volume.
  • Digitising the payment chain is there but the building blocks need to be in place before it can get into the treasury and finance community more broadly.
  • There is a fresh spin on the future of payments every year – but it’s up to Treasury leadership to drive the possibility.
  • My approach to technology is to look at stand alone products which solve specific requirements and then have Business Intelligence (BI) & workflow tools on top.
  • TMSs are quite legacy – bad architecture, expensive & inefficient and they are expensive because they try to do everything.

Comment: Regulations in China emerged  after WeChatPay (WCP) and AliPay got big – people found ways round barriers.

TWO

  • Sometimes we need to go back to basics and start from the beginning
  • CV19 is an opportunity to rethink how we work- eg we have now started using electronic signatures or signed and scanned documents and they are now widely accepted by banks who used to push back – but the crisis has meant that this technology is now accepted.
  • Now we can rethink document signing in the Treasury area and where tech can help
  • One area where we have seen nothing to date is EBAM – there is an incredibly opportunity to improve
  • Treasury remains paper based and admin tasks kill us – we can’t carry on this way.

THREE

  • I agree with TWO
  • Everyone is looking at China, Taiwan and South Korea to drive through a business opportunity
  • It’s easier to piggyback off a WeChat than it is to change our own systems
  • We are looking at ways of making AR easier.
  • We use 14 different credit card & loyalty card programmes at the moment & it’s not cost effective
  • It’s hard to put all your eggs into one basket of a fintech. There is early user risk.
  • We keep looking at new products and then find it’s in Beta
  • Singapore MAS is pushing plus China digitisation
  • Baby steps

Comment: I agree no one wants to take a risk with a new provider and fail then get fired. – there isn’t much incentive to push for change. It will take time..

FOUR

  • I look at my retail bank and wish that my corporate bank and TMS looked the same
  • I struggle to see the roadblocks for these (types of systems) coming into the corporate side.

Comment: No incentive – banks were anxious to close retail branches, so they needed an effective on-line alternative. Wholesale (corporate) banking provides high values and low volumes, so the banks have less to gain from automating it.

  • When I look at our banking partners, I’m surprised it’s not coming quicker – there will be an inflexion point – we should push
  • It was a pity that EDI tech never got taken up

Comment:  it’s not instant (EDI)

Response:  -24 hours would do!

Comment: 3 weeks later is no good

  • For me, with reference to immediate payment – one thing that’s played wrong is Working Capital.
  • Collecting from customers in 30 days and pushing suppliers out to 120 days – if you make it equitable, that’s a game changer

Comment: That’s where we have a huge responsibility. At the end of the day it’s about negotiating power – the weakest players in any given industry carry all the working capital. This is inefficient.

  • I think there’s an opportunity to drive change in thinking – paying on receipt would be fabulous
  • As treasurers we have a seat at that conversation – what’s possible, what’s ethical?
  • I have tried to have that conversation for some time – it’s getting more traction now than say 3 or 4 years ago

Comment: The biggest obstacle is that most companies don’t have a supportive CFO

Comment: You need to look at the enterprise process

FIVE

  • The problem banks have is that their trade finance engines are separate from their interest rate engines which are separate from their channel engines and it’s a lot of work to deal with this
  • Programmes such as Brexit and RFR transition mean that progress is being made – they have the incentive to keep their customers.

Question: Infrastructure like S4 Hana on SAP means that corporates will have a single system for netting, dynamic discounting etc – does this offer hope?

Answer: Yes.

Comment:  The banks’ business model is under attack from many sides – their legacy systems were written in defunct programming languages which are not talking to each other – I think people will start using different stuff

Response: Our organisation is looking at more tools that exclude the banks – but it’s not a strategic approach. It is opportunity based..

SEVEN

  • Banks are starting to evolve and buy fintechs to keep up.
  • As a fintech we are acutely aware of the relationship between us and the banks.
  • The banks provide an essential service which is trust
  • Banks won’t become irrelevant – but will lose business – especially in accounts and payments
  • But they are creating services to serve their community and they have the connectivity and trust that fintechs don’t have – most banks realise that they need to be smarter and more efficient
  • End to end will be a combination of banks, fintechs and middleware and treasurers need to look at that landscape

Comment:  It’s going to take a long time..- the real issue is a complete lack of consistency – Treasury needs to have an idea of what we want.

EIGHT

  • I’m seeing a big change
  • CV19 is pushing – people are saying they will change as a result of work from home(WFH)  experiences etc and cloud-based systems – the fact that companies can function as a treasury in a WFH environment was a revelation & it’s a game changer.
  • Also seeing a big growth in specialised systems that cover issues that TMS don’t cover because it’s too complex – the idea of people using connected best of breed rather than TMS. 

Comment:  Also APIs mean the death of monolithic systems – they allow for diverse data

Comment: You need agreed messaging standards: the treasury community needs to encourage this.

NINE

  • Treasury needs to push banks – for example, when SWIFT opened up to corporates it was because large companies such as BP pushed and the banks finally moved. EBAM isn’t in the banks’ interest so corporates need to push

Session Two 

TEN

  • We know it’s always better to rethink processes but it’s not always possible to go back to the drawing board – this is a challenge we all understand.
  • Treasury being a strategic voice is key.
  • It’s not just Treasury who have to make incremental steps
  • The mind set is company wide and absorbed in a fragmented patchwork world
  • We need to get everyone to think the same

Comment: IT is one of the biggest problems – they don’t like open systems

Response: They like to work project by project

ELEVEN

  • This is an interesting discussion because we should be rethinking the business model and think real time.
  • Step further back and ask how we can conduct business in a better way. IT is everything

Comment:  if we get real time it would kill the nightmare of cash forecasting – in any crisis the first question people have is how much cash do we have? – systems make forecasting complicated.

TWELVE

  • Inspiring, provocative.
  • We could do a lot more
  • We are like dinosaurs, it’s hard to adapt with agility to the new technology because of IT concerns and silos.
  • How are smaller, more agile companies doing it?
  • In a recent call with our Relationship Manager (RM) from a big UK bank, he asked us about technology by-passing banks – he wanted to know my views on disintermediation of banks.
  • I think it will be slow – but change is needed.
  • Systems work well for us – we have ERP connected to FXAll to Bloomberg. Our AP process, netting & interco is all OK – but we are not as advanced as we thought we were – we have a lot to do.

Comment: Bank CEOs are very conscious of this issue (disintermediation) but it doesn’t seem to have filtered down the organisations yet – so it’s interesting that the RM asked you about it.

Response: we have had this discussion with one of our banks – they need to find their place in the new future

Comment: we need to push – big companies can be a powerful voice.

Response:  the use of checks in the US is still there – it’s a big surprise to me but it reflects the system set up and it works.

THIRTEEN

  • It’s a bit overwhelming
  • Our industry has an old mentality – we are still trying to align the old guard – we are way behind
  • Treasury is often the area that talks to the rest of the world most and hears a lot about what others are doing.  AP / AR don’t so it’s hard to sell ideas internally
  • For me, it’s a matter of what we can do in treasury, what’s tangible for re-engineering processes etc  we have been trying to get improved signing processes without paper – automating reports etc
  • We do it in our own way but on a much smaller scale because process re-engineering is a step too far.

Comment: We are all fully old school!

Comment: It’s a juggernaut that exists – it’s bringing tech together rather than thinking

Comment: Tech is used to automate crazy processes

FOURTEEN

  • From what I’ve seen in the last two years, older establishments haven’t been forward thinking.
  • When you have a visionary in IT and operational processes to pull people together you get progress.
  • Our company was divested and we restarted with zero infrastructure and we are now giving our process maps to our (new) parent company – we have it and they can use it to catch up
  • Treasury sees everything in the cash cycle
  • Re checks – we are getting a handle on which companies require us to pay them with checks – it’s the large / older established businesses that require us to receive checks.

Comment: When we acquired a US business they asked us to provide new check signatories – I refused – but they insisted the system couldn’t be changed. Six months later I discovered they were still paying by check using the old signatures from the previous ownership and these were still being honoured by the bank – it’s crazy.

FIFTEEN

  • I recognise a lot of this. What I find challenging is when you look at processes you know they need re-engineering – but if you need a tool then you go the quick sub-optimal route
  • Renewing entire processes isn’t always easy as they overlap with other processes and systems.

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