The Future is Now: How Ready is Treasury?

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The Future is Now: How Ready is Treasury?

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Renée Friedman

EMEA

Renée Friedman joined The Economist Group in July 2016 as a Managing editor for EMEA. Her work focuses on thought leadership programmes for the financial services sector.

Prior to joining The Economist Group, Renée worked in a variety of roles: in Economic and Political risk consulting, in finance in the City of London as an Economist, a Macro strategist and a Bond fund manager, in the international and UK domestic policy spheres as an Economist to the Treasury Select Committee at the House of Commons and as Senior Economist and Chief Technical Advisor for the UN Development Programme’s (UNDP) Regional Bureau for Europe and the CIS, and as an academic, designing and teaching economics courses at universities across London.

Renée has spoken on a variety of panels and events focused on Russia, Ukraine and other emerging market economies including those for BNE Intellinews, IHS Global Insight, the IMF Poverty Reduction Strategy meetings, and for the UNDP. She has also appeared on CNBC.

Renée holds a PhD in Economics from London Business School, a Masters in Russian and East European Studies from the University of Birmingham, and a Bachelors in International Trade and Development from the London School of Economics & Political Science. She is also a Prince 2 certified project manager. In addition to her native English, Renée speaks Russian.

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The traditional role, structure and staffing of treasury are being challenged on all sides. Customers, supply chains, banks and transaction services providers alike are being disrupted by digitalisation and new technologies. Corporate treasurers face the direct challenges of new compliance, tax and regulatory initiatives in Europe, the US and elsewhere while coping with the ongoing evolution of their own companies’ existing business models.

These changes create a dilemma for treasury. Treasury cannot de-emphasise its core functions of cash and liquidity management, accounts payable/accounts receivable (AP/AR) oversight, funding, and financial risk management. But at the same time, it has progressed from being a transaction and reporting centre to a more strategic risk holder and analytics centre of excellence. This strategic evolution means treasury has to mobilise new automation technologies such as artificial intelligence (AI) and robotics, open application programming interfaces (APIs), and cloud services if it is to free up resources and add more value.

The future of best practice in treasury is inextricably linked to next-generation data analysis. Treasury is the company’s natural financial data depository and analytics engine for future planning. However, to take on this strategically important role, treasurers will have to go beyond their traditional finance training. They will need to embrace wider software engineering, data science and project management skills themselves or at least be able to lead a team that includes those disciplines.

So, do treasurers understand the nature of the challenge? Are they ready for a future that is, in many ways, already here?

Our survey results suggest that while some companies are well advanced in their preparations, others are, at best, ambivalent about the profundity of the changes they face. Some do not believe that disruption affects them. Others seem complacent about the new skill sets and knowledge that treasury will require to function well within this new environment. Most of the respondents were unable to think about the “unknown unknowns”; they believe that existing systems are the future of treasury technology and existing functions will be the main areas that new developments in AI, blockchain/ distributed ledger technology and automation will be applied.

The survey results indicate a growing divergence between those treasurers possessing the resources that enable a longer term strategic view and those forced to solely focus on traditional tasks, leaving them vulnerable to decisions taken by their more strategic thinking CFOs and CIOs.

Key findings

Disruption is real and the causes are manifold. More than 55% of treasuries say that their company is changing operational models as a result of sector disruption and that this is having a knock-on effect on treasury.
Business models are being disrupted from all sides. Treasurers see the most disruptive influences as multi-channel payments (47%), mobile-based solutions (43%) and changes in supply-chain product life cycles (41%).
Respondents are highly confident that they have the right skill sets in their teams to respond to the rapid pace of technological change. The vast majority (80%) of treasurers believe they have all or the majority of the skills necessary to meet the challenges posed by ongoing technological change.
Stay with what we know. Treasurers overwhelmingly believe that treasury management systems (TMS) and enterprise resource planning (ERP) systems will remain the core of treasury technology, with 35% and 36% respectively choosing existing TMS and ERP systems as the most useful technologies. Treasury is still hesitant to fully embrace the cloud; however, 31% of treasurers would consider moving in-house systems to it.
Treasury is behind the open API curve. Although treasury recognises the benefits of big data analytics, with 56% of respondents citing it as one of the most beneficial new technologies, only 13% are thinking about open APIs.
US tax reforms challenge corporate treasurers. The top regulatory concern for respondents is US tax reform, cited by 28% of respondents. Other regulatory concerns, each cited by 25% of respondents, were anti-money laundering (AML), know-your-customer (KYC) regulations and International Financial Reporting Standards (IFRS)

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Eurofinance 2018: Tech adventures in treasury

“The Treasurer: Agent of change”, a session sponsored by Deutsche Bank, considered how treasurers can best prepare for the industry disruption stemming from technological evolution. Michael Spiegel, global head of cash management at Deutsche Bank, was joined by John Ferguson, director of global forecasting and country analysis at The Economist Intelligence Unit, Jörg B Bermüller, head of cash and risk management at Merck, and Gurjit Pannu, treasury manager EMEA at Uber, for a discussion on treasurers’ expectations and readiness for technological change, evolving business models and new regulatory initiatives.

Treasury is “future” ready, to various degrees

Mr Ferguson opened the session with the observation that there is “a real sense of divergence between those who have the resources, and those who do not—those being left behind”. Merck’s Mr Bermüller brought a different perspective, focusing more on the cultural divide between more “old school” treasury and treasury innovators. Mr Bermüller revealed that his discussions with treasury peers indicated that many are already prepared for tech disruption. He said that companies’ difficulties with tech disruption could be attributed to the time needed to respond rather than an unwillingness to deal with the disruption. Uber, for instance, clearly see themselves as a disrupter—in all their business lines and functions. Because it’s hard to evaluate his company’s future needs, Mr Pannu explained that the treasury team’s priority of “keep up with the business” is taking an organic approach. This means trialling technology options that are able to grow with and adapt to the companies ever changing objectives.

Taking on new technology is vital

Technology can assist with adapting to the upcoming changes, but treasurers need to be more proactive in seeking out and adopting appropriate solutions. While Mr Spiegel noted that he wasn’t surprised by the report’s findings into the current state of innovation of the treasury function, he felt that the potential scope and power of application programming interfaces (APIs) may be underestimated by treasurers.

In the report, 56% of respondents cited APIs as one of the most beneficial new technologies, yet only 13% are thinking of using these. Moreover, companies need to be careful when selecting what technology they take on. As Mr Pannu pointed out, “everything is in flux”, and making big investments in technology that requires a long onboaring and heavy resource requirements as risky, as it may be rendered obsolete in the not so distant future. Moreover, deploying technology is not enough, companies need to hire (and train) the right people who will know how to use it.

Collaboration and prioritisation

Panellists remarked that developing a true partnership between treasury and other functions is essential for adapting to changing environments. However, this doesn’t only involve internal relationships, as Mr Pannu stressed: there needs to be a close alignment with banking partners, which provide local knowledge for a centralised treasury strategy. Across the board, treasury is now part of launch teams, and that’s why the function deserves a proper seat at the table. In terms of next priorities to help the business, Merck’s Mr Bermüller believes the biggest trends are big data and cloud technology. Merck created a cloud to analyse data across the organizations. Treasury started to analyse internal and external payment patterns and is also looking into RBA to handle tasks where highly skilled people are not needed. With changes in many industries happening much faster than can be foreseen, being ready is a different question now than it was in the 1990s, the panel concluded. “Stay nimble and agile, as you don’t know what challenges you may face in the future,” Mr Pannu said.

For more details on The Future is Now: How Ready is Treasury, sponsored by Deutsche Bank, click here