The pandemic brought to light the importance of the treasury function in ensuring cash visibility and working capital clarity. However, the many challenges treasurers will face now and into the future, is amplified as well as progress is made towards digital transformation.  A well-rounded panel consisting of a treasurer, a banker, and a technologist sat down to share viewpoints on this essential subject and why treasury functions need to move away from a pure finance role to a strategic business growth enabling function.

Executive Vice President and Corporate Treasurer of Oracle, Greg Hilbrich, pointed out that, surprisingly enough, the post-pandemic new normal looks much like the old normal in demand for technological innovation for corporate treasury functions. However, the big picture goal for treasury remains the same – making resources easily accessible for the business to do what they need to do. The key challenge, according to Greg, is careful planning and change management. “…work and careful planning, going through periodic and regular reinvention cycles - self examines from ground up every process, every objective, and figure out how to optimize all the relevant outcomes, thought changes in processes, and technology.”

Designing banking to support treasurers in the age of digital business models

Banks occupy a unique advisory position in the financial industry. With their many interactions and conversations with corporates across industries, banks can support treasurers by offering insights and ideas that can help bring best practices from across industries. According to Victor Penna, head treasurer of leading middle eastern bank Mashreq, some of the ways banks can support treasury initiatives is by using technology, leveraging changes in open banking, and creating developmental tools to support an instant view of liquidity and risk.

Additionally, Victor stated, “more industries are adopting digital business models themselves and using e-commerce channels to sell, by its real-time nature…As a result, a significant part of the business is happening in real-time, settlement is happening in real-time and business is running around the clock, not on a normal business cycle.”

Banks are further positioned to help companies leverage open banking by guiding how to get maximum benefits from fintech’s value-added services. For example, Victor stated, “…could be things like running a multi-bank liquidity sweeping structure and doing it in real-time during the course of the day rather than the end of the day where you are liquidity behind or after the fact.”

Building for agile innovation, will the “co-opetition” relationship between FinTechs and banks work?

The speakers were quick to highlight the importance of collaboration between Fintechs and banks, where banks may have been leery in the past. They dismissed Fintechs as “too small” Victor Penna stated, “…treasurers will continue to value strong transaction banking relationships, one for their financial strength, two for market knowledge, and three for the networks. You can reach into many countries and get business done. Fintechs will come into the market and develop very selective services which will be attractive to treasurers.”

Victor hit on the importance of banks learning to operate in a world of “co-opetition” or get left behind. “Collaboration is the way to go; if banks are smart, they will embrace that, package services that take the best of what the bank can deliver, versus agility and value-added services that a fintech can deliver. Banks will learn to develop fintech like services; you will see hybrid types of services emerge in the market.”

Parag Ekbote, as the technologist on the discussion, chimed in with his view that there was no option but to have a mix of, but the “larger problem of collaboration goes back to what the infrastructure is, that we are building this entire thing on…. Business models are changing like e-commerce….and businesses are running at the speed of commerce.  Yet, if you look at banking systems and infrastructure that still exists, to a large extent, they are still running in batch mode, still running end of day processing.”

Why automated & intelligent treasury is the future

Outsourcing is always a hot button topic that surfaces consistently in the industry. However, it may or may not be the perfect solution depending on the size of the treasury and their comfort level with ceding control. Greg Hilbrich provided some insight and thinking points: “Whether outsourcing makes sense comes down to an inherent evaluation of the trade-off between economies of scale and conflicts of interest, outsourcers can do things more efficiently at a lower cost as they are specialists, but inside the function is ceding control to some extent, and that comes with risk.”

Victor Penna, however, changed up the direction of offering up automation as a superior alternative. According to him, “…there is a bigger opportunity to automate than outsource. Looking at the balance of work in a traditional treasury, it’s heavily weighted towards transaction processing, 70% to 80% of time and manpower in treasury is spent on that activity.”

“If you can automate a lot of that, there is technology out there that allows you to do it, Ex: RPA automation heavily deployed in a number of leading treasuries. This eliminates the workload and frees up treasurers to focus on strategic initiatives - which is the part you don’t want to outsource.”

Victor pointed out that strategic decision-making and risk management are considered the core of the treasury. However, technological capabilities were limited in the past, and transactional processing had to be done manually. Currently, the bigger trend visible in the treasury is automation to decrease costs and free up resources for the value-added activity.