Treasury Today Country Profiles in association with Citi

Exploring the treasury of the near future

Treasury is said to undergo periods of quiet evolution, not disruptive revolution. A new concept, Treasury 3.0, is perhaps about to change all that. We speak to Paul LaRock, principal at Treasury Strategies, to ask what it will mean for treasurers.

What is Treasury 3.0?

The concept of Treasury 3.0 is that treasury becomes one of the nerve centres of financial information, and uses this to manage risk and increase efficiencies in processing financial transactions, using technology to create enhanced analytics for the organisation.

How does this differ from what came before?

Prior to this concept, treasury could be seen more as a transaction processor. Treasury focus was overwhelmingly just on bank relationships and relationships with financial markets, such as bondholders and stockholders. There was less of the practice of taking information from the banking system and using that to understand the corporations’ internal dynamics. Today there is a heavier analytical role to the treasurer’s role than there has been in the past.

How do treasurers make the move to 3.0?

One of the things that we try to encourage, in terms of getting away from a sole focus on transactions, is to try and build straight through processing (STP) into transaction processing, so that the transaction goes from end to end in an automated manner. Take direct debits as an example. These are executed and then the accounting is also done in an automated way, bringing the transactions to the bank directly from the ERP system.

The fewer human hands that touch a transaction, the less likely there will be errors or exception transactions that the treasury department will have to investigate. Increasing automation in transaction processing frees up time for the treasurer to carry out analytical work for the business. This is not only useful for the treasurer, but also for their peer departments, such as accounting, finance and tax.

So Treasury 3.0 also reflects the influence the treasurer now has over business units within an organisation?

Yes, that’s true. The single biggest change that I’ve seen in treasury departments since the financial crisis is that a far greater number of their hours each year are devoted to counterparty risk management. It is far more methodical and analytical than it used to be.

What is the bank perspective on Treasury 3.0?

This is two-fold. Firstly, we tell our corporate clients that as part of reaching out to operating units and becoming a closer partner in helping business units execute their mission, you need to include banks proactively in a future-oriented way in that discussion. It is common to go through an annual planning cycle where budgets are made and people determine what their objectives and goals are going to be for the following year. Any projects that are in this planning cycle which have a banking component – for example you may want to set up a merchant card and direct debit programme – should be brought to the attention of your banking partners at this time. This allows the banks to gather their thoughts and work proactively with their clients in order to turn the plan into a reality.

The second point is that banks need to look beyond just payment products and transaction processing. They need to include information around the transactions and feed that into the ERP systems of their clients. That dramatically enhances the service that banks can provide companies. Most global banks completely agree with this way of thinking.

Is Treasury 3.0 already here?

We are in the transition period right now. There are some companies that can claim they are at Treasury 3.0 or are nearly there. However, for the majority of corporates, Treasury 3.0 is a map for the future rather than a place to be right now. There is a lot of work to be done. When I say that treasurers will save money by automating all of their transactions and achieving STP, the project to actually bring this about will likely take one or two years. There are accounting systems interfacing with one another, banking systems interfacing with one another – all of this is meticulous technical work. If you don’t do this right, you will end up with a highly automated mess.

Treasury 3.0 is a journey that we are encouraging companies to take, to a more automated, information-rich future. By information-rich, I mean something very specific. Data is data, but information is when data reduces uncertainty and adds clarity to the world around us. Treasury departments need to play a very important role in doing this and Treasury 3.0 is the way to do it.