Expert Voices is a new podcast series brought to you by the Treasury Today Group and Deutsche Bank that brings together the perspectives of academics, treasurers and bankers to highlight the major trends shaping the corporate treasury profession. The first episode explores the transformational effect that technology is having on finance around the world and finds out what this all means for the corporate treasury profession.
Listen to podcast
Finance is certainly no stranger to technology, with banks first adopting digital solutions like credit cards and ATM machines in the 1950s and 1960s. Since then, finance has adopted more and more technology as banks further digitised internally and bought new solutions to their clients. However, over the past decade, the shortcomings of the financial system have been laid bare, especially when it comes to technology, where it has lagged behind other industries.
Banks have realised this and over the past few years there has been a clear transformation happening in finance around the world. This has been spurred on by a wave of exciting fintech companies that have brought fresh ideas to the table and begun redefining the role of financial services providers. Although a lot of this activity is happening in the retail space, there is also a lot going on in the commercial banking world, work that is having a big impact on corporate treasury professionals who are gradually gaining access to a variety of new and exciting technologies that enable them to become more valuable within the company, and a true strategic partner.
The great drivers of change
To find out how financial technology has evolved in recent years, the current landscape, new trends and the direction that leading experts think technology will be taking the corporate treasury profession, Treasury Today spoke with some of the top names in the industry. First up was Dr Andrei Kirilenko, Director of the Centre for Global Finance and Technology at the Imperial College Business School. His work focuses on the intersection of finance, technology and regulation and he is an intellectual leader on the principles of regulation of automated financial markets.
Treasury Today: What makes technology the most important trend in finance today?
Dr Andrei Kirilenko: Technology companies that decide to enter finance on a very large scale can reimagine financial services. There are certainly examples in China where finance is provided on top of a web search engine or a provider of SMS messaging.
This is very different because imagine a technology company that provides you with the ability to search the web, the ability to select other services that you use, knows where you are, knows who you are talking to, and therefore can position financial services including treasury services in ways that traditional providers of financial services may not even think about.
Another reason that technology is so important is that it can give businesses new insights into their customers. For example, there is a company that knows when somebody has broken the screen of their mobile phone. It has data on when screens are most likely to be broken and by what demographic. This is information that you don’t particularly collect as a bank or an insurance company but it appears with a predictable pattern for providers of technology services that could be used to position something in front of a particular individual, for example, an insurance product to insure your screen from physical damage.
So, if you have predictability in your data and position your product in front of potential customers just at a time when something like that is about to happen, the probability of them using this service skyrockets.
Treasury Today: What areas of finance face the biggest impact from fintech?
Dr Andrei Kirilenko: There are surveys that have asked companies what part of their operation is most likely to be impacted – front office, middle office or back office – and the fact is that it will be all of these.
Driving this is the growth in cloud computing, which makes the introduction of machine learning and artificial intelligence techniques possible on a large scale in a cost-effective way. The job for corporate treasury teams will be figuring out how and where they want to deploy these technologies.
I think the bigger challenge, however, is integrating these technologies into their existing operations because as corporate treasurers they are under very strict obligations to follow certain processes and procedures. I am aware of some situations where a parallel system has literally been built alongside an existing system that is human-centric, so I would say that those corporate treasurers who want to stay relevant, want to participate in building and fine-tuning and deployment of these digital systems, because at the end of the day they will probably be the ones replacing some of the aspects.
Taking treasury to the next level
Also of interest is how technology has changed the way that corporate treasurers operate and the impact they expect it to have going forward. To find out a little bit more about this we interviewed Zac Nesper, Vice President and Assistant Treasurer at HP Inc who states that “technology is central to everything we do as a treasury department”.
Treasury Today: What technologies do you use within your treasury department and what value is this bringing?
Zac Nesper: We use technology in several areas. These include multi-dimensional databases such as our treasury management system and even some new technology like robotics for cash visibility and reporting as well as trend prediction of algorithms and analytics.
Ultimately, I think that technology is increasing access to information. It is also reducing barriers to entry in the financial system and democratises finance when you think about the accessibility of information across a broad swathe of the population.
From a treasury perspective, technology is lowering costs and providing increased accessibility via mobile devices. There is also the potential to utilise technologies that offer predictive analytics. Because of all this, there are things I can do with a bank that were just not possible ten years ago. For example, I have not been into a branch to make a deposit, I check my balances daily on my phone and when you look at countries in Africa they are skipping an entire generation of technology and really banking via mobility, which is enabling economic development. So it is absolutely changing the landscape for the better.’
Treasury Today: What emerging technology is of the most interest?
Zac Nesper: Blockchain I think may prove revolutionary but it is nascent and I think at times it can be even a little over hyped. We are also using robotics actively. But personally, I think the technology that will have the most impact is machine learning.
If you think about applying this technology to your cash management process it can learn some of the behaviours around how you optimise, how you move funds to make sure that bills get paid, how you reduce credit counterparty risk and how you maximise investment income. In doing so, the technology can take on some of these tasks and provide data to the treasury employees who are executing it and essentially to make them more productive, more insightful and more analytic.
Technologies like this get me incredibly excited about the future of the treasury profession.
Treasury Today: Given the influence of technology on corporate treasury, what do you think the treasury profession will look like in five to ten years?
Zac Nesper: Treasury is all about the allocation and optimisation of the company’s capital resources. And I think just as multi-dimensional databases and early analytics enabled whole new areas of capital optimisation, I think that treasury technology in the future will really take this to the next level.
This holds both promise and risk for treasury professionals. I think the professional of the future is going to need to be well versed in how to use technology to maximise her or his impact. Those that cannot adapt will be left behind by automation and I think tech-savvy peers will have enormous system enabled productivity. And so when I think about the next generation of treasury leaders or treasurers, they’re going to add IT expertise to their knowledge of finance and economics and really be able to use those technologies to maximise value.
I think it is an incredibly exciting time to be a treasury professional because what we all want to do is analytics versus data collection, we want to impact business decisions and I think technology is going to enable that in the next ten years.
Increased connectivity, efficiency and transparency
Our final expert voice is Michael Spiegel, Head of Cash Management and the Regional Head of Global Transaction Banking, Germany at Deutsche Bank, one of the world’s biggest banks by assets. He says that in his 30-plus years working in transaction banking he has “never seen a period of change quite like the change we are seeing today”. Most exciting for him is how all of this development is “ushering in a new era of connectivity, efficiency and transparency for corporates”.
Treasury Today: Can all treasury teams benefit equally from technology and what do they need to do to begin taking advantage of these new solutions?
Michael Spiegel: Innovation is not necessarily driven only by the large technology companies; this environment of disruptive change is also an opportunity for corporates of all sizes and types as well as banks themselves to rethink existing business models and prepare for a change in client demand.
I think a lot of it comes down to culture and making time to prepare for the future. At Deutsche Bank, we foster a culture that encourages the idea of faster, leaner and smarter, but also need to accept that innovation requires fading fast to learn fast. We have become much better at involving our clients at an early stage of exploration and validation of market problems to co-create relevant and problem-oriented solutions.
Treasury Today: How is Deutsche Bank working with fintech companies?
Michael Spiegel: We are working very cooperatively with many fintechs – historically we have been a provider of payment services to this sector and increasingly we are collaborating with several players to create new products and services that take more friction out of the system and are value adds to our clients. Importantly, many of our clients are also part of such developments, they are evolving their business models as well.
Treasury Today: Are there any downsides to the increased use of technology in corporate treasury departments?
Michael Spiegel: Yes, Cybercrime is top of the agenda for many corporates. As soon as you establish linkages to suppliers, business partners or technology vendors, the security of their systems as well as their risk management protocols becomes of relevance also to you as a corporate. When you have a large-scale supply chain, every step in that chain has both technological as well as human capital risks.
Treasury Today: How will regulations such as PSD2 impact the financial services landscape over the coming years and what will this mean for corporate treasurers?
Michael Spiegel: The direction of travel of global regulation and compliance is around greater transparency and competition. Use of open APIs is only going to increase in the years ahead, which will potentially provide new revenue streams but will also require banks and companies to have the appropriate skills as well as security protocols in place. We all need to be well aware of whom we are opening an API door to and why. PSD2 will give rise to new potential cybercrime considerations also since third-party access will be the order of the day.
Ready for the future?
What really shines through from all these conversations is the sheer degree of change that technology is having on finance and corporate treasury. Indeed, it will be extremely interesting to watch how this space develops further as technologies such as blockchain, AI, robotics and the like mature. And when this is tied in with regulatory developments such as PSD2 and Open Banking in Europe I think it is safe to say that an awful lot more change is to come.