The future is digital but getting there requires some key decisions to be made now about what this really means. In this article, how treasury gets ‘fit for the future’ comes under the scrutiny of HSBC’s Liquidity and Cash Management team.

For treasurers, it is possible that an ideal cash management set-up may look something like this: enhanced visibility and controls; fully centralised decision-making; optimal use of cash; truly effective exposure management; and bank account self-administration.

Arguably, the whole (and there will be more on the wish list) will be even greater than the sum of its parts. Why? Because as customer demands evolve and structural shifts are enacted to accommodate them, it will deliver the kind of treasury flexibility and agility that is increasingly becoming a need rather than just a want.

Of course, this is a story of technology. However, trade press articles today frequently reference ‘digital disruption’ in a confusing mix of real-time payments, automation, blockchain, data analytics and the march of robotics and AI.

The safe response is ‘beware of the hype’. Certainly, some of the more advanced notions of artificial intelligence taking over treasury are fanciful – the skill and judgement of the human treasurer may never be replaced. Even the adoption of distributed ledger technology (DLT) such as blockchain, which is beginning to happen in a limited context such as trade finance, is still very much a slow burner.

That said, playing too safe might not be an option. Treasurers refusing to move will be increasingly challenged in a rapidly evolving world. Those who do take steps will need to make some informed decisions about technology, but in doing so will be on their way to building the kind of ‘future fit’ technical and process groundwork that may yet include the more advanced technologies.

Seeing opportunities

Being fit for the future is an imperative as far as business survival is concerned. Real Time Payments (RTP) is inevitable – the question is how it will be used and for what purpose. That treasurers have a choice in how fast they progress has a practical upside, says Philip Fellowes, Head of Global Liquidity and Cash Management – Europe, HSBC. It means that as well as being able to respect the treasurer’s own wellbeing, the bank is able to work with corporate clients to explore their real pain points, focusing only where real-time has value for the business and its clients.

Naturally, there is a business case to answer for progress, and the ability to focus helps. The cost benefit of real-time payments over the traditional models must stack up, says Fellowes. There must also be realistic consideration for the support model around real-time (it may require additional resources). Questions should be answered too as to how, and if, real-time solutions can integrate with existing core treasury systems; rip and replace is rarely an option.

Of course, the adoption of real-time solutions begs the question of reachability. It must be acknowledged that whilst some geographies, such as the UK, India and the Nordics, have embraced it fully, others have not. Across Europe, SEPA Instant Credit Transfer is still a bank option, not a mandate. And whilst SWIFT’s gpi can enhance cross-border payments transparency, it is neither universal nor instant – even if the speed of execution has been greatly enhanced.¹

Despite the necessary questions and answers, the drivers for real-time adoption are gaining ground. Where a business is managing vast collections of payments across multiple traditional channels, implementation of real-time payments alongside developing models such as the request-to-pay secure messaging service (now in definition mode as part of the UK’s New Payment System Operator initiative) could make operations significantly simpler, says Fellowes.

And it’s not just treasurers who stand to benefit from real-time transactions, notes Joanne Towers, Head of Payments, Product, Europe, GLCM, HSBC. “Talking beyond the treasury teams, we find other functions looking for innovative collection propositions to make it as easy and as quick as possible for their customers,” she says.

At a higher level, there is a sector-specific push in this direction, with consumer and retail in the driving seat as mobile devices figure increasingly in a payments space particularly well-served by the fintech and banking communities.

Sectors such as retail are therefore already advanced in the roll-out of their digitisation projects, notes Michèle Zaquine, Head of Payments Advisory, Europe, GLCM, HSBC. “But the discussions we have with the wider treasury community are about how new technologies will allow them a greater data-enabled closeness to their own customers, how this translates across their organisation, and how the transformation can be managed.”

Bigger picture

The key here is to think holistically, says Fellowes. “It requires alignment with the overarching strategy of the business, and deliberation as to where real-time information will make meaningful improvements.” There is a structural consideration too, he says, with centralisation versus de-centralisation a key debate.

Indeed, Towers acknowledges the increased difficulty in managing real-time data across multiple centres, where the same tools and access to the same information is a vital component. “Real-time does depend on the business’ state of evolution towards centralisation,” she states. “But fragmented manual and paper-based processes are still much in evidence; trying to reconcile these in real-time is a serious challenge.”

Thinking about this holistically requires an initial focus on “getting the basics right”, says Zaquine. It means integrating data flows to enable the accessibility and analysis of better (relevant, accurate, timely and enriched) information, ultimately allowing “the right decisions to be made at the right time”.

By casting the spotlight on fundamental inefficiencies (and their attendant costs and risks) such as manual reconciliations, it becomes apparent how technology will be able to bring about useful enhancements. But technology, states Zaquine, “should only ever be seen as the enabler”.

Indeed, the threat of a major structural overhaul at the hands of technologists may scare off some treasurers. But as mentioned earlier, a full ‘rip and replace’ transformation is not inevitable. Professional treasuries are already fully-functioning units; fixing what is not broken is unnecessary. “It’s actually about finding incremental enhancements, and improving costs, through the medium of technology,” states Fellowes. “It’s evolution, not revolution.”

In fact, adds Towers, “there are a number of building blocks that can be put in place in order to maximise the outcome, and they can be laid in different ways over different periods of time”. In response to specific pain-points, progressively deploying products such as HSBC’s currently in-development ‘Next Generation Virtual Accounts’² solution or its ‘Liquidity Management Portal’, could help establish incremental waypoints on treasury’s continuous drive towards its ideal.

Using these tools – respectively to consolidate and rationalise accounts, and increase visibility over, and reduce risk around, funding, forecasting and liquidity – is a way of initiating the groundwork for more real-time operations across the organisation.

Further on down the road

In addition to answering the needs of treasurers seeking the ‘ideal’, the solid groundwork afforded by using such tools facilitates increased process automation. This really does set the scene for the adoption of advanced technologies such as AI and blockchain.

In this respect, banks are investing in the cutting edge and are yielding promising results. HSBC, for example, is currently testing DLT in the arena of internal FX settlements. “There is a lot of hype in this space,” Fellowes reiterates. However, with its programme of serious investment and its active stance in the wider technology debate, he believes HSBC’s clear commitment to encouraging the development of ‘real’ digital solutions helps cut through it.

With many corporates already on a digitisation pathway, treasurers should now actively engage with their trusted banking partners, probing the level of maturity of advanced technologies in the financial services sector.

In doing so, it sets up a truly collaborative environment in which real business solutions are developed in response to real commercial pain points. “HSBC is investing US$2bn in digital transformation over the next three years and exploring new technologies that can provide efficiencies and enhance the customer experience” notes Fellowes. “For HSBC, it’s about exploring concepts such as AI and DLT with clients who are keen to share their thoughts, and maybe work with us on a proof-of-concept.”

However, some treasurers may not yet feel inclined to step off the pavement and start walking towards their digital future. As we have seen, there are options around progress, says Towers, but staying well informed is advisable “so you can at least play a part in setting the agenda, and see the opportunities that these tools may present your organisation just as they arise”.

Act now

This is a rapidly evolving space in which the prudent stay connected with developments. Fellowes therefore argues the case for engaging with banking and financial partners, other functions within the company (including those with direct customer and supplier contact), and treasury peers.

“Use these conversations to begin establishing what technology has most relevance for your company. Think about how it can remove inefficiencies, and help end-customers do business with you,” he counsels. “But do it with a business-oriented view because, ultimately, you need to make your firm more competitive now, and in the future.”

Disclaimer

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