Digital transformation projects have accelerated during the COVID-19 pandemic as organisations face rising digital commerce volumes and remote working practices. By assessing business practices and setting a clear target, companies can stay ahead of the digital curve.

The starting point for successful digital transformation in treasury, says Sharon Wang, Treasury Director at Alibaba.com, does not lie in increasing cutting edge technologies, but in improving business processes. Once this has been done, the technologies can follow.

Speaking during a panel session on instant treasury at financial messaging cooperative SWIFT’s annual operations conference Sibos in October, Ms Wang detailed the impressive treasury capabilities deployed by the online business-to-business marketplace for global trade.

Alibaba.com has developed an inhouse real-time treasury management system, called TMI, which governs all processes. New digital technologies have enabled Alibaba.com to implement instant payments. Technologies include robotic process automation (RPA), application programming interfaces (APIs), big data and artificial intelligence (AI). The company has also piloted a blockchain scheme for instant B2B payments in selected countries. With 17,000 outgoing payments every day, the company has implemented an AI chatbot that tracks a unique ID given to each payment, enabling the real-time status of any payment to be known.

The company has five full-time staff in its payments team and six contractors, none of whom has to handle a payment enquiry manually. “Artificial intelligence saves our time every day,” Ms Wang said.

While Alibaba.com has built an impressive treasury, many firms are still at the starting point of digital transformation. The COVID-19 pandemic has, for many, accelerated plans, acting almost as a ‘stress test’ of existing processes and operations. Digitalisation projects that may have been lagging are being accelerated to address inefficiencies exposed by the dramatic changes to consumer and business behaviours that have arisen during the pandemic.

“COVID forced companies online and to embrace e-commerce, new forms of digital commerce and reimagine supply chains,” Mark Smith, Global Head of Liquidity Products, Goldman Sachs Transaction Banking, told Sibos TV. “Banks and corporates saw increases in online payments, reductions of paper-based payments and a shift of momentum and acceleration in digital transformation.”

Mr Smith identified six key technology elements of digital transformation: cloud computing, APIs, RPAs, machine learning, AI and virtual accounts. “COVID has required treasurers to have a better view of their actual and projected liquidity positions to manage risk. Those treasuries with better analysis and data and better prediction tools will have a better view of liquidity and can better serve their organisations. Digital tools such as virtual accounts are a great way for treasurers to embrace new technology to manage risk and improve working capital management.”

Himashi Soriano, Managing Director APAC, Association for Financial Professionals (AFP), says the pandemic has accelerated the momentum toward a digital-first strategy as companies in the region look to stay competitive and relevant in the current environment.

In starting out, treasurers should keep in mind that a digital transformation roadmap is more than just the technology, it needs to embrace the broader business strategy, with collaboration and partnership being the key to success, says Ms Soriano. “Technology is foundational to unlocking both the opportunity for competitive advantage and achieving greater operational and financial efficiency. Establishing a roadmap that focuses on a digital first foundation should be viewed as an essential journey.”

As with any journey, it’s vitally important to have the destination, the end goal, in mind, says Andy Schmidt, Vice-President and Global Industry Lead for Banking, at IT and business consulting company CGI. “For treasurers looking to embark on a digital transformation effort, there are a number of key questions to ask. What is the priority? Is it liquidity? Access to credit? Do I want a single view of my account balances? Does this information need to be in real time? And the most important question of all – does my bank – or any bank – provide these services in the way that I need them, or do I need to work with multiple banks, and possibly third-party providers, to achieve the desired outcome?”

Understanding the desired end state, the mix of products and services that are needed, and the capabilities of providers will help treasurers embark on a digital transformation journey that has the greatest chance of success, he adds.

The AFP has ten guiding principles for digital transformation:

• Spot a lighthouse project to start.
• Digital transformation is a marathon, not a sprint.
• Beware of budgets.
• Ownership and accountability are key.
• Do not fall into the buzzwords trap.
• Nurture a digital culture. Get your treasury team digital ready with specialised training programmes.
• Technology is not a solution, but an enabler.
• Let the big picture change as new data emerges.
• Be wary of the marriage between technology and ethics.
• Protection is vital.

Digital technologies are providing opportunities to optimise and elevate the treasury function with real-time applications, says Ms Soriano. She identifies many of the same technologies cited by Mr Smith and Ms Wang. Cloud technology can be applied to treasury management and enterprise resource planning systems, APIs for real-time payment and balance enquiry, RPAs for cash positioning and FX exposures identification, AI and machine learning for cash flow forecasting, fraud and risk management and predictive analytics, and distributed ledger technology for know your customer processes and reconciliation.

“The strength of these digital technologies in the transformation journey does not lie purely in the individual technologies themselves. The real strength and value are linked to how companies embed these technologies into their operations to transform the business,” she says.

Digital transformation is not new and has been a key enabler for treasury and business in the past few years, says Ankur Kanwar, Head of Cash Products, ASEAN and Global Head of Structured Solutions Development, Standard Chartered. However, the COVID-19 pandemic has significantly accelerated this, he says. “With work from home environments in almost all markets, digitising basic treasury operations like cash flow analytics and payment processing, at the very minimum, has become a top priority for corporates.”

But there are also a number of other factors that are driving an acceleration in digital transformation projects, he adds. These include the shift towards real time. “Real-time information exchange as well as real-time payments are tools leading to a large number of relevant and value-added use cases for businesses, which in turn impacts the pace at which treasury adopts digital transformation,” he says.

The availability of new technologies that significantly simplify the day to day operations of treasury and finance are another driver. For example, by leveraging RPA, many corporate treasuries have saved thousands of man hours.

Consumer behaviour is also playing its part. “The traditional consumer journey of dealing with corporates has undergone a shift in the past few years,” says Mr Kanwar. “From placing orders to executing seamless payments, the entire workflow for many corporates is being automated, which again has an impact on how fast treasury can support business with the transformation.”

The first step on a digital transformation journey is to identify potential development areas, processes or tasks, he says. The next step would be to seek collective feedback from various stakeholders, including business functions, on priority areas. “Once a defined scope has been identified, defining the project return on investment and milestones would be critical in seeking additional resourcing. Finally, treasurers need to identify internal technology capacity and select external vendors, including banking partners, who would support the transformation journey.”

For Krzysztof Rojek, Senior Director, Global Solution Consulting, at software company Finastra, the “most obvious place to start” on a digital transformation project for bank treasuries is to remove any remaining independent data silos, which make consolidation of data for comprehensive insights “very difficult”.

Treasuries create “products” that all departments in a bank should be able to distribute, not just the sales team in a dealing room. “Cross-selling of existing treasury products, like FX, to existing customers in other business units of the bank can help grow revenues immediately and improve customer satisfaction with minimal risk,” he says.

For example, a corporate banking department in a medium-sized regional bank in Asia will have access to tens of thousands of small- and medium-sized enterprises that already have been onboarded by the bank, but the treasury department does not have them configured in their systems with FX limits, as they do for bigger corporations and interbank trading.

“Going beyond inter-department cross-selling, bank treasuries could participate in a wholesale marketplace such as FX as a Service, where FX sellers connect with thousands of regional banks, retail and corporate customers to create a seamless contextual finance experience with help from fintech embedders and orchestrators,” he adds.

A rapid movement towards cloud technology occurred during the pandemic as many treasury operations at banks were “held captive by outdated systems and software that could not be adapted to meet the needs of remote work environments”, says Rojek.

In addition, most treasurers realise that 99% of innovation happens outside of their premises. “Leading players are moving fast to a core competency-driven business model, where they focus on the one or two things they do best and use an ecosystem of specialists to enhance overall value,” he adds.

There are, of course, challenges in digital transformation. For Soriano, these include making treasury a priority as the “ever-changing regulatory environment” causes treasury practitioners to focus on compliance instead of transformation.

A skills gap also exists, with the “modern skilled” treasury professionals needed to digitalise treasury considered scarce. “The modern treasury professional also needs to have technological and analytical skills; knowledge about processing and analysing data in addition to financial modelling and forecasting,” says Soriano.

Treasurers can also be challenged in making the business case for transformation. “Making a proper business case is not as straightforward as it sounds. It might be difficult to get buy-in from other departments and stakeholders because the business case must be reviewed holistically,” she adds. Finally, the maturity of the treasury department will determine how straightforward a digital transformation programme is.

Rojek says a “major challenge” for digital transformation projects is the current and future economic outlook. “Fintech and Big Tech competition has compressed banks’ margins on standard treasury products, and new competitors have attacked profitable areas of the business, leaving established banks to run costly infrastructure and manage ever rising regulatory costs. Online trading companies offer a wider selection of hedging products at better prices, while the cost of operations of a neobank can be 60-80% lower than an incumbent bank.”

Moreover, the pandemic has resulted in higher loan loss provisions, and defaults are on the rise as entire sectors feel the impact of the pandemic. “All of these factors have negative impacts on the profitability of treasury operations that are based on traditional business models. This has led many CFOs and COOs to adopt a “wait and see” approach, with some even cutting the transformation projects already under way.”

Similar challenges exist for corporate treasurers. The biggest challenge Standard Chartered has seen among its clients is justifying a business case and securing investments, including resources, towards digital transformation projects, says Kanwar. “Given revenue and cost pressures, particularly during the pandemic, it is not easy for treasury departments to seek resources for transformation projects. In addition, there is a fundamentally critical issue of finding the most appropriate solution for the pain point. In an environment where a large number of digital tools are now available, prioritising transformation areas and balancing with asks from the business must also be factored in any transformation plan.”

Common pitfalls in digital transformation projects include deviating from the target state due to resourcing and budget pressures, he adds. “Treasury teams should always aim for a proof of concept, prove success and subsequently kick start the full-fledged project to ensure minimal roadblocks. Additionally, with the pace of technology advancement, it is critical to review all potential solutions before selecting the most appropriate one. Finally, staff resistance to change and adopting new technology is one of the biggest challenges, which can be overcome by constant coaching and hands-on experience of digital solutions.”

Rojek says there are three common pitfalls of which treasurers should be aware. “First, denial that the change is coming. Second, a deeply-rooted belief that the banks can best transform their legacy IT themselves, which inevitably leads to failed projects or at best repeating the same outdated processes using a shiny new tool. Finally, treating innovation as a ‘necessary evil’ for PR purposes can lead to many innovation labs having ‘scientific projects’ that never leave the incubation phase because they cannot be monetised.”

The best way to avoid these pitfalls is first to acknowledge which barriers to transformation of treasury operations exist in the bank or corporate. Next, it is crucial to determine what the organisation really excels in. Depending on the context, the next step is to choose the right partner in the wider, open finance ecosystem, in order to best leverage the skills, reach and scale of each participant, he says.

CGI’s Schmidt says common pitfalls include a lack of understanding of the desired end state, the necessary mix of products and services, and the capabilities of providers. “Each of these pitfalls can interfere with the pace of transformation and the likelihood of success,” he says. “Making the effort to digitise workflows without improving them, for example getting access to balance information but not aggregating or analysing it, is an additional pitfall because although it does not impede digital transformation, it limits the benefits of the work that went into it. For many, digital transformation simply means doing work faster when it should mean doing work more efficiently and getting more out of it, including developing key insights on trends that affect the business.”

While there are a number of examples of “traditional” transformation projects, including implementing Swift and ERP upgrades for more automation, Kanwar cites two “notable examples” of successful transformation projects.

The first is a corporate that sells goods through distributors. Previous practice involved its treasury and finance team manually reconciling Swift MT940 statements to release credit lines for respective distributors. This was replaced with a real-time API alert that goes directly into their corporate ERP system to net off outstanding receivable and auto-release credit lines for the distributors.

The second, a credit reporting agency in Malaysia, implemented an automated multi-bank, direct debit cash concentration structure using local clearing infrastructure. This ensured its treasury team no longer needed to manually move funds between banks, improving visibility for the corporate at a very low cost, compared to the traditional way of concentrating cash.