As conversations about digital transformation turn into action, high-tech treasuries are leading the way – and more traditional treasuries are also taking the opportunity to embrace innovation, says Victor Penna, Head of Cash Management for Europe & Americas, and Global Head of Structured Solutions Development, Cash, and Olle Malmgren, Executive Director, Structured Solutions Development, Cash, Transaction Banking, Standard Chartered.

In today’s challenging climate, digital transformation has never been more important – and leading treasuries are playing a key role in expanding the possibilities of what can be achieved.

The opportunities offered by new technologies in treasury have been a topic of discussion for some time, but increasingly this talk is turning into action. Leading treasuries, particularly those in faster paced industries, are increasingly adopting technologies like robotic process automation (RPA) and artificial intelligence (AI).

By embracing new technology, treasury will be better able to support the business. In some cases, treasurers can even help create new business models by suggesting new ways of paying or receiving funds for e-commerce or digital customer channels. Digital transformation can also take away a lot of the mundane work in the treasury, making it easier to attract and retain more qualified employees. And technology also helps the treasury to be more agile, change faster and take on more volume without needing to add more resources.

Harnessing technology

Where specific treasury activities are concerned, a traditional treasury would typically use spreadsheet based cash flow forecasting to identify an upcoming funding gap, or excess cash that needs to be invested in the near future. In contrast, more advanced treasuries are using tools that look for patterns in data to forecast much further ahead. Once you can forecast months ahead, there are opportunities to bring in data from sales and production forecasts to gain a greater understanding of the relationship between customer demand, manufacturing, and inventory. From there, companies gain the ability to undertake working capital forecasting, and understand what funding the company is going to need in three, six or nine months into the future.

Forecasting is not the only area that is being transformed with digital technology. As treasurers sharpen their focus on technology, it is becoming clear that there is so much more that can be automated. In the past, there was an assumption that functions like payments processing and foreign exchange execution needed to be done manually, but many companies are now seeking automated solutions in these areas. Technology, and the ability to access more information and underlying data, is also enabling treasurers to do things that they haven’t attempted before, such as algorithmic trading.

Companies are also looking to gain more insights from their data, for example by seeking greater insights into which customers are paying late or early, and how important this business is to its customer or suppliers. Meanwhile, with clearing systems increasingly moving to 24/7 models, treasurers also need to start thinking about how to deal with cash flows that come in outside of normal working hours, and what technology solutions are needed to support this.

A shift in mindset

These opportunities are not only open to new companies which have built treasury functions in the digital era. Traditional treasuries are also embracing digital technology – although this may require a shift in mindset, both within the treasury and across the business.

For one thing, treasury is often viewed narrowly as a risk management and governance function in traditional organisations. More advanced treasuries are increasingly thinking about how they can add value to the business. Companies embracing digital transformation may also need to upskill their employees, either through training or in some cases by hiring new talent, in order to gain the necessary expertise in areas such as data analytics and RPA process management.

Treasuries that embrace technology are more likely to partner with the business on its own digital initiatives. For example, a traditional manufacturer that previously sold via distributors might decide to begin selling directly to its small and medium sized customers using online channels. The company will need a whole different infrastructure to support that, and where treasury is concerned, there are opportunities to help the business make that transition by exploring online real-time foreign exchange, payments gateways and different ways of interacting with customers.

Conversely, treasuries that don’t embrace these opportunities won’t be able to support the business of tomorrow. As a result, the traditional treasury risks becoming less relevant to the business. So instead of working with treasury, the business will seek out external service providers, meaning that the role of the treasury shrinks over time. This is something we’ve seen in companies that have a big online presence. Often they have dedicated payment teams within the business that focus on things like electronic collections, payment gateways, wallets and P2P systems. If those teams are driving those decisions themselves, treasury is not actually at the table anymore.

Embracing innovation

While some treasuries have yet to embark on a digital transformation journey, there is plenty that can be done. For more traditional treasurers, this is likely to mean embracing self-education and learning in order to grow and develop. This might include talking to banks and fintechs about the possibilities or carrying out some selective hiring to bring fresh ideas into the organisation.

To some degree digital transformation involves a behavioural change, as the most innovative companies are those that are comfortable with experimenting and failing fast. Whilst Treasury has always been about risk aversion rather than risk taking, experimentation does involve a certain level of risk taking. While there is a balance to strike here, treasurers can start by undertaking some limited experimentation in order to bring about a change. This can be challenging, as the finance function is not normally the first place where you think about innovation, so some groundwork might be needed in order to present these ideas internally and get buy-in.

Some treasurers may struggle to gain support for transformation from their CFOs, while other CFOs may be proactive about including innovation in treasury key performance indicators (KPIs). Two or three years ago, it was quite common for treasurers to be given a KPI by the CFO to implement RPA, AI, or blockchain. Now, instead of having a KPI focusing on a specific technology, treasurers are becoming more expansive in thinking about what is possible, because they hear other treasurers talking about what they have delivered. Hence, today the focus is less on figuring out how to use blockchain or AI, and more about deciding where treasury is going and what it should look like.

Rise of the connector bank

As treasurers aim for digital transformation, banks and other external partners also have a role to play in advising and guiding their clients. This can range from knowledge sharing to looking holistically at the client’s processes and delivering end-to-end solutions. At Standard Chartered, we are developing a lot of new solutions and capabilities, sometimes with fintechs, and sometimes on our own through our SC Ventures business. These include APIs, QR codes, payment gateway solutions for internet banking and virtual accounts to name but a few areas.

Beyond this, the role of banks has long been to act as an intermediary. In the digital world, this is still the case – but as that role evolves, our institution is increasingly becoming what we call a connector bank. In essence, corporate clients like the idea of fintechs and bank agnostic platforms – but they don’t want to take the risk on the fintech. So increasingly banks are becoming part of different platforms. For example, Standard Chartered is connected to over a dozen trade platforms, which means that clients can connect to the bank through these platforms to provide working capital finance and other trade related services.

We are beginning to see a similar movement in the cash management space. Some of the TMS and ERP platforms are evolving to become financial marketplaces in their own right, with certain financial services embedded in their platforms. Likewise, we have connected to mobile money payment systems so that corporate clients can reach a bigger consumer base in Asia and Africa, and make payments to suppliers in remote locations. By connecting to these platforms, we are extending our role as an intermediary in the digital world, and we’re giving clients the comfort that the risk and technology has been properly engaged.

Impact of COVID-19

Alongside these developments, it’s clear that the COVID-19 pandemic is accelerating the move towards digital technology. Retailers have significantly increased their online sales, while corporates dealing in the B2B space have also had to adapt. Receiving and depositing a cheque, for example, may be impossible during lockdown conditions, with shared service centre staff working remotely and bank branches closed. As a result, we are seeing a wholesale shift to electronic payments and collections.

In this difficult environment business digitisation is accelerating, even though the vast majority of people in treasury and banking are working from home. Many major corporations have issued RFPs in order to revisit the way they are doing cash management across an entire market or region. Treasuries have had to eliminate their paperwork quickly, so a lot of things have become digitised by default – and that’s leading to a broader change in people’s thinking.

To give one example, the pandemic has driven demand for e-signatures. This isn’t only about the signature itself. People often need to go backwards and forwards a number of times in order to agree a document, so there is also demand for electronic workflows and real-time collaboration. Again, this is a behavioural change, and a shift that is likely to continue to accelerate in the coming years.

Finally, real-time information has become even more important in this climate. Forecasting is more challenging at a time when nothing corresponds with previous years’ sales patterns, so having access to real-time or near-real-time information is an increasingly important component of liquidity management.