How, in an age when new technologies are offered with unprecedented frequency, can treasurers benefit from progress whilst avoiding failures? A treasurer, a vendor and a banker offer tips on future-proofing.
The treasurer’s view
The idea of future-proofing for Royston Da Costa, Assistant Group Treasurer, Ferguson Group means “having the ability to grow with a solution for the foreseeable future”. Although at some stage it is inevitable that existing systems will have to change, when that time comes – and it may be driven by commercial or regulatory pressure, or simple obsolescence – he maintains that treasurers today have, as never before, the chance to experiment with new solutions where, if something doesn’t work out, “it doesn’t have to be a disaster”.
Certainly, with the rise of the fintechs and their disruptive offerings, there have been some interesting partnerships formed with banks where the ‘sandbox’ approach to development has enabled safe and lower-cost exploration, in some cases with regulatory blessing to use real-world data (such as the FCA’s regulatory sandbox). But what is on the menu?
Rich pickings
It will have quickly become apparent to most treasurers attending conferences these days that the main technology discussion points are APIs, AI, blockchain and cloud-based solutions. Perhaps the main enabler of progress here is a cloud-based environment. Indeed, Da Costa feels Ferguson’s roster of 14 such solutions is helping to future-proof the group’s treasury, simply because whenever a new cloud solution is considered, its compatibility across the board is assured.
However, the approach Da Costa takes with any of these technologies is one of pragmatism. “I’m always on the lookout for any new tools that would add value to our business but I’m not going to lose sleep over whether we adopt them or not,” he states. “Technology is not my core responsibility; it is the responsibility of the suppliers that are looking to develop these solutions, to come up with viable proposals.”
He attends to the market closely, playing an active development role with some vendors and banks. “Developing the right solutions demands that they know their clients’ pain points and goals,” he explains. Although this inevitably leads to conversations about ‘exciting’ new technologies, he remains rational, adding that “a solution could be based on blockchain, or some other technology; to me, ultimately, it’s about solving the problem, not using a specific technology”.
When seeking a solution, in every case, Da Costa says treasury must first identify and understand what it is trying to achieve. From a business-case perspective he advocates considering all options. “Sometimes it may well be a case of ‘if it ain’t broke, don’t fix it’.” That said, whilst there may be little advantage in implementing technology for the sake of it, he believes that “having a system is usually better than not having one”.
Engine of growth
In explanation, he says a business needs to be efficient and agile to grow. Its processes must therefore be underpinned by systems capable of facilitating and keeping up with that growth. New technologies such as AI and blockchain may well be subject to much hype, but the hype, he feels, often has some basis in truth.
For Da Costa then, the treasury issue around future-proofing should not necessarily be about judging the right time to jump or whether to jump at all. Instead he argues that as long as common sense, due diligence, and appropriate checks and balances prevail, it is more a question of whether treasury “can afford not to take that leap”.
Ferguson’s first ever move into the cloud in 2015 was accompanied by some understandable hesitancy. As such, it went through a lengthy internal process of ensuring that all the right boxes were ticked for engaging with the provider, to the point where it looked at the company’s financials and even arranged for penetration testing of the system, to see how resilient it was to cyber-attack.
Rapport
Although happy to embrace the technology revolution, Da Costa knows that, in his position, he cannot move without first ensuring he has all the facts. He has access to a helpful IT department but where this resource is not available, he suggests either appointing an external consultant, or simply talking to the banks for whom “it is in their interest” to ensure their clients are using secure technology.
Of course, not every new solution has the wow factor. In keeping clients up to speed, whilst banks tend to be “more proactive”, Da Costa feels it will be a vendor’s business model that dictates its willingness to help customers with specific requirements. Many will look at the nature of the issue and how many customers it affects (and which particular customers) before deciding the commercial viability of investment.
Sometimes, a change is required by all, especially where regulation is the catalyst. In such a case, treasurers may feel that vendors should be taking the initiative. However, Da Costa recalls how the sparsity of ready-solutions following the introduction of EMIR reporting on derivative contracts in 2013 caught some treasurers by surprise.
In both cases, keeping the channels open and bringing up pertinent issues at monthly meetings, ensures there can be no doubt as to what is expected some way into the future. “If you really want to keep up with or ahead of your competition, then it’s incumbent upon you to build a truly dynamic relationship with your vendors and banks; and it has to be two-way.”
The vendor’s view
Future-proofing is not a matter of being technologically advanced, but one of being able to flexibly use technology in order to meet the future needs of treasury and the business, says Bob Stark, VP Strategy at Kyriba. As long as treasury fully understands what it needs, and will need, “it is in a position to find the right technology to be future-proofed”.
The need for understanding amplifies the importance of treasury opening up the discussion to other parts of the business. Historically, treasury has made technology decisions independently, notes Stark. When treasury makes its own decisions, its focus will naturally be on meeting its own functional requirements.
Whether treasury needs to talk to further flung functions – such as procurement or sales – before undertaking a technology upgrade depends on the business and how treasury relates to those other functions. But, says Stark, it is worth considering that for a core treasury responsibility such as building a cash forecast, execution in isolation may not give treasury the perspective that relates, for example, to how sales team expenses play out in the field, or what new markets are being prospected.
Indeed, he argues, lack of visibility over such aspects makes it harder for treasurers to gain an accurate assessment of their own cash and liquidity expectations, with all the negative consequences this has for working capital management. As such, he urges treasurers to maintain “openness to collaboration” to ensure the “smoothest possible flow of information across the business”.
At some point, new or updated technology will be necessary. In terms of ‘future-proofing’ that technology, one pitfall to avoid is the solution that has a “shelf-life”, warns Stark. If treasury’s technology is built only to meet today’s requirements, its obsolescence is a problem-in-waiting.
Currently, the cloud delivery model appears to be the model most capable of offering resilience to obsolescence, simply because product development and integrability is the business, and indeed lifeblood of the technology provider; its own survival is, after all, contingent upon continued delivery of appropriate technologies.
Red flag
Avoiding the pitfall requires treasurers to probe the details, says Stark. How is the system future-proofed? What is the vendor’s vision for incorporating AI or blockchain into the platform? Can it point to hard use-cases for these new technologies? Is it innovating in-house or using third-parties?
By exploring the innovative capacity of the vendor, it will become apparent if it has any appetite to pursue advanced technologies or if it is merely watching and waiting or, worse, ignoring them. Any indication of vendor-unpreparedness in respect of how it intends to tackle the future needs of its clients should be a “red flag”, he warns.
Joint decisions
Treasurers should task themselves with keeping up to speed with technology developments, suggests Stark. Expertise is not necessary but a deeper curiosity will allow the treasurer to start asking the right questions, steering them towards an understanding of how AI, robotics, blockchain and any other advancement might be useful in their own function.
“It’s about being curious enough to find out what those technologies might mean for treasury,” he comments. “The treasurer’s responsibility is to understand what their requirements are today – and what their value and impact are – so they can prioritise needs as far forwards as they can sensibly predict.”
If treasury’s collaboration with the business proves useful during the technology discovery and mapping phase, then it will surely benefit to take the same approach within the organisation during system selection and deployment, says Stark.
Treasurers who are in touch with the market will know what products answer their own technical needs, but in-house experts drawn from other disciplines can help guide the process towards solutions that meet the needs of the whole business. What’s more, that deeper pool of expertise can better explore and define future-proofing by revealing how the organisation’s own clients, suppliers and other partners are engaging with technology.
Time to jump
Of course, no one wants to be burdened with obsolete or incompatible technology. However, says Stark, the rapidly evolving nature of the industry means there are many opportunities to improve treasury technology incrementally, rather than wholesale. It is still necessary to know the value of switching technologies, he states. “Every function can point to needs that are not being met, but when asking ‘when is the right time to jump’, the correct response is ‘when treasury can identity value that can be derived from deploying new technology’.”
I’m always on the lookout for any new tools that would add value to our business but I’m not going to lose sleep over whether we adopt them or not. Technology is not my core responsibility; it is the responsibility of the suppliers that are looking to develop these solutions, to come up with viable proposals.
Royston Da Costa, Assistant Group Treasurer, Ferguson Group
If, for example, there is quantifiable value in being able to produce more reliable long-term cash forecasts but technology is required to do so, a business case for new technology can be made. The strength of this case increases in proportion to the ROI, especially if that technology delivers more ROI than competing business cases (and typically there will be many).
Treasury may make a quantifiable case for the technology it needs to do the ‘day job’. But if it works collaboratively on building out a future-proofed technology landscape, it should also be able to quantify the value it brings to the rest of the business. Indeed, as Stark notes, “the more value you can prove, the more you can future-proof yourself”.
The bank’s view
“We are witnessing the most radical change treasury has seen,” notes Rajesh Mehta, Head of Trade and Treasury Solutions, Asia Pacific, Citi. “The industry is rapidly moving towards real-time transactions, emerging technologies including AI and ML for forecasting, blockchain for information security and storage and the integration of platforms into banking services. While it is difficult to generalise how ready a treasury function is, generally speaking, a function that is more efficiently organised and already leveraging technology for transformation will be better prepared for the future.”
It is, he notes, also important to recognise that as the industry is changing, so is the role of the treasury function. “With the capabilities technology offers, treasury is evolving from being primarily efficiency-focused to being more business-focused.”
Indeed, organisations are increasingly transforming their business models to be consumer-facing as they seek to capture growth. The rise of e-Commerce, especially in Asia, continues to be powered by technology, high smartphone-penetration and the prominence of digital ecosystems, as well as the development of instantaneous payment infrastructure across various markets. This development has also turned its attention on supply chain convergence and how technology can be used to create a supply chain model that better corresponds to changing business models, says Mehta.
With a direct view of these shifts and resulting flows, the role of the treasurer is increasingly much more of a “business enabler”. The ability to evolve with appropriate talent also factors into how future-ready a treasurer or treasury function is.
Evolving treasury
For Mehta, future-proofing “is about taking actions, step by step, to bring different elements together to build a treasury that is fit for purpose for the future shape of the business it serves”.
This, he explains, involves having an investment plan that reflects the organisation’s strategy and priorities, being attuned to evolving treasury best practices and related governance, policies and technology given that they are the foundation of treasury. “It also means evolving treasury alongside key banking partners and having senior management recognise the changing and critical role of treasury.”
It is possible to plan ahead today, suggests Mehta. “At Citi, we have a Treasury Advisory Team that advises clients on how treasury is evolving for the future. The team counsels clients who are on their own transformation journeys, giving them a deeper understanding of relevant developments and helping them embrace the ongoing tech revolution.”
The plan, as Citi advises clients, needs to incorporate:
- Putting in place an organisation digital strategy.
- Having a digital strategy for treasury that aligns to the corporate digital strategy.
- Upgrading and managing the evolution of skillsets for treasury employees.
- Engaging key banking partners to stay up-to-date and align.
Timing
“There is a fine line between being an early adopter and a beta-user/tester and sometimes the latter can have its advantages,” says Mehta. Being future-ready does not necessarily mean always being an early adopter. Whether or not to jump in with new technologies should depend on how relevant the expected benefits will be to the treasury function.
Those technologies that can produce a considerable competitive advantage and address various points of friction should be pursued, he says. There are specific technologies, like blockchain for example, that would completely change the ecosystem should adoption become widespread.
“While investments into these types of technologies sooner rather than later would make sense, it is important to again ascertain relevance and define use cases for initial use and implementation, possibly through learning focused pilots.”
But is there a way that treasury can make better judgements on what technologies are being offered or promised? For Mehta, there is no “instant recipe”. Better judgments can be made with comprehensive knowledge of the technologies being considered and thorough assessments on potential use cases and benefits, he advises.
However, there are a few factors to keep in mind. These, notes Mehta, would include understanding the fundamentals behind various technologies and assessing which would be most beneficial for the actual treasury set up. He continues: “Evaluate potential costs against expected benefits – taking a step back to re-examine the treasury set-up and evaluating whether it can be further optimised before making additional investments, and talking to banking providers to benchmark treasury technology to that of best-in-class peers.”
