The great technology rethink

Published: May 2022

While for some treasury departments technologies such as artificial intelligence and machine learning remain something of a mystery, the lockdowns and remote working that have resulted from the COVID-19 pandemic have forced a rethink of treasury technology platforms.

City curved and technology connection graphic overlaid As the modern financial system has become increasingly complicated, treasury solutions have evolved accordingly to help teams manage FX risk, cross-border payments, inflation and reconciliations, says Ola Oyetayo, CEO at cross-border payments platform Verto. During the past 15 years, digital treasury solutions “have really beefed up and become pretty sophisticated”, he adds.

“The adoption of innovative technologies within treasury is still at an early stage, the signs point to much broader adoption over the next three to five years as the relevance of these technologies to treasury becomes much clearer,” says Himashi Soriano, Managing Director, APAC at the Association for Financial Professionals (AFP). “The move towards predictive and prescriptive analytics will elevate treasury performance and help mitigate several current risks, from forecasting to cybercrime. Modern technologies will certainly redefine what is possible.”

Eric Aillet, Product Manager, Financial Messaging Marketplaces, Finastra, says there is a “clear appetite” for treasuries to switch to the latest technology, but the transition can be slow for a number of reasons. “As a cost centre, treasury needs to justify return on investment to trigger the related investment in technology,” he says. “Additionally, not all treasury ecosystem players, including banks, software providers and internal systems are at the same level of readiness.”

Another factor is risk – because treasuries are by their nature risk averse, many do not want to be first movers, but prefer to adopt proven solutions. This is a point also made by Singapore-based independent treasury consultant David Blair. “Because treasuries tend to be risk averse, most do not rush into new technologies, preferring to be fast followers.” Compared to other functions of a business, treasury “is in the middle of the pack” in its use of advanced technology.

Stephen Randall, Global Head of Liquidity Management Services, Treasury and Trade Solutions at Citi, says of treasuries’ use of technology: “As you’d expect, there’s a wide spectrum out there.” Drawing on Citi Treasury Diagnostics’ global benchmarking survey, he and colleague Duncan Cole, Principal, Client Advisory Group in the Treasury and Trade Solutions division of the bank, say there is good news and “not so good news” about the use of technology in treasuries.

The good news is that companies are continuing to deploy technology to advance treasury, with 68% of survey respondents having already deployed a treasury management system (TMS) or enterprise resource planning (ERP) treasury module. Almost two-thirds of respondents are looking at transformative opportunities across both their core business and treasury function.

“Less than half of respondents now report multiple e-banking platforms at each location, which indicates a shift to data transmission from banks, rather than reliance on accessing multiple bank portals,” says Cole.

The not so good news is that many companies have “significant gaps” in deploying technology, with low levels of automation and connectivity. For example, only 63% of companies concentrate cash at a global or regional level, despite the availability of automated global pooling solutions from major banks. Nearly a quarter (23%) of companies have incomplete (less than 75% of total cash) daily visibility over cash positions. This is despite the fact that visibility and centralisation of cash and risk are a “core mantra for treasuries”, say Randall and Cole.

Randall adds: “Straight through processing is key for timely decision-making and reducing the risk of fraud. However, 79% of companies have not fully integrated their TMS/ERP platforms with banks despite existing well-established standards. This extends even within the firm: 64% of companies report that their TMS is not integrated or only partially integrated with their ERP.”

Another shortcoming is cash forecasting inaccuracy – a “key pain point for liquidity planning” says Randall. Of those surveyed, 80% were reliant on spreadsheets within their technology stack for forecasting. “While it is true that more than half of companies find their TMS technology does not support cash forecasting, today, fintechs and banks (sometimes in partnership) provide viable solutions.”

For those companies who have the necessary core infrastructure in place and resolved the data veracity challenges, the focus is one of process automation, process/machine integration through application programming interfaces, and data analytics and insights through machine learning techniques.

Stephen Randall, Global Head of Liquidity Management Services, Treasury and Trade Solutions, Citi

The issue with technology gaps, says Randall, is that they “create cracks in the foundations of treasury management. That is never a good place to be but that can get glossed over when times are good, liquidity is plentiful, and risk is muted. But all comes home to roost when there is a crisis.”

Blair also sees gaps in treasuries’ technology deployments, saying the pandemic forced treasuries to digitise in order to cope with remote working. “This has revealed technology gaps and opened interest in the cloud. In this sense, Covid has pushed treasuries to evolve their technology platforms.”

Soriano says the pandemic accelerated the need for a more agile, secure and scalable IT infrastructure at treasuries. “The forces of digital disruption are now driving change and it is really a case of ‘when’ and not ‘if’ a company will embrace treasury technologies. With change and uncertainty becoming the new normal, the need for operational agility cannot be underestimated. It is critical for survival that companies remain both relevant and competitive in these constantly evolving times.”

Oyetayo says treasury teams that relied heavily on legacy software, standalone Excel spreadsheets and working in-person during the pandemic, began to see great urgency in switching to alternative digital ways. “Once the adopters of digital treasury technologies feel the benefits and efficiency of such software, they will be more ‘sticky’ and continue to use them for a long period of time,” he says.

The pandemic instilled much creativity in treasury departments, says Enrico Camerinelli, Strategic Advisor at consultancy Aite-Novarica Group. This creativity included the exchange of digital documents with electronic signatures and systems that enabled treasuries to keep transactions going in the absence of “total electronic facilities” such as for invoices or payments. “A lot of attention was paid to the treasury departments’ technology strategies, mostly devoted to moving from manual and paperwork into digital exchange of documents and transactions.”

Of the technologies treasuries are pursuing as they rethink their strategies, cloud is a standout.

“AFP research shows corporate treasurers view the advance of cloud computing as the most important technological developments over the next three to five years,” says Soriano. “Cloud-based solutions are becoming the technology deployment model of choice, given the advantages like accelerated implementation, lower costs, and greater agility.”

Treasuries are becoming more open to cloud, says Blair as COVID-19 has driven remote working and the resultant need to connect and work from “anywhere”.

Citi’s survey found a broad interest in “all things digital” in treasury and finance, says Cole. This includes the utilisation of emerging technologies for process automation and data-led insights. “Driving both efficiency within treasury and augmenting decision making are now the top two expectations for investing in emerging technologies,” he says.

However, cost and integration of emerging technologies within established environments remain the top two hurdles that need to be overcome for transformational change to take place. Depending on the level of treasury sophistication, appetite/ambition, previous investment in technologies and level of proficiency in data management, a range of proven and emerging technologies are now being deployed, says Randall.

Banks like Citi are helping companies to improve their treasury management capabilities and processes through innovations such as real-time multi banking for cash concentration and real-time liquidity sharing. Such technologies enable treasuries to optimise working capital by facilitating liquidity mobilisation between surplus and deficit accounts in real time.

“For those companies who have the necessary core infrastructure in place and resolved the data veracity challenges, the focus is one of process automation, process/machine integration through application programming interfaces, and data analytics and insights through machine learning techniques,” says Randall.

Three quarters of Citi’s survey respondents indicated that data analytics and insights were the biggest area of opportunity yet only 34% of them are pursuing this area within treasury. This may be due to the infrastructural and data challenges most companies experience today, says Cole.

The adoption of innovative technologies within treasury is still at an early stage, the signs point to much broader adoption over the next three to five years as the relevance of these technologies to treasury becomes much clearer.

Himashi Soriano, Managing Director, APAC at the Association for Financial Professionals (AFP)

Oyetayo also cites data analytics as an area of focus. “Analytics, automation and data processing significantly reduce the amount of effort and time needed to manage liquidity, reconciliations and cash flows. The application of machine learning and data science will be most beneficial to creating cash and liquidity forecasts, helping teams anticipate problems and consequently plan ahead.”

He believes that as they rethink their technology strategies, treasuries will be most focused on data processing related to spreadsheet software like Excel, as managing different sets of financial data is “a core part of a treasury’s jobs”. This process involves collecting data, cleaning data, uploading and processing it.

“Since it was first invented and adopted, data processing has helped mundane, data-entry jobs become more efficient,” says Oyetayo. “Over the decades, spreadsheets software has evolved to make entering, cleaning and processing data much more efficient. With data science tools such as SQL and Python coming into play, it will become even easier and quicker to process big data sets. These tools allow teams to generate high quality data to be inputted into other treasury solutions, such as a reconciliation software, easily.”

Finastra’s Aillet says there are several areas where corporate treasuries are looking to adopt new technologies, including:

  • Improving business operations through increased digitalisation, predictability and automation.
  • Enhancing transaction security, for example, by using AI to scan payments and detect fraud.
  • Streamlining the IT landscape to reduce costs and benefit from better integration.
  • Reducing traditional bank fees by adopting fintech solutions.

There are two main areas of the treasury organisation that receive much attention in regard to automation, he adds. “Transaction processing has been an area of focus since 2000 and a lot of solutions are available, including for back office processing, cash concentration, accounting postings and reconciliation. The other area is decision making, where new technologies are bringing another dimension to this area and enabling processes to be automated.”

In decision making, AI and robotic process automation are being used to ensure high quality data is available that can be used as the basis for hedging, delivering greater predictability to treasuries. APIs and RPA are being used to automate and link information across systems, including dealing platforms, position-keeping systems such as TMS, as well as systems for matching and for payment execution. Finally, fintechs and other new players are bringing greater efficiency by digitalising financial services using technologies such as blockchain and distributed ledgers.

“Each treasury is unique in terms of the setup of its banking ecosystem, IT landscape and its appetite to adopt new technology and change the way it operates,” says Aillet. “Each also has a different risk threshold – knowing that the consequences of anything going wrong could be significant for the business. Treasury systems providers need to make it easy for treasuries to adopt new technologies while also supporting integration across the rest of the internal ecosystem so that ERP systems are aligned as well.”

Blair says treasuries should work holistically to identify their biggest challenges in terms of wasted time and heightened risk (which are also great opportunities for improvement), and then find practical solutions. “These solutions may not (and generally do not) require bleeding edge technology. This pragmatic approach will generate the most value add. These challenges vary across industries, business models, and corporate cultures.”

Camerinelli says many treasury departments still have a fight on their hands getting the budget for technology. “Another problem is that many times when I speak to treasurers, they tell me that they have an abundance of offerings, but sometimes what they are offered from fintech vendors are over-engineered or much more than what they need. Technology transition is difficult for treasurers because it is not easy to compare different solutions if you don’t have the specific skill sets required.”

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