Treasury Practice

Automating treasury: taking a fresh look

Published: Mar 2018


In every industry, technology is making possible things that once seemed impossible. Terry Dennis, EMEA Cash Management Sales Head, Corporate and Public Sector, Treasury and Trade Solutions at Citi, explores how new technology is accelerating change and creating new opportunities within corporate treasury.

Terry Dennis

Terry Dennis

EMEA Cash Management Sales Head, Corporate and Public Sector, Treasury and Trade Solutions


The speed with which new technology services and solutions are being developed is increasing dramatically. One explanation frequently cited as a driver for the rise in new technologies is Moore’s Law which, in its simplified form, states that overall processing power for computers doubles every two years.

This exponential growth in processing power is changing the world around us. Today, smartphones, 3D printing, universal translation, drones, robotics, self-driving cars and the internet of things are a reality; just a decade ago they were science fiction.

Within financial services and corporate treasury the same is true. The industry is abuzz with talk about the transformational impact of technologies such as Robotic Process Automation (RPA), Machine Learning, Artificial Intelligence (AI) and Application Programming Interfaces (APIs), as well as market reforms such as Payment Services Directive 2 (PSD2) and Open Banking. The most exciting thing for treasury teams is that there is no need to wait to begin benefiting from these technologies: many are already available today.

The question then is: “How can these technologies be applied to positively impact my treasury operation?”

Digital cash management

Accounts payables

Depending on where and how technology is applied there is ample opportunity for treasury teams to significantly improve existing processes – even when that process already has a high degree of automation. Take accounts payable (AP), for example. Whilst many of Citi’s clients are already benefiting from impressive levels of automation and straight through processing (STP), the sheer volume of payments, along with the fact that many of the payments are generated by teams outside of central treasury, mean it is difficult for treasury to identify payments that fall outside the usual payment behaviour.

New technology can help address this issue. For example, at Citi, investments in sophisticated machine learning and AI technology have led to the development of our Payment Outlier Detection Service which is now in active pilot. This advanced data analytics tool assesses all transactions that flow through our system against a client-specific behaviour profile. It then triggers real-time alerts for transactions that do not conform to the routine patterns and behaviours of the specific organisation. It also constantly updates the client-specific profile to better detect future erroneous payment.

Similar technology is also being applied to enhance security and protection on several other fronts. For instance, many banks, including Citi, are incorporating AI and pattern/behavioural recognition functionality into the security layers of their electronic banking systems. These tools can be used to check a user’s computer for known malware infections – as well as using behavioural biometrics and user pattern recognition techniques to assign risk scores to user activity and perform additional control steps for high-risk actions.

These developments are significant for our clients, given the substantial growth in payment volumes. The additional controls and real-time alerts help treasury teams to target payment outliers that deviate from their past characteristics.

Multi-currency flows

Treasurers are also seeing a positive impact from new technology when it comes to managing multi-currency flows. Traditionally, this process has presented several challenges: i) the need to obtain competitive pricing, ii) the need for active FX execution, iii) the need for hedging and iv) the use of expansive account structures through which to manage these flows.

Whilst active FX execution continues to be beneficial for strategic ‘big-ticket’ items – along with associated hedging – we now see that treasury teams are becoming more comfortable leveraging technology to execute transactional FX. Where historically there may have been a relatively low threshold for automated/passive FX set out in the treasury policy (eg US$10,000 equivalent), we now see that with the use of transparent benchmarks, pre-agreed spreads and enhanced real-time reporting, clients are becoming much more comfortable and are revisiting the treasury policy, increasing the threshold (in some cases to a US$1m equivalent) in order to reduce the time and effort spent on active dealing, in favour of automation benefits.

Coupled with the increased automation of transactional FX flows, we also see a rising trend for rationalised account structures. These reduce the use of dedicated foreign currency accounts for marginal currencies, integrating that flow through existing core currency accounts.

Furthermore, with the emergence of more advanced payer ID and virtual account offerings, banks are now able to provide clients with customised ‘sub-ledger’ virtual accounts that are linked to a real-world physical account. This helps to segregate and manage incoming receipts, optimise outgoing payments and simplify the journey for corporate treasury to adopt ‘in-house bank’ and ‘on-behalf-of’ structures.

Accounts receivables

New technology is also positively impacting another core cash management activity: accounts receivables (AR). Indeed, accurate and timely cash application remains a challenge for many corporates – especially when direct debit “pull of funds” is not possible. This is in spite of significant effort around improving invoicing practices and communication of correctly formatted payment instructions.

This is because when the AR process relies on the buyer to initiate a payment, there is a lack of control over the way invoices are paid. As such it is common for the amounts received to vary from the amount outstanding on the AR ledger. This can be due to discounts being applied, multiple invoices being grouped, payments being made in a different currency than the invoice/AR item, deductions to the principle by correspondent banks, or simply because the payment does not carry sufficient reference information to identify the remitter or invoice. Because of this, it is still common to find many people employed to manage the AR process – albeit they may be in a low-cost location.

However, in this area, we are now seeing the application of new technology that leverages matching algorithms to understand historical matching patterns and machine learning to ‘watch’ the steps taken by experienced matching clerks and ‘learn’ to apply incoming funds – even when discounts, bulking or cross-currency challenges feature in the payment practices. This new technology can yield significant savings and efficiency gains in an area that is widely considered challenging to automate.

Not only can this solution reduce the cost associated with a labour-intensive process, the timely reconciliation and application of cash delivers further benefits in terms of improving day sales outstanding (DSO) metrics and free cash flow. It can also positively impact sales growth as customer credit lines are updated in near real-time.

Financial messaging

Another area undergoing rapid change is financial messaging, promoting both increased transparency and speed of information flow. For a long time, the connectivity landscape has remained relatively unchanged with three main choices of channel:

  • Electronic banking system.
  • Host-to-host connection directly with the bank.
  • SWIFT.

Over the past decade – we have seen a move towards global consistency – driven largely by the adoption of ISO 20022 XML messaging. Today, we see several new developments in this space driven by investments in new technology. For example, the SWIFT global payments innovation (gpi) provides live status updates on payments through the end-to-end payment chain. Coupled with this, the opening up of bank APIs is promoting the use of real-time messaging for a wide variety of services, from the basic account balance enquiry and initiation of a payment, through to a whole host of value added services such as FX rate quotes, reporting, investments and user management. This list of services is expected to expand as new technology will connect into and overlay the traditional banking infrastructure. Furthermore, as markets go live with instant payment and collection capabilities, and banks open up a broad range of services through APIs – the journey towards real-time cash management will become possible.

Thinking big and bringing it all together

That said, despite so much new technology now being available, many treasuries are yet to take full advantage – joining together key components and new technologies to create a digital treasury ecosystem.

Herein then lies the major difference between the adoption of new technology in our daily lives and the challenge for large organisations. When an individual decides that the time is right to upgrade to a new technology, the transition is usually very straightforward – as it is a straight swap, old for new.

For the treasurer, the adoption of new technology presents several complications. Most notable is the sheer number of existing systems, processes and interfaces that need to be considered and tested as part of the transition, whilst ensuring that operations continue as normal at the same time.

This means that rather than a single swap ‘old to new’, treasury needs to make changes component by component. This will require key elements to be upgraded with re-engineering projects that run in parallel to the daily operation. By taking this approach, treasurers can take on a strategic business optimisation role to continually refine, upgrade and improve treasury performance.

Act now

Assessing new technologies, and whether or how best to incorporate them, will form an increasingly important part of the treasury function. When done correctly, one can see significant gains across many dimensions, including cost, control, efficiency, scalability and support for new business activities.

At Citi we have set up Innovation Labs around the world, which partner with clients and third parties to accelerate innovation. For our clients, this is a great way to see the end-to-end innovation lifecycle and engage in collaboration and co-creation activities.

Given the increasing focus that banks are placing on their technology offering, we recommend that treasurers have regular engagement with their banking partners. This will allow treasurers to explore what’s new and how innovations are becoming established best practices that can drive value for the business.

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