Treasury Mantra 2019 – Flexibility Conquers Instability

By Eleanor Hill, Editor

Treasurers face exciting new challenges as we head into 2019, says Steve Elms, EMEA Region Sales Head, Corporate and Public Sector, Treasury and Trade Solutions, Citi. As business models evolve, treasury departments must examine the impacts of digital disruption – from process efficiencies to cybercrime. Amid ongoing market turbulence, treasurers must also demonstrate their growing role as strategic partners to the business, keeping flexibility front of mind.

What is the pulse of the industry as we move into 2019 – are treasurers generally upbeat?

The mood on the floor at this year’s EuroFinance International Treasury Management conference in Geneva was much more forward-looking and positive than in previous years – and that’s a good barometer for the industry as a whole. Yes, there are still a number of unknowns that treasury is grappling with; but businesses are generally in growth-mode, seeking new opportunities, in terms of geographies and new emerging sales and distribution channels. Indeed, we are now seeing some fundamental changes to business models, across all industries, as digital disruption continues apace. Treasurers are clearly building on their understanding of what this means for them and for their organisation.

As new technology, especially in the field of data management and analytics, is getting to market quicker, and with lower implementation costs, it is providing corporates with direct access to new customer bases and new markets. Risk management will always be  an important part of treasury, but the interconnectedness of the business through these new technologies, and the flows of data they facilitate, is establishing treasury as a strategic adviser to many other functions in the organisation. If the treasurer is ready to take a seat at the table, form new partnerships, respond quickly to change, and promote what the department can do to help growth, then the future looks bright. 

Should treasurers be rushing to implement new technologies, or do they need to cut through the hype first?

There’s a lot of buzz around developments such as instant payments, Application Programming Interfaces (APIs), artificial intelligence (AI) and blockchain, but treasurers need to know what these mean in practical terms – and where the value lies for them. Here, the focus tends to be on optimising data quality where new investments are being made including into new technologies such as Robotic Process Automation (RPA). This is because treasury often lacks the accuracy of data needed to deliver effective core processes such as cash application, reconciliation or forecasting. And although RPA is not necessarily a game-changer, it can be an essential tool as treasurers continue to do more with less.

While some of the other new technologies I mentioned are not necessarily relevant for treasurers right now, the business model change that I spoke about earlier may drive them to adopt new technologies in the future. For example, a new business model that goes direct-to-consumer will change relationships with distributors and wholesalers. For the treasurer, this means understanding the impact of that business model on collections from customers, the type of direct relationship established, and the impact on matters such as credit lines and working capital. 

Elsewhere, treasurers also need to understand how new technology will help them receive information faster, manage new risks, and control liquidity in an environment where batch processing is no longer used. All this, of course, takes place in a volatile and uncertain environment. 

To make the right decision around technology investments in this environment, treasurers must first know what challenges they’re trying to tackle. It’s about finding a solution for the problem, not the other way around. Being realistic is also important. As much as it’s great to be ambitious, treasurers often have to deal with legacy systems, so their ability to deploy new technologies may be limited without a significant overhaul of their systems’ architecture.

With that in mind, what concrete applications of new technologies might we see in treasury next year – perhaps from banks?

The aim is always to provide better user experiences for all; bank-to-client, treasury-to-business and business-to-customer. To deliver that aim, Citi is working with fintech firms such as HighRadius on Citi Smart Match, using AI in the reconciliations space to help clients make their payables more efficient and speed up cash application to complement our comprehensive receivable solutions. We are also applying natural language processing to automate information and documentation flows, as well as query processing – making everything easier and simpler for clients. This is an important area of focus because clients are increasingly looking to use more of their own structured data and are seeking ways in which new technologies such as AI can help to fill some of their process gaps.

With increased digitisation in treasury come increased cyber threats. Will treasurers continue to see this as a top risk in 2019? And what are banks doing to help?

It’s true that technology advancement can create some new challenges in this respect – and treasurers will no doubt continue to have cybersecurity high on their priority list next year as they increasingly recognise their role in protecting financial assets and data. That’s why we’re looking closely at authentication mechanisms such as biometrics, and at user behaviour analysis to spot anomalies. Another great example of this is our Payments Outlier Detector tool which identifies payments on a real-time basis that do not conform to past transactional trends and alerts clients with the functionality to approve or reject individual transactions at their convenience.

For 2019, I think it’s important to remember that cybersecurity is not just a technology issue. Within treasury functions, there must be an even greater focus around the human aspect, increasing education and awareness, and making sure that effective processes and controls are in place. 

[[[PAGE]]]

What else should treasurers consider for their 2019 ‘to-do’ list?

Working capital optimisation will continue to be a key focus and I see that evolving to a new level of sophistication. For a number of years, procurement and treasury have been working hand-in-hand to drive improvements in Days Payables Outstanding (DPO) but for next year we expect to see a continued focus on further improvements here, with technology helping to drive smoother SCF on-boarding, particularly for smaller suppliers, with additional digitisation around signatures Furthermore, I see treasury taking a more strategic role with the sales organisation to help drive sales growth. Implementing programmes for sales and distributor financing, for example, as a means to drive greater working capital efficiencies . 

Further processing efficiencies will be firmly on the treasurers’ radar and Virtual card accounts too are likely to come more of a major alternative payment process solution for the smaller spend with volume suppliers. too.

March 29 2019 is looming: do you have any advice for treasurers around Brexit? And are there other political events which treasurers should be preparing for?

Volatility continues, since Brexit still has no solid outcome. Many risk-averse treasurers are expecting ‘no deal’ and are working to ensure they have, at least, the minimum requirements to continue operating come March 29. Others have maintained a wait-and-see approach, with one eye on the alternatives. And as the deadline looms, there has to be increased focus from treasurers on what their response should be, even without knowing what the outcome will be. It’s a tough call, and very time-consuming, so I would urge treasurers to engage with their banks for Brexit support. 

In all likelihood, 2019 will also see continued rhetoric around protectionism, creating further global uncertainty. As a result, treasurers must continue to focus on meeting local requirements while making sure they are on top of the wider commercial and regulatory landscape. Having people in-country, where possible, and optimising connectivity, either directly or through banking partners, is also vital if the implications of change are to be sufficiently well understood. A flexible treasury strategy is also required. No one can predict which way Brexit will go, so being open to change is a must.

How would you sum up treasury’s prospects for 2019?

Next year will present treasurers with tremendous opportunities to demonstrate that they can balance their core tasks of cash and liquidity management with their evolving role as strategic partners to the business.

One way they will demonstrate this is by determining where technology can create value, and deploying it to address historical issues, while helping the organisation safely navigate market volatility and the rapidly changing political, economic and social environment. This will require a curiosity for innovation and information, and above all, a flexible outlook.