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Discovering Value in the Latest Treasury Technologies

Taking on topics such as the role of APIs, the optimisation of data management, the power of co-creation, and the reach of the cutting edge, Steven Lenaerts, Head of Global Channels and Digital Onboarding, BNP Paribas, explores the value of treasury’s digital development.

In the last 12 to 18 months nothing has emerged that has seen major steps forward in corporate treasury digital solutions. It’s a provocative statement, given the amount of hype in the industry, but for Lenaerts, the focus has not been on “moon-shots” – the dramatic events that change the way we think – but on a more subdued but still innovative use of technology.

Indeed, if innovation is stripped back to its leanest form of simply meaning improvement, then there certainly have been steps in the right direction in treasury. The Covid-19 pandemic exposed a number of weaknesses that led to rapid reflection and discussion on how to improve and be better equipped. It was a discussion that extended far beyond treasury. This, says Lenaerts, drove a number of material developments, including but not exclusively based on the use of technology.

Digging deeper for value

Technology is just “an enabler of innovation”. It opens up the opportunity to make improvements, but in and of itself is neutral, states Lenaerts. What’s more, it must go through a number of phases before it adds tangible value. These range from discovery to hype, adoption, and finally scaling up.

One such innovation that is busy gaining traction now within treasury is the API. These have existed for many years but are relatively new in the corporate-to-bank context. The development cycle of APIs in this space was boosted by the roll-out of PSD2, the corresponding UK Payment Services Regulations (PSRs), and the push towards open banking. Although third-party payment services provider (PSP) account access has been predominantly retail-oriented, corporate connectivity is now a reality.

“Early over-enthusiastic discussions said APIs would replace everything,” comments Lenaerts. “Today, the conversation is about how APIs can be intelligently used to improve a range of treasury processes. The current focus is on increasing visibility and having the right information at the right time.”

This has seen a number of processes re-engineered within BNP Paribas’ client base because using new technology to replicate old processes is a wasted opportunity. As Lenaerts comments: “Innovation dares you to take a step back, review your processes and see how they can be improved, not repeated”.

Taking intra-day liquidity visibility as an example, he explains that a bank has for some time been able to send MT942s to a client’s TMS for each of its accounts. The system is then able to calculate an aggregate position. Using an API to achieve the same outcome changes only the connectivity, swapping a SWIFT message for an API call. For Lenaerts, this may not justify the implementation cost and effort. If there is an issue with visibility over AR figures, and subsequently these are not taken fully into account, it often forces treasury to resort to a liquidity buffer, which potentially has a cost.

Fintechs in particular challenge the status quo. By working with them, we can examine how a combined offering can add value for the corporate client.

However, with some forethought, APIs could be used in a new way. This, explains Lenaerts, might see a connection between a centralised cash pool and a TMS delivering on- demand intraday positions. “Then treasury need not plough through scores of messages and run multiple calculations to see where it stands. By calling the right information at the right time – such as the precise position just before making a number of financial decisions – treasury ensures it has its accounts fully covered at any time it needs to.”

Creating together

Whether API-related or otherwise, innovation today is driven by both bank and client, says Lenaerts. “Until relatively recently, product managers within banks would create new solutions and then push them out to clients. From time to time that approach would, by luck or judgment, hit the target. But those days are over. If we want to optimise our R&D investment, we need to be much closer aligned with our clients.”

New thinking has unlocked the power of co-creation. It has seen closer co-operation between corporate clients and their banks. BNP Paribas’ Treasury Board exemplifies the collaborative development model, regularly bringing together a range of clients and in-house experts to discuss potential solutions to corporate challenges and opportunities.

As is the nature of creative thinking, not every idea can or will make it into the light of day. But by using the sessions to identify some of the corporate clients’ most pressing pain points, a proof-of-concept may quickly emerge. When results are analysed, even at this stage, a product may fall by the wayside if it does not add value for both parties, says Lenaerts. “But by working together and testing ideas, our joint investment of time, resources, and money is focused only on products that meet both sets of needs and expectations.”

Co-creation is simply a more efficient way of improving treasury processes. Ideas have a better chance of becoming a reality because they have their roots in the real-world of treasury. But ideas can have their genesis beyond pure treasury, says Lenaerts.

“It’s not just about corporate clients and their banks; there is a wider ecosystem that includes the vendor and fintech market too,” he explains. “Fintechs in particular challenge the status quo. By working with them, we can examine how a combined offering can add value for the corporate client. It’s these types of discussion that drive innovation, especially the kind that deliver incremental gains in the direction of treasury optimisation.”

Perhaps counter-intuitively, regulation is another source of innovation, notes Lenaerts. Open banking rules were a catalyst for API adoption. While compliance created a lot of hard work for those directly affected, by fostering
competition with market newcomers, APIs force incumbent players to think on their feet. It’s also highly likely that the cost of compliance forces banks to actively seek a return on their investment.

Reaching for the moon

The cutting edge of treasury technology today is most frequently cited as AI. It has been used to great effect for cash flow forecasting, crunching huge pools of data and offering usable predictive and even prescriptive results. “But it’s a whole lot more than that,” states Lenaerts.

Indeed, he says all aspects of cyber-security, fraud and sanctions screening can benefit from AI. By spotting, for example, outlier payment patterns within vast datasets, AI can either invoke early intervention or automatically prevent a transaction. BNP Paribas has been using AI in this field for some time and has had some “good results”.

But there is more that can be done, with AI potentially being applied to banking system access management, detecting and controlling unexpected patterns. On a positive theme, it can be applied to customer payments data, which the bank can share with a client, offering insights into behaviours that can inform marketing and sales strategy and credit facilities.

As regulation becomes increasingly stringent, and those differences become more apparent, so the challenge of managing the mix of common denominators and local specificities increases.

But before AI can be leveraged, there are some prerequisites to which treasury must attend, cautions Lenaerts. With companies sitting on vast lakes of internal and external data, he says there is a lot of preparation – cleansing, formatting, de-duping and so on – required in making sure all flows can be aggregated and presented “as a usable, reliable resource”. This work is non-negotiable; it’s only when multiple sources of historical and current data are combined that AI’s true value is achieved.

With AI rapidly maturing, and more effective algorithms and increasing computing power now accessible by many more businesses, there is a danger that easier adoption may lead to over-reliance, a risk amplified where human resources are minimal, as is sometimes the case in treasury.

But while the use of AI in cash flow forecasting has proven its relative value, Lenaerts warns that it is not a panacea. It would not have predicted the liquidity issues created by the pandemic nor the outcomes of Russia’s invasion of Ukraine. So while truly disruptive events force re-evaluation, and ML algorithms can evolve continuously, displacing treasury experience and judgment in favour of AI is not yet an option.

Global pain points

Moving on from AI, one of the major chronic issues for treasurers remains KYC. It’s a wholly necessary concept, but the way it is executed, with a plethora of onboarding documentation and the frequent resubmission of those documents every time something changes, forces an administrative challenge upon most treasury departments. Technology, ideally in the form of a global central repository of the required corporate KYC data, has so far failed to solve the problem.

A few initiatives, from companies such as Thomson Reuters and SWIFT, tried to establish this goal, but none achieved their aims before being scrapped. The need for a global central repository is evident because corporate KYC remains a significant pain point. And a body with global reach and trust, such as SWIFT, should be ideally positioned to succeed one day – because ultimately no fintech could take on this mammoth task.

One reason why, explains Lenaerts, is that globally, KYC regulation is highly diversified. Even across the seemingly coherent territory of the EU, where the roots of KYC are embedded in the same legislation, domestic transposition of those laws has ensured some variance. It’s little wonder then that when viewed at a global level, KYC differences multiply.

“It remains a complicated issue. And as regulation becomes increasingly stringent, and those differences become more apparent, so the challenge of managing the mix of common denominators and local specificities increases.”

Of course, this scenario is not about to go away. This is why a different technological approach may work. BNP Paribas’ digital onboarding tool, called Welcome, is not trying to single-handedly solve the KYC puzzle. In accepting that KYC will probably always induce some treasury discomfort, the bank set about discovering ways to reduce the pain and “make the process as fluid as possible”, Lenaerts explains.

Welcome is a digital platform deployed both for client onboarding and recertification. The platform is the front end for information uploaded by each client, per legal entity. Clients can review the information held at any time, provide validation where requested, and upload any information required to complete onboarding or re-certification.

In practice, Welcome guides corporate users through a largely self-service process using a Smart Wizard that will ask only relevant questions. Once completed, and the client’s legal representatives have digitally signed the assembled documentation, the bank undertakes the necessary due diligence without having to request additional information from the client.

Although Lenaerts explains that Welcome offers only a snapshot of an entity at any given time, and thus changing signatories, for example, is not enabled, he says it is intended “to offer a smooth digital trajectory throughout” for KYC, onboarding, account opening, and initial product enablement.

Working with a trusted banking partner to define the pain points can help a business focus on the most appropriate solutions.

Taking data seriously, together

Another headache for treasurers related to innovation is the proper management and use of data. Rightly or wrongly, data is often cited as the new gold or oil (or whatever current valuable commodity fits the bill). But the truth is, it has always had its own value. And like other commodities, depending on quality and need, its worth fluctuates. Some corporates are able to harvest useful data and fully leverage its value, while others struggle to extract anything usable.

“Success with data becomes a question of means,” notes Lenaerts. “It depends on the type and maturity of the organisation, but often data optimisation demands the implementation of certain platforms and tools. These should be rolled out as company-wide resources. If treasury is the only function asking for these tools, then it will likely face an uphill battle. It’s why setting a corporate data strategy should be the responsibility of the whole company, with treasury an active and important participant in that process.”

Building an inclusive corporate data strategy, as opposed to one based on the discrete requirements of individual functions, is a work in progress for many companies, notes Lenaerts, adding optimistically that “we are seeing
progress towards more unified thinking within companies on
this matter”.

But if cohesive thinking is hard at company level, then within and between industries, the task of finding a unifying approach is even more so. Digital transformation is a mature idea, yet the pace of progress among different companies is extremely uneven, despite often widespread agreement that it has real value.

It doesn’t help in this respect that technology emerges through a broad range of channels. E-commerce, new invoicing, payments and collections tools, automated reconciliations and APIs may all potentially offer corporates quicker access to their cash. But finding the right technology can be difficult, with Lenaerts acknowledging that “the pace of development in some areas is so fast that it can be a real issue for treasuries”. Because of this, he says, it becomes an ever more complicated task to pick the right battles.

From finding focus…

“Working with a trusted banking partner to define the pain points can help a business focus on the most appropriate solutions. And it’s worth noting that often dramatic change is not needed. At BNP Paribas we often work with our clients to select an initial use case, advising that they start small and experiment, gaining experience before scaling up.”

The focused approach is also fundamental to the BNP Paribas Treasury Board development technique. By working in small groups to define a specific target, it becomes easier to “accelerate evolution”, says Lenaerts. With APIs, for instance, the discussion has moved on from the industry’s initial over-excitement, that imagined wholesale adoption, to one that seeks out specific use cases.

For example, APIs enabling a corporate to embed bank data exchanges within its business processes suggests that instant payments can be integrated within its website, using an API to accelerate its cash collection cycle. With cyber- security, APIs can be leveraged to check counterparty details that can then be incorporated within a master data setup, ensuring every subsequent payment from that master source has been pre-validated.

While selecting the best treasury use case using tools from a rapidly expanding technology market can be the first challenge, IT budget and access may be the next, warns Lenaerts. Few companies have treasury as their main activity, so IT will usually be oriented towards their core activities, he explains. “Where a treasury system is deployed, it will usually be an add-on to the main stack. There will always be a question as to whether there is sufficient in- house skill to evolve these systems, or if when working with vendors, especially on APIs, they have the competences to develop what is needed.”

…to finding fintechs

Of course, fintechs can help, Lenaerts continues. “But there are so many now that choosing the right one, in terms of value proposition and commercial viability, is a challenge in itself.” Here, he says, BNP Paribas scans the fintech world for possible solutions to specific client needs. The bank has developed an eye for potential partnerships, with a number already established where clear value to the client is evidenced. “As a bank we are a trusted adviser to our corporate clients,” he explains. “We have frequent discussions with them on how and where technology can be deployed, and what might be the right solution. They are not looking to us to take their technology decisions for them, but they do use us as a sounding board in this area of increasing complexity.”

For Lenaerts, there are many changes for treasury around the corner. Leveraging those changes will in many cases be achieved digitally, with the technological transformation gathering momentum. As a result, in the coming months and years, there will be yet more treasury technology on the market, and the pace of development is only going to increase.

Migration to ISO 20022 is offered by Lenaerts as an example of a technological development that will open the floodgates for digital treasury to thrive. The period running up to the final switch from SWIFT MT to MX messaging in November 2025 will, he notes, be marked by painstaking effort as the move to the XML file format continues. But with XML, corporates will be able to leverage substantially enriched data for enhanced processing performance, better decision-making, and even the development of new customer offerings. Banks, too, will have greater insight into the life cycle of client payments, with added-value data services for clients mooted.

Upgrade to the future

The increasing importance and visibility of treasury – together with the greater amounts of data in treasury’s possession – clearly adds to the workload. But, says Lenaerts, “with the business beginning to look to treasury for their input on a far broader range of activities, it requires a new and diverse skill set”. In addition to traditional risk and liquidity management expertise, he sees many treasurers becoming adept in additional areas such as taxation, regulation and compliance, legal, working capital, and supply chain management.

With treasury’s increasing complexity, Lenaerts believes that digital transformation is central to its successful development. To this end, he argues that treasurers will almost certainly need to develop new IT and data-based skills to make the most of what’s to come. He advises treasurers to remain abreast of all technical and structural changes to ensure they are able to take full advantage of these as quickly as possible. And, he adds: “With more manual treasury processes being carved out for automation, the evolution of the role itself will be towards ensuring digitalised processes run smoothly, with treasurers assessing, adapting, and recalibrating them, but also then freed up to be a far more value-adding function.”

With more manual treasury processes being carved out for automation, the evolution of the role itself will be towards ensuring digitalised processes run smoothly, with treasurers assessing, adapting, and recalibrating them, but also then freed up to be a far more value-adding function.