Building a transformational, sustainable treasury
The rapid pace of digitalisation in recent years has been evident in most businesses, and treasury teams have been no different. In particular, the past 12 months have seen a wave of new technologies entering the treasury space, leading to greater operational efficiencies, and better management of market risks.
However, even as treasury departments increasingly automate their operations, many have yet to fully digitalise. In a poll conducted at the Standard Chartered Cash and Trade Finance Digitalisation Webinar 2022, more than half of the attendees said that between 30 per cent and 70 per cent of their company’s treasury processes have been digitalised.
During the virtual event, treasury leaders shared their digitalisation experiences – highlighting key challenges, as well as emerging opportunities.
The impact of real-time visibility
According to Shirish Jain, Director at PwC South East Asia Consulting, four digital challenges remain.
First, teams within companies tend to progress at different speeds, thus impairing overall digital maturity. Second, reconciliation breaks – which disrupt accounts receivables due to untimely or inadequate transaction information – linger, requiring manual intervention by treasurers in the reconciliation process. Third, there is room for improvement in cash forecasting. And lastly, risk management practices in areas, like fraud detection, need to be enhanced through increased digitalisation and smart automation.
Fortunately, many digital solutions are now available to address the issues companies are facing. Raji Senthilkumar, Head of Digital Growth and New Revenue Streams, Digital Channels and Data Analytics at Standard Chartered, emphasised the value of digitalising treasury operations through cash visibility solutions. This feeds timely and accurate information on liquidity and cash positions directly into a company’s enterprise resource planning (ERP) system or treasury management system (TMS) to enable timely treasury decisions through application programming interfaces (APIs).
New business models are emerging
She also added that collections also benefit from digitalisation, especially from omnichannel merchant services. Treasury can now collect payments across multiple channels, providing a wider range of payment options to their payers – all of which can be done in real time. Also, automated reconciliation achieved by integrating APIs into a company’s ERP system alleviates labourious manual reconciliation activities, which could lead to settlement and exception-handling delays.
Not only do these boost operational efficiencies, API-powered digital solutions enhance a company’s business model. For instance, using APIs, insurance companies can pay out claims in real time – a stark contrast to average disbursement times. This capability gives companies from a wide variety of industries a competitive advantage, as well as leading to novel business models.
One issue at a time
While the range of digital solutions for treasury has grown, businesses must be cautious when choosing their best-fit options, said Oliver Sleafer, Head of APAC Liquidity Management at Stripe. Prior to adoption, treasury teams must consolidate their data, which typically exists in silos, thus hindering the adoption of digital solutions.
In general, treasurers should be seeking solutions that solve acute departmental challenges, Sleafer added, such as forecasting or reporting. He advised his peers to tackle one issue at a time. Trying to solve a multitude of challenges simultaneously can be counter-productive and impair the team’s ability to overcome individual problems.
‘No green without digital’
A recent noteworthy development has been the increased attention to environmental, social and governance (ESG) factors in the treasury area. Nokia, for example, has linked the pricing of its revolving credit facility to its sustainability targets – the better the company performs regarding ESG matters, the more favourable the lending rate offered by its banks.
For Trimi Hamiti, Head of Regional Treasury and Structured Finance Asia at Nokia, sustainability and digitalisation are inseparable: technology is needed to monitor and drive sustainability, and vice versa. As Nokia’s President and CEO, Pekka Lundmark, said, “There is no green without digital.”
Treasury is at the intersection of the two. The department has a 360-degree view of where all revenues have come from, and where they are heading, observed Jain. For this reason, treasury not only plays an important role in monitoring and reporting the sustainability credentials of businesses, it also has the opportunity to shape their future trajectory. This is especially critical currently, given many Asian companies will soon need to report climate-related disclosures, as standards set by the Task Force on Climate-related Financial Disclosures (TCFD)i will come into force for Singapore Exchange-listed entities, as well as those from other Asian bourses, from select industries in the coming two yearsii.
How banks are furthering the ESG agenda
Banks, like Standard Chartered, are also helping treasurers realise their sustainability goals, said Raji. Companies can set up a sustainable account, and invest surplus cash in this account to fund projects that support the United Nations Sustainable Development Goalsiii. Initially launched by Standard Chartered in UK, UAE and China, these accounts were rolled out in Singapore this June, with plans to launch across multiple markets in future.
By digitalising treasury operations, she added, companies can drastically reduce paper, which in turn reduces environmental impact driving sustainability. Banking APIs are also powerful in enabling ESG use cases for clients. For example, enabling real time pay-outs into smallholders’ mobile wallets for sustainable produce promotes both financial inclusion, and incentivises sustainable farming.
Delivering on the potential of digital currencies
No conversation about digital finance would be complete without mention of digital currencies. In the context of treasury, digital currencies could potentially do much good.
Digital currencies are instantly transferable, enabling faster payments, and allowing treasury to conduct internal transactions more quickly and smoothly. Stablecoins and central bank digital currencies especially, could enhance cash management and trade finance transactions, said Hamiti, given how the former is pegged to fiat currencies, and the latter is controlled and managed by central banks. However, the space remains volatile and uncertain at present, and many treasurers are cautious.
Still, the overall sentiment remains positive. In a poll conducted during the webinar, 57 per cent of the attendees believe digital currencies could have a positive impact on treasury and working capital management, if regulated properly.
The coming decade
Speakers agreed that to overcome all these challenges, close collaboration among all parties, including banks, financiers, customers and technologists, is a must. They also concurred on the future trajectory of treasury in both the medium and longer term: real time treasury will be widespread within the next five years; with digital currencies promising to become mainstream by the decade’s end.
i https://www.pwc.com/jg/en/services/esg/tcfd.html
ii https://www.spglobal.com/marketintelligence/en/news-insights/blog/tcfd-reporting-in-singapore
iii https://standard-chartered-ca.altis.dev/en/media/press-release/weve-launched-sustainable-account/