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The Future of Corporate Treasury Treasury Technology — Today, Tomorrow, and Beyond Treasury and Trade Solutions

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  • The Future of Corporate TreasuryTreasury Technology — Today, Tomorrow, and Beyond

    Treasury and Trade Solutions

  • Acknowledgements

    We would like to thank all the technology vendors for their insights into building this report, especially the teams at ION, FIS, SAP, Serrala, Bellin, SWIFT, Adjoint and Cobase for their valuable contributions.

    Should you have any further questions or would like to discuss the future of the corporate treasury practice in more detail, please feel free to reach out to one of the authors:

    Laurens J.A. [email protected]

    Ron [email protected]

    Pieter [email protected]

    Dr. Duncan [email protected]

  • 3The Future of Corporate Treasury

    Corporate treasury is skilled at dealing with change. A large part of its job is managing the risk associated with cyclical trends, global regulatory initiatives, and geopolitical and macroeconomic events.

    However, the corporate treasury ecosystem now faces change of a different magnitude. A fundamental shift in its role, the tools at its disposal and its relationship with the business is underway as a result of the emergence of new technologies. The pace of change is only going to further accelerate.

    Citi is pleased to partner with independent treasury advisory Zanders to produce this report entitled, The Future of Corporate Treasury, which addresses some of these issues. Citi’s perspectives are reflected in the next two sections of this report; those of Zanders — and of a representative group of technology firms — form the remainder of the report.

    Corporate treasurers who recognize our transformative times and prepare to take advantage of change, and manage its risks, will be better positioned to support the business, the C-suite and the board, and thrive in the coming decades.

    We hope this report will aid corporates in that mission and we trust that it proves both informative and valuable to you and the organizations you serve.

    Laurens J.A. TijdhofPartner, Global Treasury Advisory Services, Zanders

    Ron ChakravartiGlobal Head, Treasury Advisory and Market Management, Treasury and Trade Solutions, Citi

    Introduction

    ContentsIntroduction 3

    The Transformation of Treasury 4

    Are Corporates Embracing 5 Digital Treasury?

    Treasury Objectives 9 and the Next Maturity Level

    The Treasury Technology 10 Landscape

    Glossary 22

  • 4 Treasury and Trade Solutions

    The Transformation of Treasury

    Treasury has always managed cyclically-driven changes in the economy, interest and foreign exchange rates, and equity and debt market access. It also has to address frequent changes in global tax and cross-border regulations. Evaluating and responding to such challenges and managing capital, liquidity, and risk — especially when the economic environment becomes more stressed — is a core role for treasury teams.

    The most efficient constructs to deliver these objectives, which have been the focus of many corporate treasuries for decades, remain the concentration of cash and risk centrally and regionally through the establishment of in-house banks to automatically fund and defund subsidiaries as needed. In many cases then, both the core objectives of treasury and the means by which it achieves them are the same as they have been for decades.

    The pace of change is rapidly reshaping treasury

    However, this overlooks the fact that the pace and agility required of treasury is changing dramatically. Today, the business world is experiencing several distinct secular shifts. Many industries are being disrupted as corporate business models change and value chains are digitized. In response, treasury teams must gain control and visibility across cash flows, funding needs, and risk profiles as new business revenue streams emerge and others retrench. Treasury is becoming more deeply involved in enabling the digitization and e-commerce strategy that will be at the heart of all enterprises in the future.

    Financial services are also changing. The advent of instant payments in numerous markets is a portent of the development of real-time financial services and peer-to-peer exchange of value. As this new era emerges, there will be profound implications. For corporate treasury, these will have both direct and indirect impacts, as banks change how they assemble, deliver, and price financial services.

    Another secular change is an emerging set of technologies relevant to corporate treasury — whether provided by banks, new fintechs and service partners, or treasury teams themselves. As innovations such as robotic process automation and cloud computing are adopted and applied to treasury, new technology ecosystems will be created. Trends such as centralization of liquidity and risk are likely to continue. But new technologies could see treasury reinvent how to manage capital, liquidity, and risk and become a more effective partner to the business, with value-added insights supporting core business decisions. Treasury will also need capacity to address increasing cyber threats and protect their businesses.

    New technology ecosystem offers enormous opportunities

    Many companies are already investing in new technologies to facilitate this changing role for treasury. Others are not ready for substantial change and are still focused on deploying their target treasury operating model. Their typical objectives include creating a global policy and clear ownership, standardized processes, fully centralized decisions (even when locally-executed for regulatory or time zone reasons), and integrated treasury technology that is connected to an ERP and financial services providers. These companies need to accelerate their progress and start preparing for the emerging new technology ecosystem, which offers enormous opportunities for their businesses. Corporates need to recognize the risks of treasury being left behind given its role as the effective guardian of the firm’s financial resources.

  • 5The Future of Corporate Treasury

    The shift to full automation of operational treasury will not happen overnight and progress will differ across industries. As already noted, many corporate treasuries will still need to focus much of their scarce resources on the basics of risk management. However, treasury can no longer be seen as an after-the-fact support function to pick up the pieces. Instead, it must become a real-time business partner offering the insights required at the planning stage to help mitigate the financial risks associated with business expansion into new markets.

    Digital transformation of treasury is well underway

    The recent 2018 Digital Treasury Transformation survey shows that many corporates are becoming curious about digital: Two-thirds of respondents currently have a digital strategy in place at the enterprise level. A similar number indicate that digital transformation is a priority for their organization and are now looking at emerging opportunities across both the core business and treasury as a result of new technologies. These results suggest that many innovations are now at a point where they could have a meaningful impact on treasury processes. The key drivers of these changes identified in the survey are increased operational efficiencies from the automation of processes, and improved cash visibility.

    However, any digital treasury transformation will require investment and this remains a key hurdle to implementing change. Twenty-five percent of respondents noted that while they are keeping up to date with the latest developments, digital themes and emerging technologies are not a priority. Another 12% of them are waiting for further developments before becoming further engaged on the topic as illustrated in Figure 1.

    Are Corporates Embracing Digital Treasury?

    Figure 1: Current focus on digital themes

    Priority now, looking at transformative opportunities

    Keeping abreast of topics but not in active planning

    Wanting to see further developments in this space

    12%

    25%

    63%Business Transformation

    Treasury Transformation

    Business and Treasury Transformation

    13%

    39%

    48%

    For those organizations where a digital strategy is in place at the corporate level, the top area of focus is the automation of manual tasks, with over 22% of respondents identifying this as a priority. Enhancing customer experience and cyber security are the next priorities, followed closely by KPI monitoring and managing financial risk.

    Figure 2: Current areas of opportunity to utilize emerging technologies

    AutomatingProcesses

    22%

    CyberSecurity

    16%

    Enhancing Customer

    Experience

    16%

    Managing Financial

    Risk

    14%

    Enabling KPI Monitoring

    14%

    Product Development

    10%

    New Sales Channels

    9%

    The greatest barrier to adopting these new technologies is legacy technology and the integration of new technologies with those already in place.

    The survey highlights cash management as a key transformational opportunity created by digital. Respondents identify cash forecasting and payments and receivables processing as the top two processes likely to be positively impacted by new solutions. Accurate cash flow forecasting, as a component of FX and liquidity risk management processes, can be the key in the preservation of corporate earnings and the realization of greater economic value generated off shore. The cost of inaccuracy in such a case is the loss of offshore earnings realized, as they get translated to functional currency.

    Many forecasting models are still dependent on intuitive “guestimate” inputs such as forecasting error standard deviations. However, it is not inconceivable that a digital real-time treasury of the future may mitigate many of these concerns. The forecasting process itself will benefit from the use of machine learning techniques, which could, for example, result in more accurate receivables forecasting through

  • 6 Treasury and Trade Solutions

    machine-recognized patterns on inbound flows. As forecast cash flows are inherently typically wrong, gaining insights into the accuracy of historical forecasts by currency is critical to determining whether the future forecasts provided are reliable and actionable.

    Encouragingly, the survey shows that emerging technologies are more than just a buzzword to many corporates.

    A total of 44% of respondents indicate that they are currently pursuing big data, artificial intelligence or other intelligence-based technology within their treasury; 34% indicate they are looking to employ robotic process automation to their processes in a bid to drive automation.

    Approximately two-thirds of companies that participated in the survey seem to be engaged and experimenting with digital, yet only

    14% have a digital strategy at the treasury level. One reason for this wait-and-see approach for some may be that many companies are still focused on getting the basics right using existing proven techniques and constructs.

    As more and more financial flows move from “batch” to “real time,” treasury leaders will need to take a fresh look at how they organize and manage treasury functions — from liquidity management and financial risk mitigation, to better preparation for cyber threats — to ensure investments in technology properly support more highly interconnected processes. The tipping point for treasury to overcome the investment hurdles required to digitize to the point of full automation of operational tasks may then arrive, as the ”always-on” economy encourages central banks to move to a 24/7 real-time settlement paradigm.

    Possible new sourcing models

    We expect new sourcing models to emerge as the opportunity to automate treasury starts to take hold and as corporates start to consider their digital strategy on how to best future-proof technology investment in order to achieve the future digital aspirations for their treasury.

    Those who have invested in ERP and TMS technologies to support their treasury operations can expect to enjoy significant digital upgrades through their existing technology (ERP/TMS) partners. In addition, many of these corporates are likely to be on a journey to centralize cash and risk as shown in Figure 3.

    Figure 3: Many paths may be adopted to achieve future digital treasury aspirations

    Source: Citi Treasury Advisory Group.Future treasury

    Secu

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    Treasury journey steps

    Multiple paths may be needed to treasury of

    the future

  • 7The Future of Corporate Treasury

    These new opportunities manifesting through incumbent tech partner upgrades are based on emerging machine learning and blockchain-led solutions. We are starting to already see this come about. SAP, for example, announced at its treasury conference in July 2018 that this year it would introduce a solution to protect customer “master data,” such as settlement instructions and signer authorities from bad actor interference using blockchain technology, and an auto FX ticket determination solution based on digitized treasury policy that is fully integrated with trade execution platforms. This announcement also demonstrates the expected “nesting” of fintech companies within ERP/TMS platforms as a distribution channel for best-of-breed technologies. Fintech consolidation and ERP/TMS vendor acquisition of fintech capabilities are emerging stories that will likely play out in the near term.

    Deeper linkages between ERP and TMS providers and banks

    We expect much closer connection too between ERP/TMS providers and banks. This is where basic services such as bank account opening, liquidity concentration, and notional pooling structures, which are provided today as standalone capabilities triggering technical implementations, will be supported in the future by much deeper integration of bank-provided services within TMS and ERP platforms.

    Those who have not yet invested in ERP and TMS technologies may be less focused on efficiency constructs such as in-house banks, which demand reasonably sophisticated technologies to deploy successfully. Corporates fitting this description may seek a “digital treasury service” model to fast-track to a place where the execution arm of the treasury would, in effect, be provided through a multi-tenant outsourced services provider. This would not be a return to the now

    largely redundant treasury outsource model of the 1980s and 1990s, which was people-intensive and thus error-prone. Instead, this setup would consist of a digitally outsourced people-light model, where, for example, emerging market and emerging digital native corporates with hyper-growth aspirations could quickly enjoy the established risk management protections of a sophisticated best-in-class, digital treasury operation without tying up capital expenditure that would otherwise be required to establish the same model in house.

    Varied pace of digital treasury adoption

    We do not expect the adoption of real-time payments to be embraced uniformly across all industries. Again, here we see a divergence in need depending on how digitally connected to the end consumer the business model is. Putting to one side the increasing list of acquisitions of digital natives by established institutional household names to deliver the omnichannel experience, it is primarily the digital native direct-to-consumer companies that have the insatiable appetite for offering one-click, real-time payment methods to their end consumers. The airline industry would be a good example of an industry that is starting to take notice of, for instance, request-to-pay facilities to offer alternate payment methods not only for a better online experience for their customers but also to drive down transaction costs.

    What will drive demand for digital treasury for B2B business models?

    A number of things will need to happen before companies with B2B business models start to show real interest in experimenting with real-time payment schemes. First, the rollout of instant payment schemes across the globe is starting to bring about a 24/7 real-time payment ecosystem. However, limits will need to be raised sufficiently before they come into range for B2B or treasury-initiated flows. Second, currently there is no ability for corporate treasury to mobilize that cash outside of business hours, so for example, weekend inbound flows will be idle until next business day.

    For now, and until such time that a sufficient number of central banks open up the real-time gross settlement (RTGS) engines, no markets will exist to invest or exchange currency outside of current business days. It will be when and if the RTGS engines are opened up by the central banks that the corporates, where the materiality of flows through their business model are large and less frequent B2B flows, will become interested in real-time payments — initially for working capital reasons and eventually, as new markets open up, for investment and risk management objectives. We expect another consequence when the ability to mobilize cash on a 24/7 basis in new markets become a reality — that is, the utilization of machine learning and robotic process automation techniques to offer an alternative to people-based operational treasury to determine and execute trades after normal business hours and weekends.

    Gaining insights into the accuracy of historical forecasts by currency is critical to determining whether the future forecasts provided are reliable and actionable.

  • 8 Treasury and Trade Solutions

    Multiple pathways emerging for the real-time digital treasury of the future

    This is not to dismiss the need for, or the potential benefit of, investing both resources and capital into experimenting with emerging or yet-to-be proved technologies. Indeed, as we have discussed earlier in this article, those that have invested in ERP/TMS will enjoy the opportunity to be part of pilot schemes and proof-of-concept experimentation in partnership with current technology providers and banks.

    For many, the journey so far has been along the path to a fully operational in-house bank treasury construct that offers cash concentration. This enables centralized risk management and bank account optimization through on-behalf-of and, more recently, virtual account constructs capable of supporting inbound and outbound flows at the center. This centralization journey is reflected in Figure 3 on page 6 as the now well-travelled road to the efficient treasury, where, for example, the need for banks to intermediate financial flows between group subsidiaries has been removed entirely.

    We now see the onset of two new target states for operational treasury, which will ultimately provide fully automated real-time digital treasury. First, the onset of artificial intelligence (AI), namely, machine-learning techniques coupled with robotic process automation and second, the ability to access large data sets, have offered up a “smart” treasury, where manual processing or reconciliations will not exist, with intervention only required on an exception basis.

    This will include the arrival of more timely and accurate forecasting that automatically combines risk policy to determine suggested next actions through well-nurtured and well-trained AI techniques. The real-time digital and secure “integrated” operational treasury will come about in a new world when real-time payments — a new normal not only for C2B but also, with limits raised, for B2B flows — and open banking, APIs and blockchain (to help remediate cyber-attack threats) come together. This fully integrated world is where the concept of end-of-day cash management is gone, cutoff times do not exist, real-time value is received, payments are made just in time, and surplus cash is invested automatically for optimum risk/return based on unstructured search engines consuming trusted data feeds.

    For many, the journey so far has been along the path to a fully operational in-house bank treasury construct that offers cash concentration. This enables centralized risk management and bank account optimization through on-behalf-of and, more recently, virtual account constructs capable of supporting inbound and outbound flows at the center.

  • 9The Future of Corporate Treasury

    Treasury Objectives and the Next Maturity Level

    Across corporate treasuries worldwide there is a widespread trend toward a further professionalization of treasury activities. While in past decades the focus was on outsourcing to lower costs, globalization to centralize activities, and simplification to improve efficiency, the next decade will focus on digitalization with a goal of working smarter. Traditional concepts such as centralization, standardization, and automation remain important drivers. However, the ultimate goals are business integration and value creation.

    Technology remains a key enabler: so-called exponential technologies, such as artificial intelligence and advanced robotics, can help take treasury to the next maturity level in the Treasury Maturity Model shown below in Figure 4.

    Figure 4: Treasury Maturity Model requires deeper integration into the business

    Foundation Developing Established Enhancing Optimized

    Treasury MaturityAbility to ensure efficiency, quality and value-added services

    Transcending

    Trea

    sury

    Impa

    ctB

    usin

    ess

    Inte

    grat

    ion

    TransactionalTreasury

    Efficiency and Cost-Focused

    Treasury Value-added and Strategic

    Treasury

    While the traditional objective of centralization remains valid, its concept has changed. The traditional concept of centralization was based on location whereas the new concept is based on a model of virtualization in combination with centralized control and local empowerment.

    Regulatory challenges and the global tax trend toward substance over form, transparency and documentation are driving a further need for standardization across the global organization.

    As treasury becomes more mature to improve efficiency, deliver quality and offer more value-added services, business integration will deepen. While current technologies have enabled treasury to add value and play a more strategic role, exponential technologies are taking treasury to the next maturity level, where they begin to transcend treasury.

    Regulatory challenges and the global tax trend toward substance over form, transparency and documentation are driving a further need for standardization across the global organization.

  • 10 Treasury and Trade Solutions

    The Treasury Technology Landscape

    Current Landscape — Today

    Over the past three decades, we witnessed several developments in the treasury technology landscape. One of the key developments to mention is that the treasury technology vendor market has consolidated through mergers, acquisitions, and private equity involvement.

    This resulted in a higher concentration of treasury technology solutions with fewer players in all treasury market segments.

    The following sections include some of our other observations that are based on a detailed market research executed by Zanders that resulted in an extensive database of ERP and TMS usage by more than 1,000 multinational corporates all over the world.1

    1 Source: Zanders proprietary research, 2019. Further reading can be found via https://zanders.eu/en/latest-insights/zanders-proprietary-treasury-technology-database

    Figure 5: Share of TMS Market

    ERP Vendors (21%)

    MS Excel (6%)

    Independents (36%)

    Big Players (37%)

  • 11The Future of Corporate Treasury

    SAP and Oracle (“ERP vendors”) continue to dominate the ERP market

    • At this moment SAP owns over 50% of the enterprise resource planning (ERP) system market, while Oracle (incl. JDE and Peoplesoft) has around 25% of market share. The rest of the ERP market is shared among smaller participants. Especially larger multinational corporates (over 10 billion euros in revenue) tend to use SAP or Oracle as their main ERP system.

    • A significant part of those companies that are using SAP as their main ERP system, have also been implementing the treasury functionality of SAP, which includes cash & liquidity management, treasury & risk management, in-house banking and bank connectivity. With these clients SAP currently owns around 20% of the TMS market. In contrary, Oracle currently has a very limited share in this market.

    • In the coming years ERP systems are expected to further develop real-time information, data analytics and integrated solutions to support the entire financial supply chain for treasury, risk and finance. New functionality will mostly be developed in the cloud, with examples such as SAP S/4HANA and Oracle E-Business Suite Cloud. Future add-ons and apps are focused to improve user experience via virtual assistants or third-party integration via SAP App Center or Oracle Market Place.

    “We see the future of enterprise software moving into the direction of becoming the intelligent enterprise. What does that mean? Intelligent enterprises effectively use their data assets to achieve their desired outcomes faster — and with less risk.”

    “As part of SAP’s standard road map, intelligence is embedded into our solutions — so customers can make sense of their data in context and optimize via self-learning algorithms.”

    “We do see clients preparing their system landscape into a digital platform, ideally consolidating lots of data into an integrated system. That can help to unlock new potential in the daily processes, being it transparency and real-time information, automation, improving security standards and getting rid of legacy systems or even predicting the future.”

    Christian MnichSenior Director Solution Management Treasury, SAP

    • Best-of-breed treasury management systems (TMS), such as FIS and ION, have acquired several smaller technology vendors over the last decade and currently together have approximately around 37% market share. With their broad product portfolios covering treasury, risk and payments, both vendors cover the full range from entry-level to high-end solutions.

    • While during our interviews none of these technology vendors made any of their intentions clear, in our opinion continuing to support and develop their extensive range of products will be costly. At one point, we expect there might be a rationalization effort in their product suite where clients are encouraged to a core product or platform.

    • In addition to the two Big Players, various specialized niche vendors such as Serrala (formerly known as Hanse Orga), Kyriba, GTreasury, which recently acquired Visual Risk. BELLIN, Salmon, Trinity, Diapason, TreasuryXpress, and Orbit have been acquiring approximately 36% combined market share and are challenging the established larger market players. Due to the lack of restrictions from older products, they can usually be more agile and flexible to adjust to changing market conditions and new regulations.

    FIS and ION (“Big Players”) continue to dominate the best-of-breed TMS market, with eight to ten specialized niche players (“Independents”) being their main challengers.

  • 12 Treasury and Trade Solutions

    Future Landscape — Tomorrow and Beyond

    The future is in the cloud.Technology applications keep advancing at a stronger pace, changing the way businesses are run. The emergence of new technologies is bringing the treasury profession to the next maturity level of a Smart Treasury, which is benefiting from data analytics, algorithms, and self-improving processes.

    Figure 6: How cloud hosting implantation takes place

    Cloud Solutions

    SaaSReal-time Payments

    Enterprise Blockchain

    Independence from local IT resources

    Transfers settled in real time

    Transparency of execution status and charges paid

    2 Further reading on this topic can be found via https://www.itworld.com/article/3264435/cloud-computing/sap-settles-licensing-dispute-with-ab-inbev.html

    One of the main developments with which can be observed with regards to hosting, is the shift from on-premise to cloud-hosted solutions.

    According to Cisco’s Global Cloud Index, Software-as-a-service (SaaS) will become the most popular and adopted services model for public and private clouds by the end of 2019.

    Cloud-based solutions have less entry-level barriers and are flexible, scalable solutions, which can adjust toward the needs of a corporate, depending on its size, treasury complexity and functional requirements.

    As mentioned earlier, this cloud development is changing the traditional location-based concept of centralization toward a concept of virtualization. While previously treasury teams and the software servers were put in the same location, local or regional treasury teams are now working together globally despite being in different regions and time zones.

    Cloud-based solutions will be priced differently.This migration toward cloud-based platforms is also driving technology vendors to reevaluate their pricing models. Traditional pricing was based on which treasury software or modules a corporate would buy, which would result in a one-off investment and a periodic cost of maintenance and upgrading (“license and maintenance model”). Cloud-based solutions will be priced differently, in most cases subscription-based dependent on the usage of certain transactions, functionality, modules or data (“usage model”).

    With this change in pricing models, there are already examples of disputes between large ERP technology vendors and their clients, which is about a potential breach of the software license agreement by directly and indirectly accessing the core system and data without appropriate licenses.2 This typically involves the interfacing of a core ERP system with third-party

    cloud-based applications or add-ons, where, in the opinion of the technology vendor, an increased volume of data usage should result in a higher pricing of the solution to the client. For this reason, some large corporates are already considering implementing a diversification strategy to work with various technology vendors to prevent a “lock-in effect.”

    The future will most likely not only be in the cloud.As a kind of contradiction to our earlier statement, the future state will most likely not be a “cloud-only” one but rather a hybrid combination of on-premise installations at a central location with a continuous link to a cloud-based solution, similar to cloud storage solutions such as Google Drive, Dropbox and OneDrive today. This will allow corporate treasuries to benefit from working locally and to continue working in the cloud remotely in function of where and how they are working with the same user experience.

  • 13The Future of Corporate Treasury

    “Considering different requirements between for instance HQ and local treasury teams, we are moving toward a hybrid solution for clients who can have a local, on-premise installation that is real-time mirrored to a cloud solution.”

    “The end user can then either work, for example, locally when in the office and via the cloud when travelling. This will allow for maximum user flexibility to increase customer experience.”

    “The application of new technologies and applications will have a significant impact on all financial processes. However, full automation of process can only occur when data is always accurate and correct, not when it’s correct in 99 of 100 cases.”

    Sven LindemannChief Executive Officer, Serrala Group

    Christoph DubiesChief Strategy Officer, Serrala Group

    Fintech is trickling in the treasury technology market.The emergence of new technologies has given rise to a vast number of smaller startup companies in the fintech space, which are now starting to have an impact on the treasury technology environment as well. These fintech companies are often relatively young and small organizations focusing on a niche area of treasury. In combination with a more agile decision-making process, this allows them to follow market developments and new regulations more closely.

    Fintech companies are typically focusing on the pain points that traditional technology vendors are struggling with, such as improving cash flow forecasting using APIs and machine learning or smart treasury contracts using distributed ledger technology (DLT) and are in this way playing right into some of the more immediate needs of corporate treasurers.

    Currently many of the successful fintech providers are distributed or acquired by traditional technology vendors or large banks, because in most cases multinational corporates prefer indirect contracting to minimize counterparty risk. Furthermore, such a collaboration between a fintech company and a legacy vendor or bank, will help the startup to achieve accelerated growth, approach new clients through different channels and benefit from faster distribution and onboarding.

    “With technology as a tool that enables efficiency, treasurers are looking for the right ’tool kit‘ to add treasury value. Our mission is to make working with multiple banks via APIs easier and more efficient. This process is never finished, every day we try to make it easier and simpler.”

    Jorge SchafraadChief Executive Officer, Cobase

    Fintech companies are typically focusing on the pain points that traditional technology vendors are struggling with, such as improving cash flow forecasting using APIs and machine learning or smart treasury contracts using distributed ledger technology (DLT) and are in this way playing right into some of the more immediate needs of corporate treasurers.

  • 14 Treasury and Trade Solutions

    Opportunities Presented by Exponential Technology

    Historically technological changes were relatively moderate and gradual, allowing organizations to take their time to make the necessary adjustments.

    Figure 7: The ongoing evolution of treasury technology

    Electronic Banking

    1980 1990 2020 +2030

    ERP

    TMSRobotics, RPA

    API

    MachineLearning

    Distributed Ledgers (DLT)

    ArtificialIntelligence

    In contrast, future developments in technology are expected to be exponential with emerging technologies like RPA, APIs, ML, DLT and AI3 ready to disrupt every aspect of our daily jobs, and they come with tremendous challenges and opportunities.

    To translate the potential impact of exponential technology in practical solutions that can solve real client problems, most of our clients are typically asking us two key questions:

    • When is this treasury technology solution available for me?

    • How should I respond to this change?

    To answer those questions, we look at the impact of fintech or exponential technology on treasury. The impact is all about the size and timing of mass adoption of a new technology. And we use the word exponential, because it’s all about the speed of change at which this is currently happening.

    “…we are currently at a decisive moment as the industry is moving forward after a long period of keeping the situation ‘as-is’.” – Marc Delbaere, Global Head of Corporates and Supply Chain, SWIFT

    3 See the glossary at the end of this whitepaper for a more detailed explanation of these exponential technologies.

  • 15The Future of Corporate Treasury

    “Technological changes will impact how corporate treasurers are managing their operations. For example, API functionality allows treasury to manage their banking activity in real time, directly from their own trusted applications, whether on a tablet, mobile device or laptop.”

    “FIS has recently partnered with Citibank to connect the Trax corporate payments factory via APIs rather than more traditional bank connectivity channels. This is a vital step forward in allowing treasuries to execute, manage, monitor and report on their transaction flows in real time, increasing cash management and visibility.”

    “We are developing use cases for more advanced business intelligence tools, which use machine learning to improve decision-making in the most historically uncertain and challenging areas.”

    Andrew OwensBusiness Line Executive, Treasury SaaS and Group CTO Banking and Payments, FIS

    The fully automated Smart Treasury that is going to use next generation technology won’t be there overnight. The expectation is that machines or computers will only pass the Turing test as of 2029 and the ultimate principle of Singularity4 will be there as of 2049.

    Therefore, it will probably take another decade or even more before concepts such as artificial intelligence (AI) will be fully integrated in the corporate treasury practice. In our opinion corporate treasurers however cannot continue to take a reactive response but will need to start preparing today for the changes of tomorrow with a more proactive and “pilotive” approach.

    Unfortunately, many professionals find themselves in numerous unfruitful discussions about how they should react to these new complex technologies that will shape the future of their industry. Advances in exponential technologies will cause a significant impact on all areas in treasury in the coming years.

    In line with the expected exponential technological developments, the focus areas for the development of future treasury technology solutions will be around two main themes: process improvement and data intelligence.

    “Why is AI such a hot topic right now? There have been rapid advances and new approaches to create self-learning algorithms such as those using deep reinforcement learning. Given the concurrent increases in computer processing speed and the availability of large sets of training data, such algorithms are revealing new relationships and strategies to us in many fields. We are currently exploring how such algorithms can assist the treasury team in their day-to-day activities.”

    Paul HigdonChief Technology Officer, ION Treasury

    4 See the glossary at the end of this whitepaper for a more detailed explanation.

    “By 2029, computers will have human level intelligence.”

    – Ray Kurzweil, Futurist

  • 16 Treasury and Trade Solutions

    Process improvement• Automate: RPA, APIs and machine

    learning (ML) will be used to automate repetitive, standardized treasury activities or processes such as bank reconciliation, cash application or exposure determination.

    • Connect: APIs will be used to facilitate connectivity between different solutions or platforms, with distributed ledger technology (DLT) being used in smart contracts (e.g., in the area of trade finance).

    • Learn: Use more advanced concepts of ML to analyze data patterns, learn and solve problems faster and more efficiently, which results in predictive solutions.

    • Assist: Make treasury technology more user-friendly and accessible, for example, via the use of a virtual desktop assistant comparable to Amazon’s Alexa, Microsoft’s Cortana, Apple’s Siri or Google Assistant.

    Data intelligence• Prevent: Analyze large sets of data to

    detect anomalies for fraud detection and payment outlier detection. For example, some vendors already use ML in their cash application solution to create rules based on detected payment patterns.

    • Predict: Analyze data patterns with the use of ML. For example, some vendors are developing smart algorithms to set up intelligent cash flow forecasting methodologies.

    • Prescribe: Use insight in data to create treasury and risk intelligence that suggests or even prescribes the next management actions to be taken.

    • Visualize: Envision large sets of data to gain insight into patterns, key developments and trends, to enable reporting on KPIs, etc.

    The future corporate treasury practice will see exponential technology and human interaction continuously working together, where technology will assist to automate and provide insight into data and humans will monitor, based on predefined limits and tolerance levels, and fine-tune where needed.

    Example: Operating the aircraft’s navigation and engine systemLet’s make the above future vision more concrete using a simple example comparing treasury operations with operating an aircraft. The future airplane cockpit will use data intelligence algorithms that are continuously analyzing altitude, airplane speed, weather forecasts, etc. On the other hand, there will be a pilot (human or remotely controlled) who will take care of the procedures such as takeoff and landing, route changes, etc. The process of flying can be improved by using technology to:

    • Automate: Have the airplane fly on autopilot for long distance, mid-route periods.

    • Connect: Connect different airplanes, ground controls and satellites to always have a precise position.

    • Learn: Use statistics to understand the impact of crosswinds on the airplane.

    • Assist: Make controls easier to use and self-explanatory, improving pilot experience and reducing the chance of errors.

    • Prevent: Use weather data to fly around heavy storms.

    • Predict: Use wind data to predict periods of turbulence.

    • Prescribe: Provide suggestions to fly lower/higher/slower/faster or take alternative routes.

    • Visualize: Use flight data to build dashboards with route details, estimated fuel consumption, time of arrival, etc.

    This example shows that there will be a constant interaction between the technology with automated processes controlling the airplane and the pilot having the human interaction to validate the automated process and correct where needed.

  • 17The Future of Corporate Treasury

    Treasury cockpit of the futureCorresponding to the aircraft example, the treasury cockpits of future corporate treasuries are expected to rely on process improvements and data intelligence with a constant, real-time interaction between automated treasury processes and human validation.

    In our opinion, the future corporate treasury practice will see exponential technology and human interaction continuously working together, where technology will assist to automate and provide insight into data, and humans will monitor, based on predefined limits and tolerance levels, and fine-tune where needed.

    “The big question we are often asked is, ’Will a robot be able to run an entire treasury department?’ Our view at ION is that this is unlikely to happen in the foreseeable future. Yes, levels of automation will increase way beyond what we see today, and AI will play a key part in that. But we see AI as a tool to assist the treasury team. Machine learning may reveal new insights and strategies, but it will be the humans who decide how to use those strategies to create more value for their organizations.”

    Paul HigdonChief Technology Officer, ION Treasury

    How will your future treasury look like?How should you manage the “Perfect Digital Storm”?

    …the future corporate treasury practice will see exponential technology and human interaction continuously working together…

  • 18 Treasury and Trade Solutions

    How Quickly Will Treasury Adopt New Technologies?

    It seems that exponential technology is currently developing faster than most of the corporate treasury users can digest. While most users are aware of these emerging technologies, they may be hesitant to start using them. One of the key questions that many of our clients ask is: “Is this technology a potential solution to any of my real day-to-day problems?” This response is comparable to the concept of self-driving cars. While everyone is aware of the concept, not everyone would be eager to step in such a car to have it drive him/her to work tomorrow.

    “When a user can be certain that data is reliable, and tamper-proof, it is truly a game changer. You no longer have to wait for confirmations and validation — with blockchain that is already baked-in. Trustworthy data can be used to drive business decisions with confidence.”

    “Blockchains are just a better toolkit. They aren’t a panacea, but just as email and spreadsheets have transformed the way we communicate and calculate, blockchain will forever change the way we share information over the internet.”

    Somil GoyalChief Operating Officer, Adjoint

    Proof of conceptsFor many of the exponential technologies, we already see concept versions of the technology being available, however the mindset of corporates and thus market adoption is not fully there (yet):

    • A lot of organizations are experimenting with DLT proof of concepts where DLT is applied on a small scale, but so far there are not yet too many widespread applications across a broader group. While the technology around DLT may be available and ready, the standard and structures which will allow for global market adoption are currently lacking. To put it plastically, we can think of the market as the proverbial horse which can be led to the water, but we can’t make the horse drink the water.

    • For instance, we expect that in the coming decade DLT is going to add real value to a wide number of financial processes, e.g. ,real-time validation of company ledgers by auditing firms instead of quarterly, real-time, trade finance, payments and settlements, etc. According to the World Economic Forum, DLT is estimated to free up $1.5 trillion in trade financing and create $1 trillion in new trade over the next decade by digitalizing the entire supply chain using DLT, AI, APIs, etc.5

    Currently the practical capabilities of exponential technology are still relatively new and fairly limited to more basic treasury operations, which leads to mainly the trivial, standardized, repetitive activities being the areas of experimentation such as using APIs to connect different systems, RPA to automate bank reconciliation, ML to improve cash flow forecasting, DLT to speed up trade finance, etc.

    5 World Economic Forum, September 2018. http://www3.weforum.org/docs/White_Paper_Trade_Tech_report_2018.pdf

  • 19The Future of Corporate Treasury

    “Several companies are offering groundbreaking and disruptive technologies around banking and treasury. But is the user, the corporate, or the bank ready for it?”

    “For example, BELLIN is working on functionality to white-list and blacklist vendor records. In the long run, a shared ledger could be created where data is shared among corporates to improve security and reduce fraud cases.“

    “Not long ago, many corporates could not imagine storing their critical treasury data in the cloud, which is now the standard for business applications. Now we must go the next step and understand the impact and benefits of sharing data among corporates.”

    “From that point it is not so much a question of what technology vendors can develop, but more so, what users are willing to adopt.”

    Martin BellinChief Executive Officer, Bellin

    Exponential technologies will become more mature.As exponential technologies become more mature, market confidence in it will grow which will lead to the more critical, value-adding, strategic activities being trusted in the hands of exponential technology as well.

    However, one of the bigger challenges will be to achieve more advanced data intelligence with a move toward further data standardization and availability. With data as the key to knowledge, some organizations treat it as their “pot of gold” while for others it is nothing more than a missed opportunity.

    Timely and accurate data streams will become (even more) vital as automated decisions cannot be based on incomplete sets of data. For automated processes to work, data streams will need to be accurate and complete all the time, not most of the time.

    In our opinion, to improve decision-making, corporate treasurers should embrace a data-driven culture supported by developing a data strategy to identify, collect, manage and analyze all the relevant data.

    “As treasury moves toward more standardized and automated processes, two challenges will need to be addressed along the way:

    • Full end-to-end (E2E) adoption, standardization and availability: Timely and accurate data streams will become (even more) vital as automated decisions cannot be based on incomplete sets of data.

    • Self-determination and potential fraud risk: The overall question is how far the treasury departments are ready to hand over decision power to AI and robotics.”

    Marc DelbaereGlobal Head of Corporates and Supply Chain, SWIFT

    “More data has been created in the past two years than in the entire previous history of the human race.

    …At the moment less than 0.5% of all data is ever analyzed and used.”

    – Bernard Marr, Forbes

  • 20 Treasury and Trade Solutions

    Key Takeaways

    In its partnership with Citi, Zanders captured the thoughts of corporate treasurers and technology vendors around the world and understand the impact of technological advances.

    Exponential technology such as artificial intelligence, data analytics, distributed ledger technology and APIs are impacting corporate treasury from both an internal (processes and data) and external (connectivity) perspective. The impact of exponential technology is that treasury, once described as an “ivory tower” is fast becoming a “digital command center” full of data analytics, algorithms and self-improving processes.

    Figure 8: Five components that underpin an advanced treasury solution

    Speed — Developments are moving from linear, logarithmic growth to exponential growth.

    Driver — Treasury “pulling” technology is changing to technology “pushing.”

    Response — Treasury’s response needs to be visionary, having a “sense & respond” attitude.

    Priority — “Wait’n see” won’t work anymore, treasury needs to be proactive and even “pilotive.”

    Cost — Affordable new technology with attractive pricing models reduces TCO.

    The treasury function and processes will be improved, redesigned or replaced.

    SpeedThe world around us is changing profoundly. Nowadays the concept of a robot supporting your everyday life is not so far-fetched. We have robots cutting our grass, vacuuming our houses, and driving our cars — so why not have a robot to manage the treasury? Over the last two decades, the treasury technology landscape changed gradually. However, evolution is accelerating. The new wave of technology is advancing exponentially and will change corporate treasury, sooner rather than later.

    DriverThere have always been new treasury system functionalities; treasury technology vendors are currently developing real-time information, data analytics and integrated solutions to support the entire financial supply chain. However, in contrast to the past where business requirements drove vendors to create new functionality, exponential technology is now predominantly driving functionality.

    ResponseCorporate treasury lends itself to exponential technology; the function and its processes will be improved, redesigned or replaced. Taking advantage of these new technologies is a key requirement of management. Corporate change is difficult to manage. Some corporates will undoubtedly delay and consequently be left behind; others will embrace change and excel.

    PriorityThere are many ideas, thoughts and blueprints outlining how new technology can improve treasury activities. Recently, these have begun to be converted into use cases that add value by improving, redesigning or replacing some treasury activities. All corporates must embrace the opportunities presented by new technology or risk being left behind.

    CostOver the past decade, the cost and delivery structure of treasury technology has changed. High priced on-premises models are being replaced with cloud or SaaS solutions with pricing models shifting toward subscriptions. This spreads corporates’ investment and offers a more affordable total cost of ownership (TCO).

    Corporate Treasury is becoming a “digital command center.”

  • 21The Future of Corporate Treasury

    Today, Tomorrow and Beyond

    With exponential technology developing in so many areas simultaneously, treasurers may feel overwhelmed. To ensure they successfully take advantage of the opportunities available, they should devise different goals for different time horizons.

    Today – Optimize Treasury ProcessesIn the short term (0-2 years), most organizations should continue to focus on standardization and automation using traditional technology such as ERP, TMS and electronic banking to optimize treasury processes. RPA technology should be considered to automate repetitive standardized workflows and connect multiple systems and users.

    Tomorrow – Leverage Data IntelligenceIn the medium term (3 to 5 years), the use of data will change: Instead of searching and analyzing patterns in historical data, descriptive, predictive and prescriptive analytics will be leveraged to provide suggestions on actions to be taken next. Structured and unstructured, as well as internal and external, data will be combined to deliver these insights.

    Beyond – Real-time ExecutionIn the long term (beyond five years), incumbent banks will collaborate with fintechs to improve financial services (corporates do not want to manage the reputational or credit risk of an unknown startup) and move toward real-time execution. Big tech companies such as Google, Amazon and Facebook will play a key role in the open financial industry thanks to regulatory incentives such as PSD2, Open Banking and APIs. Already in China, two large aggregators (Tencent’s WeChat and Alibaba’s Alipay) have almost a billion app users.

    Final Remarks

    The treasury ecosystem is experiencing significant change brought about by fast-moving technological developments. Each of these changes on its own would significantly affect treasury; the confluence of such innovations will have a momentous impact.

    In the near few years, these capabilities will grow exponentially. Treasurers who welcome and embrace the opportunities presented by this evolution will excel. To do so, they will need to evaluate manual processes and identify those that can be improved, redesigned and replaced by these technologies. They will also have to assess their human skill requirements needed to achieve their strategic objectives.

    Adapting to this new environment will undoubtedly be challenging for some corporate treasuries. We believe that it will require collaboration within the ecosystem — between corporates, their banks, and technology and service providers. Open-mindedness, experimentation, shared experiences and lessons will be critical to the future of treasury.

  • 22 Treasury and Trade Solutions

    • Robotics process automation (RPA) is in essence nothing more than a newer version of the traditional concept of automation. However, RPA is more integrated across various systems and helps bring treasury processes toward new levels of automation and efficiency.

    • Application programming interfaces (APIs) are standardized interfaces to easier connect different applications and systems. APIs create opportunities for corporate treasury to facilitate processes and decision-making via real-time access to information such as bank balances for optimized cash management.

    • Machine learning (ML) uses statistical techniques to have systems “learn” from data which creates opportunities in predicting patterns for example in the areas of cash flow forecasting and payment screening.

    • Distributed ledger technology (DLT), where ledgers are distributed across participants to ensure a single source of truth, received a lot of attention and gained popularity with claims of it being the “holy grail” for improving almost all business processes ranging from supply chain finance to smart treasury contracts.

    • Artificial intelligence (AI) where systems take the treasury environment into account and use cognitive functions to learn and solve problems. According to Ray Kurzweil, a well-known futurist, by 2029 computers will have human level intelligence by passing the Turing test.

    • Turing test is a test of a machine’s ability to exhibit intelligent behavior. The test is successful when an independent evaluator can no longer distinguish whether it is speaking to a human or a computer. Computers are predicted to pass this test by 2029.

    • Technological singularity refers to a future period during which the pace of technological change will be so rapid, its impact so deep, that human life will be irreversibly transformed.

    Glossary

  • ®

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