Top five trends shaping the transformation of treasury

The role of treasury is one that is rapidly evolving, fuelled by digitalisation and changing macro conditions. Following extensive conversations with a number of international companies, Manish Kohli, Head of Global Payments Solutions at HSBC, shares his insights into the main drivers influencing the transformation of treasury operations, what is shaping customers’ decision-making, and the role that banks can play in supporting them.

Treasurers go digital

Historically, the function of treasury was to manage costs and risks, but this remit has since widened. Increasingly, treasurers are now being asked to support businesses with their growth and transformation strategies.

That the role of treasury is becoming increasingly strategic was evidenced in HSBC’s Corporate Treasury Risk Management Survey, where more than 64% of CFOs at large organisations (turnover >USD 5Bn) interviewed agreed the Treasurer role is part of the Executive committee – C suite¹. In the same survey, 54% of CFOs at large companies said treasury plays a key role in strategic decisions².

Technology solutions are proving to be critical enablers here, with 60% of treasurers telling the European Association of Corporate Treasurers Survey that technology reviews/replacement of IT tools is their key strategic priority for the next 12 to 24 months³.

Let’s take payments, for example.

In our recent study – “Global Connections: Connecting Southeast Asia and the World” – of 3,500 + companies across nine markets, 29% of respondents said digital payments would be transformative for their businesses⁴.

Payments are becoming progressively more frictionless thanks to Application Programming Interfaces (APIs), which can enhance automation and improve transparency, allowing for better and more timely cash management practices.

This technology has also facilitated the introduction of real-time payments for many clients, with payment processing times being reduced from days to just a matter of seconds; and payments becoming a critical enabler for new business models.

Other benefits – beyond expedited payments – include the delivery of valuable real-time information flows between payers and payees. This makes every step of the payment cycle – from payment initiation to processing and application – more efficient and straightforward for clients.

If providers are to thrive, they must encourage innovation and the adoption of best practices at their treasury clients to help them navigate today’s fast-changing digital landscape. Resisting change would lead to a treasury being exposed to greater risks, inefficient processes and higher operating costs - thereby reducing the firm’s competitive advantage.

Data takes treasury to the next level

Across many industries, access to high-quality data can help businesses improve their performance and obtain operational synergies.

Treasury is no exception. Fifty-three percent of CFOs told our Corporate Treasury Risk Management Survey that digitisation projects on financial data and processes are areas they would like their treasurers to improve upon⁵.

The ability to make use of timely and accurate data sets can support treasurers when managing their cash flow forecasting, payments and collections.

Data can also be leveraged for risk management purposes, as it makes it easier for treasurers to track positions like currency or interest rate exposures.

Many payments providers are working tirelessly to ensure that clients’ data requirements are met. So how is this being done?

Firstly, in today’s 24/7 operating environment, it is vital treasurers be given access to real-time data, ideally via APIs, as this can help them make decisions more quickly, especially during bouts of volatility.

Secondly, with ISO 20022 implementation across the industry, and increasing availability of end-to-end references and structured remittance information, clients can further automate processing and generate actionable intelligence for the wider business.

Additionally, banks need to broaden their data product offerings. It is no longer enough to simply supply treasury clients with historical analytics based on their own data sets.

Some banks are now providing industry and peer benchmarking services, the insights of which can be utilised by clients to complement, or even enhance, their decision-making processes.

A number of treasurers are also experimenting with and attempting to develop best practices around data sciences and artificial intelligence (AI), with many looking to their banks for ideas on how to make their data financially more actionable.

For instance, our Global Connections study revealed 34% of companies anticipated AI and machine learning would usher in major changes at their businesses⁶.

Macro conditions force treasurers to rethink their strategies

Rising rates and inflation are impacting treasurers’ behaviour.

This comes as 32% of companies told our Global Connections study that concerns about financial stability is their biggest challenge when conducting business in Southeast Asia⁷.

In some cases, we are seeing clients chase yields on their balances through self-deployment opportunities (i.e., paying off debt) or interest enhancement structures which let them leverage their deposits globally across their banks.

Conversely, however, the high inflation is resulting in cash burn at other organisations.

So, how exactly are treasurers responding?

The rising rates have led to more businesses – principally in the tech sector – to adopt commercial cards, either to optimise cash management or monetise their payables (e.g., by earning rebate optimisation).

Many treasurers also want to improve the visibility they have over their cash, which is prompting them to seek out digital, liquidity and receivables/payment solutions from their banks; both to review positions and to create future forecasts.

Resilience is non-negotiable

The pandemic, along with the war in Ukraine and various other simmering geopolitical tensions, have forced treasurers to devote more resources to operational resilience.

Boards now want treasurers to demonstrate that they have a firm grip on the resilience of their systems, processes and counterparties/partners.

Cyber-security, for example, is something many companies are taking increasingly seriously with 30% of firms telling our survey that it is a priority area⁸.

In particular, managing the risk of potential payment disruption is a critical responsibility for treasurers. It is not just about ensuring the resilience of funds, but the information related to the delivery of those funds. At HSBC, we are collaborating with industry partners to solve these issues. ( e.g. by investing in Swift payment pre-validation to provide real time validation of beneficiary accounts to reduce delays in cross border payments.

A failure to get on top of this can have severe financial and reputational repercussions for clients.

We expect that resilience will become a competitive differentiator in banking in the coming years, and there will be a growing trend towards a “flight to resilience” with corporations also looking at models to de-risk from single points of failure.

New business models are driving change

With consumers becoming more tech-savvy, our clients are having to adapt by rethinking their business strategies or identifying alternative revenue streams.

For many clients – especially platform companies – the ability to execute real-time payments is seen as a differentiator and an effective tool for attracting new customers.

Our Global Connections study revealed 28% of companies said e-commerce/digital platforms would be game-changers for their organisations⁹. This is echoed in our “Business Balancing Act survey “of mid-market enterprises, which found 38% believed the expansion of new digital platforms and channels would be major growth drivers¹⁰.

The proliferation of platform business models is forcing clients to embed flexible payment and collection systems into their platforms.Channel-agnostic collections have also become crucial for treasurers when managing these low value, high volume payments.

Incorporating flexible foreign exchange (FX) rate propositions into e-commerce platforms is another growing requirement, as international buyers and sellers want transparent FX rates, thereby adding to the simplicity of buying/selling goods and products.

Engaging with forward-looking banking partners who have a strong innovation track record will be integral if organisations are to successfully transition and grow their businesses in this fast-digitalising world.

With our global footprint, and by collaborating with clients in various stages of the growth lifecycle, we have been able to make investments both in response to and in anticipation of these trends, helping our clients to achieve success.

Through our Treasury Solutions Group (TSG), we support treasurers and encourage them to apply these ideas and strategies in practice during their business transformation journeys.