Disruptive technology creates clearly visible systemic risks and opportunities that affect the underlying business. But what is that to do with treasury? Treasury is a focal point where changes in customer requirements, new demands from the business and boards’ increasing appetite for more and better management information collide. That means when customers decide to use their phones to order and pay, when sales want to offer multiple, tailored payment plans to maintain market share and when the CFO wants a real-time, multi-currency cash position on their tablets, it is treasury processes and systems that have to adapt.
In other words, truly disruptive technology will make itself felt through sudden, urgent requests from the business for new ways to take customers’ money, new ways to pay suppliers, new types of vendor financing.
In addition, the service providers and IT suppliers upon whom treasury relies are themselves being forced to respond to the same technology disrupters. If banks have to change, then their cash management, trade finance, FX, risk management and lending offerings may be affected. Mobile is one vendor disrupter. The Cloud is another and is felt in specific areas of the transaction processing chain but there are others. Taking just one example, Facebook now makes 15% of its revenues from payments. These online leviathans have become huge transaction hubs and may threaten existing providers. If TMS providers or ERP systems suppliers find themselves falling behind Cloud solutions or newcomers who have embraced collaborative ‘app’-style models, then treasurers will experience disruption via their key suppliers. It will appear as new suppliers of treasury services, the withdrawal of products from key partners and other more or less unexpected external events.
However, right now, as far as most treasurers are concerned, the priority is cyber security.
“When I think of technology as a disrupter I think of vulnerability,” says one treasurer. “Yes, technology will affect every aspect of our business and touches lots of the moving parts of treasury too, but the first priority is to make sure what we have in place now is secure. Once it is, we can worry about modernising systems and outsourcing models and better analysis.”
Cyber risk and Big Data
A June 2014 report from McAfee and the Center for Strategic and International Studies (CSIS) estimates that cybercrime costs the global economy about $445 billion every year. “Cybercrime is a tax on innovation and slows the pace of global innovation by reducing the rate of return to innovators and investors,” Jim Lewis of CSIS notes.
The most damaging cyber attacks involve the theft of intellectual property and other confidential business information – whether customer data or research and development. For treasury, hacking can also attack the fundamental financial infrastructure of the company anywhere in the order to cash cycle.
And the threat is growing as criminals join the lucrative battle. At the same time, as businesses become completely reliant on an increasingly broad and complex set of technologies their vulnerability to IT failure rises too. The amount of sensitive IT you have that is available to be hacked, or to fail in some other way, increases. Again companies – and treasuries – are at a tipping point.
The second key concern expressed by treasurers is the impact on their operations of Big Data. It’s not the amount of data that companies now aggregate that is disruptive, it is the fact that they now have a choice. They can invest in the complex technologies available to analyse it and understand where correlations indicate causality and where they do not, or not invest in it at all.
For larger companies the case for investment is clear. In telecommunications, pharmaceuticals, automobiles and other consumer-facing companies, the data is a gamechanger. For instance, Ford analyses all the data it receives from the millions of vehicles it has built with incar sensing to determine customer preferences, Netflix analyses terabytes of data to generate its personalised movie suggestions.
Big Data in these companies accelerates innovation and product cycles, it reduces risks by improving decisionmaking, it allows firms to identify highly-tailored market segments and the products and prices to suit them and it gives senior executives the tools to measure performance better and to model the effects of changes before they are made.
For smaller companies, the investment may be so large that it is itself an existential risk but this must be balanced against the probability of extinction by those giants that have got it right “Big Data is going to be a big issue. It is going to be hugely expensive just to bring legacy systems to a point where existing data can be aggregated and seen in a consistent format that is useful.
Then there will be a very expensive next stage where somehow additional analytics will be added that we are confident give us valuable causal relationships not just the kind of meaningless correlations that pop up whenever you have tons of data? I’m not sure how many companies will be able to do that. But if it works it favours the big over the small,” says one corporate treasurer.
Cloud and SaaS
A third significant concern for most treasurers is the uncertainty introduced by the Cloud and Software as a Service (SaaS). To the software industry it is the next big thing. According to a 2014 Citibank report, SaaS represents 8% of total software wallet but is expected to grow to 70% of budget. And software defined networking is expected to grow from just under $360 million in 2013 to $3.7 billion in 2016. But these outsourced software models disrupt internal IT providers, like treasury, at a time when they themselves are under extreme pressure to deliver the perceived benefits of maximum digitisation. The Cloud may help, because Cloud adoption can mean the aggressive offloading of the deployment, maintenance and operation of existing IT services.
But large companies in general are slow to outsource legacy people and systems in this way and are reluctant to replace existing facilities completely.
Outsourcing can also introduce risks. There are always systems left behind and the larger the company the more difficult it is to separate them out and connect them to the outsourced elements. And the Cloud means the internet and the internet means an increased risk of cyber attack. And so it goes.
Treasury’s perennial challenge is to do more with less, so the Cloud appears to offer a way out. The cost of SaaS software is lower and only the required functionality needs be purchased. And, in theory, the Cloud offers better disaster recovery and business continuity than installed solutions.
“The whole area of the Cloud is uncertain right now,” says one treasurer. “Yes it may deliver cost savings. And yes it is probably the endgame because as technology becomes the single most important business-critical platform for most companies, it will have to be provided and run by people who specialise in it, leaving us to do what we know. But the transition will be risky.”
Mobile tools – going direct
Finally there is mobile. Treasurers themselves want mobile tools to make their own jobs easier. This creates a significant but manageable set of development and security issues.
More problematic is the increasing propensity of customers and sales organisations to channel their payments through mobile devices directly. That affects both vendors and corporate treasury. And it’s no longer simply about web apps or peer-to-peer services like PayPal on handheld devices.
It’s near-field communications embedded in games consoles such as the Nintendo Wii, it’s about Starbucks leading the way in innovating payment methods, it’s technologies like Dwolla in the US that seem to obviate the need for clearing houses and PayPal teaming up with Home Depot to test its cardless payment system.
All of this disrupts existing payment channels which feeds through to treasury, but it also represents multiple new types of customer behaviour that treasury must at least consider accommodating lest the business loses market share.