Does blockchain technology have the potential to transform global treasury operations?
New technologies like blockchain are beginning to have a significant impact on treasury functions and will likely produce even more dramatic changes in the coming years.
For treasury professionals managing global operations, optimizing cash flow across time zones, currencies, local payment systems and divergent regulatory environments can sometimes feel like being an air traffic controller at a busy international airport.
Juggling changing payment schedules, rerouting capital to different countries and solving for stalled transactions using decades-old infrastructure and processes adds unnecessary complexity and frustration to already challenging tasks.
Traditional payments solutions are slow, opaque and expensive to operate. Worse, they can tie up valuable capital in multiple pre-funded accounts on either side of every cross-border transaction.
Benefits of Blockchain
Fortunately, new technologies like blockchain are beginning to have a significant impact on treasury functions and will likely produce even more dramatic changes in the coming years. In fact, a recent survey of global finance leaders found that 80% of global treasurers predict blockchain technology will have a massive or significant impact on their business, citing benefits like cost savings, faster payments and greater transparency and liquidity.
By leveraging digital assets as an efficient bridge between two currencies, blockchain technology empowers enterprises and financial institutions alike to supercharge their cross-border payment operations at a fraction of the time and cost and with greater visibility. At its core, blockchain provides improved payments transparency for corporations to meet anti-money laundering and sanctions compliance requirements and without ever having to hold those digital assets directly on the corporate balance sheet.
But what does that really mean for the day-to-day tasks of treasury professionals? These three real-world applications of blockchain-enabled technology within treasury management provide organizations with a path for diversifying their payments stack, gaining a competitive edge and better navigating the future of finance with confidence.
Payouts to Complex Corridors
Expanding operations into emerging markets can accelerate growth, earning a business new customers, lowering its cost of goods and diversifying its assets. According to World Bank data, countries like Brazil, Mexico and India continue to log staggering growth, with India alone reaching USD$700 billion in imports and exports over the past few years and recording USD$100 billion in remittance flows in 2022.
But these eye-popping opportunities also come with headache-inducing challenges. All three countries are notoriously difficult payment corridors due to high costs, lack of liquidity and FX, and represent an onerous burden even for major banks in part because of nuanced, market-specific tax requirements and regulations.
Still, the potential these markets represent continues to drive business expansion, and treasury teams must keep pace. Blockchain solutions offer one potential lifeline, enabling financial institutions to make near-real-time payments 24/7/365 in local currencies across a global payout network via a single connection with no pre-funding requirements.
With a global payout network and the benefits of blockchain’s inherent speed, transparency and cost-savings, companies can expand to even the most complex emerging markets while maintaining liquidity and freeing trapped capital.
Payments that take days to settle, result in 14% error rates and cost an average of $12 USD per failed or incomplete payment have become so commonplace in traditional international payments solutions for so long that they are now considered the status quo. These inhibitors artificially inflate the risk and cost of payments, adding overhead to treasury operations and forcing modern finance teams to operate on antiquated standards.
That’s why approximately 50% of global treasury payment leaders highlight the faster payment and settlement times as a primary advantage of integrating blockchain technology into their cross border payments business. Concurrently, an equal proportion of global treasury leaders recognize cost savings as a significant benefit. And over a third believe it can help improve payment error rates.
Companies can dramatically improve their global treasury flows to pare transaction times from days down to seconds, eliminate prefunding and gain end-to-end payment visibility. And by tapping into always-on settlement and a global payout network with lower costs and faster payments, providers can gain a competitive edge.
For example, Instarem—an international money transfer provider—uses block-chain powered technology to streamline internal treasury operations for them and their SME customers. This has enabled their payments business to tap into real-time, 24/7/365 cross-border settlement, across customers, regions, time zones and currencies. The effects of which are reduced operational overhead for their treasury business with things like cash pooling or deciding between wire transfer vs. direct deposit.
“Our customers are across 40 different geographies and all parts of the world where we serve, so being 24/7 is almost expected… [Blockchain-enabled payments] fits very nicely with that whole notion, and speed is one of the strengths…” says Yogesh Sangle, Head of Instarem.
Enhanced Visibility and Integrations
Managing multi-currency cash flows is a tangled web of complex payments, currency exchanges and reconciliation. Tracking and analyzing all this in real time can be near-impossible when data quality, security and third-party integrations across payment flows erode.
Over a third of global treasurers are increasingly looking to blockchain technology to alleviate the burden of middleware integrations and help solve these challenges around poor data quality and security. Blockchain-based payments solutions can provide visibility into transaction costs up-front as well as payment status and details. Gaining real-time insights with confidence and peace of mind translates into more powerful data-driven decisions across currencies and markets.
Next Generation Treasury Management
Juniper Research estimates that financial institutions could save approximately $10 billion USD by 2030 by deploying blockchain for cross-border settlement. But blockchain’s transformative power extends far beyond cost savings; it’s a gateway to operational excellence, efficiency and innovation.
For global treasury professionals, blockchain technology provides a fast, secure, reliable and user-friendly way to settle international payments in real time – all while diversifying and enhancing your current payments stack.