Getting the most out of treasury technology
Rapid advances in financial technology are revolutionizing treasury management. These are evolving from treasury management systems that plug into cloud-based ERPs, to the rapid emergence of APIs, matched with robotic processing, which will allow increased use of artificial intelligence and machine learning. But the transition from legacy systems will, as ever, be a challenge.
The availability of transformative technology is a huge opportunity for treasury teams to become more efficient, centralized and agile. But the strategic implementation of those systems is still a challenge. At root, it is a question of strategy: how companies balance the need for scale, centralization, and efficiency, with the requirement to have multiple bank counterparties, to adhere to differing regulatory regimes and to make use of best-in-class technology solutions.
“We have systems that we’re using for corporate Treasury to facilitate our day-to-day operations,” says Haomiao Zhang, Assistant Treasurer of PayPal, speaking at the EuroFinance Managing International Growth Through Recovery 2021 conference. As a provider of fintech payments services, with its own treasury needs, PayPal has a unique perspective on the use of technology for advancing its treasury operations. “We strive to simplify transactions for our customers. And we take that operational complexity in the back office. Treasury plays a critical role ensuring that there is operational liquidity to support customer transactions around the globe.”
PayPal uses a range of different technology vendors for these treasury operations. It uses FIS’ Quantum TMS for day-to-day operations and it uses systems by FX All and Reval for foreign exchange trading and processing. It also uses a separate FIS system for its investment portfolio and FIS’ eBAM to manage the multiple bank accounts it has around the world. But inefficiencies remain, despite the widespread use and availability of these technology systems.
“There is a lot of opportunity to drive efficiency,” says Zhang. “We implemented eBAM to keep our bank account information in one place as our source of truth. But what we are currently not using is the electronic communication piece of that tool. If banks can open that communication forum with the corporates, we can get away from some of these archaic processes and shuffling paper and really leverage technology and leveraging electronic communication to our advantage.”
Banks themselves are looking to leverage technology to consolidate their client relationships and in effect reduce the number of bank counterparties that their clients need. A key technology they are promoting is APIs. These allow instant and continuous communication between corporates and their banks and herald the end of the batch-driven, manually processed, nine to five way of working that has been the norm in treasury.
When Raymond Nazloomian joined J.P. Morgan’s Innovation & FinTech group two and a half years ago, APIs were new, with only a handful of corporate treasury teams using them. Now J.P. Morgan alone has over 70 APIs covering a range of treasury and payments use cases.
“APIs are part of every single conversation,” says Nazloomian. “We have hundreds of clients connected to our API platform making millions of calls every single week. [I] imagine in two or three more years, API are going to become the norm and almost all of our clients will be connecting to J.P. Morgan through APIs”.
The irony here is that fintech companies such as PayPal use APIs and associated technology as a key way to interact with their own customers. But when it comes to their own corporate treasury, they are yet to use them as much. “We rely heavily on APIs in the PayPal platform to facilitate funding movements for our customers,” says Zhang. “But I don’t think we use that technology in the corporate space as much as we could.”
APIs not only allow for swift and efficient communication, but they also relay reams of data and these can be the basis for new developments in using artificial intelligence and machine learning in treasury. The future of treasury technology may be driven by robotic processing of manual operations, APIs for communicating and transacting with counterparties, overlaid with AI/ML systems that drive greater insights and provide strategic benefits. This combination could help treasurers spot trends, predict scenarios and forecast outcomes in cash and liquidity management, in FX and payments.
“There are a lot of human judgement-based activities in treasury – cash forecasting, hedging, even reconciliation processes,” says Nazloomian. “Robotics isn’t that great at that, but it is where AI and machine learning can really shine. There is a lot of potential in applying these new algorithms and new tools to treasury processes to make them more automated. In the future, treasury teams will govern the environment and the algorithms to make sure that it is all working smoothly, instead of doing the day-to-day work themselves.”
In theory the technology that is now available allows companies big and small to have real-time, always-on treasury that also generates critical business insights. Many companies are already adopting these innovative solutions or at least experimenting through pilots. In reality, companies still have to juggle competing interests, regulatory requirements, and risk factors. Real world considerations may still limit the potential of treasury technology.