Tech giant Facebook is playing catch-up in treasury systems – launching a new liquidity management initiative, exploring automation and creating treasury operations capacity for its forthcoming digital wallet Novi.
Awash in cash ($60 billion at the last count), Facebook seems the ultimate success story as it continues its spectacular expansion (revenues rising at 30% a year) and bats away regulatory threats. But even corporate megastars face challenges in managing their growth in treasury, as its newly-appointed pair of treasury operations directors told delegates at the EuroFinance Managing International Growth event in March.
Strikingly, a key pain point for Facebook comes from technology. While the company has used internally-developed tools to control treasury operations that cover nearly 200 countries and some 500 bank accounts, these have limitations. Now it is weighing ‘build versus buy’ considerations for the first time – echoing the thinking that led fellow consumer tech titan Google to replace its self-developed treasury system with an SAP implementation.
Meanwhile, Facebook is also building a separate treasury operations team for Novi, the blockchain-based digital wallet for the Diem cryptocurrency that it backs (see box).
Investing in tech
The technology issue comes to a head in the area of inter-company funding. Much of the company’s revenue gets booked by Facebook entities in low-tax jurisdictions such as Ireland, while costs such as support centres or server farms are incurred elsewhere. Most operating units are funded by either FB Ireland or FB Inc., though other entities also provide funding for specific payments This involves classical ‘cost-plus’ funding agreements between Facebook units such as FB Ireland and FB Singapore.
While not an obvious source of problems for a cash-rich firm, inadequate tech in this area has now led Facebook to launch a liquidity management initiative that it characterises as one of its biggest treasury projects of 2021. The idea is to overcome the pain points in the current time-consuming manual process and to standardise it across all regions.
“Technology is the enabler. This isn’t going to happen because of more manual work – this is going to happen because we’re going to have a system that actually can automate and streamline the processes,” comments Nichole Krause, Director, Treasury Operations, NORAM & LATAM.
Currently Facebook operates a multi-currency, multi-entity notional pool in EMEA. Under what Rachel Morgan, Director, Treasury Operations, EMEA and APAC terms its ‘liquidity roadmap’, it is exploring how it could maximise this facility’s benefits.
Facebook’s funding agreements leave residual balances in the funded unit (Singapore in the example above) that are not required for working capital. But the company has no formalised process of identifying excess cash and returning it to the parent.
As with much about Facebook, the details are still cloaked in mystery. For example, the company declines to say what impact the new initiative will have on its approach to currency management. Facebook is well known for operating a ‘no hedging’ policy in FX. Nor will it discuss the likely impact on the number of bank accounts it uses.
Automation gaining traction
With Facebook putting increasing emphasis on automating its treasury operation, it expects to have a “really good, robust cash management structure that is all automated” within 12 to 18 months, according to Morgan.
But its ambitions for upgrading treasury go further than this. It is aiming to harness the strategic benefits of a broader embrace of technology.
“What are the ways that we can leverage technology to get some of this work off our plate so we can think more strategically day to day?” is the key question, according to Krause.
Harnessing robotic process automation (RPA) is one goal in this shift. “Embracing technology and automation, something that we think is super-exciting that we’d love to fold into all the work we’re doing is RPA,” she affirms.
The company is now embracing treasury automation. “People in the organisation are enthusiastic and willing to dive in and say ‘I totally want to learn that. I may not be able to use it right now today, but I definitely want to be engaged,’” Krause adds.
However, RPA is not about to be implemented imminently. The treasury team is currently identifying projects that Facebook’s central RPA team will consider for their programme.
Spare a Diem?
Facebook is broadening its advertising-driven business model by preparing to launch Novi wallets to enable transactions in Diem, a new cryptocurrency. Like the group’s Facebook, Instagram and WhatsApp accounts, these are a seemingly fee-free facility (Novi uses the slogan ‘What you send is what they get’), though users will have to buy Diem to use the wallets and to sell again to withdraw funds.
Diem is managed by an independent (though Facebook-backed), non-profit Diem Association that was initially based in Switzerland but is moving to the US. Intended to be a suite of so-called ‘stablecoins’, Diem differs from speculative cryptocurrenices like bitcoin as it is backed one-to-one by cash and government securities.
Libra was to have been a universal currency based on a basket of major sovereign units – somewhat like the International Monetary Fund (IMF)’s Standard Drawing Rights (SDRs). However, after it attracted opposition from central banks over money laundering and privacy concerns, the renamed project morphed into a series of one-to-one stablecoins each based on a single currency.
Diem had been seeking a Swiss payment licence, but withdrew its application recently. Instead it has partnered with the California-chartered Silvergate Bank. Silvergate will be the exclusive provider of the first Diem stablecoin, based on the US dollar.
Once this has been piloted and launched, the new Novi treasury team will have live transactions across Facebook’s nearly 3bn-strong user base to manage. Initially, these will be consumer deals – often in-app purchases or money transfers between individuals.
Other stablecoins (Facebook has mentioned euro and sterling) and business-to-business usage appear further away.