EuroFinance

Tackling treasury conservatism

Treasurers naturally have an aversion to risk. This is understandable when it comes to preserving a company’s capital, but can also sometimes colour judgement when assessing new digital vendors and non-traditional third parties for technology needs.

“A lot of treasurers are probably reluctant to use non-traditional providers in the market because they are stuck with a system that is deeply embedded in the company” says Simon Karregat, Group Treasurer of Dutch geo-data specialist Fugro. “It’s too customised to just easily switch to a new platform. You also have more than just one stakeholder, it’s not just treasury”.

“It is not that I don’t trust the people that work for fintechs, but as a corporate treasurer I still think that the Swift network is the most secure option,” adds Patrick Verspecht, Group Treasurer at Trillium Flow Technologies. “I don’t see PSD2 being able to connect with 10,000 banks in the same way”.

A problem for some treasurers is the way that new technologies are pitched to them by banks and third party providers. This isn’t a new concern.

“I remember 10 years ago, everybody was talking about electronic bank account management [eBAM] and that eBAM was going to be a revolution” Verspecht notes. “Ten years later, I’m still not able to see any real results or any real benefits because eBAM is not there”.

Even the treasury at tech titan Google has had to ditch most of its in-house custom solutions in favour of a solution from a traditional ERP vendor.

At China’s e-commerce giant Alibaba, things are slightly different. The entire business – treasury included – operates off the same technology stack. The stack combines in-house builds, but also includes some standard third party solutions – such as Oracle’s E-Business Suite for its general ledger and Hyperion to consolidate its financial results.

“The reason why we build our solution by our own dimensions is about the speed of reactions” explains Li Cheng, TMS Chief Architect at Alibaba. “We need to have the agility to react to the business needs. Third party solutions offer very good extensibility but we are a technology company. We have a strength in the technology, so why not build our own where that option exists? We use third party solutions on the backend, while in the middle layer, the enablement layer for the business, we build our own solutions”.

Big data analytics making inroads

One area where treasury is embracing new technology is that of big data analytics. Recent research from The Economist Intelligence Unit (EIU) found that big data analytics (45%) surpassed treasury management systems (43%) as the technology most used by corporate treasurers.

US-headquartered computer technology company Dell is testing machine learning within a big data analytics environment to simplify and strengthen its cash management processes.

“Imagine a process where you have the cash forecast and the reconciliation with the actual data” says Silver Zuskin, Dell’s director of Finance and EMEA Treasurer.

The company currently runs a rule-based environment where the system reads the statement data every day and tags it to each relevant category.

“You can contrast it with each category that you forecast and see how accurate you have been, but you end up with a thousand rules and you need to maintain environment like Access or something similar” Zuskin says. “With machine learning, we’ve found you don’t need to maintain any rules and the results we are getting are very close to reality, which is amazing”.

Alibaba’s approach to big data has been to have the data on its financial systems replicate as closely as possible the data inputed into its business systems at the front end.

“If someone places a real order in the front office, we build one financial data on the backend financial systems, building a big sub ledger so that the data held on the finance system mirrors that held in the business system” says Li Cheng. “This gives us a huge advantage, for example, when it comes to the accuracy of the data dealing with compliance, as well as for the later FP&A [financial planning and analysis]”. Because we have translated and transformed that data already, if you really want to have some analytics, then the data is there and it’s ready”.

Treasury teams – the next generation

As available technologies evolve, the skills of the treasury function need to adapt accordingly.

“There is a shift in competence needed, going from a traditional front back office, middle office, cash management competence towards something that is more IT oriented” explains John Fahlvik, Senior Product Owner Treasury at Volvo Car Corporation. “When you have a chance to recruit some new people, think about the future and the different competences treasury will be required to have”.

This is the direction that Dutch-based digital travel company Booking.com recently went in.

“In the past year, we hired two specific roles that are different to what you would associate as traditional treasury roles” explains Bart Verweij, the company’s director of Treasury. “We created the role of a data analyst, specifically dedicated to treasury. In addition, we hired a treasury business partner”.

Combining new technologies with more technology-savvy treasury team members can generate new possibilities, as the Booking.com treasury soon found.

“Everybody loves the data analyst because he is able to look at treasury-related issues and problems in a different way, ultimately leading to some amazing solutions” Verweij says. “His skills have helped us already in risk management, in cash management, and with FX management, for example by creating scorecards for our FX banks”.

In conclusion, as the take-up in big data analytics has demonstrated, treasurers will embrace new tools if they can see the practical use cases for them. It is up to banks and technology providers to make a convincing argument for that change. The challenge for treasury is to possess the skills to take full advantage of what is on offer.