Introduction
Corporate Treasury focus has shifted a long way from back-office function to being a strategic advisor to the top management. With this shift there has been tremendous push on treasury to shift its gears from transaction processing to strategic decision making. The major challenges identified by the treasury leadership impacting this shift are no real time information, decentralized treasury operations, multiple systems in various time zones, regulatory constraints across different countries, repetitive manual tasks, no digital tools for predictive analysis and in-efficient API’s to support seamless integration with external counterparties. These pain areas must be addressed if Treasury needs to play a role that it is expected in today’s changing times.
Present State
Looking at the dynamics of today’s financial market, where there is volatility in market rates and risks associated with country and counterparty, it has become extremely important for the corporates to act dynamically. Banks have reacted early to these challenges and are shifting their focus from just offering financial products to more real time financial services. Corporates are leveraging these banking services in the form of API’s which are providing real time solutions to corporates at any pre-defined point of the day, giving corporates the capability to act dynamically in this dynamic financial world. There have been the same shifts in other treasury ecosystem partners like market data providers, where they are offering real time solutions to fetch ratings, market data on real time basis. In future focus treasury operations, it becomes important for Treasury Leadership to focus on these offerings and leverage on to become more proactive then reactive.
Having a centralized treasury operation wins, because of the economies of scales and centrally governed treasury policies and operations. There are factors which restricts this ideal principle to be applied efficiently. Factors like closed currencies, regulatory constraints, regional expertise, country risks are the challenges which Treasury leaders across the world faces today. With such constrains to fully centralize treasury, treasurers have the option to move to hybrid models which keeps the balance between the efficiency of centralized treasury and decentralized ones. Hybrid models provides centralized treasury operations, along with local presence in respective base location. With the same thought more and more companies are deciding to move their base to the countries with liberal regulatory environment, liquid Forex market and legal system based on English common law with keeping local presence in the respective place of operations. Countries like Singapore, Hong Kong are the Treasury Base Hubs providing liberal regulations and lucrative policies to attract corporates to govern their Treasury operations. This gives a good business case for the companies who are aspiring to have a group wide treasury governance in place.
The core of the Treasury decision-making lies in the accuracy of data available. Disintegrated Treasury data across multiple systems restrict the treasurer of its tasks of decision making, rather spend time in consolidation of the data from multiple systems. It is required at the core of the business to have a single source of truth which is integrated with different processes of the company to provide accurate Cash forecast, Cash positions, Forex/Commodity exposures.
Technology supporting present state Treasury
SAP has thought of these ever-increasing demands and came up with Treasury Management solution on S/4HANA. This solution from SAP integrates modern Treasury functionalities, which corporate Treasury can leverage to run their functions efficiently. SAP provides multiple deployment options for S/4HANA Treasury which are
- Complete business suit on S/4HANA (Single Instance)
- S/4HANA Central Finance
- Treasury workstation (side-car) on S/4HANA
Treasury workstation (side-car) along-side SAP ECC or S/4HANA system provides further flexibility to corporate’s transformation roadmap. Sidecar solutions are apt for the corporates who intend to have sequential approach for S/4HANA migration, with lower turnaround time to benefit from S/4HANA Treasury innovations. In the latest innovations SAP has been focusing on developing connected processes around Treasury ecosystem by providing out of box API’s which seamlessly integrate with external counterparties of the corporate for trades with trading portals, for payments and bank reconciliation with Banks, for Credit Rating and market data with market data providers. It gives Treasurer a breath to focus on decision making rather than data collections and reconciliation.
Future State
Proactive Treasury practice is where Treasurer has tools which foresee in the future and suggest Treasurer to act on it. Future of Treasury lies in leveraging emerging technologies like AI to comprehend the market data patterns of the past and predict the future changes. Predictive analysis on Currency risk, Counterparty risk, Cash forecasting are few of many optimal business use cases for a proactive Treasury practice.
Alternative cross-border payment and supplier financing implementations are exploring blockchain to optimize current processes. The distributed ledger technology is used for real-time message sharing and payment settlements through just data exchange or sometimes even digitally tokenizing money. While many projects are in production, they are very immature in terms of technology platform and operating model maturity.
Open banking Treasury solutions are rise in Europe as the banks are working in consortium to follow similar messaging formats and providing near real time settlements. The similar open banking models have gained momentum in Asia Pacific (APAC) region where banks are providing more and more relevant API’s as services to their customers. However, the advancements are not equally segregated across the region due to difference in regulatory constraints in the countries. While open banking has enormous benefits and provides an optimum solution to future proof Treasury, global Corporates are challenged while adopting them due to non-uniformity of the solutions across the banking partners.
Conclusion
To build a sustainable treasury of the future it becomes critical that treasurers are leveraging technology advancements to optimize Treasury operating model, enhance process automation, and implement governance framework equipped with emerging technologies.
