Digitization is set to reshape not just the role of treasury and the business it supports but the very core of how businesses interact with their customers and the marketplace.
Digitization covers a myriad of technologies that can be used to optimise existing processes and services or to support the creation of entirely new services and ecosystems. Some of these technologies have widespread business application such as blockchain or distributed ledger technology (DLT) whilst others such as mobile money support more specific activities like managing payments.
For the treasurer, the fundamental question is how can these technologies be harnessed to better support the business (the external perspective) whilst at the same time enabling treasury itself to become more efficient and relevant in terms of the functions and services it performs (the internal perspective).
Digitization of the business
From an external perspective, digitisation is set to fundamentally reshape the world of corporates in both positive and potentially disruptive ways.
On a positive note, these technologies can drive better business processes. Some examples include:
- Use of blockchain to record and evidence contractual relationships, or so-called smart contracts. This removes the need for different parties to maintain their own stand-alone paper records and ensures the key terms and conditions of a contract are agreed and immutable. This could be applicable to a wide range of areas such as insurance contracts, title transfer, securities trades, etc.
- Similarly, blockchain can be used to record transactions, such as real-time cross-border payments. Not only is there an agreed record of the payment transaction amongst multiple parties but the underlying technology can be used to automatically authenticate and reconcile multiple bank ledgers across the payment chain, greatly speeding up payment execution. An example of this is RippleNet, an alternative x-border transfer mechanism to SWIFT being piloted by Standard Chartered and other leading international banks
- Big data and behavioural analytics can be used to identify patterns of buying behaviour across a group of consumers to determine who is more likely to buy a specific product. This can enable more precise targeting of offers and eliminate broad-based and expensive marketing campaigns
- Location emitting chips can enable tracking of goods supporting automated working capital financing at different points of the supply chain as the goods move from factory to warehouse, then distributors, and finally to end buyers
- Mobile wallet technologies can support improved finance processes. For example, we have helped one of the top four container shipping groups in China to use mobile wallet as an efficient shipping and logistics freight/fee collection solution (instead of physical cash) across ASEAN countries as beginning of its Belt and Road expansion plan.
Digital technologies can also disrupt markets by displacing existing market players or enable existing players to expand into new areas or develop new products, new channels, or new marketplaces. For example:
- As medical monitoring devices come down in cost (i.e. witness the proliferation low-cost fitness wristbands, mobile watches and mobile phones), lifestyle, health and sports products may become increasingly personalised to the specific fitness profile of individuals leading to highly customised and individualised insurance policies
- Today mobile apps are used by individuals to buy airline tickets and other consumer products. As these options are adopted rapidly by younger demographics or ‘digital natives’, real-time settlement mechanisms including mobile money and peer to pay payment systems (e.g. WeChat Pay in China) to support online, real-time purchases become more relevant. A Shanghai-based airline with over 100 routes is using Standard Chartered to obtain a bank-grade secured communication link with WeChat for online/mobile collection to optimise settlement and to enhance customer experience.
- Mobile Money or Peer-to-Peer payment systems are also ideal for reaching unbanked consumers in emerging markets. This is enabling insurance companies to sell basic insurance policies to these consumers
- Wholesale markets could also be disrupted. Corporates may in the future be able to issue corporate bonds directly to investors via a blockchain based marketplace on a price offered basis or via dynamic reverse auctions without the use of brokers or intermediaries
- In the reverse of big data, consumer themselves could make their own anonymised data (‘small data’) available to marketplaces where businesses could compete to sell them products based on their profile. Businesses would use artificial intelligence or robotic process automation software to sift through the available data to match products to consumer profiles.
Many of these ideas have been the subject of small-scale experimentation or development in one form or the other. Whilst the adoption of digital technology will often be driven by the business or the market, there are many cases where treasury can and should play an active role in shaping these new models.
However, to add value in the development phase of these projects, treasurers will need to step out of their comfort zone and become subject matter experts and advisers to the business in areas such as:
- New payment models and systems
- End to end financial process design
- Mobile and online commerce
- Reconciliation systems
- API integration
Examples of the role treasurers can play include:
- Designing the supporting financial processes and choosing relevant payment options that are needed to support the settlement of transactions with suppliers or buyers in marketplace or supply chain
- Educating the business on new payment options and gateway connectivity options to support new online channels and new ways of interacting with customers. For example, buying a product on an app should be possible not just via a credit card but via Apple Pay, mobile money, the local instant payment system, debit card, etc.
- Advising the business on how new auto-matching and reconciliation software from banks and third-party software providers can streamline the reconciliation processes associated with many financial transactions.
- Help determine how cross-currency flows can be managed ‘on the fly’ so a product created in one country can be sold online in multiple locations and currencies without complex FX management requirements.
- Develop the appropriate account structures and pooling solutions to support the underlying transactional flows, simplify reconciliation and ensure funds are efficiently concentrated and deployed.
The other part of the story, which we look at in Part 2 ‘enabling an efficient and relevant treasury’, is how treasurers can deploy technology to their own treasury processes, ultimately harnessing technology to better support the business. And whilst treasurers don’t need to become digital ninjas overnight, there are new skills they need to equip themselves with to keep pace with the digitisation agenda.
Read part 2 of this article here.