Treasurers turn to tech solutions as pandemic challenges persist
As pandemic-triggered risks and consequences pile onto treasurers, they are resorting to a broad range of responses to combat their effect, including fintech solutions
As pandemic-triggered risks and consequences pile onto treasurers, they are resorting to a broad range of responses to combat their effect, including fintech solutions
Bank treasuries find themselves on the front line, with some central bankers advising the industry to run down the regulatory buffers they have been building up since 2008 in an effort to keep the credit markets running smoothly and prop up ailing businesses.
All this is happening while treasuries – corporate or banking – collectively face a basket of other risks.
“Corporate treasurers already wear many hats,” said Simon Kaufman, head of client relations at Zurich-based connectivity provider Fides Treasury Services, in an email.
Working from home can be added to the list. “The biggest change has been the transition to remote, flexible working from fixed desk-based activities and how that is deployed in a well-controlled and compliant model,” a
“This is true for market-facing activities where you are purchasing financial instruments. At the same time lots of people including regulators, boards and senior leaders require information quickly and accurately, so we need well-honed processes to accommodate that.”
Corporate treasurers are working to help capital markets function more smoothly, as many central banks – including in the UK – broadened the criteria for corporate debt securities so that more of them were deemed to be investment grade, making bonds eligible for domestic market operations.
“Initially we saw [the potential for risk] in market movements, but intervention by the central bank and government helped abate that,” said the Virgin Money spokesperson.
While this latest crisis did not start with the banking industry like the one in 2008, it is deeply involved in the rescue operation. As the governor of the Bank of England Andrew Bailey told the Jackson Hole symposium on economic policy in August: “the problem originated not primarily in the banking system, but in the non-bank sector – among funds, traders and corporates themselves.”
As the private sector struggles back to normality, liquidity has also become top of the agenda for all corporates. Publicly listed UK pub and hotel chain JD Wetherspoon, with average weekly pre-pandemic revenues in 2018/2019 of £48m, annual turnover north of £1.8bn and operating profit of £132m, has always kept a close eye on cashflow – but now even more so.
“There is now an even closer scrutiny of cashflow,” said Ben Whitley, financial director, JD Wetherspoon in an email.
Other than that, risks that the business faces on a daily basis remain much the same, he said.
With 844 pubs out of a total complement of 873 back in action at mid-August, revenues had predictably slumped over the UK-wide lockdown. Like-for-like bar and food sales were down 17 per cent for the 44 days to August 16. But when the subsidised “eat out to help out” ended at the end of August, the chain expects “a period of more subdued sales” that will keep the treasury function on its toes.
Attaining cashflow remains a challenge for treasurers.
“A ramp-up of remote access, supply chain disruption and resulting liquidity issues due to coronavirus have made cash visibility, positioning and management even more vital than before – and exponentially harder,” said Fides’ Kaufman.
The bigger the company’s geography, the bigger the challenge, especially if operations are decentralised.
As malicious attacks become more sophisticated, up-to-date access management controls are necessary to control funds and track access to payments across a company.
“The pandemic has highlighted the need for all organisations to have much better cash visibility, security, and bank and systems connectivity – not to mention liquidity,” said Kaufman.
“[It’s] resilience of systems, controls, operating frameworks,” said the Virgin Money spokesperson.
Fintech has a lot to offer in weather-proofing treasury functions. Systems are being put in place that make cash more visible and better managed, sources say.
With companies looking for ways of ensuring the security of transactions, preventing fraud and improving sanctions screening, one solution is improving connectivity with their client banks, as well as increasing the range of banks that they deal with.
“Our clients have expressed interest in a fintech ecosystem or marketplace [that] enables them to access a variety of complementary technology solutions from different vendors. And they want it through a single interface,” said Kaufman.
Virgin Money appears to be heading in that direction: “As a bank we already knew that we would like to do things much more simply and digitally for our customers. We had a good idea already of what worked well and what we needed to improve upon. Most of the main benefits have really come from being able to use communications in a different format, such as the Teams app. Going forward, sustainability is likely to be a much bigger imperative for banks, particularly retail financial services.”
Staff training will be a vital component in revamping treasury functions. Fides reports that rogue staff sometimes slip through the system and undertake transactions that cannot be traced. “Training is a necessity to ensure all team members use the systems the way they should,” he said.
A supportive environment helps here. “The challenge has been around how we support each other and become more effective when we are working remotely and cover for each other when normal life gets in the way,” added Virgin Money. “Technology has been a huge help here.”
Wetherspoon’s Whitley agrees, but with caution.
“There is more and more technology in the business. We try not to let the [fintech] tail wag the dog, but its importance will probably continue to intensify,” he said.
Looking ahead, treasurers in the vast non-bank sector – funds, insurers, traders and corporates – may be forced to improve their liquidity and build up buffers against future pandemic-like shocks.
The Bank of England governor foreshadowed this in his remarks at Jackson Hole. Explaining that the central bank had to step in with “large and aggressive asset-purchase operations” in the early fraught days of the lockdown, he added that it raised “very important points about market structures, the extent of self-insurance against liquidity shocks by non-banks, and the nature of central bank interventions.”