Corporate treasurers look to banks as tech vendors

For many treasurers, their primary bank is not only their most important financial relationship but also their largest tech vendor. As the pandemic reaches its one-year milestone, the department has needed to change and adapt to the new ways of working as inefficiencies of physical and manual processes were laid bare.

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“Treasurers have realised that the technological setup that they had during the pandemic was insufficient, fragile and error prone,” says Patrick Peters-Buhler, EMEA head of treasury advisory services and treasury & trade solutions at Citi. “Everybody realised that the digitisation pathway is the only way to go forward.”

Manual physical processes remain one of the major pain points for the finance department. One such physical process is the use of cheques, which remain prevalent for B2B payments in the US. Matt Richardson, head of product solutions at Citizens Bank, says the pandemic has pushed the case for adopting digital payment methods.

“People do not want to be reliant on processing physical items that require people to go to physical locations. That was the biggest challenge coming out of this pandemic.”

Although declining, a survey conducted by the Association of Financial Professionals in 2019 found that 42 percent of B2B payments were made using cheques.

While not solely driven by the pandemic, US digital and real-time payments offerings have grown over the past 12 months. The Federal Reserve has launched its pilot program for real-time payments, Fed Now, while also extending operability hours for existing payment systems like Fedwire and the ACH network. Richardson says banks play a key role in educating their corporate customers of digital offerings.

“In order to move more quickly to a cheque-less economy, it requires corporates to work with their bank to hasten the move to digital transactions, whether those are ACH transactions, payment via card or virtual card, wire transfer, and the new real-time payment opportunities that exist in the US.”

Another manual process that was a problem early on in the pandemic was the need for physical bank tokens to log in. As remote working keeps the treasury department separated, banks have been quick to develop and push their digital authentication tools.

“Bank tokens are still used by many companies. It is a standardised entry level security that works well for smaller and mid sized companies,” says Citi’s Peters-Buhler. “However, a strong move to more advanced connectivity is taking place now. Tokens are now mainly electronic or digital tokens rather than physical.”

Instead of physical tokens, most banks now offer “soft tokens” in which authentication can be achieved via an app or email.

“Banks are moving to soft token types of technology, and other forms of authentication, that don’t rely on physical items. [Bank tokens] are just another physical thing the needed to be handled by people on premise,” says Richardson.

“It’s a point of friction, we have been able to just get out of the process.”

APIs: A tale of two cities

APIs – that can transmit data directly into a company’s ERP or TMS solution – have become central to how many banks wish to operate with their clients. However, as many note, there is an unevenness in their adoption and of the processes there are automating.

“APIs are becoming an important part and will become a more important part of the puzzle over time,” says Richardson. “However, the current options for corporates work really well, depending on the size of a company, the complexity of their payments and their technical technology savvy.”

With most large banks having quite well-developed native portals, many corporates, especially those who are less tech savvy remain content with using the tools offered by the bank.

“APIs are a mature banking product that is still not used by all companies, especially midsize companies, who are still using the traditional bank portals,” says Peters-Buhlers.

Even for treasury department who use APIs there are still tasks in which they are more comfortable using the native bank portal.

“There is a bifurcation taking place where host to host connectivity is used for reconciliation and ERP connectivity. While for things like account management and liquidity planning, portals are still used.”

Though corporates are pushing for greater digitisation of their financial plumbing, the treasury function is often not prioritised because of better efficiency gains in other departments and of the difficulties caused by corporates numerous banking relationships, according to some.

“The headcount that is touching banking transactions are usually very small,” says Mukesh Shah, senior managing director for corporate finance at FTI Consulting. “There is often a prioritisation for other finance and IT [processes] that the CIO or CFO considers. For example, the automation of an AP function with 20 people versus a treasury function with only two people.”

“Another factor is number of banking relationships that some [corporates] have because of their international exposure. Automating one bank or two banks is not going to be the solution.”

Most corporates do not exclusively use one bank. A survey conducted by The Global Treasurer and CGI found that more than 85 percent of corporates have more than one banking relationship, 30 percent have more than six. For there to be real efficiency gains, Shah says finance department would need to take a comprehensive look at all their banking relationships if they were to leverage APIs.

Pushing for more

While the pandemic has provided a plethora of reasons to accelerate the digital journey and for further automation, processes that have proven more resilient  – that is, ones that have worked well despite recent events – the need for familiarity has in some cases pushed the brakes.

“There is a comfort right now, things are working and have been simple enough for them to continue with the existing systems,” says Shah.

He adds that even though firms may be content with their current processes and that they may work just fine, he still advocates for corporates not to remain complacent.

“We are articulating the value of real time cash reconciliation, cash posting and the ability to have more visibility into your cash transactions. All these things have intrinsic benefits that go beyond the cost savings of headcount.”

Those benefits will be key in enabling the treasury department’s transition away from bookkeeper to strategic partner.

“Digitisation is the main agenda for the next 10 years,” says Peters-Buhler. “The role of the treasurer in companies will be a facilitator and risk manager, and much less of a transaction manager. I wouldn’t be surprised if the title ‘treasurer’ will disappear in the next 10 years for something much broader.”

A 2019 PwC survey echoed this sentiment with “strategic thinking” and “technology affinity” being ranked as the second and fourth most important skills respectively for the treasury function of the future.

“Any treasurer will have to be extremely technology savvy, because it will be the main tools they will have in managing risks,” says Peters-Buhler. “This can no longer be done on spreadsheets.”