Corporate treasurers have had an eventful year, facing fresh challenges around cashflow, liquidity and currency volatility. They’ve had to elevate their role as a strategic advisor to the business and, in the process, rethink many of their underlying systems and processes to ensure they have the right tools to support them.
This momentum of change will continue through into 2022, with the acceleration of treasury’s digitalisation and renewed efforts to battle issues that have restricted teams for many years. With new technology and fintech offerings, the promise of cyptocurrencies, and a rethinking of traditional approaches, major shifts are on the horizon for the treasury function.
Businesses will have access to sophisticated FX hedging tools
Currency volatility is a challenge for businesses large and small. It becomes an even bigger challenge when macroeconomic changes come into force and there are plenty on the horizon, such as the potential softening of quantitative easing policies and higher interest rates, ongoing issues in the global supply chain and a shortage of drivers for goods transportation in some countries. Next year, FX hedging and risk management will inevitably become even more vital.
Historically, only large corporates would have the tools in place to ride out these currency storms, but FX hedging is becoming more accessible to smaller firms thanks to advancements in fintech, including direct market access, forecasting tools and multi-currency accounts. These are replacing the age-old need to have in-house specialists and external advisers dedicated to corporate hedging and how, when and where to buy or sell currencies.
CBDCs promise payment gains but tangible impact will take longer
Digital assets in their many forms are moving towards mainstream adoption. Cryptocurrencies and stablecoins have risen in popularity, particularly as investment opportunities, but have been the subject to increasing regulatory scrutiny. However, it is the emergence of central bank digital currencies (CBDCs) that could have the greatest impact on businesses and consumers in the long-term.
The majority of the world’s central banks are exploring digital currencies but it’s a lengthy process. For example, the Bank of England continues to advance its discussions around CBDCs but has declared that a so called “Britcoin” wouldn’t emerge until at least 2025.
What’s interesting for businesses is the impact CBDCs could have on cross-border payments. A Bank of International Settlements (BIS) pilot showed that they could dramatically reduce times and costs for cross-border payments and settlements. It reported that its prototype of a ‘multiple CBDC’ was able to complete international transfers and foreign exchange operations in seconds and cut the cost to users by up to half.
While CBDCs are still in their infancy, next year is an opportunity for businesses to get ahead of the curve, research their potential impact and be prepared. Alongside this, businesses can also look for other ways to achieve more immediate gains.
Cheaper, faster cross border payments will become the norm
Cross-border payments systems remain ripe for reform. The complex and often slow processes involved continue to have a detrimental impact on businesses, many of which remain constrained by lengthy setups and high fees.
Simply opening an international bank account can take weeks and the transactions themselves can add days to the process. To make matters worse, it’s often necessary to have different accounts for each country or currency. Brexit has added to the problem, with banks now having to charge under international cross-border tariffs, further driving up costs.
The Committee on Payments and Market Infrastructures (CPMI) recently called for input on proposals to extend payment system operating hours, focussed on real-time gross settlement system, to enhance cross-border payments. The CPMI proposals could go a long way to alleviating many of the issues – and any effort to enhance cross-border payments and help businesses thrive in a challenging economic landscape is to be welcomed.
In the meantime, one-way businesses can improve their cross-border payments processes is reducing their reliance on banks and it is here we can expect to see the greatest shift in 2022. Businesses will have more opportunities to utilise alternative approaches, with many fintechs incorporating all the same features into their payment solutions. Many fintechs offer more aggressive and transparent cross-border payment pricing, while also adding value, delivering greater access to streamlined, cost-effective cross border payments for all.
We’ll see a shift of gear in the digitalisation of treasury operations
The 2021 Citi Treasury Diagnostics survey found that 74 percent of treasury functions are not able to fully embrace the digital opportunity. However, with pressures mounting, it’s becoming increasingly apparent that many treasury systems in use today have a clear and rapidly approaching expiration date.
We’ve seen how treasury teams adapted in difficult circumstances and many have deployed digital practices as a result. The problem is that there remains a widespread lack of integration and numerous legacy systems, all of which continue to hinder treasurers. As such, they’re forced to rely on fragmented technology and processes to manage multiple yet interconnected functions across payments and currency risk.
As a result, we’ll likely see more companies change their treasury models and adopt more centralised online tools. It’s not the number of plugins, add-ons and systems that will bring corporate treasury into the twenty-first century, but the functionality, interoperability, security, and ease of use of a treasury management system. While this modernisation is not a new trend as such, making the shift is becoming a necessity to reduce both the complexity of treasury management and the overall cost.
One clear theme that underpins many of the trends next year is one of levelling up. It used to be only the larger corporate treasury teams had access to advanced approaches and complex strategies but that is all changing. With the right partners, businesses of all sizes will be able to benefit from new technology to improve their operations in 2022 and beyond.