From a cursory glance at reports on novel technology ventures over the past few months, we could be forgiven for thinking that fintech was well and truly conquering treasurers’ desktop terminals.
Indeed, there seems to be no shortage of new and established players angling to capture market share with eye-catching fintech innovations geared towards specific parts of the treasury function. For example:
A rather impressive suite of technologies that, together, address a wide variety of treasury pain points. But the enthusiasm behind those tools doesn’t quite tell the whole story – because the solutions themselves are nothing without adoption.
In the latest edition of its Treasury Diagnostics report – an annual analysis of technology take-up among corporate treasurers – Citi highlights figures that suggest a lingering gulf between the chutzpah of the fintech vendors and the professionals who form their target market.
Published on 23 September and compiled from a survey of 475 large companies across an array of sectors, the report notes that while 90% of firms with revenues greater than $25bn have deployed TMSs, 62% of those under $2bn have not.
Almost two-thirds of respondents say that their TMS is either not integrated, or only partially integrated, with their enterprise resource planning (ERP) system, while 79% do not yet have a fully integrated TMS/ERP platform with their banks – a situation that keeps them locked into manual reconciliations.
Worryingly for the fintechs, 74% of respondents say they are not yet in a position to fully embrace the digital opportunity. Within that segment, states of readiness are decidedly uneven:
All told, a rather patchy picture. What does it signify?
One key point the Citi report makes is that for many traditional firms, corporate treasury “remains burdened with legacy fractured infrastructural and data challenges” that are causing a drag on the adoption of innovative techniques.
Indeed, it notes: “Many corporate treasuries consider cost and integration of new technologies within existing platforms as a barrier to their treasury transformation.”
With that in mind, we reached out to treasurers for their thoughts on the factors that are encouraging and hindering fintech adoption, together with what they are personally aware of in terms of technology uptake in the treasury community.
“Without doubt, anything to do with cash forecasting is currently proving popular,” says Naresh Aggarwal, associate director, policy and technical, at the Association of Corporate Treasurers (ACT). “If you consider providers such as Cashforce, they have had a very fruitful 18 months, given the intense focus on cash forecasting that we’ve seen in the COVID-19 era.”
Aggarwal notes: “If we look at all the different solutions that are coming to market, one trend to bear in mind is the transformation that has occurred in how providers emerge. All the larger incumbents have traditionally required deep pockets, extensive R&D efforts and massive data centres to nurture new products. Whereas now, you can code away in a garage and then buy space in the cloud to deploy solutions across multiple companies.
“In short,” he says, “launch costs have dropped and speed to market has accelerated. And as market entry has become more accessible, the field has become a lot more crowded.”
For Anu Mensah, head of treasury at housing association L&Q, the question of whether to onboard fintech solutions all comes down to value. “At some point,” she says, “your business grows to a size where spreadsheets simply become unmanageable. So, a TMS makes sense.”
She notes: “You can now find TMSs that are very good value for money and, importantly, they are very flexible. Regardless of how you run your treasury, how many people are in the department or what sector you are working in, modern TMSs can be customised to fit.”
On the subject of treasury-focused online trading portals, Mensah points out: “Whether they’re designed for FX or MMFs, most well-known applications have historically been free to use. They are also easy to integrate with your TMS, so when you place a trade, you have a proper approval process. That interoperability brings a lot of convenience.”
However, she says: “When it comes to any other function, that’s where problems arise – and why take-up has been so low. Take electronic bank account management, for example: even a relatively cheap provider would typically quote £30K per year. So, I would have to justify that to my procurement team, and I would also need to consider the lead time for IT integration – plus the process of relationship management with the vendor.”
In Mensah’s view, smaller and medium-sized firms “would think that’s just not worth it”. She says: “Some interesting fintechs are providing market data similar to that you would receive from Bloomberg or Reuters, but with more analysis. That’s great – but for £30K per year, I could employ a junior data analyst who would also be able to do other things.”
Aggarwal has a similar take. “At present, treasurers don’t have much bandwidth,” he says. “Unless something has genuinely broken that could use some specialist fintech support. But for the most part, treasurers are busy with issues such as LIBOR reform, getting their teams back into the office and managing operational risks.”
One fintech leader who hasn’t experienced many problems with treasury adoption is Laurent Descout: group CEO and founder at Barcelona-based Neo Capital Markets. As a provider of FX, risk management and payments solutions, Neo recently announced that it has cleared $1bn of client transactions since going live in June 2020.
From his vantage point within the fintech sector, Descout confirms that treasury interest in new technologies is developing – particularly through five, key trends:
Asked about fintech’s generally low adoption rate in treasury, Descout acknowledges: “It takes a lot of time for a technology message to reach its intended ecosystem. So, fintechs will need to be patient. But one thing they should do in the background is to constantly work to enhance the credibility of their products, and themselves as companies.”
He explains: “We need to convince corporates that we can handle their cash as safely, or even safer, than traditional banks. Many people complain about their banks – but in the end, they tend to stay with them purely because they’re the banks. So, fintechs must work not only on communications, but safety layers, to assure potential treasury clients.”
Approaching the question from the opposite perspective, Descout also acknowledges how difficult it is for treasurers to find the time to boost their fintech awareness. However, he advises: “It is worth standing back and thinking, ‘How can I redesign my treasury around fintech offerings?’ Try and carve out a couple of days every three months or so for some R&D, to dive into the fintech jungle and find out who does what.”
The Treasurer asks Martin Runow, global head of payments, FX and digital, at Barclays Corporate Banking, for his thoughts on the relationship between treasury and fintech.
Corporate treasury tends to be a place where stability, security and efficiency are valued highly. Corporate treasury also tends to be quite conservative for exactly those reasons. Consequently, we are seeing corporates adopt fintech solutions cautiously, and with counterparty and other risks in mind.
Fintechs have, however, been able to create value and drive corporate adoption in areas where they have been making complicated things easier, more transparent and often cheaper for the corporate treasurer.
Often-seen use cases involve FX processing – sometimes in conjunction with execution of cross-border payments – connectivity and integration into ERP, and TMSs providing aggregation and reconciliation solutions. And generally, where a corporate faces off to consumers – for example, in direct-to-consumer models that we have seen accelerated by COVID-19 – helping corporates with payments at the point of sale.
We are in this interesting space where fintechs and banks are competitors, partners and often clients of one another – much like what we have been seeing in the traditional correspondent banking space.
Collaboration happens between banks and fintechs where solution design and implementation can be sped up by going together to a joint client, or by actually integrating a fintech’s offering into the bank’s solution set and channels.
Good examples would be a fintech helping a large corporate build up and connect to instant payment schemes together with their bank partner; a fintech enhancing a bank’s global reach for cross-currency receipts and payments, or a fintech providing receivables matching solutions through the bank’s online banking channel.
There are more and more examples appearing every day. The key is speed to market in product development for banks, and an open mind for partnerships. Equity investments are also an option, but are not necessary.
There is certainly a lot of activity in the market at the moment, and there are manifold reasons for a fintech investment. Focusing on strategic investments, I would see two main motivations: increasing speed to market, and/or building better products.
Fintechs tend to be more agile, are good at picking valuable parts of the value chain, and have a strong focus on customer experience and usability – and did I mention speed?
Matt Packer is a freelance business, finance and leadership journalist