Multi-banked corporates with large, primary business units and sprawling global reach face a host of cash management challenges – from the logistical hurdles of working in economies with inconvertible currencies to the pain points stemming from relationship banks that do not provide comprehensive geographical coverage.
With those issues in mind, delegates received insights into the benefits of notional cash pooling, as organised around an array of operating companies.
Treasurers were informed that, as well as bringing much-needed focus to inconsistent, and potentially unwieldy, cash management arrangements, notional pooling dramatically raises the efficiency of cash flow from distant foreign markets – and could also help corporates free up trapped cash.
Meanwhile, among a selection of the UK’s most talked-about business failures over the past two years, it is possible to discern circumstantial similarities: either the owners were uncertain of their cash position on a long-term basis, or the business model failed to deliver enough cash to the firm’s balance sheet to guarantee its operational sustainability.
In each case, the ensuing collapse can be ascribed, at least in part, to inadequate cash forecasting.
As such, delegates heard about strategic measures for enhancing work in that field, involving the active participation of group stakeholders on an international level, coupled with buy-in from senior, corporate figures – not just in group finance, but the wider business function, too.
Corporates are grappling with a stark disparity between the nimble opportunism of cybercriminals and the lumbering lead times of their own security protocols.
While hackers can typically land on a firm’s system, extract what they need and move on to another target within 90 minutes, the average period for an organisation to detect a threat on its network stands at 269 days.
Delegates heard that, in terms of sophistication and awareness, companies can be divided into four, main categories:
Above all, there was a plea for education and outreach to help staff understand the threats their firms are facing: 90% of attacks stem from email, and even in companies with good security, 10% of employees would click on a dangerous message. In excellent companies, that’s still 5%.
Putting a set of controls in place and considering the job done is unlikely to yield long-term benefits for any organisation. The battle against cyberthreats is constantly evolving – so corporate systems must do so, too.
3. Fintech
As treasurers hunt for technology solutions that will create cash management advantages for their firms’ specific business models, collaboration with fintechs is taking on a triangular shape, involving not just corporates and technology vendors but banks, too, with all parties in open dialogue with each other.
Banks are playing an active role in seeking out fintechs that can assist their corporate clients, and delegates heard that, as bank and non-bank solutions become steadily more integrated with corporate systems, the prospect of firms having ‘relationship fintechs’ is by no means unrealistic.
While this is no doubt an exciting moment for fintechs that are partnering with both corporates and banks, it is vital for treasurers to stand back and take a strategic view of this trend.
Have the fintechs you are talking to demonstrated a full understanding of your business and its cash management needs?
Is it even appropriate for fintechs to be involved with your cash management activities, given the nature of the industry your company operates in and the appeal of traditional banks as a stable, known quantity?
These are just two fundamental questions that treasurers must consider when thinking about who – or whether – to onboard.
There is also the potential that, in some domains, the development of fintech as an industry, and some of the solutions it provides, may prove too dynamic, to the extent that vendors and tools outpace financial regulators.
In that environment, fintech would be a bona fide source of risk, not convenience. So corporate treasurers must carefully assess their appetite for the uncharted.
Detailed propositions for large-scale corporate services built around open banking are still at least two or three years away – and at present, delegates heard, firms’ understanding of the potential benefits is limited.
For treasurers, one of the toughest challenges of making a business case for technology tools based on a purely open banking selling point is that it depends on where their priorities lie.
If treasuries have a strategic need to examine not just how payments enter their organisations, but the costs of receiving them and the way in which they are reconciled, open banking may count towards the function’s underlying key performance indicators.
But in the area of standard treasury payments or the broader accounts payable function, it may prove difficult to make a successful pitch for an open banking solution to cover such use cases.
In the interests of keeping themselves as close to open banking developments as possible, treasurers were advised to sit down with their banks, firstly to ask them what’s on their road map in terms of solutions and services they are likely to launch in the coming months and years, and secondly to tell them what sorts of innovations in this field the treasury community needs.
The payments world has undergone momentous change in recent years, delegates heard. However, the corporate sector still awaits the instantaneous connection between payment and service delivery that consumers now take for granted. Secure instant payments and robust reconciliation, what’s more, are still some way off.
A global infrastructure capable of supporting instant payments would deliver benefits to the economies globally of trillions of dollars a year. However, adopting such a set-up would require the radical reimagining of payments and the elimination of an existing approach based on batch processing. Given the many providers with a vested interest in the status quo, there are challenges ahead here.
In the meantime, a regulatory framework around payments is emerging, with a payment systems regulator, anti-money laundering frameworks from the EU and other jurisdictions, and security initiatives such as strong customer authentication. The corporate treasurer increasingly sits in the crosshairs of these technological possibilities and regulatory requirements. The security around payments is a case in point. PwC’s 2019 Global Treasury Benchmarking Survey found a majority of group treasurers indicating that they have an oversight role within their organisation for payment fraud risk.
For more from the ACT’s Cash Management conference, look out for the Cash Management Report 2020, which will be distributed with The Treasurer’s June/July 2020 issue at the ACT Annual Conference