“Treasurers should be ready to onboard technologies less ‘traditional’ than the usual suspects”
The financial industry is undergoing a great transformation, both in UI/UX and on the back-end. This trend has clear implications for the finance department since technology is impacting not only the processes but the roles of key figures such as the CFO or the treasurer.
In this week’s CFO Brain Interview, we had the pleasure to talk about these transformations with François Masquelier, the Chairman of ATEL (Luxembourg Corporate Treasury Association) and Honorary Chairman of EACT (European Association of Corporate Treasurers).
Which do you think are the most disruptive technology trends affecting the finance department?
The digitalization of finance already started a couple of years ago and there are solutions ready to be used in Finance Supply Chain such as FX and more recently, payments. The next big change and “revolution” could come from the payment landscape where FinTechs start being disruptive with the blockchain technology, forcing market infrastructure players and banks to revamp their processes and solutions (e.g. the GPI initiative from SWIFT is a perfect example of this evolution).
Now, treasurers are or should be ready to onboard other technologies and other types of suppliers which are less “classic” than the usual “suspects” (i.e. banks, market infrastructures, large ERPs). The good news is that, in any case, newcomers have succeeded in at least boosting old players which need to find other solutions that are cheaper, faster, secure and more transparent. In my view, the big evolution should come from new payment methods to be better adapted to “B2C-ing” businesses and from new providers which will force everyone to move in order to not be killed.
What is the impact of process automation in the treasury?
It is crucial for the corporate treasury to further automate processes in order to enhance internal controls, mitigate risks, fight against the growing risk of fraud and simplify processes. This will allow us to free time which we can apply to more added-value tasks. In turn, it will allow us to become more analytical and more strategic rather than spending time producing reports or with day-to-day operations.
But the automation of processes is already changing our lives. Straight Through Processing (STP) must be a sort of priority challenge that gets processes and data exchanged between IT systems protected. The amount of money at risk, the increasing cases of fraud and the focus on internal controls and risk management pushed treasurers to search for more automation when and wherever possible. It is a sort of permanent quest for security. Although it is a heavy investment in systems, interfaces, resources and time, it is the obligatory passage to save time and energy for more value-added operations. In other words, it is part of the equation for treasurers to be able to find a way to invest in automation for better fulfilling his/her duties while also becoming more strategic.
Big Data and Treasury: Is analytics transforming the finance department?
Rather than Big Data, it might be better to talk about the unused or underused data which treasurers should make better use of. If it were processed and converted, it could produce valuable dashboard figures. In the absence of a properly organized and structured IT architecture – one with many different solutions and failing a standard extraction format – we need to make the best of things and devise the best strategy we can for producing financial and analytical information.
I guess new IT tools also available in treasury will help in this endeavour. However, the sophistication of IT systems paradoxically results in a profusion of data and makes it impossible to process or compile it properly. We have to cobble dashboards together in a Heath Robinson manner because the data does not match standard formats and is compartmentalized in its own systems, which are all independent from each other and are all different. That’s why I say that in treasury management we experience Big Unused Financial Data.
So there is a paradox of sophistication: the more data you have, the less use you make of them. This implies we end up underusing available information through having no means of extracting it, condensing it into one single format, and compiling it into a summary. Again, in my view, today the greatest difficulty lies not in accessing information, but in sorting it and condensing it into a coherent, complete and comprehensible summary. It is important to really understand what you have on hand and to be able to use it to process the data as easily as possible. That is where the difficulty lies.
Which areas of the finance department could benefit more from a better use of data?
Reconciliation, checks and key performance indicators are “the” true goals of treasurers today. To avoid all of this becoming a never-ending story or a bottomless pit – where we have access to increasingly more data without being able to process what we have already collected – we have to act and put an appropriate solution in place to compile it. That is an enormous project in itself. Luckily, treasury is a world in which there is a profusion of powerful tools to create reports and dashboards, a sort of “consolidator” of disparate data in a variety of languages. But a toolbox that comes without the handyman to help you shape the summary reports is completely useless.
Besides, compliance requirements have done nothing but increase. The number of reports required is sharply on the rise and reporting systems themselves have kept on growing. The profusion of formats and systems only complicates the treasurers’ work, or even worse, makes it Herculean. The real art lies in consolidating it all and producing a coherent summary for a CFO or an audit committee. However, there are many tools that will help enhancing compliance by issuing new format of reports (i.e. the so-called “RegTech” solutions). This will be a big challenge for all treasurers over the next few years; some people have yet to find out how big.
And what do you think is the best solution for treasurers?
We need an IT tool that is the quintessence of all the others – an extractor, translator and summarizer of data. Or is that a pipe dream rather than the reality? No, they exist. But in addition to the tool, would it be possible to have an active onboarding and support team for the service?
To produce a control panel worthy of the name, we shouldn’t rely on a TMS, however sophisticated it may be. We build our IT architecture as we go along, with no overall plan. As a result, we use different sources alongside each other as best we can, without always being able to consolidate them. That is where the problem lies. But solutions nevertheless exist, even though sometimes some of them are only Lego sets with no one to put them together in what is called an “ETL” program (ETL “Extract-Transform-Load”).
What should be the role of Finance in leading organizational and digital transformation?
I believe corporate finance as a whole and corporate treasury should play a role. We need to push things and to be open to changes to force players to come with ad hoc and innovative solutions. Are treasurers spectators in a play performed without them?
Treasurers, who are key players in this digital play that is unfolding without them, have decided to make them heard and to enter the stage. As with the new financial regulations, they forgot to include treasurers, even though they are in the front line of those affected. Taking action, rather than being on the receiving end of these changes, is the aim of EACT (i.e. the European Association of Corporate Treasurers). They also want to be consulted, for instance, on electronic payments, instantaneous payments and the possible use of blockchain to replace clearing houses.
How do you see the Fintech B2B landscape?
The FinTech landscape is fragmented, new, complex and somehow too fast. It is tough for corporates to follow solutions as it is a very fast market. Nevertheless, it is a fascinating market where everything seems possible these days. The major risks come from the fragmentation of players and solutions, form the absence of standards sometimes and (usually) from the financial weakness of these new players (i.e. FinTechs). This climate presents an interesting landscape where banks will play a role in its consolidation as well as enabling some solutions to emerge.
Are banks keeping up with the emergence of new players and technology?
We are seeing a true technological revolution that will radically rearrange the landscape of banking in the short term. A transformation is in progress, but some of the people affected seem to be doing remarkably little about it. If they wait too long, some financial institutions could miss the digital train and be left standing on the platform. We must not stick our heads in the sand and pretend that nothing is happening.
Fintech start-ups have the answer – and perhaps the banks and other financial institutions have the question. They have the ideas and the solutions, and the financial institutions know the problem. Innovating doesn’t mean just doing things quicker; it also means doing them more efficiently. Yes, the digital paradigm will take a certain amount of time. Yes, there will be obstacles and difficulties, but change can no longer be halted. True, there will be many constraints for banks: the inertia of existing information systems and the system legacy, the numerous legal constraints, the natural resistance to change, the high cost of capital expenditure on IT, the advent of PSD2, and eventually the erosion of margins with the emergence of shadow banking. The difficulty lies in being able to separate the wheat from the chaff when faced with the multitude of solutions on offer. There is a plethora of ideas, but not all of them will succeed.
Besides, banks operate in a hyper-regulated and burdensome environment, while Fintech companies, by contrast, operate without these complexities or constraints giving them an undoubted advantage. So, partnerships with Fintech companies will perhaps be the savior of the financial institutions. That is the way to go. And beyond that, there are new regulations like the PSD2 Directive that requires existing operators to open up to outsiders and thereby to increase competition. Unfortunately, many banks and other financial institutions are ill-prepared to harness these new technologies and take them on board.
Are CFOs and treasurers willing to implement solutions provided by new Fintech players?
The CFOs are willing to implement changes and these new solutions when it makes sense to do so. However, the key issue is often cost and resources which are obviously limited. The other constraint is the “chicken or the egg” story. Treasurers and CFOs wait for the sale-side to provide multilayer solutions while the sale-side waist for treasurers to endorse and adopt their solutions. It’s not easy to move without pioneers of treasury.
The risks of non-compliance is also a way to “sell” projects. The need for additional reporting helps too. The speed of delivery expected by the market can also be boosters to onboard new technologies. We should as treasurers convince CFOs that new technologies are good for the MNCs and can often answer more than one question or issue.
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