During both good times and bad, treasurers’ primary objective is to manage liquidity, say 96% of participants in the Deloitte Global Treasury Survey 2022 issued last November¹, closely followed by managing risk (94%). To do this successfully, treasurers need to know where their cash is, where their exposures are, and what the future needs of the business are likely to be.

The survey noted that 64% of respondents cited achieving such visibility as their biggest challenge, however. An enduring question is therefore how treasurers can overcome this obstacle to better achieve their primary objectives.

The evolution of treasury technology is closely aligned with the perennial dilemma that treasurers face: “How do I get visibility over my cash and manage related risk?” Which implicitly includes moving away from batch processing and turning towards the benefits of workflow automation.  

The past two decades has seen enormous strides in proprietary electronic banking systems, including web-based and host-to-host solutions including Swift, Electronic Banking Internet Communication Standards (EBICs) and multibank platforms. Each channel has its strengths and weaknesses. “That is why we enable our clients to flexibly choose and combine different options according to their needs,” reflects Kerstin Montiegel, Global Head Client Connectivity/Digital Client Access Channels at Deutsche Bank.

However, while treasury technology has evolved at a certain pace, the payments and collections that underpin treasury, and the business models of which they are part, have transformed more speedily. Real-time payments have proliferated in many countries around the world, in addition to the use of cards and digital wallets. This creates a visibility and risk gap. If treasurers cannot see what their cash flows are, they cannot manage the associated risks and liquidity implications.

Montiegel believes that recent external macroeconomic and political events have served as additional accelerants in the quest for resilience during crisis through revamping their bank connectivity and treasury technology. “The pandemic, the Russia/Ukraine conflict, inflation, and the disruption of global supply chains have all made many multi-national corporations realise the weaknesses of manual treasury processes and lack of real-time cash visibility,” she notes.

The shift to real-time has in many respects been driven by the increasing use of application programming interfaces (APIs). These enable the dynamic exchange of data and transactions across systems, either within an organisation or beyond. As such, supply chains can operate in real time, with real-time fulfilment and a real-time customer experience. For example, a consumer buying an insurance policy online inputs the details, makes payment and the policy immediately takes effect. This is possible only because the customer details and payment confirmation can be immediately validated to set up the policy, even though this information is managed in different systems.

Banks have also started to offer new services that would have not been possible with legacy bank connectivity. For example, APIs enable treasurers to validate beneficiary details in real time, before a payment is executed. This not only helps to reduce the risk of fraudulent payments but also to minimise the administrative burden caused by returned payments.

Despite these benefits, the majority corporates still rely on legacy bank connectivity such as host-to-host. But this is changing, as barriers to API adoption have successfully been removed over the past decade. For example, the number of banks that provide a dedicated suite of corporate API offering has significantly increased, leading to a situation in which corporates are now able to consume real-time balances across multiple bank partners and time zones, enabling a truly comprehensive view and management of liquidity. At the same time, costs and effort related to integrating with APIs has gone down. Forward-thinking treasury software providers and banks have started to build partnerships to provide their joint corporate clients with pre-built API connectivity. This enables corporates to reduce the time required for implementing API connectivity from months to weeks. And perhaps even more important to many corporates is the fact that pre-built integrations eliminate the need to allocate scarce IT resources. Against this background, it comes with little surprise to see that APIs are no longer just a thing for early adopters like fintech companies. Today, demand for API connectivity is increasingly coming from large, multinational corporates.

Deutsche Bank’s Montiegel believes APIs represent the core enabler for real-time treasury.

She commented in the TMI article, ‘How to master real-time treasury data: tools and techniques’ (December 2022²), “Bank APIs provide up-to-the-minute account information data required for day-to-day treasury tasks such as cash positioning, but also to streamline payments.”

She continued, “On the company platform side, real-time ERP data, such as AR and AP ledger details, sales and purchase orders, and CRM data, such as sales leads, can help to improve the accuracy of cash flow forecasting. Combining this with real-time bank transaction and invoice data helps automate reconciliation workflows.”

“Real-time insights into cash positions help treasurers … increase their company’s net income”
Kerstin Montiegel, Global Head Client Connectivity/Digital Client Access Channels, Deutsche Bank

Montiegel also underlined the benefits for corporate managing liquidity and working in multiple currencies: “Real-time insights into cash positions help treasurers avoid unnecessary third-party financing, minimise interest expenses, leverage the available cash for investments, and increase their company’s net income. Additionally, real-time FX conversion and hedging maximise the benefits of real-time payments for corporates working in multiple currencies.”

Over recent years banks and technology vendors have been building their libraries of APIs over recent years to support a variety of client activities across cash and liquidity management, payments and collections, trade and risk management. In some cases, treasurers are choosing to replace existing bank and wider connectivity with APIs or move straight to APIs if implementing digital bank connectivity for the first time. Many companies, however, have already built robust and reliable mechanisms to exchange data and transactions with their banks that are fit for purpose for daily activities. In these situations, therefore, API connectivity complements existing connectivity for specific activities where a more dynamic approach is required. The Deloitte survey cited above1 notes that 42% of treasurers have so far implemented API technologies, while a further 44% are considering doing so.

API integration enhances end- to-end efficiencies in the processes and contributes to fraud prevention. Using bank APIs, treasurers can automatically pre-validate beneficiary account details before payment execution, saving time by minimising failed payment and potential fraud investigations. In addition, APIs make it possible for banks to offer treasurers more self-service capabilities for solutions such as proof of payment and missing bank statements.

In other words, banks can use APIs to improve service delivery and customer experience. “Direct connectivity via APIs mean that treasurers no longer need to call our hotline or ask for assistance so frequently. We also use APIs internally to reduce integration and testing efforts and costs, and to speed up processes,” said Montiegel in the TMI article.

The potential for APIs and real-time information extends further than simply the timing and mechanism for connectivity. Although a minority of treasurers are using artificial intelligence (AI) and machine learning (ML) at this stage – 17% according to the Deloitte survey – there is significant potential to combine APIs with AI. For example, treasury can apply AI to process real-time data and visualise data on the timing of payment runs, analyse customer payment behaviour, automate in-house banking and virtual accounts, and create dynamic, accurate cash and liquidity forecasting based on historic and current data. Cash flow forecasting remains a particular challenge for many companies. By bringing together real-time data and AI, treasurers not only gain a real-time view of liquidity, but can also overlay data and AI-driven cash flow forecasts to help refine funding decisions, refine liquidity structures and reduce cash buffers.

The combination of APIs, AI and data analytics can also be used both to support treasury decision-making, and to automate the execution of these decisions. For example, within a cash pooling structure, pooled funds can be automatically invested in line with company policy into deposits or MMFs, or FX exposures hedged.

Overcoming challenges

There are obstacles to realising a real-time treasury vision, however:

• Many companies work with multiple banks, who may offer APIs offering different capabilities and using different formats (the issue of standardisation has not been entirely tackled by Open Banking).
• The real-time flow of data and transactions relies on every step in the processing cycle taking place in real-time.

These challenges are widely recognised, with significant industry commitment to overcoming them. Montiegel comments, “The full implementation of ISO 20022 will create a new standard where there is less truncation, meaning there’s more data available that can then be transported via an API.” Swift is also playing a role, setting standards for processes and API behaviour. Further detail on how different market infrastructures are implementing the standard can be found in the flow white paper, Guide to ISO 20022 migration, Part 5 as well as the new series of flow briefings on ISO 20022.

The main issue for APIs reflects Montiegel is the allocation and ringfencing of IT capacity within their enterprises so that they can integrate their treasuries and onboard. “Before full-scale consumption in the corporate space, both clients and banks need to get off the existing systems – this requires time, focus and investment on both ends,” she says. This is more of a barrier than costs in multi-banked businesses – at any rate API costs have potential for monetisation and are likely to reduce as they become a standard, expected capability.

With global businesses becoming familiar with the technology and real-time processes, new business models will become much easier to design and implement. “In an ideal world, where all functional features were available and ready to connect in an easy fashion, creating new models will accelerate,” concludes Montiegel.

As APIs become the norm and the value proposition grows clearer, the issue of real-time becomes less of a technology question, and more one of treasury mindset. For some treasurers, the transformative potential for real-time data to complement data analytics and AI is an exciting prospect and a clear priority. For others, the journey to real-time will be more measured and incremental based on defined value to address specific needs and problem statements. What is clear, however, is that the promise of real-time treasury is now a reality, presenting a genuine opportunity for treasury to align more closely with the real-time business models and supply chains on which the strategy of the business is based.

Helen Sanders is a consultant to the financial services sector, and the former Director of Education at the ACT was Editor of Treasury Management International from 2006 to 2018

Sources

¹ See www2.deloitte.com
² See treasury-management.com