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Digitisation and the treasury technologies of tomorrow

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In our 2021 corporate risk management survey; Rethinking Treasury: The road ahead, it was clear that digitisation is increasingly reshaping the way CFOs and treasurers work, as it’s incorporated into a growing number of day-to-day operations. But successful transformations into a digital future require the right technology, the right strategy and significant financial and human resources.

The accelerated pace of digitisation in the treasury department was confirmed as one of the largest trends in HSBC’s 2021 Corporate Treasury Risk Management Survey. Over half of CFOs (53%) said they expect digitisation to give their business model overall a large boost in the next three to five years.

For treasury professionals, the statistics confirm the journey will continue. While 41% of treasurers felt that treasury digitisation has already had a material impact on their business and risk management strategy over the past three years, this number goes up to 61% for those expecting to have a material impact on their job over the next three years.

The digitisation moment

Both Helen Fang, Head of Industrials Research, Asia Pacific, at HSBC Global Research and Mark Williamson, Global Head of FX Everywhere, Partnerships & Propositions, agree that digitisation is a key strategy for treasury departments.

“I think we’re at a really interesting point in history, and financial markets overall are having that Blockbuster moment - so we're going from a Blockbusters model to a Netflix one. And what I mean by that is, over the last 18 months to two years, we've seen a real big ramp up in digitisation of flows of cash and the way they're represented and the way that treasuries consume that information,” says Williamson.

Digitisation definitely improves cashflow visibility and optimises liquidity across the organisation. It also increases efficiency and reduces costs through economies of scale, as well as enabling more effective risk management.

Helen Fang | Head of Industrials Research, Asia Pacific, HSBC Global Research

Fang points out that there are several key advantages; “It definitely improves cashflow visibility and optimises liquidity across the organisation. It also increases efficiency and reduces costs through economies of scale, as well as enabling more effective risk management.”

Drivers of digitisation

There are numerous things driving this accelerated pace of technological adoption. While COVID-19 and the move to home-working during lockdowns was obviously a key driver, there were other elements driving the transformation before that.

“Cryptocurrencies, moving to a cashless society, and the move to store value on distributed ledger technology (DLT) have all played a part,” says Williamson.

“And when we're looking at DLT, what we're seeing is that it's providing an overlay to existing treasury systems like ERPs, business flows and processes. And the reason people are starting to use DLT more and more is because they get better transparency, workflow programmability and auditability of what's flowing through their different systems. That provides really interesting and exciting opportunities for a lot of treasuries that we speak to around the automation and better visibility of their supply chains.”

Blockchain was cited as a key technology for CFOs in our survey, though treasurers aren’t so sure yet. Almost all CFOs (97%) are seeing at least one future use case for blockchain technology and 54% see the main future use case as the ability to create easier and leaner trade documentation. A further 51% and 44%, respectively, see FX exposure management and payment security as a main use case. However, 54% of treasurers say that they have not identified any specific use case (yet) for blockchain technology in their company. Just over a quarter say that they see payment security as the primary future use case.

The new world of DLT, blockchain and crypto

For Williamson, this disconnect is about how the treasury is often the last to know about technology adoption outside that department. Treasurers are managing cashflow risks and working capital balances arising out of the supply chain, but may not be fully aware that supply chain documentation is being automated on DLT. If the technology moves on to the ability to embed FX payments and financing into that movement of goods and services, then that will be a more interesting development for the treasury.

In the related field of cryptocurrency, what’s perhaps more pressing right now is the development of central bank digital currencies (CBDCs) and stable coins.

Some of the Western corporates that operate in China are being asked to accept digital yuan, also called eCNY, at point of sale. And now they're coming to us and saying, ‘Okay, now I've got this new form of currency and payment, how do I treat that on my balance sheet?

Mark Williamson | Global Head of FX Everywhere, Partnerships & Propositions, HSBC

“Some of the Western corporates that operate in China are being asked to accept digital yuan, also called eCNY, at point of sale. And now they're coming to us and saying, ‘Okay, now I've got this new form of currency and payment, how do I treat that on my balance sheet? How do I treat that as a form of payment? And how is that going to help me in the longer term for how I operate working capital?’,” says Williamson.

While blockchain, DLT and cryptocurrencies are throwing up challenges for CFOs and treasuries, they’re also enabling a new definition of the banking experience, says Fang.

“Banks can now use blockchain verification capabilities to help their corporate customers to verify electronic lines of credit, or to provide fast and accurate payments to suppliers across multiple tiers. Faster payments around the world are so important for corporates, because a lot of them, their suppliers and their customers can come from anywhere across the globe. And if you can send and receive cash more transparently, securely, and in many cases, in real time, that is crucial,” she says.

“This technology allows corporates to complete high speed payment in minutes, which improves cash forecasting and liquidity optimization, which then helps them to make better decisions on either investment or risk management.”

Digitisation, automation, and the bottom line

Whatever the technology under consideration, a key element for treasury digitisation is how much it also enables automation. While remote working during lockdowns, automation played an important role in keeping processes running smoothly for large corporations, regardless of timezones or work hours, says Fang. And automation also frees up treasury staff from mundane, repetitive tasks so that they can focus on value-adding work.

But digitisation at this level and pace for the treasury won’t be easy. “The frustration would be that it needs a lot of CAPEX and ROI to satisfy the booming demand for digitisation, automation and upgrading data processes – bandwidth and data centre expansion needs are top of the list,” Fang points out.

“The CFO’s role nowadays has evolved to become more a strategic business-oriented enabler. And they need to be digitally aware and transformation-obsessed and the global epidemic has added to that urgency. But they need to make the decision on whether the drive, both for short-term gains and long-term transformation, in digitisation will free up more working capital.”

With 81% of CFOs in the survey saying that digitisation of treasury processes has become more important over the next three years, it’s clear that there’s a drive for progress. But embracing the opportunities for cost and resource efficiencies has to be balanced with risks of overextending capital. In short, it shouldn’t be digitisation for digitisation’s sake. Each technology needs to be carefully assessed to ensure that the business will gain from its implementation.

Rethinking Treasury: The road ahead

CFOs and treasurers are navigating through numerous challenges. Explore more from our corporate risk management survey.

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