Next generation treasury functions will work in real-time, with highly integrated, automated systems. Treasury teams will leverage intelligent tools, driven by emerging technologies; data will power forward-looking decision-making; and manual legwork will give way to strategic thinking. But how can treasurers deploy innovations associated with the Fourth Industrial Revolution, also known as Industry 4.0, to work towards this vision of Treasury 4.0?
Expert panellists debated answers to this question during a dynamic roundtable debate at HSBC's third annual Global Liquidity and Cash Management Natural Resources and Utilities Forum, held in Houston, USA, in February 2019. Here follows an edited version of the discussion, featuring insights and real-life experiences from five industry leaders.
Lance Kawaguchi, Managing Director, Global Head – Corporates, Global Liquidity and Cash Management, HSBC
Carmen Gay, CTP, Director of Corporate Cash Management, Anadarko Petroleum Corporation
Eric Burns, Assistant Treasurer, Cash & Banking, Marathon Oil
Kevin Stibora, Director for Americas TSC and Consulting, HP Inc.
David Andrada, Global Sector Head – Natural Resources & Utililites, Global Liquidity and Cash Management, HSBC
Moderator: Eleanor Hill, Editor, TMI
Hosted by Lance Kawaguchi, Managing Director, Global Head – Corporates, Global Liquidity and Cash Management, HSBC
The Fourth Industrial Revolution, or Industry 4.0, is the use of existing and emerging technologies to combine the digital and physical worlds, and to converge the power of humans and machines. Examples of technologies that are driving Industry 4.0 include: the Internet of Things (IoT), Artificial Intelligence (AI) and Machine Learning, Robotics Process Automation (RPA) and big data and data analytics.
It's important to understand that Industry 4.0 will have impacts far beyond the production line – changing the entire business landscape and redesigning humans' role within it. This applies to treasury too – Treasury 4.0 is coming. And next generation treasury functions will be: automated, data-driven, real-time, forward-looking and increasingly strategic.
As such, Treasury 4.0 is really about next generation treasury and how treasury leaders can leverage some of the latest technologies to help their teams work smarter and faster. In the 4.0 world, treasurers will also need to look for new ways to add value to the business.
Use cases for Treasury 4.0 technologies
EH: Some of the buzzphrases associated with Treasury 4.0 need to be demystified. So, what potential use cases are there for Robotics Process Automation (RPA) in treasury?
Carmen Gay, Anadarko (CG): We're currently working on three use cases for RPA. The first is a bot that can pull bank account statements from all of our banks' portals and file these statements for audit purposes. The second is more specific to oil and gas, and is a bot that can structure tax payments to local authorities in the correct format for each of those organisations, since doing so manually is hugely inefficient. Finally, we are also keen to build a bot to reconcile our escrow accounts.
Kevin Stibora, HPI (KS): RPA can be used in many treasury contexts to gather data and produce a report in a consistent, standardised format. So, more or less any manually-intensive treasury process can be automated, at least to some extent, using RPA.
Eric Burns, Marathon Oil (EB): We are still evaluating RPA use cases, but an important message for the treasury team is that RPA is not about eliminating your job; it's about freeing up time so that you can be a better decision maker.
EH: How might treasurers deploy artificial intelligence and machine learning to improve treasury processes?
KS: Cash flow forecasting is one of the key areas where AI can add value. AI has the capacity to compute vast swathes of data, and by rolling out machine learning, it is possible to identify cash flow bottlenecks and working capital optimisation opportunities that treasury teams simply aren't able to see today.
Our controllership function has built a cash flow forecasting model that leverages AI. It is fed with historical and actual data, it then creates a forecast, measures it, and analyses it for new correlations across a huge amount of variables. It's also possible to run simulations at lightning speed and to feed the results of those back into the forecast. This has improved our forecasting greatly and treasury uses the data from the model extensively for our liquidity planning, since we now have more certainty around what is true operating cash and what is strategic cash.
David Andrada, HSBC (DA) HSBC is working with a fintech partner on precisely this topic – leveraging AI to improve cash flow forecasting and optimise working capital. Several of our corporate clients are currently piloting this intelligent approach to forecasting and we see great potential for this going forward. And to pick up on Eric's earlier point, AI is a great example of how Industry 4.0 technologies can help treasury teams to work smarter – it's not about replacing humans, it's a case of enabling people to make better informed decisions.
EH: How might application programming interfaces (APIs) improve treasury processes?
CG: Banks are working on a number of API-based solutions to help treasurers see all of their cash balances in one place, for example, and we are watching those with interest. But at Anadarko, we are also keen to leverage APIs ourselves, potentially building a KYC Repository of our own that we can permission our banks to access – so that they come to us to pull the documentation they need, rather than us spending time pushing it out to our various banks.
We have evaluated external KYC solutions, as there are a few in the industry, but we feel that having our own solutions would be better from a customisation and control point of view.
EB: I couldn't agree more. We have also evaluated some of the industry solutions as we would like to streamline our KYC processes, but the security and permissioning side of things is a concern. It will be interesting to see how SWIFT's KYC Registry develops, now that it is open to corporates.
Lance Kawaguchi, HSBC (LK): Our commercial banking business in the US has recently announced the launch of the Digital Partner Platform which will leverage a series of APIs to address client pain points, beginning with an API to digitise commercial onboarding. And in Europe, we recently launched a Developer Portal - a secure sandbox environment - where fintechs can test APIs for Account Information, Payment Initiation and Funds Confirmation. Ultimately, we hope that this will lead to increased customer choice in using Account Information Services and Payment Initiation Services, and greater confidence when consenting to share their financial data.
We are also leveraging APIs ‘behind the scenes' in the bank through initiatives such as our Digital Transformation for Corporates (DTC) programme. A core part of DTC is the development of a range of APIs that streamline the extraction and normalisation of granular data from the various transaction processing systems – with the aim of making corporates' user experience more seamless.
EH: Another Indsutry 4.0 buzzword is ‘blockchain'. Are there any concrete applications of blockchain, or distributed ledger technology (DLT) that are truly relevant to treasury?
EB: There are well-known use cases in the trade finance space, removing paper from the process and using smart contracts to execute transactions so that monies can flow more swiftly, for example. But it would be interesting to learn more about blockchain applications in the cash management space – around payments, for example.
CG: Well, we actually have a number of challenges around cross-border payments that I would ideally like to solve with our own blockchain solution. We often have to move large amounts of funds between hard-to-reach geographies, and that is complicated futher by different tax treaties. If we could create our own blockchain solution for those cross-border payments, it would provide numerous process efficiency benefits. Since the blockhain ledger is immutable, it would also bring advantages in the audit space.
DA: As Eric mentioned, DLT stands to revolutionise the world of global trade, and blockchain-based platforms such as we.trade, which HSBC is pioneering, are already making open account trades safer and quicker for corporates. Elsewhere, HSBC has used DLT internally for FX transactions – and in 2018, we processed circa USD250 billion of cross-currency payments via the blockchain. We see great potential to roll this solution out to corporates as an alternative to SWIFT.
Elsewhere, HSBC is also currently working with the Monetary Authority of Singapore on Project Ubin, a collaborative initiative to explore the use of DLT for clearing and settlement of payments and securities. DLT has shown potential in making financial transactions and processes more transparent, resilient and at lower cost.
Getting ready for Treasury 4.0
EH: Clearly Industry 4.0 technologies hold great potential for treasurers. But how easy is it to transition towards Treasury 4.0? What consideration do treasurers need to bear in mind?
EB: As much as all of this innovation is exciting, the choice of so many new ways of working actually makes it more complicated for treasurers to some extent. The rise of cybercrime is also a significant concern as treasury becomes more digital.
So, as well as in-depth conversations with consultants and relationship banks to ensure that treasury is choosing the right technology tools, not just jumping on the bandwagon, close co-operation with internal teams, especially IT will be required when moving towards next generation treasury.
Treasury is not an island and cannot function at an optimal level without strong internal partnerships. In the Treasury 2.0 world, we were joined at the hip with our tax and accounting function. In the Treasury 4.0 world, we will have a symbiotic relationship with IT. Not just in terms of cybersecurity, but in terms of leveraging technology to truly add value to the business.
KS: You also have to be very careful not to put too much investment into one particular technology, especially in the early stages of development. We prefer to have “many arrows in our quiver”, and to test out new technologies in parallel, rather than putting all of our eggs in one basket. It might not be the most efficient or cost-effective way of implementing new technology, but it allows us to have confidence in the technology we're choosing, and for treasury, that's paramount.
In addition, I would say that treasury is not necessarily the right place to be trialling cutting-edge technologies. We prefer to be fast followers rather than pioneers. Treasury processes are too integral to the running of the company to be put at risk.
CG: I couldn't agree more, and that's where the cybersecurity element comes in too. At Anadarko, we take cybercrime and fraud incredibly seriously, and we're actually in the middle of establishing a Cyber Risk Council. The idea of forming this Council is to outline a concrete response plan for if or when a cyber attack happens; we often look at how to prevent attacks, especially given the ongoing digitisation, but spend less time on the remediation part – which is equally important.
We're also looking at APIs as a means to put in place an early warning database around our bank accounts, whereby we are alerted if any changes are made to any of our bank account details. And we see a number of banks and vendors starting to produce solutions in this space, leveraging the technologies we have talked about to help corporates stay a step ahead. Payment outlier detection systems are another good example.
KS: As a technology company, we naturally put a lot of focus on cybersecurity. But there's a fine line between protecting your company and paralysing it. In treasury we are working hard to be less reactive to cyber threats, and more proactive – with training and simulation exercises in conjunction with our in-house cybersecurity team. We actually ask them to try to penetrate our systems! And we learn a lot from those exercises and action new protocols or processes on the back of them.
The most important aspect of cybersecurity, for me, is people. The teams has to feel enabled to question instructions – regardless of whether they are urgent or coming from the CEO. There has to be a blameless culture where team members can speak up. And sometimes, that will result in legitimate requests being held up; but that's far better than processing a fraudulent transaction.
LK: Absolutely. Our CEO, John Flint, is a huge proponent of this speak-up culture which is part of the bankwide initiative of creating the Healthiest Human System. I personally encourage my team to do the same and if a team member feels uncomfortable about any aspect of a transaction, task or event behaviours and conduct, they are empowered to ask questions,challenge instructions and escalate any issues. That's an extremely powerful tool in this increasingly complex and fast-paced operating environment.
EB: It's identical at Marathon. From a health and safety and security perspective, anyone in the field has the right to stop operations if they feel that something isn't correct. And we've embodied this concept in treasury, especially on the payments side. The hardest part, though, is actually getting team members to believe that they won't get into trouble for stopping a payment!
EH: Finally, what is your best advice for treasurers wanting to embrace Treasury 4.0?
EB: Technology is coming at us, whether we like it or not. We can either get in front of it and get run over by it, or we can embrace it at a speed that allows us to be nimble, but also thoughtful about the potential benefits, opportunities and risks. But if, as a treasurer, you don't take the time today to work out how technology could help you tomorrow, I would argue that someone else will be sitting in your chair in five years' time.
KS: While some of the concepts we have been talking about – like AI and blockchain – may seem alien today, really they are no different than the conversations we were having 10 years ago around adopting a TMS.
Treasurers therefore need to be proactive around this shift towards Treasury 4.0, otherwise, as Eric said, it will pass them by. The pace of change is accelerating and if you fall behind the curve, catching up will become more and more difficult. My favourite saying is “be an agent of change, not a victim of change”.
CG: As well as your treasury technology, it's important to think about your people. Despite the automation, you will need a good-sized treasury team to do the strategic thinking. You might also need new skill sets within the treasury team – from data scientists to technology experts. Hiring the right talent and/or upskilling your existing treasury team will be a make or break factor in the deployment of Treasury 4.0 technologies. Your team will also be the ones who add the competitive edge to your treasury department, rather than the technology.
DA: Treasury 4.0 is an evolution, a journey, an opportunity to future-proof treasury. It's not just about improving operations today; it's about looking for efficiencies tomorrow – through your own internal projects and through co-creation of solutions with your banks.
This is an incredibly exciting time to be in treasury – and you have a unique opportunity to shape the future of treasury management, not just for your own organisation, but for the industry as a whole.
Published: May 2019
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