Corporate treasury automation: Technology solves pressing needs

By Nicholas Pratt

November 2023 in Special Reports

Treasury automation has consistently been a hot topic since the COVID-19 pandemic hit. Institutions embraced a wave of electronification in several areas, and treasury processes were no exception. However, corporate treasurers soon ran into a ceiling.

While automating internal processes was straightforward, overall cash management efficiency depended on other departments in their organisations embracing automation. For instance, while firms can automate cash projection, the process depends on collection efficiency, a largely manual task.

With volatility increasing worldwide, treasurers need automation more than ever, something Bob Stark, Global Head of Strategy at Kyriba, notes. “Corporate treasurers are focused on reducing the impact of currency volatility on their balance sheets, income statements, and cash flow,” he says. 

“With FX volatility remaining stubbornly high, treasury teams must maximise the impact of natural hedging while reducing the cost of derivative hedging programs to meet increased resilience to currency markets and improve the effectiveness of their FX program.”

These factors have pushed the automation wave further, with service providers rising to fill corporate treasury needs.

How automation helps

Matti Honkanen, Head of Next Gen FX at Nordea, says that time is a constant stumbling block for treasurers. “According to our survey of corporate treasurers, there is a big mismatch between where the treasurers use time and where they would like to. As a rule, treasurers would like to play a more strategic role.”

“That is not possible if they don’t free up time from the time-consuming stuff that they are primarily responsible for and that is possible to automate with the e-FX technology,” he continues. “Another driver (of automation) is the need to do liquidity and risk management more frequently and accurately, which is very tough with a manual process. There are plenty of technological solutions that can help with this.”
When asked what drives electronification in treasury processes right now, Niels van Daatselaar, Co-founder and CEO of TreasurUp, points to the banks. “The reality is that banks are the primary investors in the technology required to increase the levels of digitization or automation available to corporations to deploy within their operating environment,” he says. “Where there is the scale to justify it, Corporate Treasurers are more inclined to invest in straight-through processing of workflows between their TMS or ERP platforms and the transaction solutions delivered by the banks.”

Like Honkanen, he explains that treasurers have plenty of options to choose from. There is no doubt that automation delivers benefits. But, in which areas does it specifically help treasurers? 
Stark says, “Streamlining extraction and structuring of exposure data from the ERP, integrating online trade portals with the treasury management system, and automating the designation, valuation and accounting for hedges. Automation not only improves productivity but also delivers accuracy in an area where compliance is paramount.”

“Automation not only improves productivity but also delivers accuracy in an area where compliance is paramount.”

Bob Stark

van Daatselaar dives deeper into the data-driven advantages. “Storing more contextual data around the cash flows that drive FX trades can lead to incremental services and decision support tools,” he says. “Banks have previously been unable to deliver these due to the vanilla data that has historically accompanied trade instructions.”

He goes on to illustrate an example. “We are working on solutions for banks to deliver to clients that enable rules to be configured by a Corporate Treasurer,” he says. “They can automatically calculate and adjust a net hedge position, complete cash flow forecasts based on real data, and then automatically sweep excess balances back to base currencies or into money market instruments.”

Honkanen believes automation’s time-saving benefits are obvious, but not readily apparent. “Whenever there is any recurring task that is taking people’s time,” he says, “or whenever they think something should be more systematic, if it just didn’t take so much time, it is wise to investigate how the automation solutions could help.”

While time savings are an obvious benefit, Honkanen explains they extend further. “The benefits are twofold,” he says. “Either reduced costs via improved liquidity and risk management, or the ability to focus on more value-added and strategic themes when operations are more efficient.”
van Daatselaar opines that automation can change the nature of the corporate FX portal. “FX risk management and funding are a small proportion of the challenges a Corporate Treasurer needs to handle,” he says. “We are convinced that the FX portal used by clients will begin to morph into a “Whole of Treasury” decision support framework with multi-product execution capabilities.”

With volatility increasing worldwide, treasurers need automation more than ever

Extending automation

Corporate treasurers currently have a good idea of which processes stand to benefit from automation. But are there any underrated workflows that deserve more automation? Kyriba’s Stark believes so.
“FX exposure management, especially quantifying the impact of currency on the balance sheet, is an area most treasury teams can improve upon,” he says. “Organisations generally do a good job with their cash flow hedges, typically struggling only with the estimation of future cash flows so they can be as effective as possible with their hedging.”

“Yet,” he continues, “balance sheets are a completely different process requiring a separate data strategy and unique tools to extract, organise, and quantify exposures within balance sheet accounts. This allows treasurers to make more informed decisions about natural hedges that can be leveraged and derivative positions that can mitigate remaining exposures and reduce value at risk.”

van Daatselaar doesn’t label any specific workflows when asked, believing treasurers must approach the question from a risk perspective. “It’s the management or orchestration of data that drives the decision-making where Corporate Treasurers and banks need to start,” he says, “before taking advantage of readily available electronic execution capabilities.”

“Taking control of how data is collected across an organisation,” he continues, “processing it so that balance shortfalls and exposure to currency volatility are as close to real-time as possible, then taking the appropriate actions to mitigate that risk is vital.”

“Another driver of automation is the need to do liquidity and risk management more frequently and accurately, which is very tough with a manual process.”

Matti Honkanen

Honkanen states that defining the scope of automation can be challenging and suggests a set of steps to work through the decision. “I encourage you (treasurers) to start asking yourself 
“What are the tasks where we have some obvious solutions available”, “what are the tasks that take the most time”, and “What are the things that we should do more frequently and more accurately?” he says. 
“I would also urge you to start with the ones that are easiest to implement. It does not need to be a huge improvement, the key is to get going. Then you will learn how you can tackle even nastier problems.”

The solutions landscape

If defining the scope of automation is challenging, choosing a solutions provider is even more so. van Daatselaar notes that with costs pushed to lows over the past 20 years, price should not contribute majorly to a firm’s buying decision.

“Credit relationships are a stronger driver than ever when it comes to the direction of FX flows,” he says. “Beyond credit, what does a bank bring to the table in terms of multi-channel access? Decision support? Automation? Passing data through from an ERP platform and scheduling workflow that only needs exception handling has to be part of the solution set that Treasurers aspire to embed.”

He notes that TreasurUp has seen an increase in banks reviewing their legacy infrastructure to meet new demands. “Transformation programs that extend into the broader banks’ technology delivery are commoditizing the microservice-enabled environment needed to deliver nimble digital platforms,” he says.

Areas with the greatest efficiency improvement potential

van Datselaar continues, “Many banks are already curating a subset of fintech partners to combine with in-house solutions and deliver an enhanced FX experience that transcends the traditional payments and payments hedging booking tools.”

Stark notes that the best solutions provider helps treasurers land a big impact on their organisations. “A good solutions provider empowers the treasurer to be the chief data officer,” he says. “This helps them communicate to the CFO, CEO, and the Board the impacts of currency on revenue, earnings, and cash flow and how these risks have been and will continue to be managed.”

He explains that this view stems from a belief that a solutions provider must assist in transformational improvement, not just automation. “Mitigating FX risk is a constantly changing program for most organisations in response to rapidly volatile currency markets,” he says. “FX risk management is not an automation story; it is about supporting the treasury’s data strategy.”

“As always, the most important question in choosing any partner is who is reliable,” Nordea’s Honkanen says. “Among those who pass this first criterion, you should choose the ones that can help you with problems that matter most. And then again we come back to the question of what activities you should automate.” 

He cautions against overthinking this. “The most important thing is for you to start doing stuff, first the small wins and then increasing the bets,” he says. He points to Nordea’s integration abilities as an example of reliability.

“We are convinced that the FX portal used by clients will begin to morph into a “Whole of Treasury” decision support framework with multi-product execution capabilities.”

Niels van Daatselaar

“Even if our guiding principle is to use modern technical standards, we acknowledge the fact that the old legacy technologies are still ubiquitous,” he says. “For example, the most critical requirement for any solution is that it is easy to integrate into an Excel spreadsheet that is still the backbone of all the corporates.”

“Even if the solutions would skip Excel altogether, the first step is to make sure the customer can try out the new solution without abandoning the good old Excel spreadsheet. And of course, there are plenty of other old standards that are almost equally relevant for quite some time, like XML, FTP, etc.”

The impact of new technology

AI, DLT, blockchain. Technology is evolving rapidly, and FX has already witnessed the entry of these examples of advanced tech in different applications. Blockchain and DLT solutions are increasing in the cross-border payment and settlement niches, while AI is leaving a mark in analytics and algo-based execution.

van Daatselaar believes AI will soon spread to treasury management. “Artificial intelligence will have a tremendous impact on the way Treasuries operate in the future,” he says. “The ability of this technology to identify drivers of successful outcomes and amplify the redistribution of learnings across the Corporate Treasury community cannot be understated.”

He also notes the human impact of this development. “Professionals used to take months or years to earn their stripes working within junior roles, building up a knowledge base that justified a promotion or transfer. Shortly, this career development model will turn on its head.”

Stark echoes van Daatselaar’s views on AI. “APIs and AI will have a greater impact on treasury digitisation than blockchain and DLT, as the biggest opportunity for treasury teams is to leverage data to make more efficient and intelligent FX risk decisions,” he says.

Does this mean blockchain won’t have any impact? “Blockchain will support greater transparency for trading and settlement of FX transactions,” Stark responds, “yet the greater benefit for treasury teams will be to make more data-driven decisions around how to protect cash flow and earnings – a responsibility which artificial intelligence is perfectly suited for.”

When asked about the impact blockchain and DLT will have on treasuries, van Daatselaar notes his excitement about CBDCs and their impact on settlements.

“CDBCs will power the broader adoption of Blockchain across banking infrastructure,” he says, “tokenization will democratise access to unlisted assets, and debt collateral will be eventually managed across borders without the need to participate in traditional FX trades.”

“We can expect the concept of STP to evolve from today’s automated file updates,” he continues, “to an atomic settlement of cross-border capital flows visible in real-time on a bank’s digital front end.”

Focus on the basics first

While he’s excited about new tech development, Honkanen cautions that firms must get the basics right first. “I think 99% of the discussion about new technologies has no relevance for treasuries,” he says.
“You should focus on automating the boring daily stuff with pretty boring technological solutions. If you don’t do that and start small, there will not be any new big technology that will save you and take you to a new level. The most successful treasuries are those who focus on getting things done, not the ones who ignore relevant problems.”

No matter where a firm’s corporate treasury workflow lies, technology can introduce more efficiency. A firm’s technological focus depends on its current position, something Honkanen, Stark, and van Daatselaar believe treasurers should rigourously examine. 

Ultimately, the results of that examination determine whether advanced tech can solve their pressing issues.