By Vivek Shankar

Treasury Automation: A story of sweeping technological changes and ongoing optimisation

November 2022 in Risk Management

How is technology changing corporate treasury workflows and is automation set to take over the space fully? Vivek Shankar investigates.

Global treasury management is currently experiencing sweeping changes. Like many other sectors of institutional finance, treasury management experienced significant digitalization initiatives following the COVID-19 pandemic. Firms that had neglected transforming their treasury workflows were caught napping.

The Association of Corporate Treasurers’ Business of Treasury 2022 report noted that 66 percent of respondents had accelerated technological initiatives within treasury, up from 55 percent the previous year. So are robots set to take over treasury management and are manual treasury processes doomed? 

“The important thing to understand is that automation is a gradual step-by-step process,”

Sebastian Hofmann-Werther

Sebastian Hofmann-Werther, Head of EMEA, Member of the Group Executive Board at 360T, cautions against hyperbole by stating a few facts. “The important thing to understand is that automation is a gradual step-by-step process,” he says. “It doesn’t necessarily require a massive technological or operational lift by treasury departments.”

“But regardless of what level of automation is implemented,” he continues, “this technology enables treasurers to become far more efficient, meaning that they have more time to focus on the most mission-critical elements of their job, while also reducing the operational risks which are inherent in any manual process.”

Corporates have long prioritised efficiency, and treasury automation plays a key role in this initiative. However, automating treasury workflows is challenging. Here’s how stakeholders are reacting to their clients’ needs and solving problems, one step at a time.

Automation drivers and benefits

When quizzed about the benefits automation brings to treasury teams, Matti Honkanen, Director, Head of Next Gen FX at Nordea, does not hold back. “There are plenty of benefits you can reap with automation,” he says. “I think the biggest one is that it makes your work more meaningful as you can free up your time from routine tasks that you don’t like anyway.”

“…automation can help you utilise data much better, without the manual errors we humans are very susceptible to,”

Matti Honkanen

“The second most important fact is that automation can help you utilise data much better, without the manual errors we humans are very susceptible to,” he continues. “A third major benefit is you become much more efficient when you can focus on the important non-routine things that take your treasury to the next level.”

The COVID-19 pandemic highlighted the gap between many institutions’ desired treasury outcomes and their reality. Clogged with manual processes, many treasury teams struggled to cope with unique demands during that period. Jay Hoffman, Vice President, FX Workflow Solutions at Deutsche Bank, had a front seat as events unfolded. “COVID-19 exposed operational risks for many treasury professionals,” he says. “Teams began to discover that manual processes often hide redundant and risky sub-processes that clog up and slow down the workflow.”

“Manual processes are not only a poor use of human capital, but they are also generally less efficient than automated ones,” he continues. “Machines don’t get Covid, and they don’t make mistakes, eliminating several key operational risks.”

Hoffman highlights that the stress created by the pandemic revealed the advantages automation brought to the table for firms that had invested in technology before the event. “At Deutsche Bank, for example, several of our clients reached out to us at the beginning of the pandemic to ask about the impact on their workflows,” he notes. “Having already invested in comprehensive automation of our FX processes for treasuries, the answer was simple: There was no impact.”

360T’s Hofmann-Werther adds that compliance and oversight were areas that experienced stress during that time. “In a distributed working environment it is obviously much harder to monitor the activity of treasury staff executing FX trades on behalf of the company,” he says. “Implementing rules-based automation alleviates this issue by removing the possibility for manual error, providing a comprehensive audit trail of all trading activity, and offering complete transparency regarding why a particular action was taken.”

Significantly, he states that the need to increase efficiency, ensure compliance, and adapt to remote working, have not dissipated since the pandemic. Having viewed the benefits of automation, firms are now ramping up their investment.

However, a few obstacles prevent firms from going all-in on automation. Honkanen lists a few of them based on his experiences. “Slightly surprisingly, the most often quoted reason is that people lack time to focus on improving things since there are too many fires to put out,” he says. “We also hear people express their concerns about the lack of control.”

He explains that these issues often arise due to a fundamentally misunderstanding automation. For instance, flexibility in automating the right tasks is essential. “As important as getting started easily is, making sure that you can always switch off automation without problems is critical,” Honkanen says. 

“The right type of automation gives you better control – you can let the machines do routine tasks – and you can focus on looking at the control dashboard to check that the machine got it as you intended.”

Echoing Honkanen’s views, Deutsche’s Hoffman offers an example of automation getting the job done more efficiently. “Take a process like cash sweeps,” he says. “The manual version might see people wait until month end to carry out the sweep. With a machine, why not do it every day and avoid the need to hedge that buildup of cash over the course of the month? This could eliminate the need for a cash balance forecasting process altogether.”

Clogged with manual processes, many treasury teams struggled to cope with unique demands during the COVID-19 period

Automation targets and avoiding never-ending integrations

When deciding which activities to automate, repetitive manual tasks are an easy target. However, Hoffman notes that firms must evaluate other factors. “Ultimately, it comes down to the resources available – The effort involved to automate versus the reward to the client,” he says. “It is often at the confluence of separate specialised functions at a treasury, where we see the biggest impact.”

Are there some areas that lend themselves to automation better than others? Hoffman believes so. “One example is the management of liquidity using FX,” he says. “Many corporates tend to manage non-functional cash in real-time, and this means an FX hedge often settles before the receivable arrives, leaving the client managing a hefty overdraft or diverting resources to monitor balances more closely.”

“Our automated solution pulls data from Deutsche Bank and third-party accounts to manage cash flows around different currencies,” he continues. “Because all of this is automated, this process can come in at the last possible moment before the cut-off time and manage the balance, avoiding expensive overdraft charges.”

While identifying target areas is the first step, managing the transition to full automation is critical. Hofmann-Werther explains automation usually begins with small trades in highly liquid currencies and then slowly spreads to other workflows.

“This is an iterative process,” he says. “Effective FX automation involves creating an implementation roadmap, starting with relatively simple technology solutions that can streamline existing manual processes, validating the results of this technology, and then applying it to additional parts of your workflow.”

He goes on to list an example of an implementation. “The treasury desk might first integrate with STP technology but handle all the trading in a manual fashion. From there, they might begin staging trades automatically to streamline the trading process but have the treasurer execute all the trades themselves. The next stage might be partial automation, where trades are grouped together automatically and then simultaneously executed via a single click.”

Nordea’s Honkanen notes that integration projects often fail due to the business failing to translate its needs to IT in simple language. Partnering with a knowledgeable service provider eases the challenge. He also notes that Nordea’s automation services can be used without any integration.

“Microsoft Excel is still by far the most used treasury management system and ERP,” he says. “That’s why we have found innovative ways to use that data – and even in a way that the corporate treasury does not usually need to change their spreadsheets, we just configure our services to understand them. This way we get going quickly and easily.”

Hofmann-Werther points to 360T’s expertise as a significant factor in reducing the challenges inherent in automating treasury workflows. “We’ve taken numerous steps to make our technology solutions cost-effective and accessible,” he says. “Firstly, we’ve always emphasised working with existing and prospective clients in a highly consultative manner.”

“We’ve also ensured that 360T remains a cost-effective solution with our commitment to a regular new technology release cycle. Three times per year, we introduce enhancements across our platform based on in-depth discussions with our treasury partners, with no update required on the user side to access them.”

Deutsche Bank has also prioritised ERP integrations. “We have designed and built an FX workflow automation tool that expands its support beyond just FX execution to address the entire workflow – from source data to reporting,” Hoffman says.

Supporting ongoing automation and choosing the right service provider
Automation projects can seem endless due to their iterative nature. How can firms prepare beforehand to ease the process as much as possible? Hoffman begins by listing two critical factors.

“Data quality and the state of existing infrastructure are two key influences on how clients approach automation,” he says. “If your data quality is good and the existing infrastructure modern, then end-to-end straight-through processing will be easier to implement. If it isn’t, improving these aspects is often the starting point.”

He goes on to explain that some cultural aspects inform timelines too. “For example, receivables in arrears in some countries average less than 30 days, while in other countries, terms can extend beyond a year,” he says. “Regional differences like these significantly affect the treasury environment. The type of industry can also impact this, with a Fintech likely faster than a large, traditionally set up corporate.”

“The optimal solution is often not clear at the start of the journey and,” he continues, “the optimal solution today may not be the optimal solution tomorrow. As a result, building flexible, rules-based workflows plays a central role in preparing for the unknowns that lie ahead.”

The uniqueness of some firms’ treasury workflows often poses a challenge to quick automation. Honkanen stresses this is where a service provider’s expertise comes to the fore. He cites Nordea’s prior experiences as an example.

“The key word is configuration,” he says, “and the key to success is the huge number of customer interactions by our staff, which consists of business and tech people. We try masking the configuration on our side in the trickiest cases, so the customer is not left on their own devices, trying to sort out what settings to choose.”

360T’s Hofmann-Werther expands on Honkanen’s example by offering a detailed list of what firms ought to look for in a service provider. “I would recommend treasurers carefully evaluate both the technology itself and the strategy and approach of the provider,” he says. “One of the big differentiators in technology is what and how it enables treasurers to automate.”

He cites 360T’s technology as an example where treasurers can automate trades based on a customisable set of rules using parameters such as time of the day, percentage of bank basket quoting, and liquidity conditions.

“Another factor to consider is the range of instruments that the provider can help them to automate,” he continues. “Having good quality data is essential for effective auto-execution to ensure that trades only occur within a certain threshold, and while Spot FX data is a fairly commoditized product at this point in time, this is not the case for other FX instruments.”

Other factors to look at include an ongoing commitment to innovating their product, platform security, and stability. “Another area of focus amongst the treasurers that we interact with is customer support,” Hofmann-Werther says. “In our experience, it’s hard to overstate how important it is to have a high-quality support structure, which is why we have a dedicated round-the-clock team ready to assist clients locally.”

Deutsche’s Hoffman concludes by noting that automation is an ongoing investment. “The optimal workflow of today will likely change based on the technologies and considerations of tomorrow. These are the unknown unknowns, as Rumsfeld would say. If you don’t build an automated solution with flexibility in mind, you won’t be able to easily adapt to future developments.”

Microsoft Excel is still by far the most used treasury management system and ERP

Further evolution

Automation is only increasing within treasuries, and only time will tell where this trend takes us. “Treasurers want to make improvements, but changing any process in a large multinational corporation is difficult, expensive, and takes time,” Hoffman notes. “Fintechs, on the other hand, tend to be able to adapt far more quickly. As a result, we can expect these companies to be early adopters.”

“Componentising services to clients and then linking them through rules-based processes will become a critical part of the treasurer’s armoury to deliver scale in the digital-first world whilst retaining control through centralised treasury,” he concludes.

Hofmann-Werther notes that new-age tech, like distributed ledger technology offers exciting prospects. “Based on the conversations I’ve had with various treasurers on the topic of digitisation, many of them are monitoring the development and potential use cases of newer technologies like DLT and machine learning,” he says. “Some are even involved, with some of them actively pursuing projects related to these technologies.”

Honkanen believes FX is and will be the best place to begin automating treasury functions. “Most of our automation customers start by taking the automation solutions as back-ups,” he says. “They set up rules that will automatically manage liquidity at the end of the day unless the treasury manager has done it manually beforehand.”

“When you realise it can handle the basic stuff better than you, you easily let go,” he continues. “Once you are happy with the rate of automation in FX, you probably have a lot of learnings you can leverage in other fields. That is a perfect start.”