Technological innovations continue to push the corporate treasury function toward a major evolution. From Blockchain to AI solutions for enhanced cash-forecasting accuracy and fraud detection, these innovations can be almost overwhelming in both the improvements offered and processes changed. But which of these are truly useful, and where is additional improvement still needed?
Results from the 2017-2018 Treasury Perspectives Survey by TD Bank and Strategic Treasurer reveal five trends in how treasurers – and their banking partners – view today’s financial technology landscape and where their investment and attention will be directed in the years to come.
APIs Outweigh Blockchain on Outbound Payments
Blockchain exploded onto the financial technology landscape in the past several years, giving rise to the popularity of cryptocurrencies like bitcoin and the development of new payment alternatives. But when it comes to the short-term impact on outbound payment capabilities, more than four times as many corporates and six times as many banks see Application Programming Interfaces (APIs) playing a larger role than blockchain technology. While more than half (52 percent) of corporate respondents were unsure which function was more important, 39 percent stated APIs and just 9 percent chose blockchain. On the banking side, 66 percent chose APIs and 11 percent selected blockchain, while 24 percent remain unsure.
This clear preference for APIs could be due to several factors, including the recent introduction of PSD2 (Revised Payment Service Directive) in the European Union, creating an “open banking” environment on the continent. This open banking movement brought the importance of APIs in streamlining integration between bank systems and those of corporates and other fintechs/third parties into the spotlight. Moving forward, APIs will likely have an ever-increasing role in facilitating straight-through-processing (STP) between systems and helping to reduce manual workflows for information reporting /processing.
Faster Settlement Good; Enhanced Remittances Better
When it comes to the settlement speed of inbound payments, dramatic improvements have occurred in a relatively short timeframe. While conventional ACH norms deliver domestic payments with next-day settlement, the use of Same-day ACH or real-time payments in the United States can settle funds in a matter of hours or seconds Real Time Gross Settlements and wires, while more expensive, can also provide funds for domestic or cross-border payments within minutes of initiation. Despite rapid enhancements in speed, there has been less headway for these systems in enriching payment information, advices and remittances.
Currently, the use of extended remittance information that can be attached to ACH payments and wire transfers has not been fully embraced by corporate participants of these networks. While the introduction of XML-based messaging and the ISO 20022 formats attempted to solve the issue, this standard is not yet ubiquitous. As many of the transfers corporate treasurers initiate involve the payment of multiple invoices or contain detailed instructions, the limited adoption and lack of a universal practice of using these remittance fields can cause confusion for the recipient and result in processing delays or errors. This is definitely an area in need of further improvement and should be a focus area over the next few years.
Cloud Solutions at the Center
Although treasury professionals indicated that their levels of technology investment spending will be elevated this year, their focus is not necessarily on emerging or “disruptive” tech. Instead, most corporate treasurers (31 percent) stated cloud-based (SaaS) solutions will have the most significant influence on treasury functions and operations over the next two to three years. Other technologies seen as impactful were distributed ledger/blockchain (22 percent), Robotic Process Automation (15 percent) and Artificial Intelligence / Machine Learning (12 percent).
Although cloud-based solutions have been available for some time, their adoption continues to climb steadily year-over-year. A SaaS-based treasury management solution can act as the hub of a treasurer’s daily activity and drive operations such as payments, cash positioning and risk management. Given these applications’ sophistication and range of capabilities, financial professionals believe these functionalities still top such developments as AI and blockchain, at least for the time being.
Commercial Mobile Banking Development Mixed
When banks were asked how important they considered commercial mobile banking applications would be for their corporate clients over the next two to three years, 76 percent stated that such apps are important or extremely important and 24 percent were neutral on their adoption. In contrast, just 24 percent of corporate respondents saw such developments as important and 57 percent remained neutral.
When it comes to mobile devices, corporates have consistently shown that security is a major concern. The good news, though, is that 32 percent of corporates indicated their comfort with mobile payments has grown over the past year, compared with just 3 percent whose comfort decreased.
Forecasting: A Thorn in the Side of Treasury
It is no secret that treasurers struggle with cash forecasting. Results from the Treasury Perspectives survey found that treasurers spend more time on forecasting than any other area of responsibility, clearly indicating this is an area in need of improvement.
Regarding a solution, it may be that treasurers simply need a refresher on the most updated forecasting solutions available to them. With a number of the leading TMS options on the market continuing to push the boundaries of what forecasting solutions are capable of, perhaps now would be the time for those struggling with their forecasting to begin taking a closer look at how technology could help them improve their operations. And with 4 percent of firms indicating an increased importance on cash forecasting, the need for practitioners to identify solutions that can aid in facilitating accurate and timely cash forecasts are now more important than ever.