Strategic Treasury

Head2Head: The Promise and Reality of Innovation Peer-to-peer lending, monetising data and more recently, digital payments, are amongst the buzzwords for today’s treasurer, but what questions and opportunities do such broad innovations present?

Head2Head: The Promise and Reality of Innovation

by Bruce Meuli, Global Business Solutions executive, and Jonathon Traer-Clark, Head of Strategy, Global Transaction Services, Bank of America Merrill Lynch

Jonathon Traer-ClarkJTC Every new thing creates two new questions and two new opportunities.” That’s what Amazon’s founder and CEO, Jeff Bezos said in response to the question: “What is innovation?” The word has been part of the treasurer’s vocabulary since the 1970s when the concept of corporate treasury as a profession first emerged. Ever since, corporate treasurers have been seeking new ways to manage and reconcile the flow of capital into and between parts of their businesses, a task that has now become increasingly multinational and digital in nature. Peer-to-peer lending, monetising data and more recently, digital payments, are amongst the buzzwords for today’s treasurer, but what questions and opportunities do such broad innovations present?

Bruce MeuliBM Only two questions and two opportunities? If only it were that easy! Any “new thing” prompts a countless number of questions and opportunities for a corporate treasurer. Using blockchain as a case in point, the potential move to a distributed ledger is predicted to improve efficiency and security when transacting, settling and recording payments. These are potentially fundamental changes to treasury’s way of life, because blockchain has the potential to create a new network of trust whereby a record of truth – who paid whom and when – can be shared publically. Some say it will meet the demand for fairer transactions, but there is still a great deal of uncertainty about the impact that technologies such as blockchain will have on corporates and their banks.

Jonathon Traer-ClarkJTC I think a corporate can already access fair transactions, so it’s important not to confuse recording a transaction and assessing its value. An open-ledger mechanism does not necessarily interpret the real value of an asset but crucially, it records the asset’s lifecycle – who bought what, when and at what price. The potential therefore exists to allow a treasurer to obtain secure visibility of its cash flow on a standardised, cross-border basis. It is this incrementally reconciled audit trail, together with the prospect of enhanced customer recognition that could present key opportunities for the treasurer.

Bruce MeuliBM Once a blockchain record has been created, it is there for everyone to see and use, and once a transaction update has been validated by the blockchain participants there can be no historical amendments. This is seen as a major benefit of blockchain but it may mean back-office operations will need to improve from an accuracy and timeliness perspective. From a KYC and pricing point of view, that’s pretty significant, and I see scope for the back office to adopt this real-time way of thinking. Large corporates have challenges around auditing and managing the truth across an often multinational supply chain which is constrained by the established system of batched payments processing.

Jonathon Traer-ClarkJTC Sure, but for me, the true use case for blockchain has not yet been tested (we are currently in wait-and-see mode). I would suggest that corporate treasurers stay informed about the technology’s evolution and keep abreast of how a comprehensive audit trail can be applied not just to treasury but across other parts of their business too. Blockchain could be a very positive development that’s already got the industry thinking and talking – that’s how it’s most ‘disruptive’.

Bruce MeuliBM I completely agree. Amidst the talk of new and emerging technologies, however, it’s important not to ignore the old as well as the new. As corporate treasurers try to meet the constant demand to add value to the business, assuming that this can be done by applying nascent and as yet poorly understood technologies such as blockchain, is daunting and may not be feasible, particularly in the short term. A simpler approach to innovation is to do more with what you already have, which will bring more immediate results over which treasurers have greater control. Making an organisation lean produces immediate results on a continual basis. Just relying on step changes enabled by disruptive technology is a risky and ineffective strategy. Effective treasury is a consequence of other things happening well. It may not immediately look like it, but keeping informed and doing your research as contribution to other projects in an organisation is innovation.

Jonathon Traer-ClarkJTC No doubt it will still create more than two new questions and two new opportunities, but leveraging what you have whilst keeping an eye on what’s ahead is the way that most organisations approach innovation. Every senior manager is inevitably cautious when contemplating or introducing any wholesale change that the adoption of new and fundamental technology would inevitably entail. On this occasion, it is the technology itself that is driving the debate around innovation, rather than simply being an enabler. Finding new ways to do things on an incremental and manageable basis as well as monitoring the bigger picture, like the adoption of open crypto-ledgers, should be at the heart of today’s strategic treasury agenda.

The TMI Verdict - by Helen Sanders, Editor

Head2Head GavelThere is a great deal of ‘buzz’ about new technologies such as blockchain and their potential to transform transaction banking. The challenges for treasurers, and indeed the banks that support them, is that these emerging technologies do not yet translate into real-life applications, with plenty of unanswered questions both from a practical and regulatory standpoint. In the short term, what these new technologies do is to prompt users, providers and regulators of payment services to re-evaluate the existing status quo and processes. By engaging in the debate now, treasurers are in a better position to influence future solutions and how they support existing and emerging business models. Bruce and Jonathon make the point correctly however, that future promise should not detract from solutions that are available now, that can deliver more efficient, secure processes, better data intelligence and more sophisticated analytics.

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