A Transitional Force in Asia Pacific Treasury

by Amit Sharma, Head of eCommerce and Channels Asia Pacific, Global Transaction Services, Bank of America Merrill Lynch

Treasury and technology go hand-in-hand. However, the relationship between treasury and technology is perhaps best defined by its diverse and transitional fundamentals; there is no one size fits all. In fact, for treasurers in Asia Pacific, technology comes in many different forms ranging from simple spreadsheets to highly-sophisticated treasury management systems.

In the past, treasurers in Asia Pacific who have tended to favour the spreadsheet as their primary technology application are now moving up the curve. Given that the role of the treasurer has become more strategic, dedicated solutions and new connectivity models are being embraced across the region. In our view, the reason is clear. Simply put, for treasurers planning to take their operations to the next level, these sophisticated solutions can provide greater efficiency, more accurate information and a lower risk of error than spreadsheet-based platforms.

Slowly but surely

From Australia to India, treasurers have long focused on increasing process efficiency and gaining greater visibility over their balances – but nowadays they are looking to access that information much more quickly. By requiring real-time information, treasurers are driving demand for solutions which can provide accurate information quickly and easily.

This shift is happening gradually, though. Treasurers’ transitional attitudes towards technology were explored in detail in the 2015 Asia Pacific Treasury Management Barometer, published by Bank of America Merrill Lynch. The survey found that 67% of respondents use spreadsheets in their treasury operations. This is only slightly less than the 69% recorded in 2013 – so it’s fair to say that treasurers in the region aren’t rushing to replace their spreadsheets with more sophisticated technology solutions.

Breaking this reliance on spreadsheets is clearly a longer-term process. The survey found that over half of respondents are planning a major investment in technology in the coming one-two years. Furthermore, one-third are planning to install or upgrade an existing Enterprise Resource Planning (ERP) system, while 23% intend to invest in a treasury management system. Meanwhile, 12% are planning to invest in SWIFT connectivity.

These results are in line with developments in the market and indicative of wider usage of up tiered solutions. From where we stand, the current focus on technology comes at a time when new developments are supporting five distinct areas of treasury management.

1. Payments

Treasurers routinely express ambitions to move away from manual payments and multiple bank interactions across the region. This is not always possible though. In certain Asia Pacific markets, companies hold accounts with a local bank for tax, customs or utility payments. Rather than setting up online banking services with their local banks, many treasurers prefer to leverage the capabilities of their international bank’s platform as one window to send instructions. The international bank then sends instructions to the local bank, thereby allowing companies to monitor their local accounts using single platform. This process eliminates multiple bank interactions and minimises fraud by providing greater visibility and control.

According to the Treasury Management Barometer, 32% of respondents are now using host-to-host connectivity for payments, up from 16% in 2013. The doubling of host-to-host utilisation tells us that treasurers are moving away from manual payments. They recognize the likelihood of errors and inherent risk in manual payments and are choosing to transition to best payment practices.

2. Bank statement reconciliation

Moving from manual to automated payments is a strategic goal for many treasuries – but fewer are seeking out a similar level of automation for their accounts receivable, where reconciliation is often a manual process. The Treasury Management Barometer found that 82% of participants download their statements from their bank platforms – a process which is prone to manual manipulation of information before uploading into ERP system. In many cases, the motivating factor is the fact that two-way connectivity is not established between the ERP system and the bank. Interestingly, most ERPs have electronic bank statement upload capability which is not turned on/utilised by the corporate users. Why is this? In our experience, the focus is more centred on automating the payment initiation from the corporate to the bank.[[[PAGE]]]

But there is scope for improvement. The survey found that only 30% of treasurers expect to continue using this process in the coming 12-24 months – suggesting a clear desire to move away from manual bank statement reconciliation via technological means.

While there are plenty of automated payment solutions available, there has been less focus on developing flexible and automated reconciliation solutions. Automating the two-step process of downloading the bank statement via host-to-host/SWIFT and integrating it with the ERP system can eliminate the need to manually download bank statements. Given the industry push, it is likely that this type of technology will become more widespread in the coming years.

3. Forecasting

Cash flow forecasting continues to be a top priority for treasurers in Asia Pacific. Improving visibility of balances and cash forecasting was the most common goal for participants in the 2015 Asia Pacific Treasury Management Barometer survey, cited by 21%. All too often, companies rely on spreadsheets for this type of activity – and even when treasury management systems are used; it is not uncommon for companies to collate information from spreadsheets held by multiple business units before inputting the information into the treasury management system. There is a clear need for companies to embrace technology more fully in order to improve visibility over cash and achieve more accurate cash flow forecasting.

4. Mobile services

Mobile technology is a hot topic for both banks and corporations. The majority of people in Asia Pacific own at least one mobile phone – and many treasurers own a company mobile in addition to their personal phone. There are defined benefits to using these devices in the context of mobile banking – particularly given that many treasurers in the region travel frequently between countries.

Mobile adoption in treasury is, understandably, on the rise given these scenarios. The 2015 Asia Pacific Treasury Management Barometer found that 41% of respondents currently use mobile technology to access their banking services, up from 14% in 2013. Of those companies using mobile solutions, almost two-thirds do so at least once a week. With the proportion of treasurers using mobile banking services showing a significant increase in the last two years, it is likely that uptake will continue to grow – and that banks and technology providers will continue to innovate in order to offer new mobile functionalities.

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5. Cloud-based platforms

Next generation and hosted solutions stand as the newest developments shaping the transitional relationship between treasury and technology. Cloud-based bank connectivity and treasury management solutions are likely to change the face of treasury in the future. What’s holding back wide-scale adoption? Firstly, there is still some concern among treasurers about the security of cloud-based systems. However, the arrival of SWIFT’s cloud-based connectivity solution Alliance Lite2 could be contributing to a shift in mind set. For example, the survey found that only 7% of respondents are using cloud-based payments solutions today – but 34% are planning to adopt this kind of technology in the future. In 2013, by way of contrast, only 1% of participants were using cloud-based solutions for payments.

Embracing technology

Many of the new and emerging solutions can dramatically improve automation and efficiency within treasury processes, while reducing the risk of error and fraud. This becomes increasingly important when treasurers assume more broad-based roles within the organisation and continue their transition from functional to strategic partner.

At the same time, regulators in the region are becoming more receptive to the role that new technology can play. In China, for example, companies were previously required to send physical documents to their banks in support of any cross-border foreign currency payments made. More recently, the authorities have permitted companies to provide those documents electronically. This demonstrates an understanding of how technology can support the effective auditing of the necessary information – and a willingness to adjust policy in order to cater for emerging solutions.

Sophisticated treasury technology seems poised to take on a more significant role for treasurers in Asia Pacific. That said, investing in technology is often an enterprise decision, and it’s essential to make sure that any new solution is a good fit for the company’s needs. Treasurers embarking on a technology project should first enlist the support of expert advisors and partners in order to build a long-term strategy and a strong business case. With the right solutions in place, treasurers will be better placed to access accurate information, build more efficient processes – and ultimately make more informed decisions about how best to manage their cash.