Blockchain and the Corporate Treasurer

Creating Smarter Strategies

Forward-thinking corporate treasurers are examining concrete blockchain use cases with a view to improving the effectiveness of their treasury management activities. But where can the biggest blockchain gains be made in the treasury sphere? And are there any new blockchain-based tools for treasurers to be aware of?

Despite the various benefits that blockchain offers corporate treasuries, there is still a great reluctance to embrace the technology. This is due to a number of reasons: the technology is still immature; most of the projects are still in the conceptual phase; and, real-world blockchain applications for the treasurer’s day-to-day activities are still scarce. But that is changing, albeit slowly.

However, an increasing number of tangible treasury solutions are being brought to the market. And there is growing awareness among blockchain solution providers to come up with more integrated smart treasury solutions.

Towards greater strategic control

From a treasury point of view, the current business environment for corporates operating internationally is highly complex. The treasury departments of these corporates have already undergone many transformations triggered by technology innovations, regulatory initiatives and changing client behaviours.

In order to gain greatest visibility over their business critical functions and achieve greater strategic control, corporate treasurers (with the advantage of having budget) are significantly increasing their spend on treasury technology in an effort to speed up and streamline their company’s cash, liquidity, risk and working capital management.

The key challenge is to obtain consolidated, real-time insight into group-wide, multi-currency cash positions across a fragmented banking network in a timely manner, and also manage credit facilities across all group-held bank accounts. Unfortunately, today’s model of international correspondent banking severely limits the ability to manage cash in a real-time environment.

As a result, many corporate treasurers are still mainly using manual processes for their global activities. The world of international payments looks particularly cumbersome because these transactions are slow, expensive and hard to track. Operating in multiple currencies has a substantial negative impact on the operational capabilities of treasury teams and on the treasury’s ability to work efficiently.

From isolated proof-of-concept stage…

Greater uptake of new technologies such as blockchain would enable corporate treasurers to take smarter, more data-driven approaches to core processes and better support the strategic side of the business.

Over the past few years, we have seen many blockchain proof-of-concept (PoC) trials for various use cases within corporate treasuries. These include activities such as cross-border payments, trade finance, electronic bank management, reconciliation, data storage and smart contracts to supply chain management, know your customer (KYC), financial reporting, regulatory compliance, intra-day liquidity management and cash management.

But many of the trials remained at the proof-of-concept stage. Most of these projects have not even gone beyond the testing phase. And those that have done so have yet to enjoy extensive usage.  Yet another challenge is raised by the fact that most of the blockchain-based applications are focused on single parts of the treasury activity. They are largely isolated and are not interoperable – and so don’t communicate with each other.

…to practical solutions

However, blockchain development is now entering a new phase. Slowly, but surely, the focus of many blockchain developers and providers is now turning from PoC projects to proof of work trials aiming to overcome the various challenges posed by interoperability and scalability. As global trades evolve and become more intertwined, we are also seeing the emergence of collaborative blockchain models that can streamline and automate complex processes, thereby bypassing the cumbersome correspondent banking system.

Over time, a growing number of authentic, real-world blockchain-based solutions, which are worth looking at, have been introduced using collaborative models such as Ripple (global payments), R3’s Corda (data management), Marco Polo (trade finance) and we.trade (trade finance) to name but a few.

One of the most interesting recent blockchain offerings for corporate treasurers, in my personal view, is ‘Smart Treasury’ launched by Boston-based fintech Adjoint. Adjoint has combined blockchain technology with related smart contracts and application programming interfaces (APIs) to create a solution that aims to dramatically speed up settling intercompany transactions in a secured way while significantly reducing costs.

A tool to untap liquidity

Adjoint’s Smart Treasury is implemented as an overlay and should be seen as a multi-bank, multi-currency virtual account platform for real-time gross settlement and continuous reconciliation. This should enable treasurers to untap liquidity in their various subsidiaries’ bank accounts.

Smart Treasury does not seek to replace existing enterprise resource planning (ERP) processes and treasury management systems (TMSs) but rather complement them by using application programming interfaces (APIs) and by speeding up transaction settlement so that the data is much more timely and secure. It works by pushing and pulling data to connected ERPs and TMSs, and creating a real-time window for treasury management.

Workflow can be streamlined across various use cases, and can also be automated for activities including generating international transfers, calculating accrued interest, generating invoices for a loan payment, and submitting to the systems of records to ensure accuracy and reconciled data.

The Adjoint Smart Treasury solution could offer a number of important benefits to the corporate treasurer thanks to greater transparency, improved efficiency in current treasury processes, reduced risk and, as a result, far lower costs.

Streamlining processes and cutting costs

First of all, Smart Treasury can contribute to improved liquidity management thanks to greater transparency, enabling greater control over key treasury workflows. It may also enable real-time insight into a corporate’s liquidity position and into how quickly they can provide liquidity to the corporate. Treasurers will also be able to see balances across the corporate group, across multiple entities, corporate departments and banks (accounts), in different geographies, and at any point in time. By using Smart Treasury, this visibility could expand to partners, subsidiaries, vendors and customers. The insight gained could help treasurers to drive more reliable cash flow forecasts.

Using Smart Treasury may significantly reduce current complications in the various treasury processes, including cross-border payments and billing. Using smart contracts could streamline present cumbersome processes and eliminate costly third-party transactions. The system enables tracking transaction status and confirmations in real time, thanks to the greater transparency brought about by blockchain technology between the various players. As a result, such transfers can be completed speedily and, in some instances even instantly, thereby optimising the whole reconciliation process across various subsidiaries’ ERPs in terms of time spent and manual effort.

By removing the long chain of disintermediation, Smart Treasury permits outside companies within the supply chain to pull relevant information directly from the blockchain with no settlement network in between.  This could create significant collateral savings thanks to shortened (or even instant) settlement cycles. Intra-group obligations may be settled instantly and at no cost.

Smart Treasury will also enable full-auditability of transactions, thereby realising greater savings in both time and costs. Such an immutable auditable record of transactions may, for instance, provide real-time ownership of underlying cash, so there would be no double spending of cash. Also, intra-company loans are auditable ‘for arm’s-length transaction history’ by time-stamping FX conversion rates.

The solution can also help corporate treasuries improve risk management through data redundancy, auditability and smart-contract permissions. As the credibility of debtors and creditors is supposed to be known to all participants, this will contribute to more security, while blockchain will also enable secure data storage across nodes to prevent a single point of failure.

The transactions’ regulatory and compliance requirements are automatically satisfied by smart contracts, and APIs transfer information and data between siloed corporate entities and their banks and data providers.

Smart Treasury could also bring a number of great benefits from a strategic point of view. With a clear and real-time picture of assets and cash flows, the finance team has the ability to make strategic investments in a shorter period of time, helping to capitalise on potential investment opportunities and evaluate important future transactions. For corporates operating internationally, smart contracts may help treasury play a critical role in successfully conducting business overseas.

All these improvements could ultimately lead to a significant reduction in transaction, labour and back office costs and fees to third parties.

The way ahead

Adjoint’s Smart Treasury is an extremely interesting proposition. Some industry experts see this blockchain-based solution as a game-changer for corporate treasuries.

But Smart Treasury won’t be the only viable option in this field. Looking ahead, we can expect the arrival of increasing numbers of collaborative global and interoperable blockchain networks offering more mature, real-world applications that will inspire confidence and lead to greater mainstream adoption.

I would advise treasurers to keep up to date with new solutions leveraging blockchain technology because these exciting developments will help them achieve process efficiencies and, most importantly, fulfil their increasingly strategic roles.