Published: January 30, 2023
A challenging – and rapidly changing – macroeconomic backdrop, together with evolving digital business models, and the rise of ESG, means that smart and sustainable cash management is the order of the day. As such, omnichannel collections, embedded FX services, APIs, and sustainable corporate accounts, are among the latest trends on every strategic treasurer’s lips. TMI invites Philip Panaino, Global Head of Cash, Standard Chartered Bank, to share his insights on contemporary cash management innovations – and how to deploy them to greatest effect.
Corporate treasurers are in the thick of it. Inflation is rearing its head in many economies across the globe for the first time in decades. In Asia, inflation is sitting around the 5% mark, but in Europe and the US, it is closer to 9%[1]. Some treasury team members will never have operated in an inflationary environment before; an uncharted territory for them.
Adding more uncertainty to the mix, central banks have been raising interest rates as a means to combat these inflationary spikes. Again, this is a macroeconomic phenomenon that has not been seen in many global economies, or factored into many cash management decisions, for more than 10 years. The low to zero, and even negative, interest rate environment had become all too familiar.
Of course, there are upsides to increased interest rates from an investment perspective; but from a borrowing standpoint, the news is far more challenging. And the increased cost of capital, coupled with margins being eroded by inflation and the energy crisis, makes for a very tough operating environment.
In addition, supply chains are subject to significant disruptions and delays, caused in part by geopolitical tensions, and Russia’s invasion of Ukraine, as well as the ongoing impact of the Covid-19 pandemic. Many suppliers are also experiencing difficulty accessing the finance they need to keep their operations running smoothly, or indeed, running at all[2].
The heady combination of forces exerting pressure on the real economy ultimately means that cash needs to be managed more efficiently and effectively than ever. In turn, this shines the spotlight firmly on treasury departments.
How, then, can treasurers respond to this challenging external environment? Which of the latest innovations and trends should treasurers embrace to help improve their management of company cash? And what can their bank(s) do to assist?
Panaino states: “Cash management continues to evolve and become more sophisticated as treasurers look beyond simple visibility of cash positions and basic forecasting to more comprehensive solutions providing multi-currency/market projections and fully digital workflows, streamlining their payable and receivable processes.”
Nevertheless, the fundamentals of cash management remain the same. In fact, the demands on the “traditional” focus areas have also intensified. “Now more than ever, companies need to improve their cash visibility across their expanding market footprint,” he says. This is especially true in the age of e-commerce (see point 2).
In turn, this creates a growing need for system integrations to improve the speed of information flows into the treasury function. APIs are now a tried-and-tested way to achieve this. They can help systems ‘talk’ to each other in real-time, and a handful of treasury teams have achieved direct bank connectivity in a short time period thanks to the relative ease of implementing APIs, compared to more traditional options.
But crucially, and perhaps most importantly of all where strategic treasury is concerned, APIs, in combination with tools such as RPA also provide the ability to execute transactions at speed and with minimal manual intervention. Moreover, APIs eliminate the need for files, which can be tampered with, and instead facilitate the synchronous two-way exchange of data between the client system and the bank, which is fundamentally more secure. “This minimises the treasury workload, and the opportunity for manual error and/or fraud,” explains Panaino.
In other words, in an extremely fast-paced operating environment, APIs are an essential component in any smart treasury toolkit. As such, Standard Chartered has developed a number of business-critical APIs, available via its open banking platform, aXess, including transactions, payment status and balances.
Standard Chartered is also among the pioneering banks supporting API with SAP Multi-Bank Connectivity, which aims to offer “on-demand” – i.e. as and when required, whether that be real-time or otherwise – debit and credit notification when cash is received by clients in their bank accounts. This real-time data can be used to trigger a subsequent workflow to replenish a customer’s credit line to enable new purchases or for goods shipment to occur.
In other words, by supporting an on-demand treasury ecosystem, APIs are empowering treasurers to become proactive consumers of data and insights – rather than being reactive, as has often been the case in the past.
And to assist in making APIs a reality for as many treasury teams as possible, Standard Chartered has recently partnered with FinLync, the leading authority in bank API connectivity. FinLync’s technology can directly embed account data, via bank APIs, into any ERP platform, including SAP, providing real-time and on-demand visibility of cash positions, transactions and payments status. It also frees up treasury teams from delays, IT headaches, and risks, to provide greater speed, richer and more-precise data, and improved security.
Few, if any, treasurers could have failed to notice the rise of e-commerce in recent years – after all, increased interest in shopping online has been seen across all geographies, driven by the closure of bricks-and-mortar stores during the pandemic. In fact, in 2021, retail e-commerce sales amounted to approximately $4.9tr. worldwide. And this figure is forecast to grow by 50% by 2025, reaching around $7.4tr.[3].
“It is clear that even ‘traditional’ clients are demanding e-commerce solutions as they move to capture business-to-consumer [B2C] sales,” remarks Panaino. Indeed, in this world of e-commerce, where consumer behaviours and expectations are the key drivers of progress, treasurers need to keep up with fast-growing trends. For example, in addition to improving the speed of collections, there is a need for businesses to provide multiple options and make it easier for end consumers to pay – so that they have a good experience, spread the word, and remain loyal customers.
As such, treasurers have an urgent need to keep up with evolving ways to pay, from WeChat Pay and QR codes to buy now, pay later (BNPL) schemes and direct bank transfers, in line with the evolving expectations of end consumers. “It is all about convenience, transparency and the checkout experience – including the ability to choose whichever payment method best suits the consumer.”
This is where omnichannel solutions play a significant role. These provide a combination of different payment methods (including credit and debit cards, mobile wallets, and instant payment methods such as QR codes), from different payment providers, across online and offline, into a seamless offering for consumers and treasurers alike. Standard Chartered’s Straight2Bank Pay solution is a perfect example.
The giant leaps in B2C and D2C e-commerce are not the only innovations in town, however. The world of B2B e-commerce also continues to expand. In 2021, online sales on B2B ecommerce sites, login portals and marketplaces increased 17.8% year-on-year to $1.63tr. [4], and this trend looks set to continue.
Yet e-commerce transactions naturally carry certain risks. The product may not be up to the quality or quantity agreed upon, for example. And suppliers potentially risk non-payment if buyers are unhappy. With this in mind, Standard Chartered is responding to market needs for reduced risk in e-commerce transactions through the delivery of an innovative digital escrow solution.
As such, the bank has partnered with digital payments platform Tazapay. This joint initiative helps clients by holding the escrow funds in both the buyers’ market and the escrow location. Once the escrow conditions are met and validated, the funds are released to the supplier – in an automated way, thereby helping to mitigate the risks associated with international trade for both parties.
This innovative Escrow-as-a-Service (EaaS) offering is a means to support the growing ecosystem around international B2B e-commerce. And for treasurers, it is an innovation that not only streamlines and automates workflows but also brings peace of mind.
For too long, FX has been ‘separate’ from cash management and payments. Often, treasury teams have dealt only with FX when hedging significant currency positions, and the exchange rates incurred with international payments and receipts have either been considered ‘incidental’ or low-value spot transactions have been carried out to deal with these on an ad hoc basis – with no consistent strategy applied.
But in a world where e-commerce is removing global borders and international payments are easier to make than ever, transactional FX must be firmly on the treasurer’s radar. “With the rise of cross-border commerce and as organisations seek to digitalise their processes, treasury teams are increasingly looking at ways to automate their transactional FX flows,” explains Panaino.
“In this day and age, no treasurer has the time or inclination to perform currency conversions manually. And, as ever, manual FX transactions leave room for errors, and additional costs,” he continues. “Besides, given technology advances, it is possible to integrate FX off the back of transactions to deliver a seamless digital experience that offers visibility and transparency – such as with our transactional FX solution - while offering competitive pricing to clients.”
Aside from technology advances, the future of cash management is also being influenced by increased global focus on, and shareholder demands around, sustainability or ESG. Corporate treasurers have become increasingly involved in the financing of ESG projects through green bonds and loans, for example. Sustainable supply chain finance is another growing trend, leveraging preferential financing rates to reward ethical, environmentally friendly, carbon neutral, or diverse suppliers.
Treasurers have been exploring ways to contribute to the ESG goals of their organisation - from sustainability-driven MMFs and ETFs to green and sustainable deposits. But all of these require cash to be tied up for at least a short period of time. As such, treasurers have increasingly been seeking a solution that delivers all the benefits of an ESG product, while still enabling daily access to their cash.
A new solution from Standard Chartered, the Sustainable Account, is here to meet this specific need - treasurers can uphold the UN Sustainable Development Goals (SDGs), since cash placed into the account will be referenced against projects aligned with the bank’s Green and Sustainable Product Framework, while retaining the desired level of daily liquidity.
Metaphorically, this solution provides the best of all worlds to treasury teams, while helping to make real improvements to the planet. Panaino elaborates: “This innovative solution builds on the bank’s existing sustainable trade finance and export letter of credit [LC] propositions, delivering a suite of ESG-compliant solutions for the treasury.”
He continues: “In the near future, I expect all day-to-day cash management solutions to have an element of ESG embedded within them. It is the future of business, and our planet, so treasurers must look to weave sustainability throughout their everyday operations – not just big-ticket events such as a green bond issuance – and encourage their banks to innovate in response to this growing need for ‘everyday ESG’.”
With all of this innovation in the cash management space, it is an exciting – albeit extremely challenging – time for treasurers. They are in the driving seat. They have the opportunity to effect change and to ultimately steer the course of international business from within.
“While this may seem like a daunting prospect, actually this is the perfect time for treasurers to lean on their banking partners for advisory, expertise and solutions,” believes Panaino. “I would encourage treasurers to challenge their banks, alongside fintechs and TMS/ERP vendors, to collaborate and create future-facing cash management solutions,” he adds.
In Panaino’s view, these solutions should easily integrate with treasury workflows and systems, offer the ability to customise reporting, and be as automated as possible. They should also be compatible with current and future market infrastructure, as well as being intuitive, cybersecure, and of course, sustainable.
“This might be a long – and ambitious – shopping list, but I believe great things can be achieved together. And it is only through collaboration that we can create solutions that ultimately benefit all involved, and power the future of the real economy,” he concludes.
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