Published: September 18, 2019
In recent years, the role of the corporate treasury has been steadily evolving and transforming. Over the past decade, since the global financial crisis of 2008, the pace of this evolution has increased dramatically, and in the past few years, the strategic importance of the treasury function has been significantly raised as financial institutions have been required to respond to the rapid pace of disruptive change and the increased complexity of regulation.
While much has been said about the technological aspect of this disruption, the reality takes many forms, not least local and global political uncertainty, economic instability, extensive financial markets consolidation, demands for greater transparency and improved financial performance. Most important though are the widespread and significant shifts in the expectations of clients and the way in which financial institutions have to respond to these shifts. The new role of treasuries is to ensure sustainability of organisations throughout all these changes.
The reason for this shift in the role and importance of the treasury function is not hard to see. In an uncertain environment, where boards and executive leaders are not able to predict what the future holds for their industry, or even their sector, the need for at least some semblance of solidity is fully understandable, and a treasury must be able to provide that sense of security. This makes it an increasingly valuable contributor to shaping the strategy of the business, provided that the treasury function can demonstrate that it too has the ability to address its own challenges, provide efficiency and effectiveness in demonstrating this stability.
This transformation of the role of treasuries from basically being managers of working capital and liquidity and financial risks, to being vital contributors to organisational strategic and financial planning, requires treasuries to commit to clearly defining their strategic roles in the organisation and implementing the systems, models and mechanisms to make them the scalable, forward-looking, flexible and agile success enablers that their organisations need them to be.
For treasuries to achieve and fully deliver on this far more strategic and planning role within their organisations, their own futureproofing strategies must be built around far greater integration and advanced technologies, the foundations of which are digitisation and automation. Even at their most basic application, digitisation and automation will enable any treasury to move well beyond its traditional functions. That’s because the nature of the traditional treasury functions has ensured that they typically have access to immense amounts of data, which should be leveraged for the benefit of the entire business. Digitisation within a treasury enables this, effectively expanding the treasury function into the realms of behavioural analysis, decision-making and forecasting.
Of course, automation also enhances treasury functions by enabling increased speed of delivery, allowing vital real-time views of all the company’s financial positions, facilitating straight-through processing and effectively making sure that the treasury is fully integrated with the business functions. More importantly, it maintains integration in a fast-changing and highly dynamic business environment. In my experience, most large corporates across Africa have integrated their Enterprise Resource Planning (ERP) software systems with their primary banks to ensure they have straight-through processing capability and therefore fast and efficient transactions. This also allows the corporate increased control and ability to manage its finances in real time across many geographies.
Corporate treasuries have always played a vital role in helping organisations to manage their financial risks. However, the rise in instances of fraud and other financial crimes demands that treasuries are able to fundamentally shift the way in which they perform their financial risk management functions. It is no longer enough for a treasury to be able to react to instances of financial crime: it must be proactive in shifting the risk focus from best practice risk control and compliance to proactive crime prevention. For a treasury to fulfil this more proactive role and effectively disrupt potential crime and fraud, it has to embrace and leverage technology and harness the power of the data at its disposal through new ways of thinking and operating.
Technology is also key to effective supply chain finance management, which is a vital role that the treasury of the future must play in securing the financial and operational sustainability of the organisation. Apart from the positive impact that effective supply chain finance has in terms of enabling an organisation to deliver on its enterprise development promises, security of the supply chain is vital for the future of any business. For this reason, any strategic planning by a treasury aimed at futureproofing its role and function in an organisation, must include leveraging technology to deliver effective supply chain solutions with fast payment processes, thereby underpinning and strengthening vital supplier relationships and loyalty while ensuring working capital efficiencies. Many South African companies are also using supply chain finance as a means to support the smaller scale suppliers to get access to credit facilities and in turn drive economic growth.
Efficiency is one of the cornerstones of the successful and sustainable treasury of the future. This includes not only the need to create much more efficient processes without any unnecessary or time-consuming steps, but also transforming treasury transactions from the largely manual undertakings they have been in the past into mostly automated processes, with the end goal being risk and error-free straight-through processing.
For the larger corporate entities across Africa, such treasury efficiencies are most often achieved effectively through a centralised or regional treasury model. The adoption of new technologies essentially allows businesses to create large shared service centres, payments factories or centres of treasury excellence, where all the payments in a region can be processed in real time, and through a uniform, centralised system. Apart from facilitating business growth and expansion by giving the organisation the security of established, technologically advanced treasury functions, irrespective of where they operate in the region, this regional treasury hub also allows the company to access any tax incentives offered in the jurisdiction in which the regional treasury is established. All of which makes a very compelling case for investing in the technology needed to make such a regional treasury hub a reality.
Key to a more efficient treasury with automated processes and minimal risk of human error, is visibility. The treasury of the future is one that has full and immediate visibility of all the assets, exposures and bank accounts of the business, as well as a clear line of sight of any counterparty and, where necessary, foreign currency exposures. Given the dynamic and fast-changing nature of global markets and business environments, this type of technology-led visibility is non-negotiable, not least because it also allows the treasury to build the requisite flexibility into its systems and processes to allow agility in its reaction to any unexpected risk events.
In discussions with treasurers across Africa about their current and future application of technologies to enable effective treasury management, their responses featured advanced technologies like robotic process automation, artificial intelligence, cloud-based servers and machine learning. However, the humble spreadsheet still emerged as the most common tool listed by many treasury professionals as a key piece of ‘technology’ still being actively leveraged in their operations.
Given the impact of the advanced technologies being adopted by the majority of client-facing business areas, the pace of technology adoption by treasuries is concerning, although not unexpected. For most treasury heads, the perceived risks associated with the complicated processes of integrating new technology or replacing legacy systems may quite simply outweigh the perceived benefits in the short term. In addition, the treasury function is not a standalone business component. Its operations reach into every other part of the business, so transforming a corporate treasury technologically is not as simple as changing a standalone system or updating an internal process. It therefore requires a co-ordinated effort across the business to build a world class treasury; and that must begin at the very top, with the buy-in, support and sponsorship of the executives who head up all the business areas that will be impacted by, and benefit from, such a treasury overhaul.
But while it may seem like a daunting undertaking, playing safe or delaying too long is simply not an option. Even as treasurers focus on digitisation and automation to build the foundation of the future treasury, a failure to embrace more advanced technologies will result in treasuries effectively falling behind the organisational development curve over time, and in turn will not enable the treasurers to truly leverage the rich data which is at the heart of the treasury function to ultimately drive organisational growth and efficiencies, and create a proactive risk management barrier.
Sheetal Shah
Head of Transactional Banking Sales, Nedbank CIB
Sheetal is the Head of Transactional Banking Sales at Nedbank. She has over 20 years of corporate banking experience, covering all aspects of treasury, financial and relationship management with multiple international assignments in cash management, international banking, trade finance, forecasting, FX and working capital management.
Sheetal has played a critical role in supporting the strategic transformation of treasuries for local and multinational companies operating in Africa, further evolving Regional Treasury Centres in South Africa, Mauritius, Dubai, London, Hong Kong and Singapore. She has worked with corporates in identifying and implementing treasury management systems and ERPs globally, and has pioneered the development and deployment of some of the largest trade finance transactions in Africa.
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