The Future of Cash Management

These are interesting times for cash management. Traditional business models, for clients and their partner banks, are evolving, with digitalisation a core driver. This is occurring at a time when macroeconomic factors, including the effects of the continuously evolving COVID-19 pandemic, as well as the systemic low and even negative rate environment are putting a further strain on businesses. So what does the future hold for cash management, and how is Deutsche Bank meeting these needs? TMI speaks to Ole Matthiessen, Head of Cash Management, Corporate Bank, Deutsche Bank to find out more. 

Eleanor Hill (EH): Which macroeconomic factors would you say are having the most significant impact on cash management today?

Ole Matthiessen (OM): Liquidity is one of our clients’ most precious assets. However, cross-border transactions, different time zones, varying local banking practices and regulatory environments can make it difficult to utilise liquidity effectively. Macroeconomic factors throw an extra spanner in the works.

The euro interest rate environment represents a severe cost pressure for all our clients. The decision to boost the European economy by taking interest rates below zero in 2014, followed by further cuts in recent years, primarily affected the financial institutional client base, to begin with, at least.

Given the dramatic change in outlook for the euro interest environment over the past 12 months, however, it’s fair to say that negative interest rates are here to stay – and this has made it necessary for banks to reconsider their euro strategy across all client segments, impacting treasurers in the process. We have been very open and transparent around this and have begun to pay our clients market rates – as have our competitors. While this means our clients now face negative rates, we have provisions in place to help offset this.

And while the euro has become a ‘known’ challenge for corporate treasurers, with an increasingly interconnected treasury space and continuous growth of cross-border payment flows, there are also ‘unknown’ macroeconomic challenges driven by one-off events worldwide.

The COVID-19 pandemic is a clear example of this. The wide-reaching impact is such that we have not only seen central banks and governments around the world swiftly assembling many stimulus packages to support the economy, but so too even the brief closure of an interbank FX market in Asia; just some examples of the domino effect that unpredicted events pose on the global economy and the challenges this poses to today’s treasurer. This emphasises the importance of corporate treasurers in helping their businesses operate in uncertain times.

EH: So, how are your clients reacting to these challenges? Is it impacting their approach to cash management?

OM: Treasurers are increasingly focused on optimising liquidity, especially in times of crisis. If they have cash reserves in various jurisdictions around the world, and partner banks in each, it is difficult for any bank to provide a complete solution. As such, we are definitely seeing a trend towards clients requesting our services on a regional, or even global, basis, as opposed to country-by-country.

This plays well into our overall cash management strategy: a global bank, with European roots, serving clients worldwide. We currently have people on the ground for our clients in 34 locations and, over the next 18 months, we are opening three new branches for our Cash Management business in Australia, Ireland and Luxembourg.

EH: Busy times for all! What other demanding situations are today’s treasurers facing?

OM: Beyond macroeconomic factors, treasurers are dealing with more fundamental challenges. Many traditional business models, for both banks and clients, are changing. When we talk to treasury departments, as well as our clients’ innovation and digital officers, it’s clear that they are under increasing pressure to perform cash management processes more efficiently and in a more automated manner. What’s more, they must do so with much smaller budgets.

One way in which we are supporting clients to ensure they have the right level of visibility over their positions, control over their flows and speed of access to information is in our build-out of self-service functionality. We are investing heavily in what we call our Digital Service Manager, which aims to automate certain low-value processes in order to operate in a more streamlined way.

The aim is to free up resources within the bank for imminent service requests and enable our clients to perform simple tasks much more independently. To put this into perspective, we still have clients calling us multiple times a day for an update on where their payment is sitting in the transaction chain. Human interaction for such basic requests is superfluous and, going forward, similar status reports can be accessed by the client or sent directly through a push notification.

In addition to operational efficiency and excellence, treasury departments are also being tasked with more strategic challenges, where they help differentiate their business through innovative structuring of treasury processes and payments. A recent example of this is where, through the combination of an application programming interface (API) and real-time payments, we were able to build functionality for a telecommunications client in Asia. This enabled them to have a faster funds release process on their mobile phone top-up cards – giving them a competitive edge in their product offering through using financial innovation to positively impact the end-user experience.

And this is just one solution development of many at a time when we have significant IT investment planned for this year. Other highlights include the evolution and execution of our API strategy and the roll-out of our Open-Banking-led Request to Pay solution. We are also exploring and how to better integrate with treasury management system (TMS) and enterprise resource planner (ERP) providers.

EH: What was the impetus behind Deutsche Bank’s significant investment programme?

OM: While we are arguably the most well-known service house in the cash management arena, we have faced significant competition over the past few years in the digital services space. This is why our journey over the next 18 to 24 months, which begins at the start of Q2 2020 with the roll-out of our digital requests for investigations, is a really important one for us. It is not just about retaining our number one position in the service world; rather it is about becoming the uncontested leader in the whole digital services industry.

I also strongly believe in providing a full suite of solutions for our clients. Deutsche Bank is primarily known in the market as a payments expert, but this is just one piece of the puzzle. As a fully-fledged treasury solutions’ provider we are also recognised as a pioneering FX house and, additionally, we are moving from strength to strength in our liquidity offering.

EH: We’ve spoken a lot about digital treasury, but not so much about real-time treasury. Is that something you are investing in too?

OM: Absolutely. Firstly, this is a perfect example of the importance of holistic treasury solutions where real-time treasury does not simply equate to real-time payments. The benefits of a complete real-time treasury offering are clear to see – especially for asset-light companies. Take the app-based transport sector or the emergence of platform-based accommodation marketplaces, for example. Here, real-time payments play a significant role – not just in terms of how the end consumer pays for the taxi ride or accommodation booking.

Real-time payments mean companies can provide instant access to liquidity in local currency to those providing the services – be they car drivers or property owners – rather than their having to wait until the end of the month for payment. For this to truly work, however, the entire end-to-end process needs to be streamlined on an instant basis, not only the payment flow alone. This might require, for example, Open Banking solutions, APIs, liquidity management tools, virtual accounts, real-time FX management tools, automation and even robotics. Combined, these functions are fundamentally changing treasury departments – and we certainly plan on staying at the forefront of these developments.

EH: Finally, as we progress through the new decade what else does the future of cash management hold, and what might this mean for the treasury department?

OM: A specific example, and one I think is applicable to many of our clients, is the growing trend towards platform-based, digital business models. Everybody wants to be the Amazon or Spotify of their industry. While this is interesting, it also creates an extremely challenging, competitive landscape where the quickest to adapt will seize the growth opportunities on offer. This creates a big question for us: how can we design treasury workflow solutions that can facilitate our clients’ business model transitions? It’s a conundrum we are focused on answering, starting with the development and roll-out of a B2B marketplace solution as announced during our Investor Day last year.

We are not only seeing an evolution of traditional treasury departments, however. We are also engaging with emerging and disruptive client segments and focusing on their specific needs. Having worked with many household fintech, tech and e-commerce names for a number of years, we are further expanding our offering to other players in the ecosystem, in a strategic manner. We see a demand for industry-bespoke solutions and can indirectly support the end consumer experience of this client base on a global scale. From capabilities such as streamlined developer- and influencer payments worldwide, to cross-border collections for large scale e-commerce channels across industry verticals, we are focused on working closely with this fast-paced segment to enable their business models, and, ultimately, facilitate their growth.

Taking all of this into account, the future of cash management will be driven by a continually digitising value chain and will see treasurers’ requiring greater thought leadership and treasury expertise from banking partners than ever before. This is an evolution we are not only ready for, but also looking forward to.