Treasury in 2025: Will You Be at the Cutting Edge?

The ‘Journeys to Treasury’ report has become a landmark piece of research among the corporate treasury community – and the 2019/2020 edition is no different. According to the latest study, the treasury of the future will be almost unrecognisable: core treasury skills and requirements will evolve dramatically, driven by the combination of data and technology that is already transforming the profession in ways we never thought possible.

Cast your mind back to 2015 – the year that ushered in the Paris Climate Change Agreement and saw the Chinese stock market crash for the first time since 2007. Back then, treasurers were starting to get to grips with cloud computing and hearing more and more about real-time treasury, blockchain and artificial intelligence.

Just a few years later, the hype around these treasury trends and technologies is turning into reality, as outlined in the fourth edition of the Journeys to Treasury report – authored by BNP Paribas, PwC, the European Association of Corporate Treasurers (EACT), and SAP, featuring input from leading corporate treasurers (see box).

The report also suggests that fast forwarding to 2025 could see treasurers enter the realm of what was once seen as ‘science fiction’, with technology effectively ruling the treasury roost. That is not to say that treasury will become less relevant as technology takes over, however.

Arguably, the opposite applies as the need to manage liquidity and risk internationally becomes more important. Treasurers will also be freed up to spend more time reviewing processes and mindsets, with the aim of making treasury more efficient and ultimately adding value to the business.

Until then, the report suggests that treasurers may wish to focus on four key areas:

1. Payments and collections

New payment methods are proliferating as digital business models come to the fore, and regulators seek to improve the payment experience for consumers and businesses alike. Real-time payments are a global example, together with mobile wallets, which are becoming increasingly common in parts of Asia, Africa and Latin America.

The report suggests that not enough treasurers are playing an active role in the company’s payment and collection strategy. In many instances the choice of payment, and particularly collection method, is a commercial decision made by sales and customer engagement teams. Treasurers should arguably be involved in these decisions, however, to take account of issues such as: payment and collection costs; operational and credit risk; resilience; technology integration; working capital and liquidity, and sustainable growth.

Furthermore, new payment and collection instruments – from SWIFT gpi to Request to Pay functionalities – have the potential to create valuable opportunities for the business, particularly as digital business models evolve. For example, a growing number of companies in markets where real-time payments already exist are carving out competitive advantage, such as to settle insurance claims quickly.

As such, treasurers would do well to keep abreast of evolving payment and collection methods and to share their knowledge with other parts of the business. In this way, treasury can contribute to strategic and commercial decision-making, which will be especially relevant when expanding into new international markets.

2. FX risk management

International growth is also a driver for treasurers to review their FX risk management. With exposure to an ever-expanding range of currencies, and pressure on sales margins, FX volatility can make a major difference to earnings. The report highlights that treasurers are therefore renewing their focus on hedging strategies and optimal execution to manage risk and reduce the impact of volatility.

Christian Mnich Vice President and Head of Solution Management, Treasury and Working Capital Management, LOB Finance & Risk, SAP  “We have seen a definite change in treasurers’ attitudes towards payments and collections over the past three years. As companies make a strategic shift from products to services, such as subscriptions and rentals, the cash flow dynamics change, with a higher volume of lower value flows.”

Nevertheless, hedging remains a challenge – for a variety of reasons. For example, treasurers need to use forecasted cashflow and other inputs from the business to determine what their exposures are, what to hedge and over what period. But cash flow forecasting is notoriously difficult. It is therefore essential that treasurers understand how and why variances occur, such as incorporating volume risk, and variability on export timing due to sanctions, trade finance or customs requirements.

Collating FX exposures from different parts of the enterprise can also be challenging. Fortunately, however, both established and emerging technology solutions are providing treasurers with better intelligence around exposure forecasts, including using historic data, trend analysis and predictive tools, and potentially executing hedging transactions automatically in line with FX policy.

Didier Vandenhoute Partner, PwC Risk Consulting Services “….TMS and ERPs are increasingly able to support dynamic system updates, such as using APIs, and automate reconciliation and account posting; however, without banks doing the same, some of the benefits of real-time payments and collections will be lost.”

Another challenge is that the global financial crisis raised the issue of risk management in the CFO’s and CEO’s list of priorities, and company Boards continue to be motivated to understand the potential impact of FX volatility and limit negative effects on the business.

Consequently, the issue for many treasurers is not that FX risk management is becoming more difficult, but that C-suite demands for visibility over exposures, scenario analysis and benchmarking may be increasing, the report notes.

Technology for FX risk management may therefore be an increasingly important tool in the treasurer’s armoury, not least as treasury looks to add value to the business, rather than simply avoiding downside risks.

3. Treasury technology enablers 

Technology is transforming the experience of all treasurers, from small, single person treasuries accessing cloud-based solutions to large, multi-site treasuries with dedicated treasury IT and data support. With technology opportunities expanding and barriers to adoption reducing, more cost-effective pricing models, lower resource requirements and less implementation risk and complexity, it is easy to become dazzled by new technology.

François Masquelier Head of Treasury and ERM, RTL Group “Enterprise risk management (ERM) is typically an area where treasurers can expand their scope of activity, given their specific skills in identifying, assessing, quantifying and mitigating financial risks, as my own role demonstrates.”

To gain the full value of new solutions, however, treasurers must assess their needs and identify pain points. In many cases, it is the underlying data that is causing problems, rather than the lack of technology solutions available, to support basic treasury requirements as well as advanced capabilities. Improving the completeness and integrity of data is therefore often a vital prerequisite to embracing new technology or making the most of existing solutions. Ensuring the treasury team is ready to embrace technology and shake-up legacy processes is also vital, the report suggests.

4. The future of treasury

With treasury structures and processes being increasingly built around technology, treasury functions will need to adapt to remain relevant and enhance their value to the business. According to the report, the need to engage and collaborate with internal and external partners will also be amplified in the coming years.

In addition, to respond to evolving industry dynamics, treasurers will need to embrace an evolving skill set and develop a positive and attractive culture to entice new entrants to the profession.

Food for thought 

No treasurer should expect to tick all of the boxes outlined in the report, however. And some treasurers will be much closer to certain goals than others. The aim of the report is not to highlight that a handful of treasuries are miles ahead of the field, but rather to shine a light on the art of the possible – helping treasurers to set out on the right path towards treasury in 2025.