Who's Running the Treasury?

2017-2018 Who’s running treasury? TREASURER VS THE TREASURY BOT? TREASURY IS DEAD: LONG LIVE TREASURY SWIFT VS RIPPLE: THE BATTLE BLOCKCHAIN: GET TO KNOW THE PILOT PROJECTS

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From the editor Editorial director Welcome to Treasury Perspectives Leslie Holstrom [email protected] The ‘intelligent treasury’ edition Contributors Mariel Barclay This year’s Treasury Perspectives looks at some of the bigger global trends Simon Brady impacting business from the re-emergence of globalisation to the shift away from China to lower cost locations in which to do business. We also look at the digital Mark Parsley challenge for banks and corporates along with the promise of what FinTech, AI Katrina Rollinson and robotics might offer treasury. Jonathan Williams Digitalisation will be the focus both for banks and their corporate customers for some Art direction + graphic design time to come. The speed of change will be at a pace that most treasurers will find uncomfortable. However, it is imperative that you keep informed as new products Nick Chapman are rolled out and you don’t miss the digitalisation boat and what could turn out to be an interesting and effective suite of solutions. Because increased automation via Advertising AI, robotics and machine learning will without doubt impact the treasury and the Susan Christopherson functions it performs. In some instances, for some companies, automation could make the treasury role redundant. [email protected] It’s a catch 22, isn’t it? The corporate drive for efficiency requires automation of Marketing + circulation repetitive operational tasks. The technology to do that is fast becoming available Jane Pinfield for many treasury functions. Add in a bit of AI and machine learning and soon the technology may make smarter and better-informed judgement calls that were previously only possible by humans. So, to embrace that type of technology may Enquiries well mean that treasury automates itself out of existence. EuroFinance, 20 Cabot Square, Our journalists this year look at the advances in technology and how those may offer a London, E14 4QW, UK new level of efficiency in cross border payments, supply chain, FX and other treasury T: +44 (0)20 7576 8555 functions. But we also delve into how treasurers can retain control and increase their www.treasuryperspectives.com remit by repurposing what treasury does and how it operates within the business. www.eurofinance.com We believe that the intelligent treasury should function as a strategic consultant to the business in all things financial. Treasury needs to understand how it can use data to produce more relevant insights for the business. It should also retain the whole of the www.eurofinance.com/linkedin risk portfolio from financial to regulatory, supply chain to cyber, credit to investment and liquidity because these challenges are ideally suited to the treasurers’ skillset. There is much to be done to improve the overall risk management in companies. Partly because of scattered data, systems and responsibility, and partly because the www.twitter.com/eurofinance technologies that will allow whole-business risk management are only now becoming @eurofinance available. This is not only an opportunity for the treasurer but an opportunity for banks to develop next generation risk management products. Other areas where Treasury Perspectives is published annually treasury can make its mark include working capital and supply chain. The list goes by EuroFinance and is in circulation on: M&A, tax, procurement and even the strategic structures throughout the business. Those areas can and should be within the treasury remit. If you automate yourself out worldwide for one year. of job, it’s best to have a back up plan. Neither this publication nor any part of it may be All the best reproduced or transmitted in any form or by any means, including photocopying and recording, Leslie Holstrom or stored in a retrieval system of any nature, Editor without permission. Treasury Perspectives Printed by Fox Print Services [email protected] © EuroFinance Conferences Ltd All rights reserved www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 3

MEET THE GLOBAL TREASURY COMMUNITY The world’s leading international treasury event Geneva, Switzerland 26-28 September 2018 Next generation treasury 2, 000+ senior treasury and finance professionals from around the world 1 00+ of the leading product and solution providers 7 0+ sessions on the latest treasury trends www.eurofinance.com/geneva

Contents GLOBAL PERSPECTIVES 22 A future proof payment system? SSC PERSPECTIVES 6 2018: the outlook for treasury 36 Treasury is dead: long live treasury? As you read this, already things are If SSCs continue to automate more and shifting and changing dramatically in the more processes and the Global Business business and financial environment, and Services models are gaining in popularity in particular in technology. That’s the with large multinationals and global nature of change these days. So rather companies, why doesn’t treasury just than tell you the interest rate outlook or succumb to the rule of the shared services the views on dollar/euro, we offer some centre? Well, for some treasuries, this is key trends that EuroFinance believes will the current path. help to guide a longer term strategy for businesses and their treasuries. The SWIFT/Ripple battle in the payments landscape is just one story. If your business creates a high volume of low value payments, what about Global ACH 2.0 as an answer? CAREER PERSPECTIVES INTELLIGENT PERSPECTIVES FINTECH & BANKING PERSPECTIVES 38 It’s treasury Jim, 10 i-Treasurer 24 T ailored treasury: the promise of but not as we know it AI is not something for the future, it is bank and FinTech innovation If nothing else, treasury has maintained something in use in a variety of financial a consistent mantra for the past 10 years: services and transactions. Its potential to automate, do more with less and use impact all things financial will continue to technology to drive efficiency. Will that grow, and rapidly. What will that mean for path eventually put treasury out of a job? treasury specifically and how far off are the ambitious advances? FinTech companies are targeting unwieldy, archaic processes and revolutionising how those work. Meanwhile banks are active in innovation too, whether partnering with promising FinTech firms or by changing how they work. We look at just a few examples CULTURAL PERSPECTIVES PAYMENTS PERSPECTIVES in this massive, fast-changing industry. 41 Managing cross-cultural challenges 16 More than just ripples BLOCKCHAIN PERSPECTIVES in SWIFT’s pond Cross-border payments have always 30 The blockchain in practice drawn a litany of complaints about for the treasury mismatches, predictability, tracking and poor remittance data. Both Ripple, the blockchain solution and SWIFT, the incumbent network are working towards solutions. For treasury it is win-win. You might have created efficient, state- of-the-art global treasury solutions, but that doesn’t mean they will be easy to implement. In a series of interviews, Is this the year of the blockchain? Pilot leading multinationals reveal how projects abound. But what products treasury policies are understood and actually exist and how do they benefit implemented depending on location and companies today? how to overcome resistance. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 5

Global perspectives 2018: THE OUTLOOK FOR TREASURY What you worry about today, may not be what you should worry about tomorrow and the opportunities you think are breaking today might also be gone tomorrow. In a world of fast-paced change are there any key trends of which treasury should be aware and plan longer term? By Katrina Rollinson. THE WORLD IN 2018 Daniel Franklin has been executive edi- China will be coming off its party con- Another industry to watch will be space, tor of The Economist since 2006 and editor gress which has been a big event looming from a different perspective. With new since 2003 of its annual publication, for this year. What happens after that? discoveries and the ongoing advances to “The World in…” which focuses on the Will there be a more serious push for tourism, it could be a landmark year. year ahead. EuroFinance asked him reform once that is out of the way? A Another question will be over interest what we might expect. more serious crackdown on shadow rates – how fast do they go up? We are EF: What are some of the major issues banking and growth of debt in China? quite a way through the maturity of the companies should be aware of in 2018? There are big elections also looming in cycle. How will that play out for the next Latin America for Mexico, Brazil, recession whenever that comes. No one is DF: Politically the on-going Trump Colombia. forecasting the next recession but we are drama will impact politics and econom- quite a way through this cycle. There are ics both domestically and globally. The National security issues will continue a lot of uncertainties around interest US midterms are fairly soon so that will with North Korea likely to have its rates and how fast QE gets rolled back. concentrate the mind on Trump’s popu- workable nuclear intercontinental mis- For a corporate treasury that’s the most larity or lack of. sile ready next year – so geopolitical ten- important immediate. In Europe you have Brexit and although sions will be sharper. the nominal deadline is March 2019, a More regulation is on the horizon and deal needs to be done relatively soon so another issue. A big regulatory dump is Five second summary the clock is ticking louder and louder. about to happen in Europe with MIFID, None of the political worries Contingency plans need to be made for GDPR and PSD2 – all extra things you have completely gone away in Europe: companies and particularly for banks. It have to comply with. crisis could return, refugees remain an can’t be left to the last minute. Also in issue, Brexit is still there and Putin hasn’t Europe, Italian elections are on the The new data rules coming into force gone away on the security horizon, but horizon and everyone will be looking to will affect every business. the position is somewhat less accute. see how well the Five Star Movement Then there is the ongoing technologi- Geopolitical tensions will remain (Italy’s populist movement) do. There cal development and disruption or sharpen globally. will probably be a Greek election too. impacting industry wide, particularly in Overall, Europe is in a calmer state than banking. I don’t believe the disruption on it has been in a long time. Optimism is not the corporate side will happen swiftly. a word you have heard in connection with Customers are very conservative. This Europe for many years. But a combina- applies even on retail side with the excep- “Overall, Europe is tion of Macron steadying the nerves and tion of first time youngsters coming to the probable return of Merkel in the Ger- market – but that is a small segment. in a calmer state than it man election – there will be talk after that has been in a long time. what the Franco-German engine can do Generically, it is true that every industry if it sputters back into life. Greece is cer- is being disrupted by technology. There’s Optimism is not a word tainly not out of woods yet but better than a meta trend of massive amounts of data it has done in a long time. Brexit funnily being generated that are being used by you have heard in enough has had the consequence of unit- all industries in a more intelligent way. connection with Europe ing Europe and reminding people that Therefore, intelligent data will be a big Europe matters. The Eurozone economy theme for almost all businesses. Indus- for many years.” is growing at least respectably compared tries to watch will be healthcare and bio- to recent times. tech from a data utilising perspective. 6 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

DEGLOBALISATION VERSUS REGLOBALISATION From the fall of the Berlin Wall until challenged not only by BRICS situation added activities to other Asian countries, recession hit in 2008, the name of the but also by the US with America First. much like Japan did after its initial, game was globalisation. Countries were Then there is the death of Mercosur; the domestic industrial push, creating a new attracted to the idea that democracy vote on Brexit and the four-decade old group of Asian tigers like Vietnam, and free markets were the drivers of NAFTA being renegotiated. Myanmar and Indonesia. Troyjo also economic prosperity; regional integra- points to foreign direct investment by tion like MERCOSUR, NAFTA and The pre-eminence of the global supply Chinese companies of which the top des- the enlargement of the EU was a facet of chain too is under threat. Trump’s tination today is the US. This resump- globalisation where political blocks “America first” position comes just as tion of global growth will also benefit became important players in economic China and other low-cost production commodity exporting countries. growth; supply chains became global environments lose their low-cost status. with company production, logistics and Domestic supply chains may make more Finally he points to the wave of techno- distribution taking place in different sense, particularly if trade clashes betwen logical development that is also playing a markets and continents. And the US the US and China result in an increase role in reglobalisation with Big Data, remained the superpower promoting all in protectionism – with China not com- blockchain, AI and the so-called Indus- three trends. Company strategies, mitted to free trade in the first place. trie 4.0 knowing no borders but creating accordingly, embraced the notion of its own global growth. globalised business. But the good news for companies who modelled their business on a global strat- But then Brexit, Trump and the rise egy and now may worry this is redun- Five second summary of nationalism have challenged this dant, retreat will probably be short-lived. Don’t lose time rethinking; the world orthodoxy. So are we in an era of Trump’s America first programme will will resume its global growth. deglobalisation? Are the strategies that harm America. If low cost manufactur- multinationals have pursued for the last ing centres are eliminated then Ameri- decade simply past their sell-by date? can companies will hurt and the “The four marks of globalisation have knock-on effect on stock markets in the changed today completely,” explains US is obvious. “If Trumponomics is not Are the strategies that Marcos Troyjo, a political economist, an everlasting,” says Troyjo, “the US will author and director of the BRICLab, return to a foreign policy that is in the multinationals have pursued a forum on Brazil, Russia, India interest of its companies, so trade and for the last decade simply and China at Colombia University. investment deals will come back.” He “The idea that free markets and free says that China is driving a resumption past their sell-by date? trade is more conducive to prosperity is of global policies as it shifts lower value- WHY BANKS ARE FAILING THE DIGITAL CHALLENGE The next decade will see more disruption revenue over the next three to five years. really hard to change. They want to be to the banking landscape than we have The firm also recently polled 1,300 innovative but they are hampered by seen for a century. The broad drivers of financial industry executives of whom risk, because with innovation comes risk. change are clear: regulation and techno- 88% believed that their business was at It’s a catch 22 no bank has fully solved.” logical upheaval. But the true challenge risk to FinTech firms active in payments, And Brett King, advisor to the White for banks, and one that they are failing, is FX and personal finance such as loans. House on the Future of Banking, points to look beyond these drivers and ask why to the issue of silos: “The big transaction banks are finding them so difficult to Others focus on the regulatory angle. deal with. Consulting firm Protiviti’s Jonathan banks tend to innovate [but only] in Wyatt, Digital Lead, says of the banks’ pockets within their business.” And he Most banks and, unsurprisingly their struggle: “There are pockets of innova- points out that it’s not just FinTechs that technology vendors, view the threat as tion within these banks. It’s a constant threaten the banks. “The major threat primarily a technology issue. So, for battle, helping them with their attitude to comes from the tech giants,” he says. He example, as far as a senior blockchain spe- risk – the perception they have that regu- references how Uber had trouble cialist from IBM is concerned: “Banks lators won’t allow them to do things. recruiting drivers in New York city can optimise their technology but they Adapting their mindset is crucial – yes because they were unbanked. Before can’t compete with the new technology.” there are risks, but the bigger risk is not they could drive with Uber they needed embracing innovation.” a debit card. So Uber partnered with a The consultants, again for obvious rea- tech bank and issued their own driver sons, tell the same story, using a different Chris Skinner, chairman of the Finan- debit card. Now drivers can get paid example. They tend to emphasise the cial Services Club, also puts the blame three times a day which was something risk to the big banks from FinTech chal- on regulation but hints at a more pro- no other bank could offer. “In solving lengers. So PwC forecasts a 25% drop in found problem: “Banks culturally find it this obstacle, Uber became the third www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 7

for delivery either to the business budgets the PayPal opportunity because they lack that fund them or to senior management. the ability to innovate. They missed it largest acquirer in the US. When you IT development bogs down in meetings because they have not adapted to the look also at Alibaba and Amazon that which themselves become forums for strategic realities of digitalisation and are emerging as dominant platforms for blame apportionment and conflict. are still fighting irrelevant, tactical bat- commerce, it will put banks at a signifi- tles, both internally and externally. cant disadvantage,” says King. The banks, who admit this in private, Without a wholesale rethink of IT staff- believe that one solution is to joint ven- ing, reporting lines, incentivisation and These are all valid points, but the core ture with the very FinTechs they also see overall management, banks will con- truth is more problematic. Banks are as a threat. PwC’s survey mentioned ear- tinue to fail at even the most elementary struggling with digital transformation lier reported that 82 percent of respond- initiatives. That isn’t to say there are no because they are failing at the basic hur- ents said partnerships with tech-savvy innovative banks out there. Citi, Bar- dle of ‘change’. Banks’ tech teams are firms would increase over the next three clays, Santander, BBVA, Nordea, DBS scattered and staffed largely by long- to five years. As Gregory Vincent, Head and other global and regional institu- term contractors who are hard to man- of FX Payments at INTL FCStone adds, tions are investing heavily in innovation age to finite objectives and who have no “Banks need to provide innovation, and labs or equivalents and partnering with real loyalty to the institution. They are therefore are looking at what FinTech outside firms to create new solutions for then overlaid by teams from the Big Four are doing and layer it in or buy it. There clients. But for many banks, innovation is consultants, sometimes hundreds of peo- is no point in them building it.” simply a step too far. ple at a time, some of whom work full- time for years within an institution. Citi also believes that banks, “can’t cre- These consulting teams are, for example, ate and build everything. Absolutely we Five second summary drafted in to change application develop- have a number of mechanisms to bring ment culture, but as the existing teams the outside in,” says Morgan McKenney, FinTechs, tech titans like Apple, Paypal, are essentially the client, the consultants head of Citi’s Asia Innovation Lab. “We and Google; and companies that sit on have no real power to effect change are so genuinely interconnected and to data like insurance and energy are threats unless senior management steps in. And have true innovation you will have to col- to the future of traditional banking. But it they do not. laborate externally.” is bank management’s failure to respond appropriately to these threats that will Where there are dedicated teams for Given the scale of banks’ IT spend and cause them the most trouble. digital transformation, inexperienced infrastructure, this could be viewed as an executives again lack true accountability admission of failure. Banks did not miss AI: TRICK OR TREAT FOR TREASURY? Remember the 2015 Sci-Fi movie Ex “We are at least a decade from a power America Merrill Lynch uses AI for smart Machina? A programmer at an internet source that would let them live on.” invoicing matching that is up to 50% search giant wins a competition to spend more accurate than manual matching. the week with a reclusive CEO and his Well that’s good news. But is AI still a AI experiment called Ava. The AI proves threat to treasurers and their jobs (and Banks across the world are trialling or to be more deceptive and intelligent than indeed to other managers)? Researchers have processes using AI. In other words, her creator imagines. The chilling end like Rutherford, who of course will according to the optimists, AI initially is (spoiler alert), where Ava murders the remained employed for some time to being used to automate mundane pro- boss, traps the programmer and escapes develop it, see AI as an opportunity. “AI cesses, allowing full-time employees to to freedom is a warning on the ethics and has been involved in various industries for utilise their talents in more efficient and morality of pursuing AI. years, including finance. Algorithms have creative ways. been used to make calculations that are Recent statements from Elon Musk, the beyond the complexity of regular humans Sceptics remain, well, sceptical. They Tesla creator and entrepreneur claiming as well as to take decisions. What is differ- take the view that companies invest in that AI is the greatest danger to human ent about now is that we are having more these products to save money and their kind, do nothing to quell this Holly- conversation about it and our access to biggest cost is staff. AI is simply another wood-induced fear. Ironically, given machine learning is improving and we form of automation and so while it may Musk’s primary business, AI experts will have better ability to make predic- or may not affect overall employment point out that one big issue for any robots tions using complex data sets.” levels in an economy (and the smart bent on world domination is one that money right now is that it will not create dogs non-intelligent devices now: Most banks are invested in, partnering the new jobs generated by previous with or innovating with AI to see how to industrial innovations), it will most cer- “The joke about the film is that 10 min- improve customer service and solutions. tainly result in the loss of particular job utes after it ends, Ava would have run out Banco Bradesco uses a clever bot for cus- types and most treasury functions are of battery which wouldn’t have made tomer services (trained by the bank’s automatable. Indeed, treasurers’ core job such a great ending,” says Adam Ruther- most valued customer service people). at the moment seems precisely to auto- ford a geneticist and consultant on popu- Based on IBM’s Watson, the age of the mate themselves out of a role. lar science fictions movies such as Ex AI went from five years old to 18 years Machina, Life and World War Z. overnight, according to IBM. Bank of 8 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

FORGET TRADITIONAL ECONOMIC FORECASTING So much of industry has been disrupted Economist and entrepreneur Pippa Here is what she thinks are relevant for and continues to be, so why should we Malmgren thinks a traditional approach companies today based on common sense listen to traditional economists and their no longer meets our needs. Malmgren is signals. Her first point is advice about often wide-of-the-mark predictions? If the author of the best-selling Signals: How China: “China is no longer a leader as a you want to understand more about the Everyday Signs Can Help Us Navigate the competitive manufacturer. Foxconn, for global economy, geopolitical issues, the World’s Turbulent Economy. She also served example, the largest private employer in rise of technology and tech titans who as an economic advisor to the Bush China (Foxxconn assembles much of the may take over key parts of industry, it has administration. She believes we look at world’s iphone and ipads) have said they become harder to predict, partly because the world through a mathematical lens will build production facilities in the US. of volatility and to a certain extent but remain blind to the things that are That is a hell of a signal.” because the speed of change has hard to quantify. We need to embrace Another strong signal is the shift to digital increased. The financial crisis was our “common sense” eye alongside tradi- money. In the past, when there was too famously not predicted by most econo- tional analytics, and learn to read what much debt to pay off governments simply mists; Brexit came as a surprise as did she calls “signals”. abandoned the whole system of money Trump; and few called the rise of the far and accounting. It sounds radical but Brit- right in politics all over Europe. “Keep your data but remember that you ain did it in 1984 when they abandoned So are economists looking in the right can’t put a number on the anger that the Talley Stick system and introduced places? Can a more fit for purpose gives rise to a populist uprising, even paper money. “You will see governments approach work better? Certainly You- though the anger is real and changing do this again with blockchain in conjunc- Tube viewing can predict votes and the landscape of politics. The top man- tion with e-money,” she says. spending patterns. Twitter and Facebook agement of organisations, including the analysis can reveal economic patterns CEO, think they are navigating the com- Digital money will in effect eliminate the right down to whether individuals are pany but often they are cruising with a black market and therefore increase tax reducing spending or buying baby flight plan that is 10 years out of date. revenues. It will also make tax payments clothes. Even banks’ Big Data is a better They think China is cheap and therefore immediate: both revenue and timing fur- real-time predictor of GDP than any it’s the future. But today the least expen- ther help governments manage the his- economist with a few data points and an sive market for manufacturing is Mexico, toric debt burden. out of date poll. not China. Mexico is the new China.” On the US she says that many compa- nies don’t realise that the most dynamic location on the planet is the Mexico/ Texas region. They are the hottest emerging and industrialised economies anywhere, juxtaposed. They think the Trump wall will destroy that area. But To survive, treasury must reinvent itself To survive, treasury Mexicans are no longer going north as a function that cannot be replicated by because there are so many jobs at home sophisticated algorithms working over must reinvent itself and Americans are happy to fly over the truly integrated, real-time data transfer as a function that wall in search of profit opportunities, and analytics systems. How to start NAFTA or no NAFTA.” thinking about that? Well, it’s an axiom cannot be replicated of AI that computers find the things by sophisticated humans find hard (Big Data analytics) Five second summary easy and the things we find easy (identi- algorithms. If you keep being blindsided by fying a chair) hard. So maybe treasurers events like Brexit and Trump, then stop need to forget about number crunching drilling down into data and instead look and start thinking about becoming for common sense signals. If the Chinese internal change consultants – the link are manufacturing in the US then between an increasingly data-heavy but Shenzhen isn’t cheaper than Wisconsin wisdom-light finance function and the any more. Adjust to that change. If front line businesses. (For detailed uses of governments introduce blockchain in AI in finance, see page 10.) sync with e-money, expect that the debt will become easier to manage. Five second summary AI and automation will be adopted to cut staffing costs. To avoid redundancy So are economists looking in reinvent yourself as a value-added the right places? Can a more human to human interface. fit for purpose approach work better? www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 9

Intelligent perspectives I-TREASURER Is the current obsession with artificial intelligence in all things financial just hype, or is the technology truly at a tipping point? How will it affect treasury and what do treasurers have to know about it? By Leslie Holstrom. Consultants, tech vendors and futurolo- entire operating model and the core pro- The first step in solving this problem is gists are in no doubt at all. Artificial cesses of the finance function. automated reporting for the most basic, intelligence (AI) is going to transform standardised and formulaic reports. everything – including the financial ser- But before those more glamorous func- These may be mundane but they still vices sector. The combination of limitless tions, AI will probably first be used to involve large numbers of people per- data storage, continued increases in pro- automate the mundane and repetitive. forming low-value-added tasks. Some cessing power and the rise of distributed Solving regulatory overload companies have already started to use computing, and rapid advances in our robotic process automation (RPA) – ability to train machines in various ways, Financial reporting and compliance, essentially software ‘bots’ – to replace will hand large chunks of human activity from KYC in trade finance and supply humans in these processes, but they to computers within the next five years. chain, to simply dealing with banks on a have faced the problem that while the Whether the most aggressive predictions day-to-day basis, is increasingly complex, bots can be programmed to deal with come true or not, it is already true that AI burdensome and expensive. It requires some exceptions, they still stumble is being used in sectors as diverse as increasing numbers of staff to process when tasks require even a small amount finance, healthcare, transportation, man- huge volumes of data to generate the mul- of ‘wisdom’. Adding machine learning ufacturing, the law and customer service. titude of internal and external reports that allows RPA to deal with much more For corporate treasurers, this spread has are demanded by committees, the board, complex tasks and gives it the ability to two immediate implications: first, given auditors, shareholders and regulators. go beyond volume-driven aggregation the alleged benefits of AI in terms of pro- Reporting and compliance adds little pos- to functions such as intercompany rec- ductivity and data-driven insight-genera- itive value to the business but a failure can onciliations, the quarterly ‘close’ and tion, how can they benefit internally from create significant cost. earnings reporting. this technology? Second, how will the drive to adopt AI by the financial services industry affect the relationship between companies and their providers of financial products and services? AI in the treasury and finance function Current AI solutions, in general, rely upon a number of basic ‘skills’: some apply fixed algorithms to large datasets and recognise patterns which humans can then interpret as useful insights; some can be ‘trained’ to replicate pro- cesses to which they are repeatedly exposed, including those that require the ability to interpret natural language; and some can adapt their responses by ‘learn- ing’ when they are exposed to new data. Combining one or more of these abilities allows software to mimic customer ser- vice agents, to read and review complex documents, to match buyers to appropri- ate products and services and to provide sophisticated analysis of Big Data in close to real-time. In so doing, it is possi- ble to imagine AI restructuring the 10 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

AI in AR The same logic is driving the application of the RPA/AI combination to accounts receivable. AI algorithms are ideally suited to resolving some of the key prob- lems in receivables because they can learn from previous experience and behaviour patterns. This allows them to build up a picture of good and bad cred- its, early and late payers, fraudulent activity and even message repair and exception handling. One key receivables problem has always been the level of manual intervention required to cope with the mismatch between the way customers deal with billing and the way a particular treasury system would like them to. The multiple exceptions, errors and idiosyncrasies of the process defeat both the simplest sys- tems that used optical character recogni- tion (OCR) with templates and also more intelligent rule-based solutions. Now however, companies like US-based In the UK, Arria has developed natural across an international network and HighRadius, Receivable Savvy and Ger- language generation software (NLG) techniques such as natural language pro- many’s collectAI are using self-learning that is being used across a wide range of cessing and machine learning are being solutions to automate AR processes to industries to humanise and simplify the used to ‘understand’ the law, map com- make debt collection more efficient, analysis of data heavy reports. KPMG pliance needs and even analyse the costs reduce costs, improve cash flow and has been using innovations from of compliance. By treating regulations as increase customer retention rates. McLaren Applied Technologies (MAT) data, software will dynamically bring These types of software do everything in its audit processes where predictive compliance into the enterprise risk envi- from work out the best channel on which analytics automates evidence gathering ronment, enabling treasurers to take a to contact debtors to figuring out which and the production of complex data genuinely risk-based view of regulatory payments relate to which invoices despite reports, saving time and improving cli- compliance. customers’ habit of using one payment to ent services. Deloitte recently announced fully or partly pay multiple invoices and a partnership with Kira Systems to aid in These drivers have spawned an entire optimising early payment incentives to a contract and document reviewing, and RegTech industry that aims to replace particular customer using algorithmic has already rolled out a customised ver- the present combination of scattered invoice discounting to build intelligent sion for audit processes with further humans and fragmented legacy technol- supply chain finance solutions. applications being explored for tax and ogy to ensure that trades, customers and advisory practices. the company are compliant. Others, like YayPay look at a customer’s The pace of change in global regulation payment habits and behaviours and uses And J.P. Morgan’s Contract Intelligence machine learning to predict the potential (COIN) system has replaced the 360,000 and the complexity of AML/KYC and day of their payment. This forecast is hours spent each year by lawyers and OFAC sanctions compliance are too then used by the treasury team (or other loan officers interpreting commercial- much for existing instructional algo- automated solutions) to target the most loan agreements and other contracts. rithms and rules-based systems. The lat- significant outstanding debt. COIN runs on a cloud-based machine ter flag cash transactions over a certain learning system and as well as being currency amount, block transactions to AI in AP many times faster than its human coun- certain countries, use customer data to terparts it has also managed to help J.P. select accounts for additional monitor- In the same way, the advent of intelligent Morgan decrease the number of loan- ing, and categorise merchant accounts mobile bill processing technology able to servicing mistakes that are, in part, based on prior transactions. But they execute transactions to any schedule or set driven by the need to interpret 12,000 generate large numbers of false positives of rules, will transform accounts payable. new wholesale contracts every year. which need human intervention and they One set of solutions uses supervised Again, it is the sheer scale of the data cannot cope adequately with deliberate machine learning to teach a software tool crunching required that will force com- attempts at fraud or evasion. the key data points on a set of scanned panies to seek out this kind of solution. invoices. After the training phase, the AI- An AI solution ‘learns’ to identify prob- enabled tool can perform the data extrac- The next level lem transactions by analysing every data tion completely on its own and only brings point in the entire transaction database. invoices to the attention of a human where More complex compliance requires more It develops rules of its own based on, for it does not recognise them. sophisticated solutions. Even a medium- example, customer location, transaction sized firm may have to evaluate hun- timing, social media activity and rela- Here, the main benefit of artificial intel- dreds of tax and legal updates a week tionships with other customers. ligence is the ability to speed read huge www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 11

some machine learning capabilities in its Analytics Cloud. IBM Watson Analytics, Amazon Quick- Sight, Microsoft Azure and Google’s Cloud platform also incorporate AI and it seems clear that those treasuries able to centralise the required datasets will be able to choose from a wide range of pro- viders able to intelligently crunch it and provide the forecasts they need. Most firms will simply rent these solutions from the cloud. In addition, companies like Microsoft are making their AI capabilities, for example in language processing and face recognition, available through APIs and they are linking with the largest open source AI platforms, such as H2O.ai, allowing other developers to add AI to their products. AI-enabled ERP solutions will combine intelligent data analytics, smart automa- tion, smart data gathering and sensor technology with deep learning, natural language processing and the technology to respond appropriately to changing situations in real-time. We are only at the beginning of this process, but companies like SAP are already deploying these technologies and corporates will need to re-organise all IT- and data-reliant pro- cesses to incorporate the changes. The impact on staff and organisational struc- ture is hard to overstate. Is the day volumes of invoices and to apply approv- That treasurers struggle with forecasting approaching where an ERP (or TMS) sys- als rules to them. Almost as a by-product is no surprise. Accurate forecasting tem will refuse a treasurer’s instructions of those processes, these systems aggre- requires the intelligent evaluation of a on the grounds that they are sub-optimal? gate large volumes of data that, properly large number of internal and external The impact of bank AI on treasury analysed, can be used by treasury, pro- variables, the weighting of those varia- curement or business units to ensure the bles, comparison with historical pat- It is clear that the incorporation of AI into supply chain is as efficient as possible. terns, the incorporation of real-time data existing and new treasury technology will Similar solutions are available for T&E from the business, procurement and else- have an increasingly profound effect on processing and monitoring. where and a view on how good business the systems, status and staffing of corpo- units themselves are at understanding rate treasuries. But it may be the use of AI All these developments are recognisably their situation. At even a small company, by their providers of financial products a linear continuation of the long-time this process involves far more data points and services that has the greatest impact. treasury drive for process efficiency and than a human, even one equipped with productivity: cost cutting to you and me. Excel or even a good ERP system, can Transaction, risk and asset management As well as forming the backbone of inter- accurately model. are, along with credit provision, the core nal treasury, these AI-based solutions products treasurers need from their will transform next-generation shared Treasurers ought not to feel too bad – it banks. So how will banks’ adoption of service centres. turns out, across hundreds of studies artificial intelligence change the world across a wide range of sectors, that a for corporate treasury? Where AI gets more interesting is in its small number of fairly statistical promise to revolutionise strategic and algorithms, applied to past data, almost Artificial intelligence may well create value-added treasury functions. always outperform even the most quali- interesting new money management fied humans. tools, hedging systems and transaction Forecasting and ERP management services, but by far the most What have treasurers put at or near the top The latest solution is AI-based ERP important implication of AI for any bank systems which promise to optimise customer is how it will transform their of their list of challenges for the last decade? ability to derive insights from their data. Forecasting – cash forecasting, forecasting operational models and transform for risk management, forecasting underly- business operations. So, for example, as We have already seen in the retail market ing business variables from customer announced in mid-February, SAP’s that AI-driven bots can act as financial orders, to supplier payments to procure- S/4/HANA Cloud ERP product now advisers, matching customers to appro- ment need and to inventory levels. incorporates predictive analytics and priate loan, credit card and investment 12 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

SPONSORED ARTICLE A full spectrum of opportunities in cash management Digital technology is transforming and inspiring new work practices. In today’s digital world, treasurers expect to extract value through digital capabilities and channels to help them overcome treasury challenges and seize growth opportunities. Throwing new light on cash management optimisation Digitalisation is having a profound effect on the way we communicate, commute and consume services, including banking services. As a result, banks are innovating to transform and enrich their client experiences through Keeping up to date – Given the diversity and effectively using DBS Treasury Prism’s dynamic new solutions enabled by technology, as well speed of change across Asia, treasurers and guidance on the latest restrictions, regulatory as providing new perspectives and taking a finance managers lack the time and resources implications and documentation requirements. multi-faceted approach to exploring potential to navigate and keep up to date with the solutions. This is at the heart of our strategy plethora of regulatory and tax changes that Transforming bank-corporate at DBS, and the inspiration behind the have an impact on cash management conversations development of our innovative dynamic decisions. This creates challenges when trying digital solutioning and advisory platform to position a new cash management solution, Today’s emerging technology solutions, from DBS Treasury Prism. and treasurers may ultimately decide not to instant payments and collections through to implement a new cash management strategy bespoke use of industry standards and APIs The birth of DBS Treasury Prism for fear of non-compliance. to enhance integration, enables companies to DBS Treasury Prism is a dynamic digital ‘unbundle’ bank solutions and reconstruct solutioning platform that enables corporate Stakeholder engagement – Treasurers them to build best-of-breed solutions. And treasurers to simulate cash and liquidity typically need to work with a large number of this digital transformation doesn’t stop here. management scenarios within the context of stakeholders across the business, including By leveraging digital banking capabilities and risk, return and regulation. It provides an central functions such as legal, tax and other insights through online advisory tools such as interactive interface for modelling structures, finance teams, as well as operating units. DBS Treasury Prism, together with the bank’s benchmarking of solutions, guidance on Consequently, the easier it is to collaborate co-creation approach to new solution design, regulatory and tax implications, as well as and share knowledge, such as the ability to treasurers and CFOs can keep up to date with insights on local market practices. create a dynamic visualisation of account and market developments and new opportunities, liquidity structures, the more likely that a and use this knowledge to shape the In addition to the multi-faceted functionality cash management project will be successful. company’s digital strategy. and insights that it offers, what distinguishes Implementation risk – Implementing DBS Treasury Prism is the way it has been a new cash management solution, even “Treasurers and CFOs will increasingly rely on developed, which places the client’s needs with an existing bank, is seen as a high-risk their bank’s advisory services to help articulate and journey at the core of its development. project for corporate treasurers, often with the value proposition of digitisation, and identify The result is a highly functional, pragmatic significant internal scrutiny. Treasury where the greatest value can be added. With a and insight-led design based on in-depth functions are often small, so it can be variety of drivers, whether technical, regulatory, engagement and feedback from a deep pool of difficult to balance resources across or internal, such as supporting liquidity and both existing and prospective clients. information requirements across the business, day-to-day activities and specific projects. online advisory services, such as DBS Treasury Embarking on the journey, DBS’ research and Hence, treasurers tend to be sceptical about Prism, can help to build multi-dimensional views insights emphasised: implementing new cash management of potential solutions, pinpoint opportunities or solutions unless they have assessed and obstacles, and support treasurers in maximising Time challenges – Treasurers say that it takes are fully assured of the benefits of doing so. value for the enterprise.” too much time and preparation to define and deliver an optimal cash management solution, Treasurers often express frustration that they John Laurens leading many to postpone or cancel the are not necessarily able to replicate the Head of Global Transaction Services implementation of new cash management solutions that they read about in the treasury initiatives, particularly given competing media or bank brochures due to regulatory or business priorities. tax considerations. Uncertain benefits – Many companies find it DBS Treasury Prism however, enables them to difficult to quantify the cost and productivity simulate potential solutions and gain clarity on benefits of a new cash management solution, the outcomes for their business to devise a For more information, visit us at exhibition which is a major obstacle when trying to compelling business case. Furthermore, they stand S42 at EuroFinance Barcelona 2017 or develop a compelling business case. can manage project risk and complexity more treasuryprism.dbs.com

includes details of every payment made and received, the timing and location of those payments, the behaviour of cash- flows over time, data on FX flows and hedges, data on indebtedness over eco- nomic cycles – and, importantly, data on all the counterparties to these transac- tions and, of course, the amount of money the bank has made from all this activity. The combination of Big Data techniques, distributed cloud technology and AI will increasingly mean that they will be able to analyse this data. So what will they do with it? On the upside, it should mean that banks are able to offer a set of prod- ucts radically improved by the addition of AI-driven advice. So, for example, banks will be able to analyse corporate transaction data across the cash cycle to determine which bills should be paid when, which customers should be offered discounts and what those discounts should be. It could suggest how payment terms could be altered more broadly to improve the overall P&L and to model the impact of suggested packages of products products. AI is also being used to improve vice, more accurate matching of prod- and services tailored to the client. retail credit scoring by looking at core ucts and services to client needs and The data could be used to look at balance data more intelligently at firms like better pricing, treasurers need to think of sheet optimisation, the best sources and online lender Elevate, Equifax and ID the possible downsides. types of funding for particular projects or Analytics. Experian too is researching acquisitions, for asset management and machine learning while relying for now Banks have unimaginably large data- on traditional regression methods. bases of customer behaviour which, until hedging. And, because banks will use AI now, they have been unable to analyse in for their own AML/KYC compliance, The same basic idea will be applied to any meaningful way. This data is not they will be able to help corporates with corporate banking – and while the banks simply basic data on loans, timely repay- their supply chain and supply chain emphasise how AI will lead to better ser- ments and core financial variables, it finance optimisation. 14 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

In addition, because the banks will be Already the banks have finally agreed to tions like enhanced due diligence reports, able to look at all their data, across all pool anonymised credit data to improve risk and compliance advice and HR ser- sectors, geographies and company sizes, their own risk management and pricing vices. There is no guarantee that this kind they should be able to provide the kind methodologies without AI. London- of development will benefit all corporate of benchmarking and advisory services based credit risk management startup customers and AI will simply make the that treasurers have sought for the last Credit Benchmark was founded in 2012 analysis more profound. 20 years. by ex-Goldman Sachs and Lehman Brothers employee Mark Faulkner. It Not quite yet However, there is a flip side to all this. specialises in pooling, aggregating and The banks’ investments in AI and anonymising credit risk data from lead- The more ambitious of these advances advanced analytics will be driven first ing global banks, so that financial institu- are some way off. Banks have found the and foremost by a desire to improve tions can make better risk management task of aggregating and centralising their their own profitability. Their new-found and capital allocation decisions. global databases extremely difficult and knowledge may well be used to examine they will continue to do so. Only when which clients are profitable and which In AML/KYC, there are companies like that problem is solved can they then are not; how different products and ser- ComplyAdvantage – an AI and machine begin to apply AI and other techniques vices should be priced according to indi- learning RegTech startup to provide busi- to those datasets and start to modify vidual customer’s needs; which clients nesses with a feed of proprietary anti- their offerings meaningfully. are actually far more of a credit risk money laundering (AML) risk data as well than existing internal models and rat- as on-boarding screening solutions and a In the meantime, AI is being applied to ings suggest because of their exposures monitoring platform for know your cus- discrete functions that do not rely upon to other companies or risks made visible tomer (KYC) processes. The system col- that aggregation of customer data. So by these advanced analytics; which cli- lects data from sources such as Interpol’s companies will be able to benefit from ents do not meet their AML/KYC watch list, international sanctions and advances in, for example, asset manage- requirements because of the nature of media reports to automate due diligence ment where companies like Aidyia and their third-party relationships or pay- on clients that pose a criminal risk. Off Kensho are using machine-learning to ment flows – and so on. the back of this data it can provide solu- run portfolios. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 15

Payments perspectives MORE THAN JUST RIPPLES IN SWIFT’S POND? Cross-border payments have long been the bane of treasury: too slow, too expensive and too opaque. Nimble FinTech service layers get all the hype, but the key competition is about incumbency and the fundamentals of correspondent banking. By Mark Parsley. Ask a corporate treasurer about the pain doned the old model and developed com- to sign up to something that at least in points in payments and you’d better pre- pletely new systems based on distributed the short term appears to hurt them com- pare for a rant: how long a payment takes ledger technology alone, Ripple being the mercially. The demands of the SLA force for the beneficiary to be paid; the predict- largest and best-established. (None actu- them to do an existing job more quickly ability of that time; impossibility of track- ally uses a true Bitcoin-style blockchain and transparently, and without employ- ing payment status; inconsistency of data and so all rely more or less on existing ing the tricks of the trade from which requirements by different banks; poor payment systems, whether ACH or corre- they previously extracted additional quality of remittance data sent with pay- spondent banking.) So which is best for profits. These previous wrinkles include ments; costs and predictability of costs of corporate treasury? percentage rather than flat fees, ‘lifting making a payment; the time and difficulty fees’, additional correspondent banking of dealing with rejections, stopping pay- Building on the past fees by intermediaries, float and FX ments and performing payment repairs. One way to address payments’ pain spreads that should simply be a fixed All of these problems conflict directly points is to try to mitigate them within spread over a real-time market rate. Why with treasurers’ need to automate pro- the current infrastructure. This is the should banks give these up? cesses, prevent fraud, increase cash and approach taken by SWIFT with their SWIFT’s answer, according to Wim fee visibility and optimise liquidity man- Global Payments Innovation (GPI). This Raymaekers, Programme Director, agement. They arise partly from the is simply the traditional SWIFT messag- SWIFT GPI, is that “GPI is about pro- archaic structure of the correspondent ing and correspondent banking system viding a better service by enhancing the banking system. This turns a simple pay- plus what SWIFT calls a new set of ‘busi- customers’ experience of making cross- ment between two parties into a game of ness rules’ captured in a set of multilat- border payments. As a result, banks will pass the parcel for six: payer, payer’s eral service level agreements (SLAs) be able to retain and attract new custom- bank, payer’s bank’s correspondent, ben- between participating banks. ers and ultimately show leadership in eficiary bank’s correspondent, benefi- global payments innovation. They will ciary bank, beneficiary. In other words, SWIFT’s member banks also achieve significant cost savings as a – at least those committing to GPI – agree result of the network and claim manage- These parties do not themselves act con- to change their behaviour, to homogenise ment efficiencies they can achieve in cor- sistently: some have straight-through their offerings, and to provide “same day respondent banking. Moving forward processing (STP); some do not; some sit use of funds, transparency and predicta- with the availability of additional SLAs on the payment longer than others; the bility of fees, end-to-end payments track- and innovations, additional savings will fees charged along the way differ bank to ing and transfer of rich payment subsequently result from enhanced com- bank, country to country. The addition information.” Any banks that sign up to pliance practices, optimised intraday of KYC/AML, OFAC and other sanc- GPI agree to cut down on the opaque liquidity flows and increased straight- tions and an inconsistent global regula- charging and delays from which they may through-processing rates.” tory playing field has simply thrown sand previously have benefitted and they also into what was already a misfiring engine. have to ensure that all their partner banks These arguments seem to have been per- The contrast between this process and the in the transaction chain also agree. suasive so far. According to SWIFT’s digital world most of us experience as To improve transparency, SWIFT has website, “over 110 leading transaction individuals is extreme – as it is in other built an ‘observer’ system which allows banks from Europe, Asia Pacific, Africa areas of treasury. And it has not gone and the Americas are already signed up GPI banks to monitor the SLA compli- [to GPI] and more are expected to join.” unnoticed. Existing players, such as ance of their partners across the system These banks represent the overwhelming SWIFT, Visa and Western Union have as well as a payment tracker, on which majority of cross-border payments on the launched new or improved B2B payments payments’ progress can be viewed in real SWIFT network. solutions based on the existing system of time. This will be white-labelled by correspondent banks, and these compete banks for their clients. A step in the right direction with new players like PayCommerce and, though it is more for P2P and SMEs, Clearly a key challenge for SWIFT in The first iteration of GPI is not the end- TransferWise. Others claim to have aban- implementing GPI is persuading banks game – and SWIFT itself acknowledges 16 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

As SWIFT explains on its website, “under the current correspondent banking that. “The second phase goes one step Also, phase two of the SWIFT roadmap model, banks need to monitor the funds in further, enhancing the digital transfor- for 2018 expects to deliver extended pay- their overseas accounts via debit and mation of cross-border payments by ment data. credit updates and end-of-day statements. The maintenance and operational work enabling banks to offer new services But most important, no solution of this involved represents a significant portion such as, for example, the facility to kind addresses any of the fundamental of the cost of making cross-border pay- immediately stop and recall a payment, problems inherent in the traditional ments. This PoC will test whether distrib- no matter where it is in the correspond- infrastructure (the MT messaging stand- uted ledgers may be able to help banks ent banking chain.” ard was designed for X.25 networks in reconcile those nostro accounts more effi- Same-day settlement is better than the the 1970s). In particular, it makes no ciently and in real time, lowering costs three to five days it could currently change to the basic counterparty struc- and operational risk.” take, and it is a significant step towards ture of a traditional payment which cre- SWIFT will deploy open-source real-time (which is still not a priority ates the cost, delay and opacity in the Hyperledger technology, and combine it for most treasuries, according to first place. If you believe that new con- with key SWIFT assets to bring it in line a recent SWIFT/EuroFinance white sumer demands and the digital-first com- with the financial industry’s require- paper). Similarly, with fee transparency panies that service them are already ments. Using a private blockchain in a and predictability, GPI delivers post- stretching the capabilities of the old sys- closed user group environment with spe- transaction clarity, and this can, over tem, and that developments like the cific user profiles and strong data con- time enable treasurers to predict costs Internet of Things (IoT) will make this trols; user privileges and data access will better. But treasurers’ ultimate wish is for worse, then the GPI may well only be a be strictly governed. accurate upfront cost information. bridge to some new system of the future. The fact that SWIFT is looking at block- And the payment tracker, critical as far Further initiatives chain/DLT is a quiet acknowledgement as any corporate treasurer is concerned SWIFT understands this. As Raymaekers that the competition is doing the same, – is clearly just a step – welcome though it says, “In addition, and more broadly, and may well be stealing a march. is – along the road to a more modern sys- SWIFT is also engaging the FinTech Baby steps to the future tem. It functions as a central payments community to assess available technol- database, hosted at SWIFT, updated via ogy against customer requirements. In For example, in an attempt to remove MT199 or API with data consumption September we are hosting an ‘Industry some steps in the payment chain, and to via GUI. So each bank in the chain Challenge’ competition for FinTechs to benefit from blockchain technology, Visa updates the SWIFT database via MT199 develop overlay services leveraging the is working with Chain to develop Visa producing a set of messages that can be SWIFT GPI platform. The FinTech B2B Connect, to give financial institu- viewed by the payer via a GUI that gives winners will be awarded 100,000 EUR tions a simple, fast and secure way to pro- details of when each bank did what. By each to work with banks and SWIFT cess business-to-business payments itself this does not provide full fee trans- on collaborative innovation concepts globally via a new near real-time trans- parency or predictability and it still relies that solve additional industry chal- action system designed for the exchange upon old technology at the banks tracking lenges in cross-border payments on top of high-value international payments payments through their systems quickly of SWIFT GPI.” between participating banks on behalf of enough to produce meaningful data. their corporate clients. SWIFT’s claim that GPI will feature In addition, in January this year SWIFT’s exploration of the blockchain resulted in Chain, Inc. is a technology company that “transfer of rich payment information” is the launch of a proof of concept (PoC) – partners leading organisations to build, somewhat undercut by the fact that its scoped in collaboration with leading cor- deploy, and operate blockchain networks own documentation confirms that unal- respondent banks – to determine if and is author of the Chain Protocol, tered remittance information is limited to distributed ledger technology (DLT) which powers the Chain Core block- the 140-character standard in its messag- could help banks reconcile their nostro chain platform. Its strategic partners ing. While this could be used to deliver a databases in real time. Thirty SWIFT include Capital One, Citigroup, Fiserv, URL to a set of documents, it’s far from GPI member banks are participating in Nasdaq, Orange, and Visa. delivering full remittance information via this PoC, set to show early results at the As Visa and Chain describe it: “Visa is the bank. Again though, the improve- next Sibos meeting. Wells Fargo, Bank of working with Chain to build Visa B2B ments in information delivery are signifi- New York Mellon, ANZ, BNP Paribas, Connect using Chain Core, an enter- cant and in many cases treasurers do not DBS Bank, and RBC Royal Bank are prise blockchain infrastructure that need to key information via the banks. among those participating. facilitates financial transactions on scal- able, private blockchain networks. Build- ing on this technology, Visa B2B Connect will facilitate a consistent process to The biggest threat to SWIFT’s manage settlement through Visa’s stand- supremacy and the largest ard practices.” DLT-utilising payments In other words, this platform will cut out the majority of the correspondent bank- initiative is still Ripple. ing steps in the standard payment by allowing banks and corporates to make a payment direct to one another using the Visa infrastructure as a central clearing www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 17

point. A bank can pay into B2B Connect, Making waves All of this happens within one or two sec- and Visa will pass the payment onto the But the biggest threat to SWIFT’s onds – faster, cheaper and less compli- final counterparty, removing the need supremacy and the largest DLT-utilising cated than the current process with for multiple intermediary banks. payments initiative is still Ripple. Ripple end-to-end visibility and rich informa- claims to be a real-time gross settlement tion exchange. The advantages, according to the devel- opers, are familiar from the claims of system (RTGS), currency exchange and The benefits for treasurers are clear: set- GPI: predictability and transparency – remittance network that uses a sub-set of tlement risk is almost completely elimi- banks and their corporate clients receive blockchain technology called Interledger nated (risk remains if banks are not near real-time notification and finality of Protocol (ILP). operating at the same time); Ripple’s auc- payment; security – signed and crypto- So what happens in a Ripple transac- tion system assures best FX execution; graphically linked transactions are tion? (You can find out on YouTube.) counterparties in the transaction chain designed to ensure an immutable system Ripple still uses the idea of correspond- can be limited to those who match pre- of record; and all parties in the network ent banking. So in a transaction between specified compliance criteria; Ripple are known participants on a permis- two institutions there still sits an interme- uses standard ISO and MT messaging sioned private blockchain architecture diary bank. These are the key stages: (which of course means it is subject to that is operated by Visa. some of the same limitations as SWIFT); The originating bank sends there is no loss of data in the transactions Are these claims true? We will know out a request to the beneficiary – meaning higher auto-reconciliation when Visa rolls out the pilot and time 1 bank and correspondent bank rates and all fees and costs are known will tell if it emerges as a real competitor to obtain their processing fees upfront. to SWIFT on SWIFT’s home ground. and, if required, FX rates. Also, corporates using Ripple are only As an aside, Mastercard added block- indirectly exposing themselves to a Fin- chain APIs to its developer site to “facil- Pre-transaction validation: Tech start-up because their banks, not itate new commerce opportunities for 2 this includes compliance screening and account verifi- they themselves, are the counterparties the digital transfer of value”, following cation checks. Since all parties in the network. Treasurers are still inter- Visa’s announcement that the B2B Con- have this information, they acting with trusted bank partners. nect pilot would start this year. Master- can pre-validate the transac- Card has, however acquired VocaLink, tion to ensure STP. Is blockchain the answer? the operator of UK ACH clearing which For Ripple to become a significant alter- is a partner in many immediate pay- The originating bank accepts native to the existing infrastructure, the ments schemes worldwide, including the 3 the best quote for which they blockchain has to be proven suitable for US, Singapore, the UK and Sweden. can meet the compliance the purpose. Plenty of people say that it is This is a shrewd move as VocaLink requirements. The benefi- not. So, as explained above, SWIFT is understands both ACH and card pay- ciary bank can then lock the exploring a blockchain PoC but in ments and has experience of corporates. quote. At this point Ripple ini- announcing that initiative it also says that While the components don’t yet fit tiates a hold on the funds in “whilst existing DLTs are not currently together, watch this space. the banks’ ledgers. mature enough for cross-border payments The ILP ledgers generate this technology, bolstered by some addi- 4 cryptographic signatures to tional features from SWIFT, may be verify that funds are commit- interesting for the associated account rec- ted to the transaction. The onciliation,” says Wim Raymaekers, funds are simultaneously Head of Banking Market and SWIFT released across all the parties’ GPI at SWIFT. “This PoC gives us the ledgers ensuring no settlement opportunity to test DLT and determine if risk. it can be applied to this particular use case.” It will initially show early results at Upon completion Ripple pro- the Sibos meeting in Toronto. 5 vides a confirmation message to all parties. 18 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

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He is backed up by Stephen Grainger, said “the Bank has decided not to build 2016, admits that “a single blockchain is Head of North America at SWIFT, who the renewed RTGS service on Distrib- not viable, the future is in different cur- says, “there is a recognition in the indus- uted Ledger Technology, in light of its rency blocks with Ripple an interconnec- try that perhaps distributed ledger findings that the technology is not yet tion.” The fact that he has joined the new technology at this point isn’t ready for sufficiently mature to provide the excep- company, along with Marjan Delatinne, the wholesale application to manage all tionally high levels of robustness required who had been leading customer engage- correspondent banking”. for RTGS settlement … Further work is ment for SWIFT’s GPI, suggests that required to address privacy and system Ripple believes the blockchain can be The bankers on SWIFT’s GPI Vision scalability in particular, and these and part of a new global payments system in Group also explain GPI’s reliance on tra- other topics suggested by this initial work some way. ditional processes by claiming that nei- will drive the Bank’s future research pro- ther banks nor their regulators are ready gramme on this technology.” What’s not to like? to risk the international payments system on an untested technology. So Tony Ripple rebuts the criticism of its use of For treasurers the battle looks like a win- Brady, managing director and head of the blockchain by saying that ILP gets win. If Ripple does what it says, treasur- global product management for BNY around the issues raised because it simply ers will benefit. If it fails but in the Mellon Treasury Services, who is a connects existing bank ledgers rather process forces SWIFT to improve its core member of the SWIFT GPI Vision than holding the ledger itself. In effect, offerings, then treasurers benefit. And Group, says: “Our early view is that banks connect their core systems to the GPI, as Raymaekers says, “is real! More while blockchain and distributed ledger Ripple network – analogous to how they than 40 global transaction banks have have a fair amount of promise, it’s a lit- currently connect their core systems to begun actively using or implementing the tle early to try to tackle cross-border the SWIFT network and the ILP is used SWIFT GPI service, with another 50 in to co-ordinate the payments. This the implementation pipeline. Hundreds of payments, particularly high-value cross-border payments where we’re put- addresses the fears banks have expressed thousands of GPI payments have already ting millions of dollars at risk.” about the blockchain around privacy, been sent across more than 85 country scaleability, regulatory approval and the corridors.” Treasurers are already win- It’s not just SWIFT, which has perhaps a issue of having to get all parties to a block- ning. vested interest in downplaying the new chain to agree to validate a transaction. technology. As explored in the block- chain article (page 30), the Canadian However, even Marcus Treacher, Global central bank has come to the same con- Head of Strategic Accounts, Ripple and clusion and in May, the Bank of England, formerly HSBC’s Global Head of Pay- in its paper, “A blueprint for a new RTGS ments Innovation and a member of the service for the United Kingdom”, also Global Board of SWIFT from 2010 to Get informed advice from 2000+ senior treasurers FREE whenever you need it. Get to solutions faster Avoid costly mistakes www.eurofinance.com/ectn 20 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

SPONSORED ARTICLE © pigprox – Fotolia #104758470 Uniting the strengths of travel managers and treasury Valuable arguments for professional T&E payment solutions. By Thorsten Gräf Head of Strategic Accounts In many companies, the decisions to be made concerning Travel & Entertainment payments are becoming more multi-disciplinary, and besides travel management increasingly a matter of treasury. Hence treasurers are more interested in understanding the background of T&E payment decisions. Travel managers, in turn, are more interested in understanding the work performed and the challenges faced by treasurers. The following arguments are the uniting benefits of travel managers and treasury when they decide for professional T&E payment solutions: Improved liquidity All T&E payment solutions offer greater liquidity than alternative payment methods, such as petty cash or direct invoicing. However, unless travel accounts for an exceptionally high proportion of the Improved compliance and risk management Gain better supplier deals company’s costs, small differences in – Detailed information about how much payment terms will have almost no impact on T&E payment solutions mitigate a wide range employees are spending, and with which the company’s overall working capital. of operational, financial and reputational risks. suppliers, makes the difference when Improved process efficiency Prevent employees from over-spending/ negotiating corporate discounts. spending outside policy – You can limit how About AirPlus International Seamless financial system integration much employees are allowed to spend through – Electronic invoicing lets you upload format- monthly limits and individual transaction AirPlus is a leading international provider of friendly information seamlessly into your limits. You can also control who they are solutions for the day-to-day management of accounting system. No manual entry is required. allowed to pay by setting limits on which types business travel. 49,000 corporate customers Rapid invoice reconciliation of merchant may accept the card. count on AirPlus for the payment and analysis – For users of a centrally billed T&E payment of their business trip costs. Products and Make T&E payments without plastic cards services are marketed worldwide under the account (also known as a lodge card), a single – Companies don’t like giving plastic corporate AirPlus International brand. The AirPlus invoice covers all payments by your employees. cards to everyone who works for them, e.g. Company Account is the most successful A reconciliation process that used to take days contractors, interns or new employees. central bill account based on UATP. can now be completed in minutes. Products like lodge cards and virtual cards “Prior to signing with AirPlus, reconciliation and allow closely controlled payments for T&E accounting of employee travel took up to a week. without having to issue any plastic. Contact: Now it takes us 30 minutes to reconcile employee Improved visibility AirPlus International travel information. We get the detail we need, Dornhofstraße 10 last-minute bookings are easier and we can Understand your T&E spend better 63236 Neu-Isenburg Germany instantly account for what we spent.” – By channelling all T&E payments through T: + 49 (0) 61 02 204 444 Teo Contreras, one process globally – a process with F + 49 (0) 61 02 204 3490 Assistant Financial Controller, PGS Americas excellent, precise reporting – you can fully [email protected] understand how much T&E is costing your Minimize cash advances company, and when you need to pay. – Cash advances can be eliminated by employees paying directly through their T&E Track budgets – AirPlus’ payment solutions payment solution or withdrawing cash on allow the addition of up to nine separate fields their corporate cards while travelling. of employee data at time of payment. That allows you to easily break down spend by Lower payment costs employee, client, project or department. And – Handling costs are much lower than so can your budget-holders. Daily transaction cheques or wire transfers. Credit is interest- feeds into your expense reporting system For more information, visit free for the vast majority of travel expenses. ensure fast visibility of total spend. www.airplus.com

Payments perspectives A FUTURE-PROOF PAYMENT SYSTEM? While SWIFT, Ripple and others battle it out in one region of RTGS space, treasurers can ask their banks for a different payments mechanism, one also being transformed by FinTech and the blockchain. If cost is an issue, or if your digital business creates a high volume of low-value payments, what about ACH? By Simon Brady. Automated Clearing Houses (ACHs) nies and large corporates. We provide a corporate clients. However, corporates provide domestic clearing at exception- single platform for enterprise-wide pay- can access global ACH more directly via ally low cost and with very high trans- ment needs, whether outgoing or collect- a cloud-based portal such as Tipalti parency and service levels. Because ing payments. There is a lot of cost saving which is a global payment automation clearing is critically important to the effi- when you streamline the platform and service that gives global ACH as one of cient operation and integrity of the finan- provide an enterprise-wide solution,” said its choices of payment channel. These cial system, ACHs are typically classified Abdul Naushad, PayCommerce Founder portals offer a range of integrated ser- as ‘SIPs’ or systemically important pay- and Executive Chairman, describing the vices, including payee registration ments systems and so they are to an initial ambitions of the company. through to invoice processing, tax and extent future-proofed: they will be main- regulatory compliance, remittance, pay- tained and their activities are monitored PayCommerce has come a long way ment issue resolution, fraud risk mitiga- by a governing body, usually the national since then. In April 2017, the company tion, payment reconciliation and payee central bank. announced that it had achieved a mile- reporting. The systems also check that stone of over 100 banking and financial payees are not on any international anti- Most banks do not provide individual services institutions in its consortium, terrorism, anti-drug trafficking, and businesses with the option to send money spanning more than 80 countries. anti-money laundering watch lists prior using the country’s local ACH systems According to the company, “PayCom- to payments being made. but it has long been clear that a ‘global merce enterprise customers include ACH’, a consolidation of the local ACHs seven of the top global banks, 11 of the Choosing this type of system, rather than into some kind of network, could create a top 50 US banks, 14 Global Fortune asking your banks to utilise a different powerful alternative cross-border pay- 500® firms and eight US Fortune 500® channel, means integration with ERPs, ment system. companies. Additionally, the PayCom- accounting and performance manage- merce platform has processed over US ment systems. So the choice is not simply However, with no global ACH standard, $400 billion, consisting of over 300 mil- a new, cheaper payments channel offered and over 26,000 rules that govern bank lion transactions in the last 12 months.” by your banks, it is a fully-featured auto- routing in all the different countries, plus mated payments and remittance system. ever-increasing compliance requirements, Earthport attempts to create such a network in the Blockchain past have failed to make progress. Its main competitor is Earthport, which also claims to be “the leading payment Both PayCommerce and Earthport PayCommerce network for cross-border payments” pro- started out by focusing simply on the viding international ACH payment value-added parts of the transaction To turn cross-border ACH into a rela- capabilities to its consortium bank part- chain: initiation, processing, capture and tively seamless and easy-to-use service, ners, representing cross currency pay- customer service: they did not aspire to banks needed to be able to join a net- ments in more than 60 countries and 25 create real-time, instant payments in work with a single commercial agree- currencies. Like PayCommerce, Earth- competition with other RTGS networks. ment that uses technology to do the port effectively re-intermediates banks heavy lifting for them. PayCommerce is into a global ACH payment system and However, both companies have also one: founded in 2006 it is a global ACH lets banks, money transfer organisa- announced blockchain-based initiatives payment network provider which pro- tions, merchant acquirers, gateways to take their consortium networks to the vides wholesale FX services and a local and newer global payment providers next level, Earthport announced its gate- ACH solution across borders. PayCom- make payments globally on behalf of way partnership with Ripple in August merce says it can save users up to 80% customers or directly to suppliers or 2015, which led to the launch of the on the cost of a payment. global sub-merchants. Earthport Distributed Ledger Hub for “There is a new generation of tech busi- Tipalti multiple ledgers, announced in January nesses that are very global and have a lot 2016. This was designed to provide con- of payment needs, whether collections or The previous two companies provide nectivity to additional distributed ledg- settlements, so our focus in the next few banking services to banks, which can ers as they emerge, all available via a years is on this new generation of compa- then offer an improved service to their single relationship with Earthport. 22 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

The structure of transactions is not The Federated Ledger is a hybrid of both For corporates these developments changed by the addition of blockchain, distributed and centralised ledgers. It mean ever simpler and cheaper access to the Ripple technology simply speeds up acts as an integration point across differ- faster, more visible payments. There is the transaction and all counterparties ent networks of the distributed ledgers. also clearly a process of convergence reconcile to single balances on the Rip- But it is still the consortium banking between the larger bank networks, and ple Consensus Ledger. In other words, model that, in both cases, creates the the use of blockchain technology, which the addition of Ripple unites corre- foundation on which the global network will increasingly pit these consortia spondent banks and market makers in is based. against each other and against incum- the same ledger which allows all the bents such as SWIFT. For banks this transaction information to be shared PayCommerce has announced the will create a complicated set of choices between Earthport the banks and the launch of the pilot programme to deliver about technology and partners. For FX market makers. instant payments between the US and treasurers it simply means a wider range India then extended to UK to India later of ever simpler, cheaper and faster pay- In April 2016, Earthport executed the in the fourth quarter. In 2017, the firm ments channels. first cross-border payment transaction plans to roll out additional originating received via distributed ledger for San- and receiving countries including Mex- tander UK, enabling it to become the ico, other GCC countries and South first UK bank to use distributed ledger Africa; followed by Australia in 2018. technology (DLT) for cross-border pay- ments globally. The first phase of testing has been completed and the firm sees 2017 as PayCommerce has developed a different the year in which it rolls out a multi- blockchain model based on its proprie- country real-time, cross-border, account- tary ‘Federated Ledger’ to enable real- to-account service. time, instant payments, clearing and settlement integration for its banking consortium. The Federated Ledger is a hybrid, integrating both distributed and centralised ledgers which enable faster payments across networks via its messag- ing platform. According to the company, this “takes the next step in instant pay- ments by uniting disparate regional and country systems onto PayCommerce’s bank consortium model which is interop- erable with other global systems and net- works to maintain ledger balances across all parties.” www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 23

FinTech & banking perspectives TAILORED TREASURY: THE PROMISE OF FINTECH Disruptive new technologies promise to shake-up the payments space by offering highly-tailored services to specific market segments. What does it all mean for treasurers? By Simon Brady. At the fundamental, cross-border infra- structure level, the services offered by banks to their customers are being trans- formed by new FinTech-driven network initiatives. But for most treasurers, Fin- Tech treasury solutions are service layer integrators that allow companies to plug into multiple external systems and auto- mate one or more treasury processes at the same time. The choice solutions in the payments space is bewildering, but most are aimed at smaller and midsized companies that need to receive multi-channel digital pay- ments as part of the digitalization of their business and who need to make increasing volumes of low-value payments – for example firms that do business with many small vendors or marketplaces. Online payments and processing So, to list just a selection: Adyen, Stripe, 2CheckOut, Tipalti, Braintree (backed by PayPal), GoCardless, Paymill, Credo- online dashboard. The service is an off- Evernote, Etsy, Nike, Spotify, Airbnb, rax, YapStone, YeePay, Omise, Trustly shoot of Sentenial’s well-established Mango, Vodafone, Booking.com, KLM, Group, Bridgepoint, Cheddar Up, Fly- Cloud platform for acquiring ACH Superdry and Groupon. wire, CyberSource (a VISA company), transactions, SEPA credit transfers and Payoneer, WePay, PaySimple, Network direct debits. That payments processing Tipalti (see article on ACH) is one of the Merchants, Citrus Payment Solutions, business that directs more than €35 bil- leading providers of B2B supplier pay- Exchange Corporation, Zooz, Mobeam, lion worth of payments to European ments to global enterprises. The com- Slimpay, ToT Money, Quisk, Alpha Pay- banks annually. Sentenial also provides pany claims to be the first-ever cloud ments Cloud, Sequent Software, Razor- its payments origination and processing platform to automate the entire ‘end-to- pay, Payza, Authorize.net, BlueSnap, services directly to corporates and to end’ accounts payable workflow. Its aim Bitpay, Skrill and many others in the other payment service providers (PSPs). is to create an automated, seamless sys- payment gateway space. tem to allow accounts payable depart- For corporate treasurers, Adyen and ments to manage their entire global This wave of largely new companies is Tipalti are gaining ground. Adyen is a supplier payments operation. It handles often seen as an explosion of innovation global platform that connects businesses the payment chain from invoice but many of them look very similar to the directly to Visa, Mastercard, Paypal and processing, supplier on-boarding, tax Authorised Payment Institutions all the other key payment methods, ena- compliance, anti-money laundering launched in Europe following the first bling them to accept payments across compliance, global payment remittance, Payments Services Directive and spurred online, in-app, and in store. It is a well- and payment reconciliation and AP on by SEPA. For example, Nuapay’s established platform that doubled its financial reporting. SaaS solution allows companies to easily transaction volume to $90 Billion in set up payment and collection accounts, 2016, and has recently added Microsoft, Unlike most FinTechs, Tipalti is invest- make and receive payments, create auto- Sephora, Symantec, WeWork and ing heavily in infrastructure to allow it to mated payment and collection schedules Bonobos to its impressive customer roster service companies from smaller fast- and have access to full reporting via an of companies like, Uber Facebook, growing operations to global enterprises. 24 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

Big overlaps All these companies all offer different COOL INNOVATION FROM DBS BANK ways to achieve an overlapping set of functions: to replace expensive or slow Ever wondered how fantastic it would be Treasury Prism. The platform has been money transfer services, to provide, gate- to automatically model your current cash further developed with rigorous client way, and payment acceptance capability and liquidity structures, discover how feedback and it’s now at delivery stage. and, in some cases secure PCI DSS com- optimal they are and then get recom- pliance. In the case of a company like mendations, also automatically, on how The result is a well-designed tool that PaySimple, these core functions are to achieve a better solution? Singapore- eliminates time challenges that treasury wrapped inside an integrated automatic based DBS bank, fast gaining a name for faces when trying to map out an optimal billing and e-invoicing system. It, and itself for its innovation in customer offer- cash management solution. It also quan- others, also provide APIs for the develop- ings, has developed a digital simulation tifies the cost and benefits of a new cash ment of additional services such as build- platform called Treasury Prism which solution which means that it in effect it ing an online store. does just that. can produce a compelling business case In most cases, the solutions are designed to for change. Also given Asia’s fast-chang- solve problems encountered by merchants DBS Treasury Prism takes into account ing regulatory environment, rather than in their online channels, especially smaller regulatory and tax changes in each rely on external help to navigate complex companies without the expertise or infra- country where a customer might have and rapid changes, Treasury Prism takes structure to develop their own systems. business operations and what is possible those into account as they happen. The in terms of treasury and cash manage- resulting visualisation of account and So Payoneer provides international pay- ment solutions in each market. You can liquidity structures across markets that ments capabilities for companies that do compare optimised accounts in order to Prism delivers is also helpful in securing business with multiple small vendors or find the best solution to realise cost-sav- cooperation across the business and just marketplaces (like Airbnb) cross-border. ings and optimise liquidity and save makes it easier to see what can work best The beneficiary simply opens a Payoneer from net debt reduction. An optimisa- for treasury. account and retrieves the money in the tion score, derived from an algorithm currency preferred via a card number or factoring in tax, yield, banking and cor- “Treasury Prism supports a treasury’s bank account transfer. porate costs, allows you to compare and current and future needs in a conveni- contrast various strategies. ent, efficient and value-rich way that Similarly, Transferwise, which started out also allows benchmarking of solutions,” as a consumer payments platform, has EuroFinance saw early versions of the says Iain Taylor, Managing Director launched a B2B payment service as well as platform many months ago and were and COO, DBS Global Transaction a batch processing service for multiple impressed at both the concept and how it Services. “This is a single source of invoices. As yet, it is a small player that was being developed. DBS formed a mul- advice and information to help treasur- uses a peer-to-peer methodology to exe- tidisciplinary squad to work with 70 cur- ers optimise cash management.” cute at the mid-market rate. This means rent and prospective clients to understand that it cannot guarantee a time frame for their banking and cash challenges. The Best of all Treasury Prism is bank agnos- transactions (quoting between one and group identified five critical areas from tic, enabling treasurers to independently four days) and there are various other time challenges to regulatory constraints model structures whether a DBS client or limitations in the service which make it in order to design the functionality of not. And, it is free. useful only for the smaller SMEs. Stripe provides e-commerce merchant payment services through open API development as well as competing with firms like Braintree and Cybersource as a gateway and payments enabler. PaySimple provides automatic billing, e-invoicing, and payment acceptance services, including a device add-on to accept card payments. So it competes with other merchant gateway and ser- vices providers. And some companies attempt to add value by helping to maximise consumer purchases. So Klarna, for example, extends instant credit for online pur- chases to consumers without them hav- Explore optimised simulations ing to provide payment details. A A s ummary of your current simulation is displayed on the simulation bar. Solutions for SMEs B T reasury Prism generates multiple potential solutions based on your balances Small and midsized businesses who want and flows, and displays these simulations by highest benefit score. If you have a to expand internationally, but have no preferred criteria, you may filter the simulations accordingly. infrastructure for making or receiving C S elect up to 4 simulations and compare with your current simulations. international payments, can choose from www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 25

the multitude of e-Commerce and pay- Accounts Payable Automation for growing and midsized businesses. ments platforms listed previously. They The drive to remove paper invoices, MineralTree captures invoices as they can also look at a service like Western cheques and purchase orders is hardly arrive, routes them for approval through Union’s Edge platform, launched in new. So ACOM has been automating existing workflows and directly executes April last year. This is a business-to-busi- B2B payments since 1983; Corcentric payments. ness platform that connects companies has been focusing on e-invoicing since The future these companies envisage is with each other and which has been 1998 and Comdata, the payment proces- one in which firms plug into one or more designed to take on services like Amazon sor and corporate cards giant, was cloud-based solutions on a subscription and Alibaba. WU EDGE unifies AP and founded in 1969. basis to access particular functionali- AR workflows with Electronic Invoice ties. Businesses that use this model will Presentment and Payment (EIPP) on a However, there is a large group of newer, avoid legacy system issues, nor will they single global platform. SMEs can invite mostly Cloud-based FinTechs, again be forced to buy one system that does existing and new partners to trade glob- often smaller and midsized companies, everything they need. Instead they will ally and interact with them in real-time offering as a stand-alone service for one end up with a ‘stack’ of solutions work- to potentially enhance trade and growth. or more types of payments. These typi- ing together and integrated with an It also provides analytics via its foreign cally offer to make batch payments, via existing (or new) ERP. cash management and trade intelligence virtual card, ACH or wire, with all pay- modules to generate insights for compa- ments managed via the legacy ERP sys- Supply chain finance nies wishing to optimise their cash flows tem. The automation is not simply the and profits. removal of paper, it is the aggregation of Getting supply chain finance to smaller Edge differs from competitors firstly data from multiple systems, business units companies is another problem being and locations to manage payments in one solved by technology – though in this case because it is designed to provide a plat- place with comprehensive reporting. the solution may be a combination of form that connects businesses already older technology and new joint ventures. doing business with each other and sec- ondly because it is based on an existing Demica has been providing working network of 100,000 companies that FinTech is largely a capital solutions to large multi-nationals make payments through WU anyway. wait and see game for via its reverse factoring platform for Edge offers invoicing services in one some years. This type of SCF has been platform, and allows ‘near real-time’ corporate treasury, with confined to large corporations not just service for 22 currencies at its launch. the most relevant action because of the need to have significant The WU EDGE platform provides fee- global banking relationships, but also free, real-time transactions in 51 cur- happening at the banks. because only companies with fully elec- rencies, with capabilities in over 130 tronic invoicing can get invoice approval currencies overall. fast enough to enable approved invoices to be funded by the banks. WU Edge has competition of course. To help access the estimated $3 trillion of Chinese e-commerce giant Alibaba has a potential for SME SCF, Demica has just platform that allows wholesale buyers announced a partnership with FCI, a and sellers of items to find each other and facilitator of supply chain finance tools, facilitate payments. Amazon has a simi- to create FCIreverse, a solution that uses lar service called Amazon Business. FCI’s relationship with hundreds of local However, both of these services are a by- and regional banks and factoring com- product of marketplaces of physical panies to allow FIs across the globe to transactions. Edge is solely a platform for vouch for their own clients. companies to execute financial transac- tions. It also provides analytics and help To give some idea of the number of Fin- Demica CEO Matt Wreford explains, with international compliance, unlike Techs that pitch themselves in the billing “This way of partnering regional banks most e-commerce platforms. and payments automation space, this is a with each other is going to transform Western Union does face FinTech com- list of just some of those that have been the industry over the long-term”. “It petition. B2B start-up Currency Cloud is successful enough to raise announced will enable supply chain finance to go one of the most prominent and in March VC funding: Zuora, MineralTree, into the mid-market, where global it raised $25 million from Google’s ven- Nvoicepay, ConnectPay, Paymentus, banks aren’t interested in operating. ture capital arm, GV and others. The Payveris, Aria, MyCheck, Fortumo, And it will provide a lot more financing company is both a plug-and-play pay- Tradeshift, Traxpay, Vindicia, Bill.com, to SMEs, because regional banks will ments platform as well as a set of APIs Boku, Transactis, PaySimple, Danal, run smaller programs and onboard that let developers create their own cus- Judo and NumberMall. smaller suppliers.” tomised access to global payments. Cur- These companies target specific business These SCF platforms need relationships rency Cloud has had more than $25 types. Zuora focuses on businesses with a with banks to help with client onboard- billion sent across its network. It works subscription model. ConnectPay is a ing and credit provision, but they also with other FinTech businesses such as card payment gateway. Payveris is a set need access to more clients and more mobile remittance business Azimo, of digital tools and APIs designed for financeable invoices. So in late 2016, crowdfunding platform Seedrs and for- small banks and credit unions to allow Demica also announced a venture with eign exchange card Revolut. them to offer digital payments and Basware, the Finnish e-invoicing and money transfer solution. Boku is a mobile purchase-to-pay technology group that Treasurers can also look to FinTechs in payments solutions for SMEs. Mineral- will make supply chain finance available more specific treasury silos: Tree focuses on accounts payable to Basware’s clients. 26 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

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Joint ventures with e-invoicing networks LiquidX differentiates itself from players who previously lacked that access. In are a priority for another SCF platform like Prime Revenue as the latter – like addition, almost none provide any fun- – Orbian. In February this year it the other traditional platforms – focuses damental alternative to the underlying announced a partnership with Tungsten more on providing a technology solution infrastructure upon which the financial Networks, which has 251,000 suppliers to the process problems that prevent system rests. Peer-to-peer models do so, using its AP/AR solutions. Tungsten companies from accessing vanilla bank but are unreliable and small. Larger gains the ability to offer SCF to its net- receivables financing, rather than creat- players, like Apple and Google may be work; Orbian gains access to the volume ing pools of new liquidity and a true mar- in a position to create entirely new of customers and financeable invoices it ketplace for trade finance assets. systems, but these would inevitably be needs to expand. regulated as heavily as their traditional Munich-based CRX-Markets also has peers, so the benefits of using them The overall market is certainly growing. an auction platform, though one that is would be uncertain. Prime Revenue, another leading plat- designed to generate securitised cash- form, had a record-breaking 2016. Its flows that can be sold as notes to fixed- For now, FinTech is largely a wait and 20,000-plus customers in over 70 coun- income investors, rather than as a see game for corporate treasury, with tries processed more than $100 billion in primary market for the underlying assets the most relevant action happening at supply chain financing (SCF) transac- themselves. And C2FO operates another the banks. There, both developments tions using the company’s proprietary variant in which companies with excess such as Ripple and SWIFT GPI, as platform. In addition, 3,500 new clients cash can set their desired rates of return well as consolidations like D+H/Misys, were added to the platform. on the cash they wish to make available promise increased efficiency and lower cost within the parameters of the con- ventional financial system. Larger players, like Apple and Google may be in a position to create entirely new systems, but these would inevitably be regulated as heavily as their traditional peers. When it comes to FinTech, treasury is These ‘traditional’ players are compet- and the market will fill those orders with already some way up the learning curve. ing with other marketplaces for receiva- requests from suppliers that need cash In a recent EuroFinance poll of 250 bles and confirmed payables. One of and which have posted the early payment companies, asked, “are you using any these is LiquidX whose Managing Direc- discount they are prepared to accept. payment services provided by financial tor, Glenn Kocher, has described it as The C2FO marketplace matches these technology companies?”, 36.3% said aiming to be “the Amazon or ebay model orders in real time – achieving the best yes. And of the 63.7% who said no, for working capital and trade finance.” rate of return for the companies with 64.8% said that they would consider LiquidX is an auction platform that lists doing so in the future. cash and the best rates for the companies the true sales accounts receivables, sup- that need cash. These responses suggest that treasurers ply chain finance programmes and con- are adopting the simpler and more firmed payables assets of only large cap, A bewildering choice mature SaaS and Cloud offerings, and usually publicly traded, MNCs. These waiting to see which companies emerge sellers gain access to asset buyers outside The biggest problem for anyone looking from the swarm of new start-ups with a their supply chain programme or core at FinTechs today is simply the number resilient and scaleable technology and bank group, including other global and of companies. It is a given that most will business model before committing. In regional banks, hedge funds and institu- either fail or consolidate and right now the words of one of the more cautious tional investors. The platform has exe- are too small to be serious choices for treasuries: “I don’t dismiss anything but cuted over $13.4 billion of trade volume corporates of any size. Most are also we don’t know who those companies are and processed over $48 billion in post simply service layers offering better and we are not going to be the first ones trade settlement to date. wholesale pricing or services to people to use them.” 28 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

Those companies that have taken the plunge in payments are implementing INNOVATION IN RECEIVABLES solutions such as C2FO, a receivables dis- counting solution and are hoping to use new solutions to eliminate bank payments What are banks doing to meet future experience, is spending time looking at portals. They are also being forced to look innovation expectations from treasury, where friction exists in treasury pro- at FinTech solutions in geographies from particularly as leaps in retail experience cesses and introducing both innovative which their core banks have withdrawn. promise better efficiency, usability and and better solutions to ease the pain. Other treasurers interviewed by EuroFi- lower costs? Bank of America Merrill Hence its new product called Intelligent nance have confirmed that they are Lynch, like other large banks is keenly Receivables which matches incoming actively investigating FinTech solutions looking at AI, robotics and other tech- payments with invoices using AI enabled but that “the issue is how these would nologies as well as participating in block- technology. In partnership with FinTech work for us”. One treasurer believes, chain consortiums to test payment and company High Radius, it takes data from “There is a real revolution in that area. In trade solutions. It is using AI on its own clients and their open items file and the next three years it will change the way internal processes to speed up and deliver receivables position and uses AI to match we do KYC documentation, trade finance better outcomes on repetitive processes all incoming payments again all open and anything where we have to move which in turn will benefit its clients. invoices with a near perfect match rate. money. Where there is a lot of paper work Banks have no choice but to jump on the “We are currently in a period of expo- there is a lot of efficiency to be gained.” innovation bandwagon, and teaming nential growth in technology and new with FinTech companies who have devel- concepts, such as artificial intelligence oped great solutions but don’t have the (AI), have the potential to drive value to customer network to deploy them, is seen clients and make processes more effi- as the way forward to keep relevant and cient,” says Matthew Davies, head of retain customers. Bank of America Mer- GTS EMEA for Bank of America Mer- But there are cautionary tales too. One rill Lynch is active in the R3 blockchain rill Lynch. “For example, banks have treasurer admits: “We have had really consortium, working with Ripple and its been offering receivables matching ser- bad experiences with being the first distributed ledger technology as well as vices for a number of years but these mover. It is difficult. The risk of failure is partnering with Microsoft whose treas- have usually been highly manual to set high. Now we will wait and see.” ury is acting as a guinea pig to test trade up and therefore expensive. By using finance solutions developed on the AI, we can bring a far higher level of As well as a legitimate fear of the bleed- Microsoft Azure blockchain. automation.” Intelligent Receivables is ing edge, treasurers may have another, designed for large or complex compa- less obvious reason for waiting. Asked, There are many areas of treasury ripe for nies that are seeking to reduce costs, “Are you satisfied with the data that you improvement with new technology solu- decrease days-sales-outstanding and are able to get from your current pay- tions and while blockchain solutions are improve cash forecasting. It works by ment processes?”, 67.2% answered yes. getting closer, in the payments arena, identifying payers and associates their This response might be proof that these they are still some time away. The same payments to remittances that are treasurers have put in place the vast can’t be said for the use of AI in received separately in order to match majority of the best practice solutions payments. Frictionless payments, for against open receivables. recommended in modern payments. On example, are an endless source of the other hand, it may reveal a danger- frustration for companies, particularly in ous level of complacency and unsolved determining who’s paying for what. Bank inefficiency. Time will tell. of America Merrill Lynch, as part of its commitment to enhancing customer www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 29

Blockchain perspectives THE BLOCKCHAIN IN PRACTICE Most treasurers get the theory, and most know something about the many pilot projects and consortia working on blockchain solutions, but what products actually exist and how do they benefit corporates today? By Mark Parsley. How corporates and their partners rules and ensuring that all the copies of deal with digitalisation will determine the database are the same – in real time. The last of these, Axoni, raised $20 whether or not they survive the next dec- million from Citi, J.P. Morgan, Goldman ade and treasurers – and their boards – The systems of most interest to banks and realise it. large corporations do not just act as dis- Sachs, Wells Fargo, NEX Group, Thom- tributed databases of data, they also son Reuters, F-Prime Capital and Digital One key technology that has moved from embed smart contract technology. So do Currency Group (DCG), among others, the margins, through hype into the main- treasurers think DLT will affect them? via December 2016 and May 2017 fund- stream is distributed ledger technology ing rounds. It is involved in trials of DLT (DLT), sometimes called blockchain. The EuroFinance recently asked 250 treasurers in trade affirmations and over-the-coun- differences between the two are technical whether they believe that DLT will funda- ter (OTC) equity swaps – the latter a bank and the arguments over definitions mentally change the payments ecosystem. effort announced in January to overhaul arcane. Treasurers don’t need to know Of those asked, 62.4% said yes. “I am very the Depository Trust & Clearing Corpo- them. But in short, all blockchains are dis- interested in DLT. We are not using it yet ration (DTCC) Trade Information Ware- tributed ledgers, but not all distributed but it is coming. I am interested in that house (TIW) using DLT. All the major ledgers are blockchains, and the key dif- you can get all the data of your payments banks use the warehouse. ferences concern how much centralised in real time and it is secure; it means col- IBM has driven another DLT initiative, control exists within the system and how laboration between banks and corps to also used by a number of banks, known widely data within the system is shared. make corporate’s life easier,” explains one as the Hyperledger Project. treasurer. And when will we begin to see In financial markets, unlike cryptocur- concrete products? “In the next three to And both have competition. In February rencies, permissioned or private block- five years we will see something we can 30 big banks, tech giants, and other chains are required to provide use, a tool for corporates.” organisations – including J.P. Morgan centralisation, which can then compro- Chase, Microsoft, and Intel launched a mise the immutability of transaction his- It’s not just payments. One treasurer group, the Enterprise Ethereum Alli- tories (the centre could change data believes, “DLT will have an immediate ance, to build business-ready versions of without being seen) and there is a need impact on reconciliation. We know the the software behind Ethereum, an open- for only the parties to a transaction to banks are really active in this area and source, public, blockchain-based distrib- validate it, unlike a public blockchain. that they offering more services in intel- uted computing platform featuring smart ligent reconciliation.” And one retailer contract functionality and with its own But the basic idea is the same: a distrib- sees DLT as an enabler for innovative cryptocurrency – ether (i.e. it’s in part a uted ledger is simply a database that is loyalty schemes based on pseudo-curren- rival to Bitcoin). replicated on many machines and in cies and blockchain wallets. which control over the data’s evolution is Treasurers need not worry too much shared between some or all of the entities DLT is also still top of the banks’ priori- about that yet. For them and for the running the machines. The ledger vali- ties. In May, the R3 CEV consortium of banks, the key interest in these technolo- dates, stores, and replicates transaction 80 banks completed the largest fundrais- gies is cost, transparency and informa- data on many computers around the ing to date for the emerging technology, tion richness. It is part of the hype that world (hence ‘distributed’). raising more than $100 million from what the internet was to information, about half its membership as well as DLT can be to transactions – it makes Cryptography and digital signatures are technology group Intel, though the fund- them less expensive to share and record, used to prove identity, authenticity and ing round was scaled back twice from and reduces the cost of trust in transac- enforce read/write access rights. And the $200 million and then $150 million. Of tion systems. system contains mechanisms to enforce the 25 or so global DLT consortia (22 of immutability: making impossible the which were started in 2016), 13 are in changing of historical records. In other financial services. These include groups words, a distributed ledger is like a nor- such as B3i (insurance), the post-trade mal SQL database plus code that can distributed ledger group (clearing and add new rows to the database, validate settlement) and R3, Digital Asset Hold- that these rows conform to pre-agreed ings and Axoni (financial services). 30 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

R3’s CEO, David Rutter likes to cite a McKinsey study that claims banks spend around $3.6 trillion globally supporting their transactions with tens of billions in annual savings there for the taking. But what is the evidence so far that the tech- nology can deliver improved services for corporate clients? Trade finance While many of the earliest applications of blockchain have been in payments (see article on SWIFT/Ripple), trade finance is where real-world corporate applications Maintaining secure records on a digital, solution again on Hyperledger Project may appear first this year. Trade is not fully distributed ledger creates the required blockchain fabric to replicate a letter of automated, it relies on chains of trust and combination of transparency, verifiabil- credit (LC) transaction. transactions involve significant amounts of ity, and immutability of agreements. data and require complex tracking. Supply chain finance In 2016, HSBC and Bank of America At the launch in January, KBC Group In March, Chinese online P2P lender Merrill Lynch piloted a scheme using CEO Luc Gijsens explained: “SMEs Dianrong and FnConn, a subsidiary of Hyperledger Fabric to show that letters are having to run their businesses differ- Foxconn Technology Group which pro- of credit can be executed on the block- ently in an increasingly digital age. Our vides loans and financing solutions to chain. And Corda, the shared ledger successful DTC trial shows that block- SMEs, announced the launch of Chained platform developed by a consortium of chain technology offers a number of Finance, claiming that it was the first more than 70 leading financial institu- opportunities that we want to continue blockchain platform for supply chain tions, brought together by R3, facilitated testing and developing.” finance. The aim of the platform is to invoice financing and letter of credit Deutsche Bank global head of disrup- help supply chain financing companies transactions in trials with more than 15 tive technologies and solutions Roberto potentially triple the number of small banks using its form of ledger technology Mancone said: “For DTC to be success- suppliers they reach. and smart contracts. It’s not clear when ful, it needs to be available and accessi- or if this solution will be rolled out mean- ble by a large number of SMEs – hence The two companies recently completed ingfully and possible changes in the rela- the importance of having a number of a successful pilot and proof of concept of tionship between Hyperledger and R3/ banks involved.” Chained Finance by securing funding Corda – different ways to implement a for small and medium enterprises digital trade chain (DTC) style solution A host of other proof of concept trade (SMEs) in China that were otherwise – complicate the picture. finance transactions have been executed unable to secure needed capital. In a potentially more concrete develop- including: S7 Airlines and Alfa-Bank Chained Finance originated US$6.5 ment, seven European banks are part- and the first Russian blockchain LoC million (RMB45 million) in loans for nering on a new blockchain-based trade transaction; Barclays has completed a these SME supply chain operators. finance platform for European SMEs test on technology developed by Wave to The solution is based on a permissioned and plan to launch in the second half of use a blockchain letter of credit to close a blockchain and Dianrong is an active par- 2017. The Digital Trade Chain (DTC) transaction between Ornua and the Sey- ticipant in Hyperledger. A ‘permissioned initiative was driven initially by Bel- chelles Trading Company; The Com- or closed-loop’ blockchain restricts the gium-based KBC and is based on a per- monwealth Bank of Australia (CBA), number of users who can validate block missioned ledger, with authorised parties Wells Fargo and trading firm Brighann transactions or create smart contracts allowed to submit transactions on the Cotton successfully completed a trade (which are used in supply chain block- platform and manage open account finance transaction experiment in Octo- chain solutions) to pre-registered and trade transactions for both domestic and ber 2016 using blockchain, smart con- authenticated users. This differs from the international commerce, with visibility tracts and the Internet of Things (IoT); fully distributed ledgers of Bitcoin. from initiation to settlement. The banks ICICI, India’s largest private bank, and involved are KBC, Deutsche Bank, Emirates NBD, recently announced suc- The two firms chose the blockchain HSBC, Natixis, Rabobank, Société cessful international transactions for because of the control and transparency it Générale and UniCredit. both trade finance and remittances using allows over the financial history of borrow- blockchain technology; UBS and IBM ers and the security of the data within the SMEs looking to expand globally face the have worked on a project that replicates system. They claim that Chained Finance problem that letters of credit, used by the entire lifecycle of an international offers large multinational manufacturers larger firms, are for them complex, expen- trade transaction on Hyperledger’s Fab- unprecedented transparency and risk con- sive and time consuming and the alterna- ric blockchain; and Bank of America trol capabilities for their supply chain tive, open account trading, exposes one Merrill Lynch, HSBC and the Infocomm finance ecosystems. The system will be counterparty or other to the full transac- Development Authority of Singapore rolled out throughout China first but in tion value risk at any point in time. (IDA) have jointly developed a prototype theory can be implemented globally. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 31

It will have competition. In the UK, Tal- near-real-time high-value transactions lysticks is building a blockchain SCF between different companies. This proof platform driven by companies need for Both these solutions are limited by the of concept shows how powerful such an automated solution – the firm has use of the permissioned blockchain. technology can be and how it can be uti- filed four patented processes, including While adding more banks and compa- lised as an effective and efficient response automated custodial transfer and auto- nies to the list of approved counterparties to the main issues that treasurers face on mated transaction settlement. is a short-term solution, in the longer a daily basis. This great achievement was term an open system would be much possible thanks to the collaboration A functioning blockchain-based supply between Panini’s Group Treasury teams chain finance/bill discounting and more likely to be transformative. and the various teams of BNP Paribas.” invoice payment solution has also been Payments implemented in India, by Mumbai’s YES Jacques Levet, Head of Transaction Bank. So far the project, using smart We’ve already seen how the blockchain is Banking EMEA at BNP Paribas CIB, contracts built on Hyperledger and uti- affecting the fundamental plumbing of commented: “This proof of concept lizing IBM’s Hybrid Cloud technology, the payments system (see article on demonstrates that blockchain technology allows consumer electrical equipment SWIFT/Ripple), but there are also initia- offers real opportunities to considerably manufacturing company Bajaj Electri- tives that bring DLT closer to treasury. improve our offer for corporate treasury cals to digitalise the process cycle for bill managers. On the payments front, this discounting at Bajaj Electricals and In December 2016, BNP Paribas com- confirms our strong commitment to reduce it from four-five days to almost pleted its first live cross-border B2B pay- follow closely and further accelerate real time. ments between corporate clients using our participation in a number of market blockchain technology, processing sev- initiatives aiming at improving the The details of invoices processed in Bajaj eral payments for two of its longstanding corporate payments experience using Electricals’ Oracle system are trans- corporate clients, Amcor, global leader blockchain technology.” ferred to Yes Bank on blockchain, and in packaging solutions and Panini then are discounted and funds are dis- Group, international leader in collecta- Visa’s bet on blockchain bursed to Bajaj’s vendors. On the due bles and trading cards. date, the solution facilitates an auto- We have also seen how re-invigorating mated debit from Bajaj Electricals’ This news follows the announcement last correspondent banking networks using account with YES Bank. September that BNP Paribas is co-devel- DLT can use the existing payment infra- oping new products and services with a structure of, for example, ACHs to pro- Again, the system ensures transparency for number of clients, aiming to design the vide corporate clients with a transformed all parties through the shared public ledger, next generation of Transaction Banking service without the need to put all their while the entire transaction history of a and Cash Management products with trust in new FinTech startups. vendor is recorded and immutable. Blockchain technology. The ‘Cash With- Partly driven by the enthusiasm of the out Borders’ proof of concept was central bank, India is a hotbed of block- launched early 2016 after the Bank’s “We are developing our new chain activity. In November 2016, for Corporate Trade and Treasury Solutions instance, the $17.8 billion multinational business embarked on a collaborative solution to give our financial Mahindra Group and IBM announced process during its first-ever ‘Blockchain institution partners an efficient, that they would co-develop a cloud- Bizhackathon’. based application for tracking supply Using Blockchain technology, BNP Pari- transparent way for payments chain transactions via blockchain. bas successfully processed and cleared to be made across the world.” However, there are certain limitations for Panini Group and Amcor payments with the closed-loop blockchain imple- in various currencies between BNP Pari- mentations that Kannan highlighted by bas bank accounts located in Germany, A similar idea lies behind the joint venture referring to the YES Bank/Bajaj Electri- the Netherlands and the United King- between Visa and Chain, a San Fran- cals case. “We define closed-loop as a dom. The payments were fully processed cisco-based enterprise blockchain infra- private network consisting of one com- and cleared in a few minutes highlighting structure startup. Again, the concept is a pany, one bank, and a set of suppliers. the real potential of this innovative tech- merger of DLT with an existing, trusted Here, in a way, a supplier is forced to dis- nology which eliminates delays, unex- network of banks – in this case Visa’s count his bills with a single bank. He pected fees and processing errors, paving 17,000 banking partners – to help banks might not be banking with the bank as a the way for real time cash management. improve international business-to-busi- supplier or getting better rates else- Panini Group Treasurer, Fabrizio ness payments for their corporate custom- where,” said Kannan. Masinelli said: “Blockchain technology ers. The two companies are currently applied to cross-border payments offers building Visa B2B Connect, a Visa-oper- an innovative way of processing in ated payments system that uses a permis- sioned, private blockchain architecture. The companies claim the system will ena- ble participating financial institutions to quickly process and settle international payments securely with near real-time verification of blockchain technologies. “We are developing our new solution to give our financial institution partners an efficient, transparent way for payments 32 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

SPONSORED ARTICLE An industry-led approach to security, standardisation and innovation By Yves Bontemps, Head of Corporate Solutions, SWIFT Since SWIFT first welcomed corporates into its community in 1999, the value proposition for corporate users has developed substantially. Initially, the SWIFT corporate focus was on multi-bank connectivity, first for exchanging confirmations and later, a wider range of financial messages such as payments, trade finance instruments and account statement information. Today, while connectivity remains an anchor of SWIFT’s corporate offering, corporate treasurers and finance managers can also derive significant benefit from SWIFT’s wider suite of industry rigorous validation. In early 2018, SWIFT will status information together with additional solutions, whether a company uses SWIFT to release a new Advanced Reader, a state-of- value-added functionality. connect to its banks or banks’ own channels. the-art token protecting users against Integration and automation sophisticated attacks, including ‘see-what- SWIFT gpi is quickly building momentum you-sign’ functionality i.e. the token will amongst banks and corporates. Banks Automation of transaction and information display transaction details that can be recognise the opportunity to deliver an flows is a priority for every treasury and matched against the originating system to enhanced service to clients, while finance function. This relies on accurate data, avoid data tampering. corporates see the potential to revolutionise so a growing number of corporations are international supply chains. By engaging with using SWIFTRef, a reference data directory 3SKey in figures SWIFT and the wider SWIFT community on that can be integrated into ERPs, treasury, gpi and other industry solutions, treasurers payment and cash management systems, 15,000 and finance managers can help to shape enabling users to validate counterparty data, market practice of the future, define such as bank BICs, to optimise straight- Number of corporates using 3SKey standards and collaborate to overcome through processing and minimise exceptions. 19/25 obstacles to doing business across borders and facilitate efficiency and growth. Similarly, data needs to flow seamlessly Top SCORE banks that support 3SKey between systems, so SWIFT has 113 SWIFT gpi in figures collaborated with banks and corporate users Countries in which 3SKey is supported to develop MyStandards, a repository for 110+ global industry formats which now has over 54,000 global transaction banks 110 publishing organisations and 28,000 Active users committed to gpi, representing users. Many banks now use MyStandards Readiness Portal to facilitate and accelerate +30% 75% the onboarding of new corporate customers Year-on-year growth in user numbers of all SWIFT cross-border payments in by up to 50 percent. For multi-banked corporates, the value of MyStandards 220 includes the ability to compare counterparty Payments and supply chain innovation countries data formats and rationalise integration. SWIFT’s role is not only to service the current Since it was first introduced, over 4,000 needs of corporate and banking users, but 50 corporates worldwide have been exposed to also to drive innovation and harness Banks have an active the Readiness Portal. motivation across the industry to shape the implementation project Identity management payments industry of the future. SWIFT’s 18 gpi (global payments innovation) was A key value proposition of SWIFT for both conceived to enhance corporate users’ banks are live corporate and financial institution users is its experience of cross-border payments. The security. 3SKey allows corporate users to set first phase of SWIFT gpi is already live, up user level authentication for both providing same-day, traceable cross-border payments and bank account mandates, payments with transparent fees and full whether through SWIFT or banks’ own remittance data, together with a roadmap channels. 3SKey offers a single sign-on for future digitisation and transformation of process across platforms, and administration payments. A key SWIFT gpi deliverable is the of user rights across banks, therefore tracker, a tool that SWIFT provides to banks providing a cohesive and convenient to be integrated into customer offerings, For more information, visit experience for users whilst supporting providing real-time tracking of payment www.SWIFT.com/corporates

to be made across the world,” said Jim process thousands of foreign exchange McCarthy, Executive Vice President of trades and to give customers access as innovation and strategic partnerships at participants in a DLT-based system so Visa, in prepared remarks. that, initially, institutional investors can more transparently track and value deals Capital markets “Visa is leveraging Chain Core to create in the spot market. NEX subsidiary, Trai- a permissioned blockchain network to ana subsidiary, which acts as a messaging DLT is even beginning to invade the enable their financial institution clients hub for $2tn of forex, fixed income and capital markets. IBM and Japan’s SBI to directly exchange value on behalf of swaps deals, is developing a combination Securities revealed last year that they their corporate customers,” wrote of smart trade contracts and a blockchain are working on a blockchain-based Chain’s cofounder and CEO, Adam product with the eventual aim of replac- bond trading platform using the Ludwin, in a blog post. “This network ing their current post-trade system. Hyperledger Fabric. allows institutions to move value with greater speed, predictability, and secu- “As an innovative technology, block- rity than is possible today.” chain has the potential to revolutionise Competitors like SWIFT, of course, have ways businesses work together with their questioned the demand for real-time “Visa is leveraging Chain ecosystem of trading partners,” said payment pointing out that corporate Takeshi Fukuda, director of IBM payers actually want to pay as late as pos- Core to create a permissioned Research Tokyo, in a statement. “The sible. The counter argument is simple: if blockchain network to enable technology establishes accountability you want to pay on day 30, then real- and transparency while streamlining time payments let you do just that, rather their financial institution clients business processes.” than having to pay on day 27 and allow to directly exchange value on But for treasurers the key development three days for the money to arrive within will be the ability able to issue bonds on a the 30-day limit. behalf of their corporate blockchain-based digital asset creation And it’s not just bank networks that can customers.” tool. One example is three-year-old be used – with or without blockchain. startup BlockEx. After developing a Western Union recently participated in white-label cryptocurrency brokerage a funding round for Digital Currency platform to sit on top of existing Group (DCG), a firm that collaborates exchanges, BlockEx has built an exchange with financial institutions to develop use for “the issuance of digital assets including cases for DLT. One is to improve the Another FX market giant, Citi, in bonds, equities and syndicated loans [that core migrant remittance service, But December 2016 made an undisclosed will] collapse origination issuance, asset another is to leverage the 100,000 investment in Cobalt DL, a London servicing, exchange, clearing, settlement SMEs that make payments through the startup also developing a DLT solution and reporting into one platform. By tem- service to create Western Union Edge, a to simplify foreign exchange trading. plating and streamlining the legal process B2B payments network. Right now, the Cobalt has also attracted two of the big- it becomes possible to reduce the price of service is available in a dozen countries gest traders of FX, Citadel Securities and origination up to 75% and time to origi- and does not use DLT, but given the XTX Markets, as well as 22 banks and nate and issue can be reduced to days.” In financial firms. The firm believes it can theory, this could ultimately squeeze out relationship with DCG and the possi- cut the cost of FX trading by 80%. The bank syndicate functions. bilities of blockchain technology to cut system is to go live in the third quarter costs, increase security and boost visi- and runs on technology supplied by Setl, The platform enables issuers to create bility – not to mention the existence of a UK blockchain software developer, smart contracts that specify coupons, FinTech competitors using DLT in the and data from Northern Ireland-based payment dates and maturities, with the remittance space, such as Bloom First Derivatives. flexibility to create retail-friendly payout Solutions – and it seems likely that the structures such as monthly or even daily service will utilise DLT at some point. Other key FX banks are members of coupons. The digital assets are sold Ethereum’s Enterprise Ethereum Alli- directly to investors, cutting out bank Foreign exchange ance which has also executed a trial spot intermediaries and potentially slashing Some of the largest names in FX have trade using an adaptation of Ethereum issuance costs by more than half. made significant commitments to DLT, as the settlement layer. And Goldman Sachs patented a permissioned block- It allows a company to use the asset crea- focusing on improving trading efficiency. chain concept to achieve much the same tion tool, pick documentation and raise DLT should be ideal in this kind of mar- thing and which explicitly allows regula- money in a single day, aims to settle trades ket, in which so many counterparties – tors to access the database and provides within 30 seconds and creates a secondary buyer, seller, broker, clearer, and others functionality to comply with anti-money market that generates an indelible history – hold records of the same transaction. A laundering (AML) regulation and know of buying and selling activity using dis- shared ledger updated in real time and your customer (KYC) laws. tributed ledger technology. visible to all should slash transaction times and costs. None of this is directly available to treas- Perhaps the most exciting thing about urers, though the very largest MNCs the concept is that it brings the benefits of For this reason, NEX Group, formerly the rival some hedge funds in their FX deal- capital markets to SMEs because of the interdealer broker ICAP, has invested (via ing and so may gain direct access. The reduction in cost, time and complexity. its Euclid FinTech investment arm) in real benefit for most corporations will and medium-sized enterprises eyeing Axoni, a provider of distributed ledger simply be in faster, more transparent and US$10m-$50m issue sizes, which are technology for the financial services much cheaper FX dealing. 2017 may largely shut out of the capital markets industry. NEX aims to use DLT to well be the year this starts to happen. due to syndication costs that average 34 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

US$200,000-$400,000 according to system between companies has got com- DLT is coming fast BlockEx estimates. panies like IBM excited. So what does this blizzard of jargon, The first issues are, apparently, happen- So, for example, anytime a business pro- startups, joint ventures and pilots actu- ing any day now and similar efforts are cess requires an immutable, verifiable ally mean for the treasurer? The first underway at other companies to apply tracking record, a DLT solution is useful conclusion is that DLT/blockchain is these ideas to other forms of bank loan So, a new blockchain system from IBM happening many times faster even than and to private and public equity issu- and Maersk aims to manage and track was predicted a year ago. The objections ance. With Goldman Sachs having the paper trail of tens of millions of ship- to the use of public blockchains in finance announced that it already figured out ping containers by digitising the supply and commercial transactions have been how to automate half the 127 steps in an chain. DLT can be used for audit logging easily overcome by the development of IPO, robo-issuance is on the way. to satisfy regulators or for tracking which private blockchains. The technology has Enterprise risk management users are using which computer systems. been applied to an extremely wide vari- Finally, DLT is breaching the inner sanc- Walmart has run a pilot to demonstrate ety of markets and transaction types and tum of corporate MIS systems – the that DLT can be used to track produce in most cases several competing organi- ERP. ERPs do not look like ready candi- through the supply chain. And Sweden- sations have successfully completed pilots dates for DLT. The key principle of an based enterprise software provider IFS, and proofs of concept. ERP system is the central collection of has created a new proof of concept to demonstrate how blockchain can be inte- Can treasurers benefit right now from data for wide distribution, replacing grated with organisations’ ERP systems easy-to-access DLT solutions that imme- standalone databases linked to multiple in the aviation industry to track mainte- diately reduce the costs of their core pro- disconnected spreadsheets. The cen- nance and parts. cesses? Not quite. Will they be able to trally aggregated data is then available to this year? Possibly. Next year, definitely. all business processes. This is pretty In addition, in May, Hyperledger Project Do they need to understand the underly- much the opposite of a distributed ledger. member SAP announced SAP Cloud ing technology? It’s better that they do, Platform Blockchain, its blockchain-as- so that they understand the security However, because DLT creates a tracka- a-service solution. It’s very early days, implications if nothing else. ble, immutable record for any kind of but it seems designed for companies that transaction, from financial trades to are already using its ERP solutions, as But, like all new technology, within a very shipping manifests, from supply chains they look to implementing distributed short time, we will all simply be using to equipment maintenance schedules, a ledger solutions for data storage, man- interfaces that work better, faster and DLT enterprise solution that draws data agement, and other applications. If SAP more cheaply than the legacy systems and from the ERP and is then used to create thinks the blockchain works well with we will neither need to know how they a trusted transaction and data sharing ERPs, we can safely assume that it does. work nor will we care. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 35

SSC perspectives TREASURY IS DEAD. LONG LIVE TREASURY? If Global Business Services models can do a better job at HR, procurement, networks, IT and data analytics, why doesn’t it just take over treasury? At some firms, it’s already happening. By Simon Brady. Shared services are again all the rage as and applied it to an ever-broader range structure and in-country cash pooling, as companies search for the short-term wage of products and processes like payments well as providing forecasts on cash flow arbitrage of offshoring. At the end of and FX. Often this is accompanied by a and FX exposure. The Dublin treasury 2016, Warner Music Group announced restructuring of fragmented ERP sys- centre and in-house bank manages the the creation of a new US centre of excel- tems, or at least the centralisation of regional multicurrency notional pool, FX lence for Shared Services in Nashville, feeds from multiple ERPs into a single hedging and liquidity and investments. Tennessee, to aggregate its US Account- system with analytics – such as SAP’s ing Operations, Cash Management and HANA – with a view to automating From SSC to GBS Recorded Music Rights Administration. functions such as cash forecasting. So what happens next? Large companies In June 2016, Eltel announced its inten- Later process migration is not simply a end up with a global patchwork of func- tion to establish a new Global Shared case of moving transactions and their tional SSCs, as well as, sometime, third- Services centre in Poland later this year. associated processes, but one of breaking party business process outsource (BPO) The decision has now been taken to down and re-designing existing on-shore firms. This patchwork creates exactly the locate the centre to Gdansk. The centre jobs. In other words, once established, problem of fragmentation and de-cen- will provide all Eltel businesses globally SSCs expand their remit by identifying tralisation that the SSCs were designed with support services in the field of other processes inside the company that to cure in the first place. One answer has finance, human resources and procure- would benefit from being re-engineered been the evolution of a Global Business ment. And Nestlé, as part of an ongoing by what has become a centre of excel- Services model to integrate all shared programme of structural cost saving, has lence in process efficiency. For example, services and outsourcing activities across recently set up two more SSCs, one in commercial payments and collections, the enterprise. This model abandons China and one in Portugal taking the which are not part of the definition of structures defined by narrow business total to nine. treasury at a surprising proportion of functions such as finance or IT and Initially, treasury is in control of the out- companies, also naturally sit in a shared focuses on delivering standardised, end- sourcing of its functions. The creation of service centre. to-end processes. Companies can achieve one or more shared service centres is this with their SSC structures – and driven by a corporate desire for lower- So, over time, companies end up with Shell, AstraZeneca and others have their cost, higher efficiency processes. Treas- structures like Pfizer. It has in-country own models for achieving standardisa- urers’ solution has been to centralise SSCs where necessary – its SSC in China tion – but others believe the multifunc- treasury operations and to outsource manages its in-country bank account tional GBS model is best. non-strategic treasury processes. Typically, this process starts with stream- lining bank account structures, bank account management and pooling mech- anisms, often by moving to a single bank- ing partner. This eliminates manual processes, creates greater cash visibility and gives treasury access to real-time information, allowing it to develop better cash forecasting and insights into the underlying businesses. Standardisation is achieved through the adoption of ISO standards or the creation of company- wide process templates. Shell for example, as part of the compa- ny’s long-running treasury centralisa- tion, started by templating the bank reconciliations process and then rolling that into the SSC. It then developed this idea of a single company-wide process 36 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

So, Bayer Business Services is the “global The latter have developed from straight- lems of offshoring to an SSC. Many com- in-house competence centre for business forward geographical wage arbitrageurs panies find that after offshoring, solutions and business support processes to sophisticated creators of value-added headcount actually increases in the SSC of the Bayer Group.” In fiscal 2016, it through analytics and digitalisation. compared to the legacy process, some- employed 5,560 people worldwide in 12 They are positioning themselves as both times by amounts significant enough to sites and achieved service volume of a source of efficiency and of transforma- negate much of the original business more than €1 billion. tion. And their increased sophistication case. Using RPA to optimise the SSC has been driven by specialisation: BPO may reduce this problem. It may also Standard Chartered Global Business offerings can be horizontal across a pro- mean that firms have a complex trade-off Services employs 13,000 people, servic- cess type or function – HR, finance, pro- between the RPA-enhanced onshore ing most of the 70 countries where the curement and so on – or specific to a model and the RPA-enhanced SSC. Standard Chartered Group has a foot- particular industry sector. print. It handles activities including Either way, regardless of function – HR, finance and accounting services, soft- The traditional treasury response to the procurement, treasury, whatever – the ware development and maintenance, idea that it is being subsumed or redistrib- only things that will be left outside the and providing compliance services uted into these offshore units is that while process hub will be high-level, strategic around Basel, anti-money laundering the processes outlined above do naturally and value-added. In the case of treasury and know your customer. lend themselves to outsourcing, the treas- it’s hard to see why those functions ury back office is different. Yes, it executes would not be carried out by the CFO The most sophisticated companies can largely transactional processes, but they and their team. end up creating a four-layered struc- require real treasury expertise to act as an ture: the corporate centre; the ‘centre of effective control. So offshoring them to Treasury reborn excellence’ or GBS; functions embed- unskilled staff is risky because it creates ded in the business and, lastly, SSCs. distance between the remote back office, When EuroFinance first pointed out, On this model the true GBS operates as the front office and the group treasury. some years ago, the benefits of a single a true centre of excellence, which Whether or not this is true is impossible enterprise-wide ERP, several treasurers attracts highly qualified staff undertak- to prove one way or the other, but it seems wrote in to say that the idea was impossi- ing tasks which are far from purely to fly in the face of the technological ble and unnecessary. transactional. In this model the GBS advancements of the last few years. Geo- acts as a talent pool for the rest of the graphical distance is not what matters. The rapid pace of digitalisation has over- finance organisation. Disconnection is what matters. taken that criticism. Deloitte can now ask Rise of the robots companies, “Do you have a single ERP W(h)ither treasury? platform, enhanced with process specific The rise of robotic process automation enabling technologies, robotic process The question for treasury starts off complicates matters further. RPA is the automation and cognitive technology? being how well their companies can use of software ‘robots’ to automate Have you eliminated the need for man- migrate treasury processes into these administrative processes by replicating ual intervention in transaction process- centres. But increasingly, if that migra- the actions of human operators of com- ing so that your colleagues can focus tion goes well, it ends up being what of puter systems. This is a new form of auto- solely on analytics and other value creat- treasury is left outside the SSC or GBS? mation that does not require traditional ing activities?” Does the outsourced entity end up run- Application Programming Interfaces ning treasury – or does it even end up (APIs). The software robot is ‘trained’ to The elimination of manual processes and being treasury? At Vodafone, for exam- execute the actions of a human operator, the seamless integration of financial pro- ple, the GBS unit includes the procure- rather than programmed, and it is this cesses across a business globally are no to-pay cycle, the reporting cycle, cash form of automation that is forecast to longer pie-in-the-sky. Treasurers will management and management account- remove the need for many low-skilled complete all these treasury centralisation ing in its portfolio. And indeed a small data-entry and similar jobs. and integration projects. And what then? number of multinationals avoid the What when the whole cash cycle, all the complexities of the question by offshor- This could have one of two effects on in- ERP feeds and all the basic data analyt- ing the entire treasury function. The house departments and SSCs. On the ics are done by a GBS unit (or in the case question then becomes whether the one hand, any outsourcing whose pri- of smaller companies, Cloud suppliers of treasurer is then too far away from the mary purpose is the offshoring of low- various kinds)? CFO and senior management. But these skilled jobs may find themselves made At that point either treasury has disap- are rare exceptions. obsolete by technology, since RPA peared, or it has been moved into a At some point, since most treasury activ- removes the need for humans alto- global process unit that now already ities are back-office processes in transi- gether. On this view, on-shore depart- claims to be less back-office resource tion from disconnected and/or manual ments become more efficient without and more strategic partner and value- to connected and digital, doesn’t treas- the need to outsource and companies creator in the business. Sound familiar? ury simply get broken up into a series of should conduct an evaluation of process Indeed, PwC, in its 2017 Global Treas- automated templates and data-deliver- optimisation, including considering the ury Benchmark Survey 2017, titled ies, and outsourced to the SSC/GBS? benefits of RPA. That evaluation may ‘The ‘virtual reality’ of treasury’, And if only highly-skilled, value-added increasingly prove that offshoring is expresses the view that treasury should activities are to remain with the business, unnecessary. be viewed not as a department but as an what is the difference between 100% On the other hand, perhaps SSCs them- enterprise-wide process. In some GBS owned SSC/GBS subsidiaries and true selves will adopt RPA technology, mak- models, each function or process like outsourcing to a BPO provider? (See ing the case for outsourcing to them even this has an ‘owner’. Perhaps the owners page 38 for more on the future of the job more compelling. In this scenario, RPA of the finance function could be called of treasury.) may also solve one of the perennial prob- Treasurer. Just a thought. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 37

Career perspectives IT’S TREASURY JIM, BUT NOT AS WE KNOW IT The past decade of developments in treasury paint a consistent picture: a relentless drive to increase efficiency through technology; constant pressure to do more with fewer staff; a migration of jobs and processes to offshore processing factories in which a combination of lower staff costs and technology further reduce the need for human treasurers. By Katrina Rollinson. As KPMG pointed out as far back as “migrating work from OpCos to SSCs”. PwC’s comment that: “A number of 2015 in their report, Treasury 4.0: “Cur- This sounds very like being asked to treasurers have outsourced their back rently available systems and related con- map the core processes for which their office and payment factory processes to figurable system landscapes provide for a department is responsible so that they shared services and exposure reporting very high degree of automation of treas- could be outsourced. increasingly involves local finance. These ury processes (‘real straight-through pro- treasurers are more concerned about cessing’). This results in a major This treasury started off “migrating the effective Key Performance Indicators reduction of manual activities and thus ‘typical’ SSC treasury processes”, bank (KPIs) and effective Service Level Agree- significant gains in efficiency.” reconciliations and bank account man- ments (SLAs) for these functions rather agement, followed by cash forecasting than their day to day management.” The report continues: “Processing and and bank guarantee management. control activities throughout the cash “Over the years since, more and more What about compliance? Well most com- and risk management process, in par- has moved out.” Again, this is simply a panies have compliance functions ticular, can be largely covered and auto- description of a set of job functions being already and RegTech is a rapidly grow- mated in the system. The example of at best outsourced and at worst replaced ing sector: compliance is now so complex cash management illustrates the poten- by technology. and expensive that here too automation tial for intelligent networking between is companies’ desired endgame. treasury management systems (TMS) Next generation SSC consolidation into and various sources of cash-relevant so-called Global Business Services (GBS) This is treasury transformation alright, information. Cash positioning is then no subsidiaries, such as those operated by but not as envisaged by those who fore- longer a manual coordination process companies from Lufthansa to Standard saw an evolution of treasury into a strate- performed by the cash manager, but a Chartered take this process further still, gic business partner. In this future, system-based activity that functions subsuming a wider and wider range of treasury looks more like a low-level data almost completely without manual inter- global processes. conduit feeding data to decision-makers. vention based on TMS rules from auto- Treasurers are also losing their teams. As Another common response is that by mated processing of account statements PwC finds in its 2017 Global Treasury removing the tedious, low value-added and access to real-time cash and pay- Benchmarking Survey, “Virtualisation is activities from treasury, senior treasury ment data through to the initiation of prevalent in treasury and will shape staff are freed up to focus on delivering cash transfers. Similarly, opening and treasury probably even more than other strategic insights. Just as in the consumer maintaining bank accounts ... can be business functions. Already two thirds of domain, where people prefer to use search performed through automated bank staff involved in treasury processes are engines and other forms of analytics to account management.” not reporting directly or even indirectly gather their own data and insights, it is It is hard to conclude anything from this to the treasurer.” In most organisations, likely that the C-suite will access analysis except that even in 2015, treasurers were if you lose reports, you are being directly from smart systems so treasury co-operating in their own demise. More squeezed out. must think hard now about what insights and more of their time was being spent in they can contribute in the future. Add robotic process automation, the next ushering in the efficiency, connectivity, generation of centralised SSCs and Big And Jack Large, Editor of CTMFile, straight-through processing and automa- Data, which increasingly requires AI- represents those who believe that compa- tion that are key to visibility, real-time driven tools to analyse it. Add an increas- nies will regret the move away from hav- analytics and better security and risk ingly cashless society which should ing separate treasuries though without a management. This was surely time spent eliminate most if not all of the paper and detailed why: “Slimming the corporate removing the need for human beings. egregious reconciliation problems of the treasury department too much is going The process has continued apace. One present. What’s left for treasury? to cost hugely. Corporate treasurers need treasurer interviewed by EuroFinance to fight CFOs and CEOs being too Some treasurers fall back on the idea that ‘clever’.” describes their current project as someone has to tend the machines. But “breaking down and redesigning exist- that is about the software, not treasury. A So is digitalisation the death of treasury as ing onshore jobs” for the purpose of slightly more optimistic view of this is it is so many other previously important 38 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

white-collar jobs? Is there even the pos- players – there is even a robot hedge their organisations. CFOs are urging sibility of another future? fund; and there are a number of block- treasurers to be involved in finance pro- chain prototypes for automated bond cesses beyond the traditional scope for In PwC’s poll of CFOs, there is a glimmer issuance (for example the partnership treasury such as in working capital man- of hope. “CFOs expect treasurers to take between SIX Securities Services, the agement and in actively managing new responsibility for enterprise wide liquidity Swiss post-trade provider and Digital exposures as these are created by core and financial/commodity risks. They Asset Holdings, the blockchain devel- businesses. Treasurers should seize the urge treasurers to identify exposures pro- oper). No treasury function seems safe. opportunity. Going forward, they should actively and manage liquidity actively.” not only master traditional treasury top- In addition, treasurers themselves report ics, but also business consultancy, project It is true that in all the talk of digitalisa- that they are increasingly being used in a management, (cyber) security and Fin- tion, funding and risk management have cross-business unit collaboration and yet to fall victim to technology. However, consultancy role outside of their direct Tech developments.” FinTechs like FiREapps are developing reporting chain. In this sense, treasury In this view, the treasurer becomes analytics systems that integrate with has indeed the chance to become the almost an internal business consultant TMS and ERP systems and hold out the strategic business enabler we’ve all been whose core competence is process opti- promise of FX risk management automa- talking about. tion; Goldman Sachs has mapped equity misation and risk management. So are IPOs into 127 steps and has already As PwC observes: “The CFO’s ambition today’s treasurers qualified for the job? worked out how to automate half of is an open invitation to treasurers to claim And if they are, is this new paradigm them. Liquidity allocation and manage- a more strategic role and become the cus- treasury at all? Either way, it’s the end of ment has been automated by a number of todians of liquidity and financial risk for treasury as we know it. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 39

Cultural perspectives GLOBAL TREASURY: MANAGING CROSS CULTURAL CHALLENGES You might want to implement the same treasury structures globally but the way and extent to which some countries resist can take you by surprise. In a series of interviews, leading multinationals reveal how treasury policies are understood and implemented depending on the cultures. What are the most effective ways of overcoming resistance? By Mariel Barclay. While treasurers make efforts to gain Nicolas Levet’s first task as Group Treas- they were rapid to comply. Latin Ameri- efficiency and improve processes all over urer at Damart Somfy Group was to cans tried to negotiate but faced with the the world, they can easily forget that cul- ensure that subsidiaries implemented corporate’s refusal to compromise, they tural differences and not just tax and policies established three years prior to had to agree. However, close follow up regulatory restrictions, will impact the his arrival, which until then had been and controls were necessary to ensure full way people perform and prioritise activi- ignored. The corporate had over 100 compliance. China was prompt in agree- ties. Indeed, cultural misunderstandings bank accounts and required the closure ing but when auditors went to check, the are often at the heart of the delays and of local ones, sticking to a few core inter- local accounts were still in place.” frustrations in implementing projects. national banks. Most subsidiaries had argued that local banks were better but So what is an effective way to com- But what do we mean by culture? One when Nicolas Levet approached them municate with different cultures? “To way of understanding it, is as a set of with a clear mandate from the corporate manage cultural differences you have to shared values, beliefs, symbols and to enforce the policy, cultural differences start by understanding your own norms that influence the way a group of became apparent in the way each coun- culture in a non-judgemental way and people think, feel and behave. These are try reacted. “Although all resisted ini- link it to the operation at hand” says deeply engrained. To complicate things tially, when the Nordic subsidiaries Alex Schuster, Managing Director at further, cultures are not just national but understood that there was no going back consulting firm Mentavis. also regional, corporate and personal. Companies cannot change them, only carefully tailor communication to help What the British say... What the British mean... What is understood... build bridges. The EMEA regional treasurer of a $20 With the greatest respect... I think you are an idiot. They’re listening to me! billion company that prefers to remain That’s not bad. That’s good. That’s poor. anonymous notes: “In Germany people listen and act. In the Middle East they That is a very brave proposal. You are insane! They think I have courage! have a view on how things should be done and I have to listen to them. Although in the end we do what the cor- Very interesting. This is clearly nonsense! They are impressed! porate dictates, I have to adopt different communication styles.” I’ll bear it in mind. I’ve forgotten it already. They will probably do it. Communication is often put to the test by Why do they think cultural resistance when companies I’m sure it’s my fault. It’s totally your fault. it’s their fault? decide to centralise and standardise pro- cesses globally. “If you think that you are I almost agree. I don’t agree at all. They almost agree. going to centralise and everybody is going to fall into line, you are being unrealistic. You must come for Don’t get excited, I am sure I’ll get an A good communication and change man- dinner. I’m just being polite. invitation soon! agement process is fundamental” says Alfredo Elespuru, Corporate Treasurer at Gloria who helped centralise treasury at Belcorp and Oriflame. Subsidiaries typically resist as they see their wallet and their autonomy being taken away. However, reaction and time taken to comply with corporate requirements varies with every culture. Understanding how to build trust and to communicate with each is fundamental to succeed. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 41

Fons Trumpenaars, a Dutch-French “You also need to think about where you Cuervo allows people to get involved in author in the field of cross-cultural com- locate a hub. Some countries can have decision making and understands that munication created a seven-dimension cost advantages but if the culture is very acquired companies with individualistic model to show what distinguishes people risk averse they will need to test things cultures operate more efficiently if they from one culture to another. over and over again until they feel sure are given the opportunity to use their they will work. Those are not great initiative. Loria explains: “You need to The first dimension is universalism, the places for innovation, which demands spend time with the people in the com- belief that ideas and practices can be risk taking,” adds Elespuru. panies acquired and build interactive applied everywhere without modifica- teams, making them participate in your tion. Laws, rules, values and obligations Another important factor to consider is objectives and participating in theirs. I are given high importance. People try to how different cultures deal and engage am going to achieve my goals if they deal fairly with others based on these with time. Improving efficiency often achieve theirs.” rules, but rules come before relation- involves prioritising and time manage- ships. At the other end of the spectrum, ment. This varies widely among coun- Tony Osentoski, Head of Corporate particularist cultures believe that each tries, potentially becoming a source of Treasury & Insurance, Asia Pacific at circumstance and each relationship, dic- misunderstanding. The language you Solvay agrees that focusing on building tates the rules that they live by. Their use is important. “I need this ASAP” relationships is important in Asia too. “If response to a situation may change, might mean very different things you want a homogeneous approach you based on what’s happening in the depending on who you talk to. To avoid have to make the team come together, moment, and who’s involved. Typical confusion you must be clear and specific make it a priority so that everybody universalist cultures include the US, about deadlines. understands what is happening in differ- Canada, the UK, the Netherlands, Ger- ent locations. This will help deliver cor- many, Scandinavia, Australia, and Swit- Mergers and acquisitions are also testing porate objectives. We regularly have zerland. Particularistic cultures include occasions and show the power dynamics calls in which we give people a platform Russia, Latin-America, and China. at play when different cultures meet. to present an update on their countries. Pepsico’s Premoli, says: “One has to They highlight a regulatory change or So what happens when universalist cul- understand that mergers are never something that is happening and how it tures, such as the Swiss try to impose the between two equals, there is always one impacts them. That raises awareness same practices everywhere without mod- culture that predominates”. among the rest of the group of what it ification? How do they manage in Latin means to manage treasury in other America or Russia where a particularis- This was allegedly the case in the Nokia countries, the tasks they face every day. “ tic outlook prevails? Siemens initial joint venture. An ex- employee recalls how difficult it was for Treasurers worried about achieving Elespuru’s experience at Swiss multina- the proud employees of an iconic Ger- maximum efficiency, integration and tional Oriflame convinced him that “It is man firm such as Siemens to accept control should know that treasury is not important to have a model that has been Nokia’s lead. Within three years most just about visibility of cash but also about tried and tested. If you intervene in sub- treasury staff from Siemens had left. visibility of people’s values and feelings. sidiaries and you make a mistake, you Nokia eventually bought out Siemens These dictate the way they understand undermine the project, people start ques- shares, taking total control. the world and their approach to work. Treasury is not only about reconciliation tioning it. When there are no clear roles For Pepsico’s Miguel Premoli the best of accounts but about reconciliation of or processes, each situation, each subsidi- outcome in a merger or acquisition is to cultures, managing financial risks and ary becomes a model in itself. In my “extract the best of each team and bring cultural sensitivities, investing time in experience, the best way to mitigate cul- them together”. listening and communicating, borrow- tural differences and the resistance to ing the best of each cultural system to change is to create a centralisation team. This of course requires an appreciation achieve synergies. They should go to the countries, collate of the other culture, be it national or cor- information on how they manage daily porate. It is not uncommon for cultures operations, contrast that with the model that have traditionally been on the and bridge the gap.” acquiring side to find it difficult to accept being bought and managed You should also consider how multicul- by firms from emerging markets. tural your centralisation team is. “You Maria Loria, Corporate Treasurer might want to keep some diversity within at Jose Cuervo, a leading tequila the team but not so much that more noise company from Mexico, had a taste could be generated during the centralisa- of this when they started buying tion process.” concludes Elespuru. companies around the world. Some countries initially had reserva- Beyond country and company cultures, tions about being leaders also make their mark. Miguel led by a Mexican Premoli, VP Talent Management at Pep- company but her sico Europe explains: “I have been at the recognition of EU HQs of a company where the leader what the other cul- was from the UK and that culture clearly tures could bring dominated until he was replaced by to the table was someone from Spain. The dynamics and helpful. Her aim the way of doing things changed, even if was to look for syn- policies and corporate culture remained ergies and to find a the same.” win- win situation. 42 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com

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