Data and Digitization: Transforming Corporate Treasury

Corporate treasury teams deal on a daily basis with the challenges of managing their companies’ liquidity and mitigating risks against a backdrop of changing regulation, volatile market conditions, and evolving financial instruments. Across all this, there has been increasing appreciation for the importance of data and digitization - for visibility over global flows; for smarter, more informed decision-making; and, for optimal deployment of limited resources. Stepping back for perspective, treasury teams really have been on a digitization journey that is in three distinct waves. The first two are ongoing for many companies; the third is only just starting.

In the first wave of digitization, the focus is on functional centralization. This is about establishing organizational ownership of processes that may have been distributed across the finance team locally and globally but “should” fall under the remit of treasury. Once the organization is on board with the change, digitization becomes a key enabler through the deployment of a global treasury platform. With a common treasury system connected to the corporate Enterprise Resource Planning (ERP) system infrastructure and banks, it becomes possible to centralize visibility and control, and automate processes. This provides treasury teams the resource availability to more effectively identify positions and exposures and take action for improved risk management and funding efficiency. Bank relationships are usually consolidated, with consequent benefits in liquidity management, and reduction in internal costs and external bank fees. 

More advanced corporates have moved onto a second wave that uses the wide variety of information that treasury can access as a result of centralization but – in addition to improving efficiency – enables treasury to become more proactive in its support for the business. Specifically, visibility into the business and flows helps treasury spot opportunities to improve the company’s interaction with suppliers, customers and other partners. This is because the treasury team is able to sift the data now at its disposal for well-informed decision-making. Working capital management optimization initiatives, which require buy-in from the business, become more effective.  In contrast to the earlier stage of digitization, which was primarily about improving control and efficiency, this is about leveraging data to position the company for growth.

A third wave of digitization is only just emerging – many of its benefits are over the horizon. While its characteristics are still evolving, this is driven by a few main components. One is that e-commerce is being embraced by all industry sectors, rather than being a defining feature of technology companies, as was previously the case.

The business models in most industries look set to be transformed over the next few years, with consequences on the liquidity and risk that corporate treasury teams are responsible for managing. Another is that the banking landscape is in a process of change, led by developments such as instant payments and the use of application programming interfaces (APIs) across banking solutions. This has the potential to provide real-time visibility and control of a far wider range of parameters than is currently possible. Lastly, Artificial Intelligence and machine learning, which are already being embraced by companies in their business operations, will spread to treasury and finance. This is likely to impact how and where treasury processes are performed and give companies forward-looking or predictive analytics that transform decision-making. The combination of these three developments will have profound consequences for corporate treasury teams. 

It has become a cliché to describe data as the oil of the 21st century but the evidence is clear: data will drive modern treasury in the same way that oil lubricated the growth of companies a hundred years ago. Where data differs from oil, however, is in its ubiquity. No-one has to make a lucky strike to find data. Instead, it is a question of capturing existing data so that it can be utilized.

What is clear is that it is important for treasury to assess the potential of the third wave of digitization and create focused resource capacity to plan for this. Citi is working with clients to jointly understand the potential and deliver client-led innovation to enable companies to take advantage of the opportunities of this next stage of the digital journey.

At Roche, digitization is core to shaping what treasury achieves, according to Martin Schlageter, head of treasury operations at Roche. Starting in 2005, Roche embarked on a journey towards a centralized treasury, with an in-house bank and payment factory, and a rationalized banking infrastructure for greater visibility and control. Digitization, and close cooperation with dedicated internal IT, has been key to realizing the benefits, which included automation of manual processes, centralized management over cash flows, and analytics to better identify risks and act on opportunities.

Achieving this was not straightforward. Treasury had to create capacity to support business processes – such as vendor payments and FX – while the business had to be shown that handing over control of certain processes was better for them. To convince local operations, it was important to demonstrate that the efficiency and effectiveness benefits of change were worth ceding some responsibility for. Senior management support – as well as strategic hiring of people from local subsidiaries to secure their specialist knowledge – was also essential.

Another gain from this journey has been the strengthened connection between treasury and the business. In the past, there was a sizeable gap between treasury information and data produced by the business. Now, there is a seamless two-way flow of information between treasury and the business.

The benefits for the entire group are extensive. With business and treasury processes integrated, updates by the business now automatically feed into treasury systems and vice versa. Treasury has greater visibility and plays a more strategic role by working with the business. It is able to aggregate exposure across the group, net it and cost-effectively hedge outstanding risks with the banking system. 

Perhaps the greatest illustration of the success of Roche’s treasury digitization is that having started as a treasury-led initiative, it is now internal stakeholders and customers that suggest new ways for treasury to help them to manage the business. For example, treasury is working with procurement to source and analyze data that would be advantageous in negotiations with suppliers. As multiple parts of the business may work with similar suppliers without knowing (and may invoice in multiple currencies) there may be significant savings to be made. 

^{This article is for information purposes only and does not constitute legal or other advice. The information contained in this article is believed to be accurate, but Citi makes no representation or warranty with regard to the accuracy or completeness of any information contained herein. Citi is not liable for any consequences of any entity relying on this article.}