Every corner of the payments industry is undergoing significant technological advancement. Ironically, one key back-office area that is often overlooked is the role of treasury management. With just over a month left in Q1 2022, now is the ideal time to assess treasury and payment technology trends and plan for the future.
To learn more about the strategic role of treasury, top treasury priorities and challenges, and the role that technology will play in delivering treasury success in 2022, PaymentsJournal sat down with Jon Paquette, VP of Solutions at TIS, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
Where treasury has been and where it is going
“Treasury has traditionally been a specialized and lightly resourced area of the Chief Financial Office within corporate structures,” Murphy explained. However, after the Great Recession of 2008-2009 – and catalyzed further by the COVID-19 pandemic – financial processes have been moving towards digitalization, with new technology evolving specifically on the workstation side. To that end, TIS recently conducted a survey to gain insight into current treasury management trends.
First and foremost, Paquette noted that 80% of survey respondents indicated an expectation of increased responsibilities. “The survey results were across multiple departments,” Paquette mentioned. “Treasury, FP&A [financial planning and analysis] accounting, and accounts payable all responded, but actually it was treasury who responded the most favorably to having increased responsibilities next year.” Moreover, about 50% expected professional development opportunities to increase, and 75% planned to upgrade technology in their department.
Putting payments technology in the right places
The specifics of what payments technology upgrades were desired, and how and why the tech would be used, varied between small and midsize vs. enterprise organizations. “For small companies, we saw a big focus on the desired impact of their technology investments around process automation within treasury and also cash forecasting,” Paquette pointed out, emphasizing how most respondents were also bullish on the role of AI. “If you flip that and look at enterprise organizations,” Paquette continued, “the main trend was that most companies have a big focus on data.” Bigger organizations are looking to extract more insight from their data, avoid data lakes, and use their data for machine learning and pattern recognition to bolster fraud detection.
While many of the survey results made perfect sense, such as 75% of respondents planning to use bank APIs in 2022, other findings were more surprising. “About 50% indicated they wanted to take advantage of real-time payments,” said Paquette, “which I thought was on the higher side. And even 15% of respondents indicated some interest in cryptocurrencies.” Conversely, only about 5% of survey respondents showed interest in improving account validation services, which seemed very low to Paquette given the potential benefits, and which did not align with the day-to-day conversations TIS had been having with treasurers.
Strong payments technology and treasury concerns: risk mitigation and cash management
Behind data management, the TIS survey showed the top desired impact of technology was in the realm of risk mitigation. In particular, the biggest efforts organizations were looking to put in place were 1) eliminating manual payments, and 2) revamping training programs. “AI will play a big role in driving those solutions in 2022,” Paquette clarified. “Although eliminating manual payments seems like an at least conceptually simple idea, the reality behind it means basically broad adoption of straight through processing, right across your entire organization.” That includes managing back connectivity, file formats, global payments, ERP connectivity, and more.
Cash management appeared as the number one most important skills upgrade for small and mid-sized companies, with 41% of respondents indicating as much. “It seems to be very market-driven,” noted Paquette. “It’s not the fintechs. It’s not the banks telling corporates they have to do this. It’s the corporates telling us that they want to manage things more real-time.” One potential explanation for this trend is that the unpredictability introduced during the pandemic accelerated the desire for real-time cash management, especially due to supply chain issues and other COVID-related slowdowns.
Other trends – eBAM, crypto, and APIs
An interesting result from the TIS survey involved electronic bank account management, or eBAM: it was the bottom priority for most organizations. “[eBAM] came in dead last amongst emerging technology adoptions for 2022,” said Paquette. “It even came behind cryptocurrency.”
Widespread adoption of eBAM technology seems to be hindered by the market expectation that automated workflows around opening and closing bank accounts won’t catch on. “There’s been various iterations of [eBAM] that have been introduced over time,” Paquette explained, “and nothing has ever gained full adoption amongst all the players that would need to adopt it within the industry.” APIs, on the other hand, are on the rise, and while API technology could be used to solve some of the eBAM challenges, Paquette suspects it won’t happen this year. “I wouldn’t rule out eBAM permanently,” he clarified.
Corporates who want to adopt APIs for other uses will have to make several key decisions. “With functionality vs. standardization vs. institutional costs of adopting APIs, there’s still quite a bit of variability between the API capabilities between most banks,” noted Paquette. Still, banks are clearly moving towards an American-style open banking. “A lot of banks are offering [APIs] for free right now,” Paquette pointed out. “What does that tell you? Banks never offer anything for free… the market is pushing everything in this direction very fast.”
Regarding cryptocurrency, Paquette views it as a win that treasurers are even marginally open to its adoption. “Crypto probably doesn’t make sense in most organizations,” Paquette said, “but it seems like for some of the use cases around global payments, crypto is a settlement currency.” Using cryptocurrency can potentially accelerate the settlement of foreign exchange transactions, though those use cases have not been made concrete as of yet. Overall, there has been so much volatility due to the pandemic that it can be hard to gauge which technologies are practical or desirable in the long-term. “That’s a good question,” concluded Paquette. “Are organizations really in a good place to take advantage of this technology?”