New technologies have given rise to the concept of a real-time treasury — where all cash is sent and received in real-time, and centralised dashboards are updated instantly so that stakeholders have immediate visibility of funds and can directly manage their treasury risks. While this might seem like a far-off dream, the reality could be closer than treasurers think.
Getting closer to the real-time treasury
“The real-time treasury is still a vision for the future. Most treasuries are lean and efficient, but they haven’t quite reached that next level,” says Tino Kam, Head of Transaction Banking Solutions, Nordea. “But the building blocks for a real-time treasury are in place.”
According to our latest Treasury KPIs report, treasuries are laser-focused on their core objectives — liquidity, FX risk management and funding. These mission-critical goals are critical to a company’s survival. But Kam thinks that these fundamental tasks could soon be streamlined, as treasuries move towards a more real-time model.
Treasuries are harnessing new technologies and instant payment infrastructures. It’s speeding up daily operations and helping them to meet their KPIs more efficiently
Here are four key areas where treasuries are taking strides forward — and what the future might bring.
1: Instant payments and open APIs
Kam believes that the shift towards instant payments will play an important role. The Instant Credit Transfer (SCT Inst) scheme has already been rolled out across Europe, enabling faster payments between European accounts. In the Nordics there are mobile and instant payment solutions already — but these are country specific, and many are still in their infancy and being further developed.
P27 will be a true cross-country payments solution within the Nordics. Banks and financial services providers are already preparing for this change. It will be a very important step towards the real-time treasury
That’s why the Nordic payment platform P27 is set to have a big impact when it goes live in mid-2021. “P27 will be a true cross-country payments solution within the Nordics. Banks and financial services providers are already preparing for this change. It will be a very important step towards the real-time treasury,” says Kam.
But it’s the combination of instant payment legislation with open banking that’s set to be truly transformative, especially in the retail and ecommerce sectors. Many companies are already using open banking APIs to revolutionise the way payments are processed — and that’s helping treasuries to meet their objectives more efficiently.
For example, many retailers are now using real-time push payments, where the buyer initiates the payment instead of the seller. This saves time and often allows the retailer to improve the end to end process. Companies are also taking advantage of real-time balance and transaction reporting, using an API premium service to gain an aggregated view of their balances across multiple accounts and banks.
By enabling faster settlements, these tools help treasuries manage their treasury risks, reduce working capital and funding requirements, while also increasing profit margins
“By enabling faster settlements, these tools help treasuries manage their treasury risks, reduce working capital and funding requirements, while also increasing profit margins,” explains Kam. “And the aggregated visibility enables better cashflow forecasting.”
2: Real-time liquidity
Virtual accounts are also helping treasuries get closer to real-time liquidity. Virtual accounts are typically used as an enhancement to “collection on behalf of” (COBO) programmes, which allow treasurers to accelerate the collection of payments through a single account. The virtual account helps to achieve real-time cash concentration through the rationalisation of bank accounts across their currencies.
But while these solutions are already in use, they do have limitations. Each virtual account number must be linked to a physical bank account. And that can be inefficient if the treasury has accounts with multiple different banks. The good news is that APIs could enable a shift towards multi-bank virtual account solutions soon.
“Traditionally, multi-bank cash concentration structures are based on end of day reports. That’s because treasuries are dependent on the cut-off times of different banks,” explains Kam. He believes that treasuries will soon start taking advantage of open banking and API technology to manage balances across multiple banks.
As APIs begin to enable multi-bank virtual account models, this will bring treasuries much closer to real-time liquidity
“As APIs begin to enable multi-bank virtual account models, this will bring treasuries much closer to real-time liquidity,” says Kam. “It will give treasuries real-time visibility of their accounts across all their different banks, so they can reconcile their cash flows at a global level when it suits them, instead of being restricted by each bank’s reporting options. This will deliver particular value to multinational corporations with global operations.”
3: Real-time currency management
These advances in payment processing and liquidity management are helping many treasuries get closer to the real-time ideal. But for those operating across borders and currencies, finding new ways to manage their FX risk is also a major priority. That’s why some are now using APIs to automate part or all of their FX risk management. Instead of monitoring bank accounts and making manual FX transactions, they set up custom rules so that many of these tasks happen automatically. It’s also possible to connect the APIs directly to ERP systems, or any data source where FX exposure appears, to hedge automatically in order to avoid unwanted risk exposure.
“If the treasury needs to handle different currency exposures and balances, there are a growing number of ways this process can be automated,” says Ulrika Claesson, Open Banking Commercial Business Developer at Nordea. “Whether you’re transferring currency balances or trying to rectify negative balances, you can set up rules to achieve this. This can save treasuries time and help them to minimise FX risk and interest rate costs.”
If the treasury needs to handle different currency exposures and balances, there are a growing number of ways this process can be automated
Tino Kam agrees that new technologies are improving risk management. “With tools like robotic process automation, corporate treasuries are able to automate more of their risk management. For example, invoices or payments in the ERP-system could trigger simple spot conversions or more sophisticated hedging strategies containing swaps and forwards.”
4: Robotics and artificial intelligence
Treasuries are also investigating ways to use robotics to streamline their day-to-day operations. “Most of today’s treasuries are lean and they want to lessen their dependencies on people, so process efficiency is the main focus. Taking a real-life example, if a person is off sick or on annual leave, this shouldn’t impact a company’s critical operations. In that case, automation can provide a big advantage,” says Claesson.
In the near future, Tino Kam thinks these tools will increasingly be used in conjunction with artificial intelligence (AI). “I think we’ll see more treasuries taking advantage of their data using the power of AI,” he says. “For example, when it comes to cash forecasting or risk forecasting, treasuries won’t just be dependent on their current data set. They’ll use AI to compare it with historic data and predict future trends.”
There’s already a lot of innovation happening in this area — and AI could soon help treasuries reach all of their core KPIs. “There’s no way that humans can leverage all the data that’s out there. But with AI you can,” Kam says. “Ultimately, it will help treasuries to achieve their core KPIs of funding, liquidity and risk management. In fact, in five years, these KPIs will probably be replaced with new ones — because the main three will be increasingly automated functions.”
There is already a lot of excitement about the possibilities of using new technology. It’s not just banks leading the way with solutions. “Customers often come to us with ideas or use cases for APIs that we haven’t even thought about,” says Claesson. “It’s sparking creativity as treasuries seek new ways of streamlining and improving their cash management. Nordea is working closely with customers and partners to develop these solutions.”