Treasury 4.0: From standardisation to digitalisation

Treasury 4.0: From standardisation to digitalisation

– treasury organisation of the future

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Increasingly dynamic product development, the internet of things and disruptive technologies are changing established business models. A significant component of this is digitalisation – a game changer. This also applies to treasury and it has long since ceased to be a secret. But what consequences does this have and, above all, what do treasurers need to do to position treasury as a consulting entity of equal standing that will lead the change processes brought about by Industry 4.0 for managing liquidity and financial risks? As was discussed in Issue 63 of our newsletter, today's treasurer already needs to deal with how tomorrow's treasury will look like. And has to consider which activities and technologies are necessary to support the company's performance and flexibility with appropriate products. Taking the example of treasury organisation and the demands placed on treasury employees, this article will cast light on these issues.

The consequences of Industry 4.0 – Digitalisation of treasury

Consider a current example of change processes initiated by digitalisation and the impacts on treasury: In many companies, sales departments and customers are both trying to settle invoices using electronic money and associated platforms (e.g. PayPal, Apple Pay).

  • Apart from the many operational risks that are currently being discussed at length, what does this mean for the treasury area of responsibility?
  • Is treasury involved in these strategic decisions and what are the implications for liquidity and financial risks?
  • Before these cash equivalents are transferred as deposits to the traditional treasury processes, just what are the current liquidity effects or counterparty and settlement risks?

Electronic money providers and platforms are often not covered by deposit insurance, and traditional treasury instruments, e.g. for insuring against credit risk, can only be deployed to a limited extent. Therefore, treasury must make sure that the content of its products is aligned with new technologies and processes. For example, in the case described above this means that the end product, 'Monitoring counterparty risks', must also take into account electronic money holdings and their specific risks (e.g. in the respective risk report). This is easily said, but putting it into action creates much more complex issues. In an ever faster changing world, treasury must set itself up so that processes, data models and reports are structured in the most modular way possible and can be flexibly adapted and expanded.

Therefore, treasury must frequently put its processes and products to the test and update them on a regular basis. This requires standardised, clearly-defined processes, for which the necessary data and interfaces and the finished end products and responsibilities are clearly and transparently established. Standardisation is the prerequisite for digitalisation. And standardised, digitalised processes are the basis for docking relevant apps and modular process extensions, thus allowing change processes to be addressed at short notice (for example, expanding credit risk analysis to cover e-money aspects).

Legal and tax frameworks will set limits for the standardisation of treasury products. As, of course, will highly individual processes that require problem analysis and solutions, and which cannot run in standardised, automated processes. Consequently, treasury teams' activities will be focused on solving demanding and complex issues, because the standardised processes will largely be automated, following the principle of 'management by exception'. This is where the issue of employee qualification comes into play: the future treasurer will take on more of a financial adviser's role, providing their clients with the best-fitting product. This especially involves high-quality advisory services: which products are necessary (why can't a standard product be used?) and how should the service be designed specifically? Therefore, the treasury specialist must be well familiar with the treasury products, the specifics in the individual markets and regions and the general legal and tax conditions.

So what does treasury have to do?

Standardisation and automation of processes and end products require a fundamental rethinking of how treasury is organised: which products shall treasury offer? Which processes produce these products? Who is responsible for these processes? Which resources are required and used for this process? Which data and methods are necessary? What benefit/use will it produce?

Ultimately, the treasury operating model is generally facing a comprehensive realignment (more or less depending on current setups). Crucially, processes will be structured depending on their character into strategic or managing, executing and monitoring processes. Compliance aspects (e.g. separation of functions and internal controls) will be taken implicitly into account. In the second step, the potential for standardisation and automation will be evaluated and then assigned to the corresponding platforms, consisting of databases and systems. By also taking into account local processes and specifics, a group-wide, clearly-structured operating model in accordance with Treasury 4.0 emerges. In this way, it will specifically become transparent which treasury services will be offered as standard products. Or on which products the treasury consultants have to individually advise their clients in procurement, sales, HR etc. with highly specialised knowledge.

This has similarly important implications for the skills profiles of employees. If processes are digitalised, operating, manual activities are hugely reduced – whereas IT skills and analytical abilities become the new factors for success. Structuring and evaluating data, using data-analysis methods and deducing actions to be taken will become important areas of responsibility.

Social skills for communication, conflict resolution and managing discussions and leading negotiations will also be of great importance. The treasury employee's role will require a lot more communication with colleagues from different regions and cultures. Focussing on these topics is thus of significance, because the training and development market for treasury management seminars continues to prioritise technical issues. Qualification and training, exchange within the network and analysing technological developments are high up on the development agenda for treasury employees.

Conclusion

Digitalisation is one of the game changers of our age, and it will have commensurate significance for treasury. Clear, structured treasury processes and products represent the basis for digitalisation. This goes along with appropriate investment in technology and methods. If responsibilities for processes, the end products and their costs and benefits are transparent, change requirements and their impacts can be clearly defined – and more easily implemented. Treasury will become manoeuvrable and will be able to act faster – from phasing in new products to mapping new reporting requirements. At the same time, treasury will be made fit for the requirements of the future – in whatever form this may be in the next decade.

Source: KPMG Corporate Treasury News, Edition 64, Februar 2017

Author: Stephan Plein, Senior Manager, Finance Advisory, splein@kpmg.com

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© 2017 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative (“KPMG International”), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.

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