Cash management: what will become of the cash manager?
In the last Newsletter, we dealt with the fundamental question of what digitalisation really means in treasury. Today we focus on one of treasury's core areas, cash management.
Irrespective of the wide range of conceptual definitions of cash management, a new thematic category has arisen thanks to system and (especially) process integration driven by technical developments. Cash management is today the Cash & Banking Hub, consisting of five elements:
In the context of digitalisation, all five of these elements are seen under the three central objectives (process efficiency, effective use of liquidity and compliance) and the related actions (creating transparency concerning bank accounts, balances or lead times, standardising processes, formats and communication channels, and maximum automation). New structures accompanied by new target operating models have come into existence and define the interplay between treasury, shared service centre, IT and subsidiaries.
And then there's the question of the new technologies like artificial intelligence, blockchain or predictive analytics, to name just a few.
But which of the new technologies are really relevant now? What should treasury be concerned with? Which of these developments are still in such an early phase that there is a big question mark over their implementation, and thus investing any time in them appears unnecessary?
Let's look at two dimensions of this issue, the potential utility for treasury and the maturity of the technology:
1. A high degree of maturity coupled with high utility calls for action, as this means that there are both initial concrete examples of it being applied and also successful first application. This includes issues such as
2. A medium to high level of maturity with average high utility requires closer investigation of the matter. This includes
3. A still lower level of maturity that offers high utility means that the technical development should be continuously monitored. This relates to a series of issues that may be being discussed extensively but are still not relevant in terms of implementation, and includes
4. Low utility coupled with a low level of technical maturity means that the issue can be ignored at this time. The examples will surprise you, yet these are things that everyone seems to be talking about currently:
As you can see, the new domains that treasury should be tackling from the angle of further digitalisation of cash management can be summed up relatively easily. But, as noted in the original article, the basis must be right, i.e. the foundations must be laid to deploy new technologies. This comes at a time when user cases based on disruptive technologies are more the exception than the rule, and thus when we are witnessing an evolutionary change, granted one moving with considerably more speed.
These foundations include:
1. Bank Account Management (BAM):
2. Cash positioning:
3. Cash concentration:
4. Cash forecasting:
5. Payment transactions:
As regards transforming cash management to a cash & banking hub, it will obviously be interesting to see how it develops in terms of timeline. In this regard, it is crucial to understand where the essential dependencies lie.
There is a strong dependency between bank account management and cash concentration. Thus, it makes little sense to introduce a bank account management solution if the account and cash concentration structure has not first been optimised. On the other hand, as there is fundamental system proximity between cash concentration and cash positioning, there is also close technical dependency. Cash forecasting and payment transactions as a project are very resource-intensive and thus can be implemented in parallel to the other operations only to a limited extent.
There are many sides to digitalisation in cash management, therefore. Traditional areas undergoing evolutionary change are interspersed with disruptive new technologies. Cash management in the traditional sense, involving cash managers who also manage a number of accounts on a daily basis using their many years of experience, is giving way to an optimised cash & banking structure in which, as far as possible, every manual activity is automated. Continuous optimisation of the structure, including using new technologies, will be the focal activity of the future. How this shift is achieved on the part of employees will be looked at in one of the following parts of this series.
Source: KPMG Corporate Treasury News, Edition 75, January 2018
Author: Carsten Jäkel, Partner, Finance Advisory, firstname.lastname@example.org
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