1051. Insights: Money movement just became a competitive advantage

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1:08Welcome to Fintech Insider Insights. I'm Benjamin Ensor, Director of Research and Strategy at 11FS. Treasury has traditionally been seen as a control function, managing cash, safeguarding capital, and reconciling transactions behind the scenes. But treasury is the only function that can actually move money across organizations. And in a real-time platform-driven economy, that power is becoming strategic. On this week's episode of FinTech Insider, in partnership with Adyen, we're going to explore what happens when money movement becomes a competitive advantage. To help us do so, I'm joined by two fantastic guests.

1:47First of all, we have a FinTech Insider debut for Adrian Davis, Managing Director of Financial Services and Insurance at Adyen. Welcome. Can you tell us a little bit about you and your role at Adyen, please? Sure. Thanks for inviting me, Benjamin. As the title might suggest, I'm responsible for our financial services and insurance market vertical within Adyen. But more recently, I've also been taking a lead in the commercial development of some of our banking and treasury and liquidity management services that we offer our customers. Okay. Fantastic. Thank you. And I'm also delighted to welcome Stanislas Novicki, and I'm sure I've got your name wrong there.

2:27Sorry, I should have checked that beforehand. Managing Director and Partner at Boston Consulting Group. Welcome, Stan. Can you also tell us a little bit about you and what you do at BCG? Sure, thank you for having me. At BCG, I work at the intersection of finance and technology. My job is to help large enterprises and their C-level executives deliver more value for shareholders and for society. And as part of that job, I work with finance function leaders to multiply their impact. Fantastic. Okay, well, let's dive in. So we want to start this episode by asking whether digital technology is driving a structural shift in sort of corporate treasury, is treasury moving from operational oversight to a strategic enabler?

3:13Stan, for listeners who might not be that familiar with treasury, what is treasury and what has treasury traditionally done within large organizations? Well, at its simplest, treasury is a finance function, which role is to ensure that the business has the right amount of cash in the right place at the right time. And of course, this function's role is also to ensure that the corresponding risks are well managed. Traditionally, that was enough. But today, treasury functions need to look forward and think where to bring the cash next. Adrian, from your perspective, working with global corporations, are you seeing the same thing about what's sort of starting to change in treasury today?

4:01Yeah, very much so. I think particularly with some of the large global enterprises that we work with, I think a few new trends and drivers are notable, particularly the speed that business is moving these days, which is in no small part dictated by the needs of the customer in a competitive market. I think if you look into a variety of different sub-verticals, for example, brokerages or insurance, then the customer's demanding payment a lot quicker. To be competitive, you need to transfer money a lot quicker. And I think that businesses are looking to gain competitive advantage by satisfying that customer need.

4:43It's not just customers though, is it? Because it's also presumably suppliers, employees. I mean, we spend quite a bit of time at 11FS talking to small businesses and they're always complaining about large businesses paying them slowly. So you're right, the pressure is coming from customers, but it's not just customers, correct? No, that's right. And I think, you know, some enterprises will seek to speed up that flow of payments if there's a good need to, to other suppliers or other partners. Or they may choose to slow them down because they want to make money from the return on the float that they have.

5:17So it really does depend. But I think in today's modern environment, you're seeing a lot of different dynamics that a treasury team is having to deal with. I'll give you one small example. If you work in the delivery or mobility space, it's actually really important to pay your couriers or your delivery drivers quickly. Because if you don't, they might choose to go and work for the other delivery company. And it's dynamics like this that never previously existed. That's a competitive advantage if you can keep good labor by paying them effective quickly and accurately. So speeding up payments, Stan, I mean, that sounds simple.

5:57That sounds easy. It sounds like a good thing that would take your point about you might want to earn money on the cash. But how easy is it to start actually speeding up treasury? Because presumably treasury has exactly the same kind of legacy issues that pretty much every other organization or every other department has. Absolutely right. And when we work with large organizations, what we see is that a significant portion of them operate their treasury processes like in the last century. There is still a lot of manual work going on and the layers of legacy complexity have accumulated, which makes it even more difficult to change.

6:38That being said, there are a number of forces that are all pulling into the same direction and that I think signal that treasury is at an inflection point. First of all, a lot of technology innovation has happened in the last 10 or 15 years. Think of faster payment rails or API-based technological infrastructures that allow to do things that were not possible a couple of decades ago, like making payments instant. The regulators are also looking into that direction of enabling more instant payments. We talked about business model evolutions that is going to a more ecosystem logic. And at the point of our discussion today, there are also liquidity pressures that are encouraging companies to make payments faster and more efficient.

7:35so coming back to the point you were making a few minutes ago agenda about how the companies want to pay their sort of workers faster or customer reimburse customers faster and so on depending on you know the industry they're in does that mean that the payment actually becomes part of the product experience where previously finance was sort of in the background and now actually well product teams are starting to go to finance teams and saying well you need to fix this Yeah, no, I think that's a key observation. And this is exactly what came out from the research that Adyen and BCG did. We spoke to over 300 treasurers and CFOs about this very issue.

8:16Things are changing. The operating model that Stan just mentioned is probably 10 or 15 years out of date. And I think what we'll go on to talk about, I hope, is how the treasury teams can reframe their mission. because they're not just there as a reactive part of the business. Their influence can stretch considerably. If I just go back to the point I made about paying delivery drivers very quickly, what we often find with some of our customers is they seek to premiumize that. So in other words, they charge a fee for paying the money they owe quicker. But the delivery drivers or other suppliers are quite happy to pay that because their cash flow dictates that that trade-off makes sense because they get that cash quicker.

9:02And I think when you start thinking about concepts such as that, then you can see how the treasury team is actually driving more value than they were in their traditional role. There are ways of increasing new revenue streams that previously or hitherto might not have been considered. Are you seeing, Stan, are you seeing similar things in other industries? That's a lovely example of delivery drivers. But are we seeing similar patterns in, I don't know, the travel industry or the insurance industry or other industries where you've got customers or you've got suppliers who are saying, we want the money faster, turn it around for us faster?

9:41Absolutely. And I think that's an essential point. Treasury is very vertical specific. Adrian mentioned this example in delivery. But if you look at marketplaces, for example, have a constant trade-off between seller settlement times and optimizing their float. If you look at online travel agencies, they have a working capital issue to fix. If you look at insurance companies, the faster they pay their claims out, the better net promoter scores they get. So in every industry, you can find a little bit of a different innovation angle, but certainly a need for improved treasury services. One of the things we haven't touched on here is sort of cross-border money movement.

10:28You know, thinking about the travel industry, you immediately start to think of that. But of course, for many corporations, most corporations are operating across countries. So presumably one of the challenges is you've got a pool of dollars here and you've got a pool of euros here and you've got some yen and you've got sterling and some renminbi or whatever. How does that get faster or better? Because presumably part of the trouble for many treasuries is there is cash. It's just in the wrong places and or in the wrong currencies. So is that part of the challenge facing many treasurers is like cross-border optimization?

11:06It is. And what you've described is really complicated. I know. But, you know, it's only one layer of that complexity because sitting under all of that, you've got lots of different banks that are required often or have been historically in those different markets. So there's a huge interplay, not just in terms of FX, but in terms of banking partners, in terms of fintechs that you might be using as part of your ecosystem of suppliers that are using someone else's bank account. it can be really complex for large global enterprises that have grown over a period of time because they've just accumulated a lot of this complexity.

11:47So what does this mean for sort of some of the individuals, you know, the chief financial officers, the treasurers, the people in their teams within large companies? Are they sort of drowning in manual work, you know, fighting against these legacy systems that don't give them the information they need? or are they gradually winning that battle and sort of becoming strategic? I'm sure there's companies all the way around this spectrum, but where are companies sitting today? That's a really interesting question. When you look at the role that treasurers and finance professionals more generally are playing in large enterprises, they historically have a dual role.

12:27We like to call it for treasurers the morning treasurer and the afternoon treasurer. The morning treasurer is all about getting the most done at the fastest possible speed. Operational tasks get it quickly through, while the afternoon treasurer focuses on more strategic tasks, midterm projects, business value enhancing projects. and with the new possibilities that next generation treasury offers, you can rebalance that mix from roughly 50-50, as our research recently demonstrated, 50 % operational, 50 % strategic, to much more strategic tasks and higher value-adding interventions from the finance teams.

13:09So more of the sort of afternoon work and less of the morning work. Does that mean everyone can go to work later? But it is a real issue because, again, the research bears this out, that for your average CFO or head of treasury, 20 % of their time is spent looking after pay-ins and pay-outs. And then if you take that activity, 20 % of that 20 % is actually making manual interventions on those pay-ins and pay-outs. So, you know, it's still, it's not a very automated world for many enterprises out there. And so there's considerable scope to remove some of that complexity. Just to bring it to life for a minute, what sort of thing is a treasurer or a CFO doing in one of those pay-in or pay-outs?

13:56Is that where there's sort of an unusually large payment, let's say, that needs approval? What is it that needs to be done? Or is it just something that the money hasn't arrived, it hasn't gone, there's a problem somewhere that they're trying to figure out? What sorts of things are gumming up the system? Well, I mean, I, I, I'd suggest that, um, it is really quite basic hygiene factors that just go wrong. So for example, if, if I'm an insurer, um, I have a modern digital checkout. Um, I offer many different ways of paying to my customers. Um, then you would expect a large proportion of those, of those acquired funds to be, to go through the system to be no issues.

14:41But if you don't have a reliable payment services provider, things go wrong. And at best, that means someone calling the call center or having to make an exception around a particular payment. At worst, it could be people driving around thinking they're insured when they're not and having to chase the customer. But whenever the system goes wrong, there's a disproportionate amount of effort that needs to be made by the finance team to recover the situation. So in theory at least it's better to eliminate those edge cases by having a modern payment stack to enhance the input of the payment coming into the treasury team in the first place.

15:20I would add that the provider setup complexity is multiplying that difficulty. In our research we showed that the average large enterprise has 12 pay-in and pay-out providers, has four or five banking relationships. That translates into 40-plus bank accounts. So even relatively basic activities like visualizing accounts or managing relationships, not even talking about handling payments and exceptions, are consuming a considerable amount of time for those finance teams. While if you fast forward and you think about a more streamlined, optimized, automated process, most of these activities with today's technology could be largely automated and focus the human time on the really difficult cases.

16:13Yeah. For a modern treasury team, it's quite easy to have that UX that sits above all of this, that provides nice visualization of the current cash situation in the business. But it's only ever as good, as elegant as the plumbing is. And Stan is quite right. There is a huge degree of complexity with a number of bank accounts, banking providers, and fintechs that many of the organizations that we work are dealing with. That causes a problem, not just from a kind of risk perspective, because if you're sitting on a risk committee, you want to be certain of those banks that you're dealing with and have resilience built in there.

17:03But the cost of maintaining those suppliers is significant. But the biggest issue of all is the trapped cash that sits in each part of the process with a different bank. And this is what we're finding with our customers, that when you sit down and map out those flows, doesn't matter whether you're a business that wants to pay quickly or wants to pay slowly and make the most of that float. The reality is a lot of that money is stuck in a third party, even if it's just for a few days. But the cumulative effect of that can be many days. And that is what causes additional pressure on cash flow, which is costing companies dear.

17:41Because that trapped cash isn't earning interest, it isn't improving a customer experience. Well, not for you anyway. Yeah.

17:51And of course, presumably that's also, there's a cross border element to that as well. You know, part of the reason cash sometimes gets stuck is those cross border flows are slower often or more complex and so on. But coming back to this point on visualization. So, you know, we can all imagine this sort of wonderful dashboard that shows you all the cache and all the pools of cache and where it's all trapped and so on. And I'm sure there are many people out there trying to build exactly that. But presumably a big part of the problem is that among those average of 40 different providers that a typical corporation might have, you've got some that have got some fantastic digital tech.

18:26They've got some, you know, brand new APIs, really well documented, all complying marvelously. and to the appropriate standards. And then you've got others that haven't. Is that part of the problem as well? Just spot on. So 50 % of the respondents we interviewed as part of our joint research with ADN mentioned that they still rely on host-to-host integration. And that is really not making the job of automating and even bringing information into one place. Half of them have got a host. Is that host-to-host in just one of the relationships sort of cross? I suppose we don't, maybe we don't know. Typically across given the number of providers that they rely on.

19:09And I think that gives a sense of the tough job that it represents to bring a unified view of a company's money. And even in those cases where automation is really good, when you talk to executives and ask them, what's the actual coverage of your dashboard or of your automated solution, it rarely gets up to 100%. So you get this nice, fancy dashboard that looks like a consolidated view. And then there are exceptions, things that you need to add manually, build Excel spreadsheets around. Because there's a partner, a provider, or a number of players in the chain that just can't give you that accurate data or real-time data.

19:49Presumably some of these dashboards are looking at batch data or yesterday's data. Exactly. Think about what it does to forecasting, for example. you asked earlier how could the situation be optimized and what are the typical activities of treasurers and CFOs. One really important one is to get visibility on how is liquidity going to evolve in the coming days, hours, minutes and that is barely impossible to do when only part of the information is consolidated in one place. Is there a difference between companies that mostly serve consumers and companies that mostly serve businesses, right? Because there's different power dynamics, there's a different interplay.

20:32Did you find in the research any sort of big, well, you talked a bit about different sectors and obviously different sectors have very different rhythms and payment periods and so on, but did you notice any differences between corporations that mostly serve other businesses and corporations that serve consumers? Is it kind of easier if you serve consumers because you can just say, right, these are the terms, you have to comply, Whereas when you're dealing with businesses or government, there's a little bit more negotiation. Is there a difference there? I think when you're dealing with consumers, there is an additional opportunity.

21:02If you think about it, the full payment process from paying to payout is a continuum, right? And that step in between that we call treasury, which is really managing money while it's there, is part of a longer chain. And when you are serving consumers, you have the opportunity to have a full visibility from the beginning towards the end of the chain and be able to reconcile where those flows come from, where they are in this process and make a full end-to-end optimization. So you're saying it's easier in a sense if you're mostly serving consumers than if you're serving businesses? Yes, provided you have the right partner.

21:46Well, we see both sides of it. Much of Adyen's heritage is within large enterprises, but we also have a very successful platform business that are a kind of vertical SaaS model, if you like, who will be serving a bunch of SMBs. But, you know, the pressure doesn't go away there. The demand doesn't go away there. You know, settlement needs to be immediate. Payments need to be immediate. There still needs to be an element to this real-time treasury there as well. Okay, maybe to add one point, I think it's important to note that customers do not think in settlement cycles, right? They think in their day-to-day experience and consumers have been used to very much improve digital solutions in their day-to-day lives from a B2C standpoint.

22:38And now they expect the same in their interactions. And professionals, finance professionals are the same. They got used to using next generation applications and get information instantly. Why can't they have the same in their professional lives? Last quick question for you, Stan, in this section. Are treasurers sort of winning that battle to do more of the afternoon work, more of the strategic work, or are they still very much getting dragged back into that morning work, looking at pay-ins and pay-outs and problems? Are treasurers winning the battle? I think we are very much at the beginning of this process.

23:20And I think one of the points in our research is that treasurers and finance teams can do much more to contribute to the business objectives of the companies that they work for. The technology is there. The solutions are there. The regulation is there. So now it's more a matter of reviewing the status quo, questioning it, and designing for a better future as if you were building the processes and systems today. Fantastic. You've just wrapped up the first half very well for me. So we wanted to sort of explore how Treasury is becoming more strategic. You just summarized that really well. So in the second half, what we want to do is sort of explore a little bit about what's making that shift possible, how it can be done, and how treasury teams can embrace a new approach to infrastructure and partnerships to try and become that more strategic function.

24:19So we'll just take a quick break and we'll be back very shortly.

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25:07Pibb.

25:12Welcome back to Fintech Insider, where we're talking about the changing landscape of treasury management. So let's kick off the second part of the show by talking about sort of some of the causes and costs of fragmentation in corporate banking relationships. So both of you, talked a little bit about it already. But Stan, maybe it's worth just sort of going over that again. So you were talking about how many corporations have multiple banking relationships, presume that's partly because they're operating in multiple countries, but they also have several in each country, presumably. What does that actually sort of look like in practice to most corporations have just one bank in each country?

25:52Do they have multiple banks? What's driving those 40 plus relationships. So what we typically see is that large enterprises tend to have what we call a house bank in their country of origin or in the headquarters. And then they have a multitude of banking partners that serve a specific purpose that can be covering a specific geography or providing a certain set of advice or technology. I think we also need to recognize something that is maybe a bit of a contrarian view, which is that not all complexity is bad. There is a part of complexity that is intentional. If you think about resilience aspects, or if you want to create a level of competition between your providers, one may understand that you could have several providers in your ecosystem.