Visa Expands Digital Wallet Capabilities with Seven Key Payment Innovations
Visa has recently expanded its digital wallet landscape, focusing on seven key payment methods to enhance security, convenience, and integration within its ecosystem. Here’s a detailed explanation of these methods: Recommended Reading: 1. Tokenization This method replaces sensitive payment information, such as credit card numbers, with a unique digital identifier or token. This token can be used to process payments without exposing the actual card details, significantly reducing the risk of fraud. Visa’s implementation of tokenization is designed to protect user data during online and mobile transactions, making it a cornerstone of their digital wallet security strategy. 2. Virtual Cards Visa has integrated virtual card technology into its digital wallet offerings, especially for business-to-business (B2B) transactions. Virtual cards are digital versions of physical cards that can be used for secure and controlled payments. They are particularly useful for corporate expenses, allowing businesses to manage and track spending more efficiently. The expansion of Visa Commercial Pay, which includes these virtual card solutions, highlights Visa’s commitment to modernizing B2B payments. 3. Biometric Authentication Visa is leveraging biometric technology, such as fingerprint and facial recognition, to enhance security and user convenience. This form of authentication ensures that only the authorized user can access and use their digital wallet, providing a higher level of security compared to traditional passwords or PINs. 4. Mobile Wallet Integration Visa has expanded its digital wallet capabilities to integrate with popular third-party mobile wallets like Apple Pay and Google Pay. This integration allows users to store their Visa cards in these wallets and make payments using their smartphones. This seamless integration increases convenience and broadens the use of Visa’s digital payment solutions. 5. Contactless Payments Visa supports contactless payment methods, which allow users to make transactions by simply tapping their card or mobile device near a payment terminal. This method is quick, secure, and particularly useful in environments where speed is essential, such as public transportation or retail stores. The adoption of contactless payments has surged, driven by consumer demand for faster and safer payment options during the pandemic. 6. Cross-border Payments Visa is enhancing its capabilities to facilitate cross-border transactions, making it easier for users to make international payments. This includes optimizing exchange rates and reducing fees, thus providing a more seamless and cost-effective solution for global transactions. Visa’s efforts in this area aim to support the growing need for international e-commerce and global business operations. 7. Embedded Finance Visa is integrating financial services into non-financial platforms through embedded finance. This means that payment capabilities are built directly into various digital platforms, such as ride-sharing apps or e-commerce websites, allowing users to make payments within the app without needing to switch to a separate payment service. This integration streamlines the user experience and increases the efficiency of transactions. Based on these payment innovations introduced by Visa, we thought it would be valuable to get perspectives from Treasury professionals Royston and Lorena, who are also Treasury Mastermind Board members. Q: What is the impact of these new advancements on treasury? Which methods do you see as most relevant and impactful for treasurers? Should treasurers take action now on any of these? How about fraud? Royston Da Costa, Assistant Treasurer at Ferguson, Comments Apart from the first point, Tokenization (and that appears mainly for Consumers), there is nothing new in what Visa is proposing! There are a number of digital wallets already offering these services and some even offer virtual bank accounts…! In terms of the questions you asked: Fraud – any initiative offering greater security will be most welcome by most Treasurers, and this should be the aim for ALL Financial institutions i.e. not a nice to have for Corporate but a necessity! Most attractive to Treasury: (i) Virtual cards are a huge hit, especially for our business in the US; (ii) Embedded Finance could prove quite promising especially for our customers wishing to pay us using our online platform. Lorena Pérez Sandroni, Head of Treasury at PayU GPO, Comments Indeed, I agree with Royston comments, we saw VISA publications and I like to see as many times as possible for them to cover the services we do have partnerships with them. However, we can’t treat this publication as something innovative or making the impression is VISA the pioneer, the products are developed and being offered already. Regarding Fraud initiative comment , the upcoming change in regulations is supposed to take all Fintech companies to make sure the data is secure (PSD3), however as Royston pointed out it is a must. Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Franklin
PSD2 and Open Banking: All you need to Know
This article is written by Trustpair Flexible payment options, such as credit cards and buy now, pay later have been proven to help businesses improve their conversion rates by as much as 27%. With open banking APIs and PSD2 regulations, businesses can offer more payment options to their customers (and vendors), helping to scale their growth. But that’s not all open banking is good for. In this piece, you’ll learn about the advantages (and risks) associated with open banking’s biggest regulation – PSD2. PSD2 and open banking: definition and context PSD2 stands for the second iteration of the Payment Services Directive. It’s a European regulatory guideline tasked with connecting the data from banks to third party providers (fintechs). The aim of the regulation is to decrease the barrier of entry for new companies to access the financial services market, and ultimately increase the quality and range of finance services for customers. PSD2 came into force in 2018, after its first version was introduced back in 2007. The initial regulation was introduced to promote a single market for payments in the EU. But this second version was necessary because of the rise in open banking – consumers’ expectations have evolved as banking accounts and services moved online. As such, PSD2’s core concepts, including AIS and PIS were created to meet these expectations and maintain the integrity of the payments market. And although it’s mandated in the European market, there’s still a lot that US businesses can provide within the confines of PSD2. AIS: Account information service Account Information Services (AIS) enable registered service providers to consolidate and report a user’s data from multiple sources into one dashboard. A budgeting app like Emma or PocketSmith, which both connect multiple bank accounts to automatically analyze transactions, is a good example of this. In order to be authorized to access and consolidate this information, third party providers must be registered with their National Competent Authority (which also manages PSD2 compliance). By being approved on this list, AIS’ need to have completed their due diligence and demonstrate that they can adhere to the security standards of the payments regulation. PIS: Payment initiation service Payment Initiation Services (PIS) work a bit differently. It enables users to pay for products or services from inside a business app, instead of having to set it up through their bank. This brings the benefits of digital convenience, since the likes of direct debits or bank-to-bank payments are incredibly manual and time-consuming. In-app payments could vary from gaming purchases to online subscription payments for business products. But what remains the same, every time, is that users benefit from seamless and secure real-time transactions at a low cost. And, they get full control over their purchases thanks to automatic push payment (APP) notifications. These notifications pop up on the phones of payees as before their money leaves their account, as an extra authorization step. Having said that, authorized push payment fraud is emerging as a threat. With cellphone users getting constantly pinged by notifications, it’s easy for users to get confused and authorize withdrawals. This type of mobile payment fraud happened to customers of TalkTalk (a telecoms business), when fraudsters called up the customers and told them to accept the APP for a refund. Instead of funds being deposited into their account, it were withdrawn. Open banking and APIs: how does it work? Although Payment Services Directive 2 does not mandate any particular methods or tools (since it’s a directive), APIs are the clear option for implementing open banking services. API stands for application programming interface. They are like keys – when developers have a platform that they want to link with a bank, they will use the bank’s API to unlock data sources from the bank. Of course, each API works with the highest level of security, ensuring that open banking can be scaled at a low cost. Here are some examples of the services that work through open banking APIs: Open Banking: what are the key advantages? When it comes to the advantages of open banking, we’ll focus on three of the most impactful: PSD2 standards for security The introduction of multi-factor authentication came in with PSD2. This elevates payment security standards with greater internal controls, as it required at least two of the following three verification measures to take place before a transaction could leave the payee’s account: Also known as 2FA, this implementation is an incredibly popular one for businesses – both used to authenticate their customers and administrators. In fact, 64% of companies use MFA to verify customer identities, and 90% to validate their staff users as of Jan 2023. More competition leads to better customer experiences Long gone are the days where we all choose a bank as a teenager, and stick with it. In fact, more consumers in the US are reporting their interest in switching banks today, than compared to any point within the last decade. Open banking is one of the driving forces behind this change, since it’s enabled so much innovation. Now, financial institutions can partner with third parties to offer: With open banking accessible across the board, it’s up to the banks and financial institutions to build better customer experiences. Think improved UX design, gamification, and more account features, like savings calculators or investment predictions. Fueling the competition, this ultimately results in good news for the customer; more convenience, better app navigation and access to innovative products and services. Improved financial wellbeing The data that open banking provides can help individual customers and businesses alike. For example, data-driven businesses are 23 times more likely to acquire their customers, and six times more likely to retain them, than institutions that do not use data in their strategies. By implementing APIs to report on customer interactions, transactions and behavior, users can better understand how customers make purchasing decisions. This leads to higher conversion rates, since businesses can make the right offers at the right time. For example, banks could send the following offer: “we can see that you’ve been earning above the tax threshold. Would you like to automatically transfer a % of all…
FX Hedging is not Gambling
This article was written by HedgeFlows Many finance professionals in small corporations find dealing with foreign currencies quite challenging. Surprisingly, only 4% of UK SME exporters hedge their currency risks, while some businesses still consider FX forwards to be a form of gambling. This raises a question: why do most major corporations adopt FX hedging strategies while smaller companies often see it as an unnecessary expense? This article delves into the most common mistake made by finance teams when it comes to hedging and presents a more structured and robust approach to understanding this complex practice. The most Popular (and often wrong) Reason for Buying FX Forwards Numerous finance professionals view the primary aim of “hedging” using FX forwards as securing a more favourable FX rate for future transactions. While this notion holds some truth, it fosters a decision-making framework that is too flexible, leading to unpredictable incentives and behaviour. Traditional FX forwards are by far the most popular hedging instruments and enable businesses to fix today’s exchange rates for a specified amount of currency to be exchanged in the future. By entering into FX forward contracts, parties agree on a predetermined exchange rate for future transactions, shielding themselves from fluctuations in exchange rates. This fixed rate mitigates uncertainty and provides stability for both parties involved in the contract, regardless of FX market movements. When asked why they use FX forwards, all too often, people say they do it to get a better exchange rate, reduce their costs, or boost their revenues. Unfortunately, setting the goal of achieving a superior FX rate through hedging requires individuals to forecast future exchange rate movements, a task fraught with difficulty. Even the most skilled FX traders in leading banks and hedge funds struggle to consistently predict currency fluctuations correctly, a feat made more challenging for small finance teams lacking the resources and information flow available to top traders. Attempting to outsmart the foreign exchange market by aiming for preferential rates when buying and selling currencies is akin to challenging a casino at its own game. The unpredictable nature of FX rates contributes to the perception of hedging as a gamble, as individuals attempt to foresee future market conditions without a crystal ball. The fear of making incorrect decisions driven by current market rates is a significant concern for inexperienced finance managers and treasurers, who worry about the potential impact on their careers. Experienced finance teams mitigate this unpredictability by aligning their hedging strategies with well-defined and communicated internal objectives and metrics and implementing processes to effectively manage uncontrollable factors like FX risk fluctuations. Clear Internal Objectives Although the primary objective of FX hedging may vary for each business, key common goals and strategies can provide stability to your hedging approach despite the fluctuating nature of exchange rates. The prevalent strategies include Balance Sheet Hedging and Cashflow Hedging. Balance Sheet Hedging A balance sheet hedging programme aims to safeguard profit margins against currency fluctuations, reflected as FX Gains & Losses in accounting records. Typically, balance sheet items like foreign currency bank account balances, AP/AR, and other assets and liabilities in foreign currencies can lead to FX Gains & Losses for any accounting period. Often, foreign invoices are accrued at one exchange rate and settled later at a different rate, resulting in such FX Gains & Losses. The significance of hedging is better understood when it is directly linked to underlying exposures. Assessing hedging performance accurately necessitates considering hedges together with underlying assets or liabilities in foreign currencies. For many businesses, FX risk may be unidirectional. For instance, a company might solely buy or only sell in a foreign currency. In such scenarios, mitigating the impact of currency fluctuations on profit margins is achieved by hedging any contract or invoice denominated in a foreign currency promptly upon commitment. Nonetheless, understanding when FX risks arise is crucial. FX risks often emerge as soon as a contract is signed or even earlier, but accounting only captures a part of these risks when invoices are recorded in the ledger. In the above case, the exchange rates moved unfavourably from the time the sale invoice was entered until it was paid, and thus, the person who would have made the hedging decision looks like an unsung hero, even when the performance of the FX contract is viewed on its own. However, market exchange rates could also move in a favourable direction, in which case, the decision to hedge may seem like a wrong one – it would be better to wait and exchange currencies later. If the decision to hedge or not to hedge is based on an individual’s views of where the exchange rates are going, the company risks ignoring the key fact. The company is exposed to currency risks in a specific direction, and it must hedge if it wishes to remove FX gains and losses from the income statement. This is why it is important to view the hedges combined with the underlying risks to demonstrate their value: simply by fixing a predictable value of foreign invoices and thus protecting profit margins from unexpected currency swings. In the above example, the result FX Gain & Loss is nil, exactly the desired outcome. Cashflow Hedging Imagine that the above-mentioned company decided to hedge such an invoice even earlier, when the sales contract was signed. This means the company would enter into a FX forward contract, locking in a guaranteed exchange rate of 1.2525 (1.2500 and a small cost that often needs to be paid to purchase a FX forward). As a result, the company would lock in the value of £79,840.32 ($100,000/1.2525). More importantly, when the client pays $100,000 a month later, the cash flow can be exchanged at the guaranteed rate, and the company can collect the full £79,840.32. However, in this case, the hedge existed even before the invoice appeared on the balance sheet. Until the invoice date, this hedge relates to a forecasted transaction. Such a hedge is called a cashflow hedge because it does not…
Mastering the human side of Treasury: Why soft skills really matter
When building a career path in Treasury, certain technical skills are very important. However, soft skills are what can elevate your career beyond what technical skills cannot. Soft skills like communication, problem-solving, adaptability, leadership, and collaboration are very crucial to attaining leadership roles. Recommended Reading Let’s highlight the importance of these soft skills in a practical way: 1. Communication In a situation where you are presenting a complex financial report to company executives. Your ability to explain the numbers in a clear, understandable way is what keeps everyone on the same page. It also ensures confident decision-making. Without strong communication skills, important details could get lost in translation, leading to misunderstandings, and missed opportunities. 2. Problem-solving Assuming you are faced with a sudden cash flow crisis due to a market downturn. Your skill for analyzing the situation, identifying key issues, and brainstorming innovative solutions is what really saves the day. Whether it’s renegotiating terms with vendors or restructuring debt, your problem-solving skills help you through challenging financial situations. And helps your company achieve its corporate financial objectives. I remember a time. After completing my cashflow forecast, I discovered that due to changes in the economic situation and the implementation of a Central Bank policy, our company’s cash flow was going to decline by 20%. And we were securing repayments to international vendors for capital expenditures. I simply proactively engaged the suppliers to restructure payment terms for a longer period, giving them a mitigation strategy for any repayment risk they anticipated. 3. Adaptability Think about how rapidly technology evolves in finance. One day, you’re mastering a new Treasury Management System (TMS); the next, you are exploring the next, more efficient application for payments. Your ability to embrace change and quickly learn new skills ensures that you stay ahead of the curve and effectively leverage emerging technologies to streamline processes and enhance efficiency. 4. Collaboration In a situation where you are working on a major capital project that requires input from multiple departments—finance, operations, and marketing. Your ability to collaborate effectively, build relationships, and align everyone’s efforts towards a common goal is what drives the project’s success. By facilitating a culture of collaboration, you encourage synergies, take advantage of diverse expertise, and deliver impactful results that benefit the whole organization. Conclusion on Mastering the human side of Treasury While technical expertise is important in Treasury, it’s the soft skills that truly elevate professionals to leadership levels. Whether it’s communicating financial insights, solving complex problems, adapting to change, or collaborating across teams, mastering the human side of Treasury is what sets exceptional professionals apart from the rest. Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Jessica
Modernizing Treasury Management: Treasury Delta’s Fintech Innovation Recognized by EY UK
Exciting news just in: Treasury Delta, a strategic partner of Pecunia Treasury and Finance (Pecunia), has been chosen by EY UK for their Fintech Growth Programme. This recognition shines a light on Treasury Delta’s innovation, which will streamline corporate treasury transactions, particularly within treasury management. Pecunia’s decision to team up with Treasury Delta stems from a shared vision of simplifying day-to-day Treasury operations, especially the complex and costly request for proposals (RFPs). Together, they aim to leverage digital technology in order to remove friction points and they have recently undertaken their first successful transaction together. Katja Palovaara, EY Programme Manager, has praised Treasury Delta’s digital platform, stating, “Treasury Delta’s innovative digital platform stands out, promising a transformative impact on the future of financial transactions with its exceptional efficiency and cost-effectiveness. Their customer-centric approach and commitment to automation herald a new era for Treasury projects.” The Importance of Tech in RFPs: Saving Time, Money and Improving Decision Making Traditional RFP processes in treasury management are very time-consuming and resource-intensive. However, with technology such as Treasury Delta’s digital platform, these challenges are being addressed effectively. By incorporating tech-driven solutions, organizations can significantly reduce the time and effort required to conduct RFPs. Automation streamlines data collection and analysis, allowing Treasury professionals to focus on strategic decision-making rather than administrative tasks. This efficiency not only saves time but also reduces the operational costs associated with manual RFP processes. Furthermore, advanced analytics capabilities provide deeper insights into vendor capabilities, pricing structures, and market trends, empowering Treasury teams to make more strategic and informed choices. The use of technology in RFPs also facilitates better communication amongst stakeholders. Cloud-based platforms, like Treasury Delta’s, enable real-time access to data and insights, fostering collaboration between Treasury professionals, vendors, and other relevant parties. This seamless exchange of information enhances transparency and accountability throughout the RFP process. In summary, as organizations continue to prioritize efficiency and innovation in their treasury operations, tech-driven solutions like Treasury Delta’s platform will play an increasingly pivotal role in driving success. This recognition by EY UK validates Treasury Delta’s niche position as an up-and-coming player in fintech innovation, poised to drive significant advancements in treasury management practices. If your firm is interested in exploring this innovation, inquiries can be directed to Pecunia at info@pecuniabv.nl or by registering your interest at https://treasurydelta.com. Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Patrick Kunz
An Interview with Sebastian Muller-Bosse, Board Member of Treasury Masterminds
Q: Let us know you, Sebastian. Tell us a little bit about yourself and your journey in treasury I joined Finance & Treasury Services as a Corporate Treasury Manager after finishing my Master’s in “Finance & Accounting” at Leuphana University Lüneburg. While I was studying, I did several internships in corporate treasury departments, which helped me gain a lot of experience in treasury operations and currency management. For example, I was involved in implementing a new global treasury management system and revising a hedging strategy. Before this, I spent a year in treasury consulting with one of the Big Four accounting firms, where I helped clients set up their treasury functions and improve their organizational, procedural, and methodological approaches. I also have a background in banking, having completed a banking apprenticeship. Also Read: An Interview with Benjamin Defays, Board Member of Treasury Masterminds Q: What specific skills do you believe are essential for success in treasury management, and how have you developed and utilized these skills throughout your career? 1. Corporate Banking: Hard Skills Since specifically Treasury Management concepts, methods, or instruments are not widely taught in academics as an individual subject like Controlling or Accounting, a sound understanding of corporate banking and cash & risk management, as well as financing products, is important. Treasury really begins with the bank relationship, ergo bank account management, investing and lending cash, etc. Most payment products or banking services are not hard to understand but it’s an advantage to be familiar with the “slang” and environment before starting a job in treasury. “Learning on the job” (see below) or visiting specialized seminars is a common way to develop the necessary skills throughout your career, making sure that you gain the relevant knowledge for your daily operations. 2. Analytical Soft Skills The fundamental tasks of a Treasury Manager are to create transparency, reduce financial risk, and ensure liquidity and solvency at all times. Where do I need cash, in what currency, and at what time? To answer these questions, you need to create sophisticated, comprehensive reports, that show data about your cash flow. There are many tools out there that help you visualize your cash flow in beautiful-looking tables and graphs. The real pain really starts at the beginning, though. No one likes to (a) collect, (b) save, and (c) clean the data, except you’re a real data wizard. The role of the Treasurer shouldn’t be about this data wrangling but the data analysis itself. You need to feel comfortable digging deep into the numbers and trying to figure out what story they tell. 3. The Rest: Learning on the job Since every Treasury is different, the requirements of businesses’ cash and risk management and financing can vary a lot. No Treasurer deals with all banking products and services, so you will soon find out what is relevant to your organization and what is not. One of your Treasury fellows might work in a trading company and deal with letters of credit every day, whereas you never understood how to manage them. A second fellow prepares for a bond emission, whereas you are only dealing with simple bank loans. A third fellow is executing the cash status and forecast by the push of a button in their Treasury Management System, while you are still struggling with your manual Excel sheets. This is all completely normal and fine! Always try to improve your workflows and systems, automate processes where you can, and stay up-to-date with skills, trends, challenges, and regulations in Treasury. Q: In your opinion, what are the most significant challenges facingTreasuryy departments in today’s business environment, and how do you approach addressing these challenges? 1. Resources Labor market shortages plus the lack of sophisticated higher education, especially Treasury management, create a tight situation for corporations trying to fill their vacancies. Often, they demand experienced treasurers who are simply aging more and more and the young ones are not following fast enough. A temporary solution can be interim managers but in the long run, only universities can help increase the supply of recruits. 2. Budget Treasury departments are fairly low-staffed compared to other finance departments like controlling or accounting. Many corporations prefer to stack up their technology, trying to make machines do the work more efficiently, rather than hiring for more FTE. Often, approval for these kinds of projects faces a bottleneck at the C-level and budget is the prevailing argument. A well-prepared business case with quantitative and qualitative value is key to winning their hearts on a project like this since the overall goal isn’t normally about gaining a profit from treasury activities. 3. Change Management In the fast-paced environment of today, new digital skills are needed more than ever. Especially data literacy and agile working methods are promising to cope with new trends in technology and to overcome the old “we always did it this way” mentality. The younger generation knows that there are capabilities and solutions for “getting the job done”. They can be frustrated if the organization is not adapting to the new realities and continues business as usual. Integrating young people into the team brings new ideas to the table since they grow up with different views and approaches. 4. Embrace LinkedIn Treasury management is a dark niche in the big pond of finance. Connecting to your peers helps you navigate these waters, not only on your own. Many treasurers got to their position where they are more or less my chance since the career path isn’t shown to them after university. Therefore, the feeling of working in a fairly unknown financial terrain should be more of the norm than the exception. A great place to start is connecting on social media platforms, especially on LinkedIn. Today everyone is happy to have a big online network of like-minded people and it’s not weird anymore if you haven’t met the person in real life yet. 5. Subscribe to Newsletters There are good ways to stay up-to-date in treasury management,…
The Rise of Challenger Banks: Disrupting the Banking Industry
In recent years, the financial landscape has witnessed the emergence of a new breed of banks known as “challenger banks” or “neobanks.” These digital-first institutions are shaking up the traditional banking industry by offering innovative services, seamless user experiences, and a customer-centric approach. As consumers increasingly embrace digital solutions, challenger banks are gaining traction and rapidly expanding their customer base, posing a significant challenge to established, legacy banks. Traditional Banks: The Incumbents Face Disruption For decades, traditional banks have dominated the financial services sector, operating through extensive branch networks and relying on legacy systems and processes. While these institutions have long enjoyed a solid customer base and established brand recognition, they have often been criticized for their cumbersome processes, outdated technology, and lack of agility in adapting to changing consumer preferences. Enter Challenger Banks: Embracing Digital Transformation Challenger banks, on the other hand, are born digital. Unencumbered by legacy systems and physical infrastructure, these banks leverage cutting-edge technology, cloud computing, and agile development methodologies to deliver innovative banking solutions. By operating primarily through mobile apps and online platforms, challenger banks offer a frictionless and user-friendly experience, catering to the demands of tech-savvy consumers who prioritize convenience and accessibility Key Advantages of Challenger Banks: Growth and Adoption of Challenger Banks The appeal of these banks is evident in their rapid growth and adoption rates. According to industry reports, the global market for digital banking is projected to reach $8.5 billion by 2027, with challenger banks leading the charge. Many consumers, particularly millennials and Generation Z, are embracing these digital-first banking solutions, drawn by their convenience, transparency, and user-friendly interfaces. Traditional Banks’ Response to the Disruption Recognizing the threat posed by these banks, traditional banks are not sitting idle. Many legacy institutions are investing heavily in digital transformation initiatives, modernizing their systems, and enhancing their online and mobile banking capabilities. However, the challenge lies in overcoming the inertia of legacy systems and organizational cultures, which can hinder agility and innovation. Collaboration and competition As the financial services landscape continues to evolve, some industry experts predict a future where traditional banks and challenger banks will coexist and potentially collaborate. Traditional banks may leverage the innovative solutions and agile methodologies of challenger banks, while challenger banks may seek partnerships with established institutions to gain access to their extensive customer base and regulatory expertise. Adoption in Corporate Treasury While challenger banks have made significant inroads in the consumer banking space, their adoption in corporate treasury operations has been relatively slower. There are several reasons why traditional banks still dominate the corporate banking landscape: However, as challenger banks mature and expand their offerings, they may gain more traction in the corporate banking space. Some corporations, particularly those with a strong focus on innovation and digital transformation, may be open to exploring partnerships with challenger banks. This can potentially leverage their agility and customer-centric approach. Conclusion The rise of challenger banks is reshaping the banking industry. But their adoption in corporate treasury operations has faced unique challenges. Digital-first institutions continue to evolve and broaden their capabilities. They may gradually gain a stronger foothold in the corporate banking sector. Fostering healthy competition and driving innovation across the entire financial services landscape. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Mitigating Banking Failure Risks: Strategies for Treasury Teams
This article is written by TIS Payments in 2023 At-a-Glance: So far in 2023, there have already been several high-profile institutional banking failures including Silicon Valley Bank (SVB) and Signature Bank, as well as the sudden acquisition of Credit Suisse by UBS. Uncertainty regarding First Republic Bank and other various regional banks has also persisted as a sustained liquidity crunch threatens their daily operations. These unexpected incidents have underscored the need for treasury and finance teams to develop and maintain a bank connectivity structure that supports their need for simplicity, automation, and control without creating an overreliance on any single partner or relationship. In the modern technology era, a popular strategy for accomplishing this is by deploying a multi-bank connectivity solution that is not tied to any specific bank and that can synchronize workflows across a company’s global banking partners by integrating them all through a unified platform. This approach enables treasury and finance practitioners to easily maintain global visibility and control across their full spread of bank connections and accounts, and it enhances their ability to quickly react and pivot to a shifting financial landscape as various bank relationships, regulations, integration methods, financial messaging standards, and other components evolve. Uncertainty in the Banking Environment is a Huge Deal for Treasury & Finance Teams During Q1 of 2023, tepid performance across the financial markets has done little to dispel widespread feelings of uncertainty about the state of the global economy. With the aftermath of the Covid pandemic still fresh in everyone’s mind and many companies now facing subsequent supply chain bottlenecks, heightened geopolitical turmoil, and rising interest rates coupled with soaring inflation, it’s easy to see why risk management has remained top-of-mind for many industry professionals. But recently, the added uncertainty and turmoil caused by a series of high-profile banking failures including Silicon Valley Bank (SVB) and Signature Bank, as well as the sudden acquisition of Credit Suisse by UBS, have sparked even greater worry over whether the global economy can handle further financial duress. Today, these concerns are weighing particularly heavily on those operating within the corporate treasury and finance arenas. Why is this? From an operational perspective, treasury is typically responsible for monitoring and controlling their organization’s banking workflows, account balances, payments activity, and underlying cash flows. Practitioners usually approach these responsibilities by attempting to automate and optimize as much of their processes as possible to drive efficiency and simplicity, but there is often a risk management element associated with the function as well. That is, addressing the risk that any of the company’s banking partners, account balances, or associated cash flows could be impacted by an adverse event or unanticipated scenario that suddenly drains liquidity or renders some or all of it inaccessible (i.e. due to a fraud attack, natural disaster, geopolitical conflict, economic catastrophe, etc.) In many cases, the bank relationships that treasury oversees are spread across numerous countries, currencies, institutions, and accounts. But, there are usually a few core banking partners that help companies manage the bulk of their liquidity and payments activity. Often, having these core partners is helpful because treasury can rely on them to sustain daily operations without overcomplicating their business landscape or having to deal with dozens of separate providers and connections. However, if one of these core banking partners were to unexpectedly fail, how would that impact the organization’s payments and cash flows? Would it be easy to redirect these processes through a new bank, recover the liquidity held in the collapsed bank, and develop a new workflow to transact with vendors, customers, and partners in an efficient manner? Given the critical nature of payments and cashflow activities for supporting day-to-day business operations, treasury could end up dangerously short on options if a bank closure prevented them or their AP and HR colleagues from paying supplier invoices, debt settlements, or employee salaries. If millions of dollars in cash or more is suddenly unavailable and payments are not being executed, companies without the proper bank contingency plan will face significant challenges trying to source alternative liquidity and route it through new networks or channels. Treasury Must Balance Their Need for Banking Automation & Simplicity with Risk Management Best Practices Via Ample Diversification & Integration For many organizations, addressing the above risks is not easy — especially not for treasury groups that have become overly reliant on a single banking partner or a select few institutions to manage cash and payments. And for companies still using individual bank portals to manage the bulk of their payments activity with their partners, then a bank closure impacting one of these key institutions is even harder to overcome. Of course, the “surface-level” response to this challenge is to simply suggest that treasury should diversify their assets across a greater number of banks and accounts. But the answer is not that simple. Over time, each new bank and set of accounts added by a company will result in greater complexity across the back-office as additional connections, data, information, and relationships must be managed. In the long run, a company that overdiversifies their relationships across too many banks and accounts will ultimately suffer from a garbled mess of bank portals, payment workflows, and reporting gaps that negate any benefit derived through the reduction in risk. In fact, they may even create added risk due to an increased threat of fraud and compliance gaps as cash and payment activity is spread across more points of exposure. But given the extent that modern treasury teams must rely on their banking partners to ensure cash flows and payments are properly transmitted and orchestrated on a global scale, how are practitioners supposed to adequately protect against the potential fallout of a banking failure without growing overdiversified, siloed, or inefficient in the process? For a growing number of companies, the answer lies in multi-bank connectivity solutions. Using a Multi-Bank Connectivity Solution Enhances Treasury’s Ability to Orchestrate Global Cash Flow, Payments, and Liquidity During Times of Crisis In today’s digital and fast-paced financial environment, an increasingly common practice amongst treasury teams is to…
An Interview with Benjamin Defays, Board Member of Treasury Masterminds
Q: Let us know you, Benjamin. Tell us a little bit about your journey into treasury. How did it all begin for you? I landed in Treasury by chance about 12 years ago, and it quickly became my passion. I started my journey with a CAC40 company, then switched to the largest private company in the US, and now I’m with the world’s largest alternative asset manager. This gave me the opportunity to take part in 3 TMS implementations, plus one for a trade finance platform. And also FX risk, liquidity management, and solution implementation with various cash pooling structures, trade finance activities, and credit and collection management. I was also in charge of automation activities such as RPA and various workflow tools to help monitor activities and measure performance, with managerial roles at different levels. I have been a board member of the Association of Corporate Treasurers of Luxembourg (ATEL) for several years, in charge of education and the sustainability of the Treasury function. I teach and co-founded various Treasury Management training programs. Q: What specific skills do you believe are essential for success in treasury management, and how have you developed and utilized these skills throughout your career? In the evolution of treasury management, there has been a transformative shift from the traditional perception of treasurers as detached consultants to an integral part of strategic decision-making within organizations. Today, successful treasury management demands a multifaceted skill set that extends far beyond conventional financial acumen. At their core, treasurers function as risk managers, meticulously navigating the complexities of financial markets to safeguard the company’s assets and ensure stability in volatile environments. However, they are also indispensable strategists, adept at aligning treasury initiatives with overarching business objectives to drive growth and profitability. Hyper-specialization is crucial in today’s dynamic landscape, where treasurers must possess an intricate understanding of various financial instruments, regulatory frameworks, and technological advancements. This expertise empowers them to optimize liquidity, manage funding efficiently, and mitigate risks effectively. Moreover, treasurers serve as trusted advisors to the CFO and the board, offering invaluable insights into financial performance and implications for strategic decision-making. They act as liaisons between different stakeholders, synthesizing complex financial data into actionable recommendations that drive informed decision-making at the highest levels. In the modern business paradigm, treasurers are not just custodians of financial resources; they are strategic business partners, deeply entrenched in the operational intricacies of the organization. This requires a profound understanding of the business landscape and the ability to tailor treasury solutions to meet specific needs, thereby enhancing the company’s competitive edge. To excel in this evolving role, treasurers must embrace a culture of continuous learning and adaptability. The pursuit of lifelong learning is essential to staying abreast of industry trends, regulatory changes, and technological innovations. It’s not enough to rely solely on past experiences; treasurers must constantly challenge themselves to learn, unlearn, and relearn, positioning themselves as pioneers rather than conservators in the ever-evolving treasury landscape. Furthermore, effective communication skills are paramount for treasurers to articulate complex financial concepts in a language that resonates with senior management and other stakeholders. Clear, concise communication fosters collaboration and ensures alignment across different functions, facilitating informed decision-making and driving organizational success. Lastly, while treasurers are adept at managing external risks, it’s imperative not to overlook the importance of managing internal risks, including career development and professional growth. By proactively investing in their own development, treasurers can future-proof their careers and remain indispensable assets to their organizations. In essence, the modern treasurer embodies a blend of financial expertise, strategic vision, and adaptive leadership, playing a pivotal role in shaping the financial health and strategic direction of the organization. Q: In your opinion, what are the most significant challenges facing Treasury departments in today’s business environment, and how do you approach addressing these challenges? In today’s business world, Treasury departments encounter significant challenges. As highlighted by Charles Darwin’s insight: ‘It is not the strongest of species that survives, nor the most intelligent, but the one most responsive to change.’ Woodrow Wilson’s remark, ‘If you want to make enemies, try to change something,’ underscores the resistance often faced when change is introduced. The primary hurdle for Treasury departments is adapting to change effectively. We must recognize that change is inevitable and view it as an opportunity for growth. Embracing change involves thinking outside the box, avoiding routine, and seeking innovation. Automation is key to addressing routine tasks, allowing us to focus on strategic initiatives. By adopting agile, digital solutions and streamlining processes, we can improve efficiency and resilience. Standardization, simplification, and strong internal controls are essential for ensuring financial integrity. Furthermore, treasurers must enhance their business partnerships and technology skills to meet evolving demands. This includes leveraging data analytics for insights and collaborating across departments. As the role of treasury expands, we must adapt to new responsibilities such as managing working capital, addressing ESG considerations, and navigating emerging payment methods in B2C transactions. By embracing change, utilizing technology, and expanding our skill sets, treasurers can successfully overcome challenges and drive organizational success. Q: Could you discuss a particularly complex Treasury-related problem you’ve encountered in your career and how you navigated through it to achieve a successful outcome? I encountered a complex challenge revolving around the management of thousands of bank guarantees annually. This activity was pivotal for our operations, as it was a prerequisite for receiving payment from customers, many of whom demanded bank guarantees. However, this process was draining our working capital and causing frustration and misunderstanding within the organization. Managing over seven credit lines with predominantly manual processes meant our Treasury team spent excessive time on low-value tasks, with little visibility for management due to the absence of key performance indicators (KPIs). To address this, I prioritized breaking down the barriers between the Treasury and the business units. I initiated several team-building sessions, drawing insights from relevant literature, to foster mutual understanding of the intricacies and risks associated with bank guarantees. This collaborative approach significantly improved communication and…