How Today’s Technology Can Create Tomorrow’s Treasury
The COVID-19 crisis has put companies under unprecedented pressure. In response, many treasuries want to accelerate their digital transformation to enhance efficiency and control.
The COVID-19 crisis has upended the world of business. Many companies’ supply chains have been disrupted, and while a handful of sectors have enjoyed increases in demand, many have experienced the toughest trading conditions for decades as lockdown measures effectively shuttered operations. Continued outbreaks of the pandemic mean that uncertainty is expected to continue for the foreseeable future.
Treasury has had to adapt to this ‘new normal’. The move to remote working has made it challenging to achieve visibility and control at a time when they have never been more important given changes to operating conditions and the opaque outlook. While many treasuries have performed valiantly, their experience in recent months has reinforced efforts to digitize, automate and simplify treasury processes to ensure they are better prepared for the future.
Today’s technology meets treasury’s needs
There can be a tendency among some companies to assume that recent technological advances remain at a development rather than practical stage; hype around innovations such as blockchain and artificial intelligence often reinforces such beliefs. However, it is important to recognize there are proven technologies and established solutions that can be deployed today, which could have immediate and meaningful impact on treasury working practices.
For example, many companies seek greater accuracy in FX trade reconciliation but do not want to spend more time (or money) on post-trade activities. Treasuries covering multiple geographies also want greater oversight of activities without increasing operational burdens. In both cases, the goal is the same: greater control and visibility without impairing efficiency. And in both cases, solutions are available today that bring these important goals within reach.
Making STP a reality for FX dealing and payments
Straight-through-processing (STP) has been an objective for treasury in many fields for years. However, the COVID-19 crisis resulted in unprecedented FX market volatility, which has increased treasury’s need for accurate and real-time data to facilitate more informed decision making. This has put the spotlight on STP solutions that aggregate and execute FX trades and automate delivery of transaction details to a company’s back office system.
Automation of post-trade processes can produce many benefits. STP reduces the potential for errors and speeds up processing and reconciliation. If trade data is connected to risk management systems, risk monitoring can be enhanced and updated on a more timely basis.
STP can also be extended to auto-execution of trades. For instance, threshold-based execution can save time and lower costs for a company executing small value tickets and manually inputting trades. It also frees up resources for more strategic treasury activities. A bank’s proprietary trading platform may be able to facilitate such an approach. Citi’s FX Pulse, for example, can auto-execute FX trades at pre-determined intervals when specific conditions are met (i.e. spot deals of less than $250K at specified cut-off times).
Another STP use case is for cross-border payments. Citi Dynamic Management FX (DMFX) streamlines FX payment and reconciliation. Currently, a company may execute FX payments through traditional manual processes and settle them via email exchanges or telephone calls. This inefficient, time consuming and error-prone process encompasses several steps, including price discovery, trade, confirmation, settlement and delivery. DMFX reduces the process to a single step and routes all FX transactions through Citi’s cross-currency payment platform. Automating payments from end-to-end can produce significant cost and resource savings.
Centralizing FX dealing to increase visibility and control
Companies that operate across multiple geographies are keenly aware of the complexities of non-G-10 currency dealing. For recurring flows, FX managers may have a good understanding of local markets and established procedures. However, processes may still involve manual steps (for example, ensuring compliance with local market regulations, documentation requirements, or payment cut-off times). Treasuries may also have to rely on onshore subsidiaries for local dealing, limiting their ability to fully centralize.
However, solutions and bank capabilities can overcome these challenges. CitiFX Pulse, for instance, offers the ability to centralize global FX transactions, providing visibility across both onshore and offshore markets. Its Dealing Module is configured to the specific requirements of each market. Having access to this capability allows head office treasury to execute transactions with onshore banks on behalf of its local subsidiaries. Alternatively, execution authority can be delegated to the subsidiary with the parent retaining the ability to oversee and monitor trading activities. In either case, there are significant efficiency benefits. Using a centralized platform harmonizes dealing processes across different markets, giving corporate treasuries greater visibility, control and efficiency.
The future has already arrived
The solutions highlighted above represent just a sample of those currently available to corporate treasuries. While the future will no doubt bring additional technologies to treasury, today’s solutions can power digital transformation that automates and simplifies treasury processes. In short, it is possible to create tomorrow’s digital treasury today.
In the near term, digitization can help to drive tactical gains in efficiency, as well as improving resilience through greater visibility and control. In the medium to long-term, these improvements can create a virtuous circle that delivers additional strategic gains, freeing up treasury to perform more complex tasks such as analyzing output, providing qualitative context and commentary, and developing key performance indicators that facilitate performance measurement and improvement.
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DMFX Product Manager
CCB FX Corporate Sales
Risk Management Solutions
Senior Vice President
CCB FX Corporate Sales