Transaction Efficiency Analysis

Transaction Efficiency Analysis (TEA) | Identifying opportunities and quantifying benefits of digitalized FX risk management 1 The corporate digitalization agenda has evolved over the last two decades, but the core question at the heart of every automation effort remains largely unchanged: how do we achieve process efficiency at a reasonable cost? Initiatives such as robotic process automation (RPA), which has helped corporates digitalize documentation and automate their workflows, has been a key enabler. Over the years, banks have also stepped in to support the digitalization efforts of their corporate clients. Through initiatives such as minimizing manual touchpoints in payments and collections, liquidity management and risk management, corporates and their banking partners have forged a symbiotic digitalization agenda. In the last five years, banks have also focused on up-tiering their connectivity capabilities, shifting from batch- processing to real-time APIs. The hard question corporates need to ask themselves: just how are they measuring, or quantifying, the benefits of their digitalization efforts? In this environment of heightened interest in workflow digitalization, our original question on achieving process efficiency at a reasonable cost has never been more important. The hard question corporates need to ask themselves is: just how are they measuring, or quantifying, the benefits of their digitalization efforts? The ability to accurately articulate “returns” on any digitalization effort is key to the cost-benefit conversation and the inability to dimension the true benefit of this effort could lead to the deprioritization of potentially valuable projects. In classical business transformation thought, benefits are often quantified in direct expense saves, such as the cost of printing and postage, but this narrow assessment fails to capture the full picture of intangible benefits. In addition, the ongoing measurement and monitoring of benefits post- implementation is equally important in ensuring that these initiatives deliver on the benefits as originally conceived. This paper posits a new way to assess and quantify the benefits of digitalization, one that inspects processes for intangible gains that may often go unnoticed when looking purely at direct expense saves. It also applies a post-implementation lens to measuring the true adoption rate of newly automated workflows, a key success factor in ensuring that the long-term benefits of these initiatives are realized. With a specific focus on corporate treasuries, we will be introducing the Transaction Efficiency Analysis (TEA) methodology as an organizing idea. The treasury function was selected for our methodology given the intricacies of its workflows and the interest it has received from senior management teams. Treasuries are also increasingly involved in the corporate digitalization agenda, and more than ever before, treasurers have the opportunity to shape these high-visibility narratives. Where are you in your treasury transformation journey? Within the treasury transformation agenda, FX risk management is a topic of keen interest due to the multiple touchpoints and stakeholders it often involves. When evaluating their FX workflows on the efficiency barometer, corporates typically consider the number of transactions that are still manually processed, mostly defined by calling a partner bank’s FX desk to close a transaction. While voice dealing remains an important way for corporates to deal, such instances should be reserved for the largest of transactions or less liquid currencies. Even in such instances, there are alternative execution methods, such as algorithmic trading and market fixing orders, that can help reduce the manual footprint. Then there are considerations for the degrees of automation (see diagram below). We see this as an evolutionary process for a company, partly built by trust but largely owing to the need of having the required technological infrastructure in place before further automation can happen. Most corporate Treasuries today use electronic dealing platforms as opposed to calling, while many others have gone on to implement connectivity with their banking partners for FX risk management or, in some cases, with their third-party FX providers. Stage 4: STP with auto-hedgings Stage 3: STP with auto-execution Stage 2: platform with STP Stage 1: platform only Stage 0: voice Client evolution