By Ursula Conterno
In 2016, treasury managers will continue the journey of adjusting to the new paradigm.
The way the cash management world works changed radically in 2015. In the aftermath of low and in some cases negative interest rates, a strong dollar, record high corporate liquidity and new regulations, cash lost its crown. Cash stopped being sought after and being a means for cash managers to satisfy their banking partners’ appetite for fees. In fact, cash became a liability for treasury managers: the more you had, the bigger the headache and the more other business you had to allocate to banks in order for them to manage your liquidity. Even if interest rates start to improve in 2016, most of the other factors leading to this new backdrop will remain in place. In this context, treasury managers will have to continue the journey of transforming their operational framework in order to thrive. Some of the trends we expect to see in 2016 are:
A continued re-evaluation of cash structures. Corporates will continue to take a deep look into their liquidity structures, their associated costs and their viability in the new environment. While the re-evaluation might be triggered by actions taken by banks—like retreating from a region, business line or specific product—in many cases it will also be triggered by a more proactive approach in which corporates will take advantage of the changing business climate to take on strategic projects that remained on their to-do list. Changing a liquidity structure is a time- and resource-consuming project that may not have made it to the top of the priority list in a leanly staffed treasury organization as long as the current structure still worked—even if it presented the opportunity for additional operational efficiencies. We expect to continue to see corporates moving away from notional pooling into centralized cash structures (e.g., physical pooling and IHB) and even a step further into “on-behalf-of” structures.
Treasury technology implementations as catalysts to facilitate change in the cash management space. Beyond the obvious operational benefits and efficiencies that a new system can bring about, more treasuries are looking into implementing a new treasury technology solution as the enabler for changes in their liquidity structure. Treasury management systems have been on the treasury managers’ radar for a while, but we have seen a renewed interest and uptick in implementations, which we expect to continue. Also, as detailed in final report of the “2015 Principles of world-class TMS” project conducted by the NeuGroup, some of the trends in the strategy and implementation associated with new treasury technology solutions are emerging, for example, like the shift to accept and configure out-of-the-box functionality instead of a customized solution, a preference for phased implementations and Software as a Service (SaaS) emerging as the preferred delivery system.
A different approach to banking relationships. Corporates no longer have the upper hand when dealing with banks (see related story). Banks will be taking a closer look at the risk/profitability profile of each client and be more selective about which client/business they want to pursue. The dynamics of the client/bank relationship have changed and consequently, the corporate approach has to change, too. A more comprehensive approach to the bank wallet analysis, in which corporates are able to understand not only the business provided to each bank but also the business contribution to the bank’s profitability, will help you have a more informed conversation with your banks as well as a better understanding of which partners will be there for you in the long run.
Renewed efforts to improve cash forecasting accuracy and automation. The current environment has increased the cost of inaccurate cash forecasting, which has brought up treasury’s interest in looking for processes/systems that allow for more accurate and automated cash forecasting. In parallel, new technology trends like big data and the large fintech investments might create the right atmosphere for new offerings to enter the marketplace in order to satisfy this growing demand.
These and other market challenges will continue to grab the attention of busy cash managers. However, the upside is that these challenges are also opportunities to continue to improve operational efficiency and advance strategic projects. In that sense, 2016 might be a good year after all.