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"What's a steam engine?" – or: how digital is your treasury?

How digital is your treasury?

Today we are delving into the perennial issue of digitalisation in treasury.


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In the style of the film "Die Feuerzangenbowle" (our younger readers can click here), today we are delving into the perennial issue of digitalisation in treasury.

Answering this question is actually quite important, as it seems the whole world is talking about digitalisation these days. Analysts ask the CFO what activities the company has planned in relation to digitalisation and what effect this will have on performance. Senior management asks questions like "What does blockchain mean for us?" and "Do we need crypto currencies?" The works council raises its hand and demands that bots are only allowed to work Mondays to Fridays from 9am to 5pm and not 24/7. If you don't know what a bot is, you're probably in very good company. At the latest, however, you'll find out once all manual activities in treasury have been replaced by computer programmes that automatically process repetitive tasks without requiring any interaction with human users to do so.

One can use a narrower definition of digitalisation for treasury, which is based on the general definition of digitalisation:

"Digitalisation in treasury generally means the changing and optimising of processes and methods and the comprehensive use of data, which increasingly occurs through computer-assisted user interfaces and software."

For the non-technical among you – 'digital immigrants' in modern German – a computer-assisted user interface is the location or the action at which a person interacts with a machine. At the simplest level think of the keyboard of your desktop PC: it is not part of the human nor is it part of the 'machine' (PC); rather, it is the interface between the two. If we continue with this thought, the touchscreens on smartphones or tablets as well as the software or devices for voice control (e.g. Alexa) are also computer-assisted interfaces. In the (distant?) future this could also include VR headsets, using which CFOs move virtually around the reporting room and access individual reports with their vision, or the device that records their thoughts and passes them directly on to the Treasury Management System (TMS).

But first let's come back from the future and return to the here and now. The definition of digitalisation in treasury mentions changes and optimisation. And in our opinion, this is at the core of what digitalisation means for treasury today: changing and optimising existing processes and methods with increasing data use and thereby aiming to improve process results (quality, degree of automation, speed). Automation, improved performance and data centricity are therefore key concepts for the digital revolution in treasury. And we can't forget the fourth dimension in this context: compliance. Completely new opportunities arise in relation to the efficiency of internal and external compliance, not to mention the level of resilience required against increasingly dramatic cybercrime threats. Common to all digitalisation issues is that the cost-benefit analysis should be ever present, as basic commercial rules will not be rendered obsolete by digitalisation.

With all technical innovations regarding treasury, the real questions are about the importance of implementation and in what form of application it can add value. This requires knowing whether the use of certain technologies and/or processes offer a benefit compared to the status quo. An intensive analysis of innovation issues alone – blockchain and crypto-currencies in treasury come to mind – takes up valuable resources. The question of whether these innovations then have wide scope for alternative, more beneficial application must therefore be answered at an early stage.

The current treasurer panel views the increasing use of mobile applications or cloud technologies as an example of advancing digitalisation. I can agree with this only to a point. Granted, mobile access to a TMS or treasury reports brings a degree of flexibility and increases efficiency. But where is the progress for treasury if the reporting function on a smartphone remains as static and unsuitable as it is today? How does keeping TMS in the cloud help to optimise treasury and its objectives and functions compared to having it on site? Merely relocating the server may help IT to lower costs, but will not achieve all of treasury's internal objectives. These two examples should make it clear that it is not the technological advancements themselves that add value and which should be at the centre of the digitalisation strategy, but rather the specific services and applications that build on these technologies within the context of the treasury function's own roadmap.

But how will your treasury become digital? And how can you monitor developments to ensure that you don't remain stuck on the analogue track? How do you determine your digital maturity, which should be the starting point for all consideration of the measures to be taken? Ultimately, the next steps for your treasury digitalisation roadmap will always depend on how digital you are today – as banal as that may sound. In this case, consider the length of the journey from paper-based transfers to blockchain payments.

To determine your starting position, adopting an attitude like the one from "Die Feuerzangenbowle" film mentioned earlier – "We'll pretend we're completely stupid" – would obviously be inappropriate. For self-reflection, the following questions are more appropriate, which are to be answered with 'yes' before any further thoughts about digitalisation:

  1. Is the whole treasury reporting function automated, from work reports to management reports and compliance reporting, and does it include the full data?
  2. Is the bank account structure optimised and are all of the (internal/external) payment transfers processed over a completely secure platform using standardised formats and communication channels? And similarly in the opposite direction – do you receive electronic bank statements from all bank accounts globally and is there daily transparency about liquidity and liquidity movements?
  3. Is there a complete underlying risk position to manage financial risk positions (in particular currency exposures)?

I won't ask any extra questions about a functional TMS and real-time straight-through processing or access to a financial status at the push of a button, as this has surely long been standard, hasn't it?

Leaving aside irony, this means that your next task will be to do your own homework and to lay the foundations for the next level of digitalisation. Because it makes no sense to move to the next step until the potential and possibilities of the solutions already available are fully exhausted. Even if the continuous monitoring of innovations and technological trends (screening!), including the offers of external service providers such as fintech, are given top priority for treasury, the focus must remain on optimising internal processes and system landscapes. Don't dream about robotics in treasury if your TMS could already today be automatically and routinely processing most activities through job schedulers. Are you considering fraud prevention in payment transactions using artificial intelligence, but currently using 50 electronic banking systems simultaneously around the world? You can probably see the error in reasoning here yourself. Therefore, only once you've determined what is already possible today and how to give momentum to existing treasury solutions can thought experiments turn to implementation for blockchain, cryptocurrencies or machine-learning systems in a treasury context and lead to practicable outcomes. When we look at it this way, we can use a completely different definition from the above for digitalisation in treasury: technologically implementing the things that have been neglected in recent years, even though the majority of the systems and solutions have been capable.

To follow this general introduction to "digitalisation in treasury", in the next newsletter we will examine specific practical examples and solution scenarios in treasury and the resulting requirements.

Source: KPMG Corporate Treasury News, Edition 74, December 2017
Carsten Jäkel, Partner, Finance Advisory,
Michael Baum, Senior Manager, Finance Advisory,

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