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Intelligent Treasury

Intelligent Treasury

The story of end-to-end processes and transition of the Treasury organisation

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Nils A. Bothe

Partner, Audit, Finance and Treasury Management, Finance Advisory

KPMG AG Wirtschaftsprüfungsgesellschaft

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Intelligent Treasury

In recent months and against the backdrop of a visible transition in the market and continuous technological progress, we have declared a new development stage in Corporate Treasury – Intelligent Treasury. The reason for this is that, under the mantle of digitalisation, automation, innovation, agility are becoming guiding principles for many company strategies and, by extension, Treasury strategies.

Intelligent Treasury is for us a concept which brings end-to-end processes to the fore, precludes media disruptions and networks processes intelligently with one another. This involves using state-of-the-art technology, for instance machine learning or APIs, as a prerequisite and enabler at the same time.

Let us introduce the subjects and use cases that characterise Intelligent Treasury by way of three examples: virtual bank account management, predictive analytics in cash forecasting and the transition of the Treasury organisation:

One of the subjects we identified as part of Intelligent Treasury is the use of virtual bank accounts. At first glance, the concept of virtual bank accounts is nothing new. The initial idea is to assign in each case a separate virtual account number to a specific customer or product so that the assignment of incoming and outgoing payments can be structured individually and flexibly. The implementation of this in Corporate Treasury is nevertheless not particularly advanced. This is due to a high level of technical complexity and the heterogeneous degree of implementation at banks and in regions worldwide, which makes comparability of services and the implementation in companies challenging.

Nevertheless, digital transformation has not come to a halt here and we have since seen the challenges slowly but surely being tackled on the market. The enablers in this respect are the banks which create new solutions and thus the basic conditions for the use of virtual bank accounts.

The objectives and benefits of using virtual bank accounts are manifold. Contrary to physical accounts, costs effects can be realised, the effort involved in KYC processes reduced, the account structure (bank and settlement accounts) streamlined and transparency significantly increased. The possible use relevant for Intelligent Treasury is however a different one: transparency over current funds and their availability almost in real time.

To demonstrate the possible use of this feature, it is useful to draw a distinction from traditional cash pooling. Traditional cash pool arrangements pool liquidity in a general account, with sweep and settlement of subaccounts generally being carried out at the end of the day. In addition, settlement accounts to track receivables and payables in separate IT systems (for instance the TMS or the ERP system) have to be maintained.

Virtual accounts have a decisive advantage in this respect. There is no waiting time between the presentation of balances on the main accounts and virtual accounts, meaning that communication is possible almost in real time and liquidity is directly available. Anyone maintaining a physical cash pool can appreciate the benefit of this.

Another gripping issue for Intelligent Treasury is the use of predictive analytics in cash forecasting for the purposes of liquidity and financial management.

Predictive analytics, a sub-discipline of data mining, uses historical data and complex mathematical models to record trends and seasonality and to extrapolate time series into the future. Stochastic methods form the basis for generating forecasts of individual budget positions relevant for liquidity based on data analysis. For the purposes of modelling, use is made of additive regression, autoregressive models such as ARIMA or even neural networks. (Please refer in this regard to our next Corporate Treasury Newsletter, which will explore this subject in greater depth).

The objective and benefits of using predictive analytics for cash forecasting hold true for many characteristics of Intelligent Treasury. Through the use of predictive analytics, the process of liquidity planning can be automated and carried out at the touch of a button. This replaces the manual preparation of liquidity forecasts, which is very time-consuming and repeatedly requires a high level of coordination effort. Liquidity managers can significantly improve the efficiency of decision-making, not least due to the central management of the budget, as part of the decentralised reporting process is dispensed with. In addition, the process can be scaled and any desired complex matters can be analysed in detail using the developed models. Using today's BI tools, results can be provided in a format that suits user requirements and is easily understandable and encompasses flexible detailing.

The Treasury organisation itself is also going through a transition due to digital transformation. In the wake of new technologies, business transformation in Treasury is reliant on a high degree of IT affinity and readiness to change on the part of Treasury employees. The focus is on implementing resilient Treasury use cases that are feasible through the use of cutting-edge technologies and new system functionalities, and complementing this by ensuring further training of employees within Treasury.

Above all, cash and liquidity management is a repetitive, manual daily operation in the Treasury core function and one which has a high level of automation potential. As part of the general changes in the Treasury landscape, a fundamental shift is emerging in the range of duties of the Treasurer and Cash Manager from manual activities to increasingly analytical and strategic tasks. The strategic direction of centralisation will also intensify further, supported by new technological opportunities. The traditional organisational structure of front, middle and back office will also undergo change in the foreseeable future. It is apparent that many back office activities can be almost fully automated using the opportunities presented by technology and solely execution checks will be needed. The back office as a standalone organisation could be replaced and controlling activities located in the middle office. Treasury organisations should already be preparing for "Management by Exception" as controlling principle.

We will delve deeper into this topic in some interesting talks at our annual Digital Treasury Summit. Owing to the current restrictions and precautions due to the Covid-19 pandemic, it is sadly not possible for the event to take place in Frankfurt as usual; instead we will hold the event digitally on the KPMG Tube platform.

In addition to these three topics, among others, to be discussed live with representatives of Corporate Treasury, we will present the results of our survey on Intelligent Treasury.

Our Digital Treasury Summit 2020 webcast (#DTRS2020) will take place on 29 October 2020 at 3:00 p.m. Click here to register.

We look forward to you taking part.

Source: KPMG Corporate Treasury News, Edition 104, September 2020

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