Technology is enabling better ways to manage cash, risk and digital currencies
Treasury management plays a central role in the financial health of businesses of all sizes. A company can be profitable and have a strong sales pipeline, but still be brought to its knees by poor cash management that leads to missed payment obligations to staff and vendors. Corporate treasurers manage the financial risk, support the financing, and help achieve the strategic goals of a business.
Having a strong understanding of a business's cash position and forecast as well as stress testing and scenario planning positions is critical to achieving financial goals, supporting efficient operations, and maintaining reputational integrity.
Corporate cash management tends to be inefficient because it relies on siloed data, manual processes, and the use of multiple data sources and software tools. Multinationals face additional challenges related to the distribution of treasury teams across functions and geographies.
Today, however, there is significant potential for advancing technologies — particularly in APIs, data management, artificial intelligence (AI), and quantum computing — to address these issues and transform essential treasury activities for the better.
Corporate cash management requires treasury teams to access and aggregate data from multiple sources including banks, enterprise resource planning systems (ERPs) and assorted third-party payment tools.
This requires corporate treasurers to employ ‘swivel chair analytics’ — jumping between tools to get a picture of their cash position. Information may be outdated before it is reported.
Spreadsheets that are downloaded from banking platforms and updated manually.
Creating a consolidated picture of a company’s cash position is a manual, time-intensive process.
Most data aggregation is completed in spreadsheets which require manual uploading, validating, and reporting — increasing the likelihood of human error.
Through real-time connectivity across all accounts, companies maintain an up-to-date ‘single source of truth’ for all cash-related data.
A dashboard can be connected to the data aggregation layer allowing corporate treasurers to view their data in whatever format they want without the use of manual effort through spreadsheets.
Data lakes and data meshes that create a strong corporate data infrastructure.
Minimum effort is required as data is organized and collated automatically — and delivers insights through analytics and visualization tools.
Data is automatically collected and validated across all accounts — so accuracy improves due to minimal manual intervention.
Most companies use inefficient techniques to create forecasts. Models are created manually and optimized on a time-locked basis — monthly, quarterly, or even annually.
Spreadsheets are utilized to manually create forecast models
Significant time is spent manually creating and updating models.
Manual processes and time-boxed updates based on historic trends lead to inaccurate, out-of-date forecasts which isn't a good predictor for one-off events (such as COVID-19)
AI-based tools continuously and automatically update projections based on the latest data allowing real-time views into forecasts across various time frames and scenarios.
Artificial intelligence utilized to create real-time forecast models and plans for scenarios.
Minimal effort is required besides occasional minor tweaks to the AI's underlying logic, allowing treasurers to focus on strategic decision-making rather than manual tasks.
Forecasts are automatically updated, so they provide the most accurate projection at any point in time - allowing treasurers to be better prepared for one-off events.
Currency risk is the exposure faced by a company that operate across different countries, particularly with unpredictable gains or losses due to changes in the value of one currency in relation to another. Today there are automated tools to help manage strategies around exchange rates, time, and a company’s financial goals. Limitations In computing power and a basis In historic trends limit accuracy and efficiency.
Rules-based classical computing limiting the efficiency of FX calculations.
It depends. Today, tools to assist with sweeping and pooling into domestic currencies range from manual operations to simple rules-based systems to AI-powered tools that analyze markets in real-time.
Not optimal because classical computing can’t calculate the complexity of multiple currency conversions over time.
Technological advances will enable more efficient currency risk management through an automated process that minimizes FX fees and risk. This is done by increasing corporate control over FX rates with the assistance of various technologies. This decreases manual efforts while ensuring a company's specific treasury goals and policies are met.
Quantum computing that provides exponentially more powerful FX calculations.
Minimal effort will be required; the combination of AI and quantum computing will deliver maximum efficiency.
Greater automation and quantum capabilities will ensure greater accuracy.
Implementation of digital assets is currently largely limited to acceptance and investment. It is estimated that 52% of corporates across Asia, Europe, and the US currently invest in digital assets of some form, with 90% expected to have a digital asset allocation within the next 5 years.²
Digital wallets that are utilized to accept and hold digital assets
As digital assets become more mainstream at an official level, with 100+ governments exploring Central Bank Digital Currencies, existing practices within a treasury department, such as (cash management, cash forecasting, investments, FX risk and more) ,will be re-optimized to ensure digital currencies are managed seamlessly alongside cash and other traditional assets.
AI, quantum computing, blockchain, data visualization tools and more to manage digital and fiat cash.
Read more about Mastercard's activity in this space
To learn more about changing ideas of value and money and their implications for businesses, individuals and society at large, please look out for the Q3 2023 issue of Mastercard’s thought leadership publication Signals, which will explore the topic of reimagined money.