Fintech solutions offer a plethora of advantages to corporate treasury. So why are treasurers reluctant to partner directly with these innovators?
What’s not to like about fintech?
Innovative technologies are bringing efficiencies to treasury operations and helping corporates achieve the holy grail of real-time decision-making. Artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA) are all helping treasury teams automate mundane tasks, while distributed ledger technology (DLT)—aka, blockchain—and application programming interfaces (APIs) allow them to plug their payment systems into the heady world of instant payments.
All very exciting.
And yet, according to the 2019 Association for Financial Professionals risk survey, two-thirds of treasury professionals have no plans to supplement banks and other entrenched vendors with nontraditional vendors in the immediate future. Tom Hunt, director of the treasury practice at the AFP, says much of the nontraditional technology highlighted in the survey around AI, blockchain and robotics has yet to prove itself capable of yielding a positive return on investment.
In part, say industry veterans, that’s because banks aren’t as innovative as they need to be—and corporates are still wedded to their relationships with banks and enterprise software suppliers.
“Treasury professionals are risk managers for a large aspect of their job,” says Hunt. “They look at credibility and history of product life and financials of the firm they plan to do business with. All three perspectives tend to tip their hat toward banks.”
Banks have the imprimatur of an enormous amount of regulatory scrutiny as well as proven technology capabilities, Hunt argues. Fintechs generally are new to the market, offering niche products that might only fit half of the client company’s needs. The banks’ value proposition is focused on credibility and clients’ faith in the long-term viability of the organization.
To retain their advantage in the long run, banks must up their innovation game, says Suresh Subramanian, managing director and head of Trade and Treasury Solutions Americas at BNP Paribas.
“Corporate treasurers need visibility, access to cash, improved returns and to realize operating efficiencies,” he says. “They expect banks to be innovative and nimble in delivering solutions specific to their requirements. They are looking at banks with a true global reach, and for a risk profile that enables them to mitigate risks. The solution must bring value to corporate treasury without causing disruption to local subsidiaries, customers and suppliers.”
Kyriba offers cloud-based treasury solutions, and is large enough to have an enterprise-level perspective. If you’re not a bank or an enterprise software provider, says Bob Stark, vice president of Strategy at Kyriba, “there are a lot of hoops that you have to jump through in order to satisfy corporate need for information security. That’s everything from just vendor assessments to ensuring that the actual workflows that are being provided by the software are providing the right level of security.”
When Kyriba began operating almost 20 years ago, there wasn’t a lot of involvement from IT, Stark says. “You could, as a fintech, engage treasury directly and convince them that this is a good tool and they would take a risk on you.” Over the past five to 10 years, however, companies’ need for information security has grown. Today, a chief information security officer (CISO) is typically involved in all treasury- and finance-technology decisions.
“They want to ensure that the organization’s interests are truly protected,” says Stark. “It’s not just about having functionality and innovation. It’s making sure that risk is not being added by incorporating new software.”
Banks and Fintechs Partner Up
While corporates’ sticky relationships with their banks and enterprise software suppliers keep them from striking deals directly with fintechs, they also create opportunities for those fintechs—whether Kyriba, Oracle or SAP on the enterprise-resource planning side—to become more available indirectly to corporate treasury and finance teams.
“The connectivity, or ecosystem, or whatever you want to call it, provides the ability for fintechs to be presented to corporates by these trusted entities,” Stark says. “That really is a path to success for the fintech community. Corporates are more likely to adopt fintech innovation if they can connect [it] to one of their existing systems, so joining up with the enterprise software of a bank makes for an easier path for fintechs.”
Fintechs can complement a bank’s traditional offer, says Eric Bayle, head of UK Global Transaction Banking at Societe Generale. Last year, for example, France’s Groupe BPCE became the first big bank to partner with Transferwise, a British money-transfer start-up. Transferwise is enabling BPCE’s clients to use their mobile-banking app to transfer money to more than 60 countries at the best possible exchange rate.
“Banks, in partnering with fintechs, can offer the best of both World’s to corporates,” says Bayle: “agile, user-friendly, streamlined solutions but within a traditional, secure, long-term banking partner. If the fintechs should disappear, the banks will remain and will have to find alternative solutions for their customers.”
If leveraged smartly, fintechs offer a host of potential advantages to treasury teams: access to all their accounts through API-based solutions; lower costs through reduced foreign exchange margins; fewer know-your-customer pain points, thanks to DLT-based documentation sharing platforms; greater efficiency through streamlining processes and dematerialization [of] platforms for trade finance (e.g., We.Trade); and wider sources of funds thanks to crowdfunding platforms (e.g., Lumo) that open financing that is usually only accessible by large institutional investors to individual investors.
Several standard treasury functions, too, can and do benefit from some fintech involvement. “Any area that has a high degree of manual intervention requiring two systems or more to carry out the particular task is a good prospect for robotic technology,” says Hunt. That would include bank reconciliations that involve pulling in files from the bank, feeding them into a reconciliation system and focusing on exceptions. “Another example is chargebacks,” Hunt says, “using bot capabilities to go into the online chargeback portal to accept all chargebacks, enabling more time to process them. Both are examples of manual tasks that can be automated.”
Yet, despite the cornucopia of cool treasury technology, fintechs are still operating on the periphery—connecting multiple systems—rather than at the core of workflows and information processing. Blockchain, RPA, and ML leading into AI are their best bet to deliver useful solutions to corporates, Stark says, but they will probably continue to offer them through the enterprise platform, through a bank or through both together.
“So you can see how everything is starting to merge and collaborate—and that’s an opportunity for fintechs to get more involved,” he says.
Corporates looking directly for fintech or vendor solutions, meanwhile, should consider the following parameters, Subramanian suggests: reliability, maturity of the technology, implementation, customer service and cost structure.
“Given the plethora of solutions and providers available,” he says, “the key is identifying players that have demonstrated their ability to scale and are already serving live clients. It’s also important to review what kinds of partnerships they have established. Large banks with experience in the field usually thoroughly vet partnerships, and corporates can leverage this. Financial credibility of the fintech and long-term stability are also key.”