!css

Trust cannot be dematerialised

14/10/2019

Trust cannot be dematerialised. This is a self-evident truth that I hope to demonstrate over the next few paragraphs in this consideration of cash management in the 21st century.

In the pursuit of mechanical excellence we must be careful not to forget the importance of the human elements. Our role as bankers does not begin and end with the simplification, the acceleration and the externalisation of the administration of banking services. The time traditionally dedicated to administration can arguably be most profitably reallocated to enhancing client awareness and identifying true underlying client needs.

Money has existed in one form or another for millennia and is a fascinating subject for study. One of the best recent books on the subject, Felix Martin’s Money: The Unauthorised Biography, is an excellent read and should be on the bookshelves of anyone working in the financial industry, from the humblest retail official to the most grandiose international star banker.

Roman credit solution sounds familiar

If nothing else, it helps to demonstrate that in the world of money, there is little or nothing that is new under the sun. Did you know, for example, that there was a credit crunch in Rome in AD 33 under the Emperor Tiberius (page 82 of the Vintage paperback edition published in 2014).

The Roman Imperial treasury solved the problem by refinancing overextended lenders with a 100m sesterces programme of three-year interest-free loans. That will sound rather familiar to anyone who has followed financial events of the past few years, with particular reference to the measures taken by European Central Bank President Mario Draghi to save the European Single Currency.

This admittedly extreme example could be pushed into use as a device to demonstrate that cash management has been a key topic since the day the treasury function was created. Fast forward to the present day and we see that the quality of the job done by the modern treasurer is in turn highly dependent upon the quality of cash forecasting available and the use made of the underlying tools.

Technology the cornerstone

From the moment I arrived in cash management in 2000 as a banker it was obvious that technology was the cornerstone for gaining access to banking information. Over the intervening years I have witnessed first-hand the evolution, starting with the unexpected worldwide growth of the internet and simultaneously SWIFTnet, climaxing today with Swift gpi (the new cloud-based standard for cross-border payments), APIs (application programming interfaces), virtual accounts and the creation and rollout of the XLM20022 format for greater harmonisation of payment messages.

The API era is clearly a game changer for treasurers and an opportunity for banks. By opening their systems to new entrants (whether internal or external) banks are beginning to acquire the agility that they have been lacking for historical reasons (mainly the technology and language upon which they implemented their core banking systems and payment engines in the first place, adding one layer after the other and ending up with monstrously complex environment).

Banks and corporates as well as software providers are yet to build a new ecosystem rethinking existing cash pooling structures and tools, developing new services. Agility and ubiquity are now expected by everyone and for everything, and will sit at heart of the next phase of the revolution in our industry.

Show me the money: unprecedented investment

Bankers are making an unprecedented level of investment in cash management at a time when disruptive technology is going to change how treasurers and bankers are managing cash management, delivering to treasurers what they have always wanted: an accurate 360 view of their cash position.

The underlying reasons are well rehearsed and need little reiteration here. The majority of companies, particularly those with a track record of overseas expansion, will acknowledge that their systems display certain deficiencies when it comes to ascertaining the availability of cash at group level.

This is not hard to understand as cash has an uncanny ability to conceal itself, especially when processes are manual, technology is fragment and account management can be challenging. Treasurers need to be able to see their cash in order to forecast, mobilise and control their cash. This has clear implications for the management of foreign exchange risk, making investment decisions, and ensuring that the right funding is in the right place in the right currency at the right time.

Technology, solutions and problems arising

Technology is clearly a large part of the solution, but it must be deployed in such a way that it does not have unintended consequences and cause as many problems as it might help solve.

One key issue is interoperability between corporate clients and the banks with which they need to work. Another is consideration of the new generation of services that we banks must focus on developing in the cash management 360 world in the interests of concentrating liquidity and moving money more quickly.

Access to information in multiple currencies, in multiple geographies, in multiple corporate entities, remotely, at an acceptable cost, is already a given. The next big major advance, instantaneity, is almost with us. What once took weeks, then days, then hours, will in the future take a matter of seconds, subject to legal, regulatory, security and operational constraints.

Changing the landscape, and relationships

The new payments landscape will change the way that treasurers manage cash balances around the world, and the way in which bankers interact with them to help maximise their myriad resources.

Relationships between bank suppliers and their corporate partners will inevitably change. The development and management of those relationships to enable the provision of value-adding expertise has always been important but it will become ever more so as we assist clients in adopting best in class systems and solutions and access top value propositions.

It might sound counter-intuitive at a time when no financial industry conversation is complete without stressing the advance of artificial intelligence and the rise of the robots, but human beings will continue to play a central role in the automated future.

Any properly built machine can count numbers and carry out what to the human eye look like impossible trades, and futurists will argue till they are red in the face that the next and only step is full automation, but it remains a cold, hard fact that only humans can fully understand client needs and strategies and build relationships and trust accordingly.

Despite all the hype surrounding AI, robotics and algorithms, I still firmly believe in personal and inter-personal relationships. I always say that if a client needs anything anywhere in terms of banking services, that client can pick up a phone and breathe a sigh of relief when a fellow human answers it rather than a desiccated calculating machine.

Trust cannot be dematerialised

It is more than ever our business to develop relationships. It is more than ever our business to develop solutions. Times and tools are changing. Services and solutions are changing. But one thing remains absolutely constant. Trust cannot be dematerialised…