Shifts in regulatory, social, and competitive expectations have disrupted how treasury departments conduct banking business. The turmoil is more than a passing trend: this year will introduce another new wave of challenges for treasury management services and products. What are the three must-have technology trends driving the most opportunity for treasury leaders in 2021?
Investing in Regulation-as-a-Service technologies
For treasury, regulatory compliance is a constantly moving carrot. To keep pace with changing guidelines, treasury management teams employ a legion of staff. In many banks, 15% of a finance team focuses exclusively on regulatory reporting. Smaller banks are even more overburdened by governance, shouldering 70-80% more reporting risk than larger banks, but with far fewer resources.
With Anti-Money Laundering (AML) reforms, cryptocurrency scrutiny, and the burgeoning demand for real-time settlements, regulations are on an exponential upswing with little respite in sight. In fact, global regulatory spending will skyrocket from $80 billion to $120 billion over the next five years alone. With so many non-standardized, bespoke practices in place, resolving just one change in the rules can swallow weeks of valuable resources.
Treasury units are turning to Regulation-as-a-Service (RaaS) technology to alleviate the burden but still provide iron-clad compliance records. These services standardize reporting, automate document processing, and deploy artificial intelligence tech to find patterns and build reusable blocks and templates. Investing in this new technology frees up valuable resources and reduces time-draining paperwork.
Heavy emphasis on environmental and social governance
Social responsibility is no longer a behind-the-scenes activity; cultural shifts have pulled back the curtain and shined a spotlight on a company’s ethical behavior. Environmental, social, and corporate governance (ESG) has become a critical set of guiding principles used for assessing the long-term health of an investment opportunity. Criteria like a business’s carbon footprint, supply chain standards, board diversity—even recyclability of product packaging—affect the ESG valuation of an organization.
ESG is no longer a pet project of ethical evangelists, but provides a reliable roadmap for evaluating how a company will weather changing consumer expectations. It’s also far more than feel-good puffery—funds with the highest ESG ratings outperformed those with the lowest in 2020. Ethical responsibility is becoming more and more important to investors as key demographics take up the mantle of important decision-making positions. Millennials and Gen Z, generations dogmatically committed to social and policy issues, will make up nearly three-quarters of the workforce by 2029. Tracking ESG issues can analyze whether a company will continue to thrive as societal mindsets evolve. Ignoring how a company’s operations align with ESG metrics is a misstep for investors.
Investors are pressuring treasury departments to align with ESG-favorable businesses. Pouncing on the opportunity are tech innovators, looking for creative ways to collate data from multiple sources into a one-stop-shop ESG dossier. These marketplaces are quickly becoming a must-have resource for treasury management teams when assessing the viability of an investment.
Banking-as-a-Service platform plays by treasury management
Shifting consumer preferences and money habits are forcing banks to revisit stagnant legacy business models. Banking-as-a-Service (BaaS) has emerged as a chief way that tech-savvy banks are overcoming the growth limitations of their traditional modus operandi. The BaaS trend requires more than a thirst for innovation, but pushes treasury services to reconsider how they interact with the competitive landscape.
For most firms interested in adding a regulated financial function into their product, reinventing the wheel is cost-prohibitive. Why go through the nightmare of obtaining regulatory permissions when you can harness a bank’s already approved infrastructure? Instead of padlocking their infrastructure behind an impenetrable moat, banks are granting access to authorized third-party businesses. They’re parlaying their IP into paid services, licensing out core functions like underwriting, money transfers, currency exchange, and loan financing to non-banking brands.
By adopting a BaaS mindset, treasury management departments can transform competition into collaboration: bespoke ‘neobanks’ can leverage a financial institution’s payment services to offer their own customers a unique experience. Rideshare companies license with banks to offer vehicle loans or savings accounts to their armada of drivers. Businesses can also co-opt a bank’s iron-clad Know-Your-Customer check system to affordably verify customer identities. Investing in the technology needed to offer these new collaborative opportunities is key to extending a bank’s value well into the future.
As treasury departments take on an increasingly strategic role in banks, the pressure is on to infuse practices with the latest and greatest technology. By focusing on these three tech trends, treasury services can break out of limiting business models, streamline regulatory compliance tasks, and shore up investment health for the long run.