How FinTech’s could revolutionize Corporate Treasury world? ( part 1)

How FinTech’s could revolutionize Corporate Treasury world?

In this series of two articles, we would like to ask the question whether Fintech's could or can already revolutionize the world of treasury. We can say that the answer is YES. However, it is a gentle revolution. They bring complementary solutions to the classical TMS or complement them adequately. Even banks are interested and invest in the technology as they believe they can complement their offer and boost their turnover. Unfortunately, the fintech world is a jungle in which it is still too difficult to find one's way. Let's try to get a clearer picture and answer the questions that corporate treasurers are legitimately asking themselves. Tomorrow's world will be technological, and the treasurer will undeniably have to develop his IT skills to remain effective in his mission. (part 1)

PART 1

Question of mindset:

When we talk about Fintech’s, I use to say that “they have the answer, you have the question”. You will have heard so much about fintech’s that they will be etched into your memory, and you will be sick of them. Nevertheless, no one could conceive of the world of the future without these innovative new disruptor enterprises. The world is going to change very quickly, but nobody knows how or in what direction. It is like a train trip. You must set out and leave the platform without really knowing where you're going. This journey is necessary, but we often dread it, and culture and heritage count for a lot in this connection. By clinging to our bench on the platform, we risk missing the right technology train. We need to be ready to question everything and to change our mindset. Banks, and not only banks, need to rethink their business models and press into service the new technologies that lead to innovation.

The three paradoxes of technology

But as we now know, the new technologies go hand in hand with cyber risks and IT crime. This gives rise to what I would call the three paradoxes of the financial technology revolution:

(1) The first paradox is that of sophistication: the more technical we become, the more vulnerable we become.

(2) The second paradox is that of the spreadsheet which is more widely used than ever before whereas the solutions have never made so much possible.

(3) The third paradox is cost inflation, for example with SWIFT. The necessary increase in security requires such high investment that the total cost has stopped falling and has now started to rise.

Here again, the more technology evolves, the more startling the increase in its cost. We see that technology is not always logical. Unfortunately, it is not easy to plot out our roadmap through this profusion of technologies and solutions, with their greater or lesser degrees of sophistication. In our defence and that of the banks, it must be acknowledged that this is a particularly difficult exercise to carry out and a major challenge. It is a matter of evolving and revolutionizing things in a low-key way so as not to disrupt everything, while at the same time achieving transformation. It is a peaceful revolution like the bloodless Portuguese April coup, or the Tunisian "Jasmine Revolution", not something done by force, which would never work. Low-key but effective, that is what banks and corporates need today.

Fintech’s, a way to differentiate yourself, especially for banks

In a world in which bank products are becoming "commoditised", the only way to set yourself apart is through experimentation. To retain a competitive advantage, banks must use and develop technologies. Digitalisation sweeps aside barriers. The regulatory uncertainties remain. People's time is precious, and they do not want to spend it on the financial aspect alone. If they are to survive, banks need to be part of the platforms and to belong to the ecosystem. It is all too often forgotten that the financial crisis and the regulations introduced because of it have given a boost to creativity and innovation in finance. The regulations intended to correct the wayward behaviour of the past have changed the financial environment, as with PSD2, for example. New payment methods, the spread of B2C, new players and new (virtual) currencies have shaken up the whole ecosystem. As recent examples, I wanted to mention that BNPP bought KANTOX and EMAsphere or JPMorgan VWpay.

Categorising the services provided by FinTech companies.

The definition of what we mean by “fintech” is a preliminary step. On the face of it, FinTech, an amalgam of finance and technology, would seem to describe innovative start-up type companies (but not only to start-ups since some of them have been in existence for 20 years or more) that use technology to reformulate financial and banking services. After the financial crisis, some finance people embarked upon entrepreneurial ventures to reformulate financial service provision using innovative IT. The idea is to simplify finance, and to make it more accessible and less expensive.

Fintechs need to be categorised as a function of the themes and subjects they address, to bring them into sharper focus, since there are so many of them and each one is more diversified than the next. We propose to split them into the 12 "clusters" below (please note it includes personal and professional Fintech’s).

Matching the needs to the means

Matching those who have the answers and the solutions, without knowing to what use they could be put, to those who have needs but do not know that the solution to their problems already exists. The difficulty lies in matching solutions to needs. The technologies, including block chain, exist but have not yet found their proper application. These technologies will be diverted and used for purposes other than those planned at the outset. We should welcome the fact that cryptocurrencies have sparked an explosion in new technologies. This was the catalyst that spurred a new wave of technologies, because fintech’s already existed, and some of them had even been years ago, before recent explosion of new smart technologies. The crisis gave rise to Bitcoin and block chain and revitalised the “new technologies”. There were fintechs that did not realise they were fintechs – companies that had been in existence before 2007 but that had the impression that they could not qualify as fintechs. Therefore, it doesn’t mean necessarily start-ups. However, it doesn’t mean 20-year+ existence tech companies.

What do treasurers want? If only the banks knew!

If there is one thing the treasurers do not want, or no longer want, it is the proprietary bank solution. A single and isolated bank that restricts them to working with one single establishment with a multiplicity of solutions. That leads to dependency on the banks. Treasurers want to be "bank agnostic". Agnostic and therefore able to change banks just as they would change their clothes. We are a long way from that. Treasurers want multi-bank solutions, solutions that are multichannel, multiproduct and that combine applications. Why put all your eggs into one basket with one single bank when making them compete would pave the way to flexibility. Dynamic discounting solutions, for example, are a perfect illustration of what treasurers would ideally like. We can find many other examples these days. Overdependence is costly and stops us winkling out the best prices. The banking industry has all too often believed that it had a guaranteed regular income, that is a necessary evil, that changing banks would be very burdensome, and that inertia would therefore act in its favour. In its favour, certainly, but only up to a breaking point, which we are on the verge of reaching.

The millennial generation is making its presence felt, and with them everything will change!

Some people seem not to have grasped the fundamental change brought by the generation that is now coming into its own. The latest generation will mean that, for the first time in the history of humanity, there will be five different generations in the market at the same time. The most recent is, however, very different and has expectations that will revolutionise the way things work. We need to prepare for it. For them, everything needs to be simple, efficient, linear, free of charge or nearly free, and independent of the restrictions of any system. Choice and freedom are important to them. We therefore need to adopt models that fit their image – simple and efficient. Easier said than done. If we do not adapt to their expectations, however, we very quickly risk running into headaches and conflicts.

The lack of standards, a temporary saviour?

The lack of standardisation currently allows the banks to give the appearance of surviving. For instance, a KYC register does not seem a likelihood since they cannot come together to agree on a standard. On purpose, perhaps? All the transfer formats, even XML formats, are different, and it does not seem possible to agree on a universal standard. The banks are clutching desperately to this straw. But it is a will-o'-the-wisp and no more than a respite. The technology companies' idea is to make the customer experience simpler. The banking industry is in a good position, but it is not irreplaceable. It needs to adapt and to automate its own internal processes. Here again the legacy IT infrastructure is such that everything is difficult and expensive to change. To really enter a new level of technological developments, we need to define more universal standards, key pre-condition.

François Masquelier, Chairman of ATEL – March 2023

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).