The importance of integrated decision-making for treasury managers, as many financial firms expand across jurisdictions due to the increasingly globalised nature of markets. With the need to negotiate the ever-more complex regulatory environments – which differ more and more per marketplace – the demand for sophisticated treasury management software packages has grown significantly in the past few years. Within the TMS market, fintech developments and innovations have been allowed to develop at different rates across the globe.
US corporate tax reform has highlighted the need for treasury management software to help the treasury function evolve rapidly. The windfall from repatriation of funds, a focus on how profits from abroad are treated and the reduction of corporation tax from 35% to 21% offer significant potential for treasury to step out and become key in strategic decision making. AI offers the ability to evolve the automation of processes and reporting as well as providing significant compliance controls. The technology has been a prominent feature across the Americas with the Canadian government supporting the country’s bid to become a global fintech player. Regulatory sandboxes to encourage fintech innovation among TMS players have been created, and Canadian banks have been acquiring AI start-ups.
In Latin America the focus has revolved around fintech investment from abroad with the key focus being AI and blockchain, with investment in Brazil seeing a number of start-ups in the TMS market growing in stature.
A recent AFP survey shows that adoption of TMS in Europe sat at 63% at the end of 2017, compared to 40% in the US. This adoption aims to facilitate the vast shifts in regulations brought about by PDS2, GDPR, IFRS9 and of course ongoing uncertainty around Brexit.
Having long been at the heart of the fintech revolution, treasurers in the UK are looking to mitigate against FX volatility caused by ongoing Brexit negotiations. There is a fear that the country may lose out on the skilled workforce provided by Europe, and financial services may come to rely heavier on fintech resources. In a April 2018 statement from the House of Lords stated that the UK would “forge a distinctive role for itself as a pioneer in ethical AI”. Responding to the need to boost its fintech sector, earlier this year the UK launched the Fintech Sector Strategy (FSS), which looks to remove any barriers to entry and growth faced by fintech organisations.
In late May, the French and German governments pushed for a continent-wide initiative to fund innovation and research tech start-ups. Should the initiative take off, the TMS sector is expected to enjoy significant growth, though critics say the European fintech market is still likely to remain far behind other jurisdictions.
Within banking, a number of major market players have invested heavily in distributed ledger technology, experimenting with blockchain for payment and treasury management services. Germany’s Deutsche Bank, and Italy’s Unicredit, are two of the big names working on collaborative efforts to make use of the technology to create efficiency gains and expend their use of blockchain applications. A large number of TMS providers, consultants and legal professionals working specifically within treasury law across the continent offer a range of DLT and blockchain services, with the market growing seismically in recent years.
Asia & Oceania
Announcements in late 2017 that the Chinese government would be internationalising its financial markets created waves of interest among banking and financial services firms. The prospect of doing business in the country, while utilising its substantial futures markets for hedging and treasury purposes, led to many banks investigating ways in which they could capitalise in the market.
Following years of reform in which the country’s financial markets have become much more in line with international standards, the Chinese financial environment has become much more suitable for multinational businesses and their treasury management operations. Banks and financial institutions such as the Industrial and Commercial Bank of China (ICBC) have focused on building robust, technological services for corporate treasurers. Many of these banks have established multi-bank cash management service platforms, which integrate domestic and international transactions, and enable partner banks to sustain two-way interactions.
And while many of those banks have built their own software platforms, many Chinese treasury services providers fully utilise the country’s TMS market, which sits nimbly within the booming domestic fintech sector. In 2017, China overtook the US to become the dominant investor in the mammoth $15bn global start-up AI technologies industry with 48% of the market share, compared to the US with 38%. China’s State Council has set out ambitious plans to create a domestic AI industry worth $147bn by 2030, becoming the world leading innovators in the space in the process. The country’s TMS network is also attempting to make use of better data analytics, as the government aims to create more robust data privacy laws.
Across Asia, regulators and market participants have been collaborating to drive innovation within the fintech sphere. Most recently, regulators in Hong Kong have launched a supervisory sandbox, in which banks and other treasury service providers can test new technologies to ensure compliance standards are met. That follows similar projects by the Monetary Authority of Singapore (MAS), the Japanese Financial Services Agency (JFSA), as well as in Thailand and Malaysia. Notably, MAS, Indian, and Australian authorities have been pushing research into the possibilities a more open API network would provide financial services, and in particular the treasury function.
According to sources in the region, three factors underline a drive toward centralisation of the treasury function across the Mena region: the movement of transactions into shared service centres (with added benefits of control and standardisation); the management of liquidity via a regional pool to centrally optimise internal versus external borrowing for working capital needs; and a greater focus on evaluating options that allow the use of liquidity to offset transaction costs, according to treasury professionals at Citi. Much of that suggests treasury departments in the region are going through robust restructuring processes.
Others suggest that many treasury professionals hope in the near term to reduce the amount of time spent on resource heavy systems, to embrace more advanced and automated solutions. Enterprise resource planning (ERP) systems are likely to provide the functional applications that corporate treasurers in the Middle East will turn to, and with them, dedicated TMSs.