Corporate treasurers have had an eventful year, facing increasing challenges around cashflow, liquidity and currency volatility. The role of a CFO has been elevated as these challenges continue to impact businesses, leading to a rethink of the processes and tools which businesses currently implement.
Treasurers – who haven’t before – can now prepare to weather these challenges by implementing technology that integrates the various tools and functions needed for the modern treasurer from FX hedging to payments. Thankfully, the emergence of new solutions and fintech offerings have made this much easier as economic challenges are set to continue into 2023.
FX hedging will become a necessity for tackling market volatility
This year saw market volatility increase and a prominent rise in the dollar’s popularity as investors rushed to purchase more of the currency due to the fear of a looming global recession.
As the dollar strengthened, many US companies with global operations saw a dip in their earnings as their income in Europe and Asia did not translate when exchanged to the dollar. In the second quarter of the year, Netflix losses were believed to have amounted to $339m from not having an FX derivative to hedge foreign currency exposure.
The rise of the dollar has since subdued but currency markets continue to fluctuate. This fluctuation should be expected to continue into the next calendar year. As market volatility remains, the importance of locking in rates ahead of buying and selling goods and services is now more critical than ever. Treasurers will have learned the dangers of not hedging and it will become a necessity moving into 2023.
Businesses seek to make cross-border payments more efficient and cost-effective
The rise in cross-border payments has been immense. Three-fifths (58%) of SMEs say they are sending and receiving more cross-border payments now than before the pandemic, according to a recent borderless payment report from Mastercard. However, businesses face persistent problems when paying suppliers in different countries.
In the same report, 39% said cross-border payments slow down supply chains and 36% said there was no transparency about how much money they lose in foreign exchange and transfers. The challenge is that working with traditional banks involves limited and incomplete payment information, making it difficult to reconcile payments. The high level of fees applied by banks to those payments also hurts SMEs’ competitiveness.
In the new year, as more SMEs send and receive payments across borders, there will be an increasing number who will want to swap from their legacy bank partners to modern tech providers. More businesses will look for a more streamlined, integrated approach that can deliver significant cost savings.
Supply chain disruption will continue into 2023
Supply chain disruption is rife and could cost European economies up to €920bn in GDP by 2023. The Covid-19 pandemic and the current geopolitical situation have only compounded existing issues within supply chains such as lengthy cross-border payment cycles.
The issues around cross-border payments have been explored but from opening an international bank account to onboarding a supplier in a different market, the processes can be long and difficult.
At a time when supply chain disruptions are rife, agility and speed is key, neither of which are offered through traditional banking partners. This means it is vital for treasurers to look for new approaches in their cross-border payment practices to reduce the number of inventory days.
Businesses no longer need multiple accounts for collecting monies in each country or currency. CFOs can set up their own international account with a multi-currency International Bank Account Number (IBAN) in their organisation’s name. As a result, they can manage corporate cash flows and view trading history, market data and statics, all in one place.
The emergence of virtual wallets is allowing businesses to make same-day payments. Businesses can use them to organise funds and store multiple currencies, ready for executing rapid payments or a currency exchange. This will make it a lot simpler for businesses needing to onboard suppliers in different markets. Through these new approaches, businesses can simplify and speed up payments, reducing inventory days and ultimately cutting costs.
Corporate banking will emerge from the shadows of consumer banking
Business-to-business customers are beginning to insist on the same seamless real-time transactions they expect as consumers.
The traditional corporate banking model is still prone to inefficiencies and suffers from a lack of investment. Banks’ IT budgets are often channelled into updating their own aged legacy systems that are unable to communicate with each other and third-party systems effectively. What corporates really require is a single interface where they can conduct treasury forecasts as well as all their audits and cash positions in real time, whatever the currency.
These shortcomings – the lack of investment in new platforms and the absence of multicurrency management tools – are why many treasurers are desperate for an alternative option to the traditional corporate banking model.
Treasury’s technology transformation will accelerate further through increased integration
Treasurers are still forced to rely on fragmented systems to manage payments and currency risk. There remains a widespread lack of integration and numerous legacy systems, all of which continue to hinder treasurers, who use multiple yet interconnected functions across different providers.
As FX hedging and cross-border payments become more prominent, the desire from treasurers to have all their services in one integrated platform will increase. Integrated systems can provide greater oversight of their treasury in real-time and utilise the insights to drive faster, better decision.
Ultimately, 2023 will see a desire from treasurers to have an integrated solution to tackle these ongoing challenges. With the right partners, businesses of all sizes will be able to benefit from new technology to improve their treasury operations.