Testing times for treasury teams

Many economists expect economic growth to slow in 2023, with some predicting a global recession, driven by soaring energy and commodity prices, which in turn are driving increases in interest rates following a long low interest-rate period.

Further, climate change is driving new weather patterns with a knock-on effect on communities’ infrastructure and economies; all of which make investment decisions more and more challenging.

In short, uncertainty is the name of the game and as ever Banks have to be prepared for change at an unprecedented pace, but black swan events also serve to demonstrate how flexible and resilient technology and infrastructure have now become and the importance of flexibility in future design.

During the Pandemic, Banks were able to get remote working up and running almost overnight, there were no interruptions to payments, no panic from customers, or “runs” on cash reserves. It wasn’t business as usual, but the industry continued to function in a way that could not have happened even 10 years ago.

Yet there are still bumps in the road that continue to test the capabilities of the financial services industry. Traditional banks face new competition from fintechs moving into their core markets and in many cases, they have ageing technical infrastructure which prevents them from being able to keep up with the speed of change required.

Disintermediation and disruptive models are impacting traditional financial services including internet-only banking, peer-to-peer lending, and self-select pension and investment products.

When we look back at this era in a couple of decades’ time, it will be defined by regulatory reforms that have reshaped the industry, whether that’s Dodd-Frank, BASEL or MiFID.

While banks have been tightly focused on regulatory compliance, there have been fewer opportunities to address the innovation needed to move banking IT systems onto the next stage. Distributed ledger technology – or DLT – and the ability to support Digital Assets are two areas that are still on the edge of current capabilities but offer great promise.

The challenges presented by ageing infrastructure

Homing in on the treasury and capital markets sector, it’s clear that there are significant pressures on margins and costs. Banks’ treasury teams must find new ways to remain relevant to their corporate and business customers. That’s because corporate treasury departments have themselves evolved from being seen as cost centers to becoming the guardians of working capital.

Clients increasingly look for their banks to provide treasury management services that help them operate more effectively.

To meet those needs, banks need to reduce costs and improve productivity by standardizing and simplifying IT systems and business processes, including those used and managed by their treasury teams.

Many banks are still managing treasury functions with underpowered or siloed systems, including spreadsheets, which involve manual work, take up valuable time and resources, and introduce risk.

An open treasury solution

As many banks have now discovered, there is an alternative approach; build new capabilities around an open platform and application programming interfaces (APIs).

A digital treasury management system like Finastra’s Kondor offers powerful risk analytics, tried and tested trade processing, position management, real-time coverage of credit, market and liquidity risk, plus a full suite of back-office processing functions driving STP.

It also opens up a pathway to the adoption of third-party applications that stretch the capabilities of treasury teams into new areas by adding third-party applications such as Vector Risk, CloudMargin, and deltaconX.

With an uncertain future ahead, the flexibility of open platforms will enable treasury teams to meet the needs of their own organization as well as the emerging requirements of their clients.