Tech

Treasury Strategies for High-Growth Tech

July 17, 2019 by Emily Wu

Treasury managers at high-growth tech companies operate in an unusual environment. The fast pace of these companies can lead to growing pains, but it also offers Treasurers a unique opportunity to contribute to their businesses’ success.

To discover the common issues that this group faces, Bank of the West sponsored the first meeting of the Tech 20 High-Growth Treasurers’ Peer Group in Silicon Valley. The sessions focused on top issues at fast-moving companies. Three primary areas stand out among the Treasurers’ concerns:

Setting up treasury for future success
Creating successful banking relationships
Solidifying the role of treasury inside the company

Here’s what the peer group had to say about each area.

1. Setting up treasury for future success

Among the most fundamental responsibilities, these participants said, is ensuring that the reason for the corporate treasury function is fully understood. Beyond cash management, they believed a forward-looking Treasurer should anticipate future funding needs, support daily operations, and manage financial risks.

This is particularly challenging as many high-growth tech companies are in hyperproductivity mode. Treasurers at the Tech 20 sessions were likely to have fewer than five people in their department and only one or two direct reports. Even so, they have to match the pace and integrate solutions that are quickly scalable throughout the company.

“Including myself, we are a relatively small treasury organization, and members are expected to be cross-functional,” a Treasurer said. “For instance, the same [Assistant Treasurer] will work on liquidity as well as capital structure and capital markets.”

Cash awareness is also especially vital for these companies, where cash reinvestment, rather than funding returns to shareholders, is paramount. As such, the Treasurers agreed that a pervasive culture of cash awareness should be created to ensure reliable forecasting and planning.

2. Creating successful banking relationships

Banking relationships—and making sure that both sides understand their mutual expectations—are also a top concern.

The first recommendation among Treasurers is to clearly assess whether their bank fully understands the company’s business, to ensure that the bank is making appropriate commitments, and that the bank has the right capabilities.

For example, the credit underwriting process should meet the particular needs and match the growth status of the company, including whether the account will be handled by the commercial or corporate banking area. Ensuring access to the right bankers is vital, they said.

The banking relationship with treasury should also be understood by the board and the CEO, these Treasurers said. As the senior executive who often has the most experience with bankers, the Treasurer should set internal expectations that the relationship resides fully within treasury management.

But a solid banking relationship should not necessarily inhibit Treasurers from looking beyond traditional banking. They should consider seeking new technology and financial solutions that would bring efficiencies and cost savings to the company.

Treasuries with bank-agnostic infrastructures, together with ensuring end-to-end service delivery and speed-to-market capabilities, might help position their companies for significant opportunities in the future.

3. Solidifying the role of treasury inside the company

For a Treasurer at these high-growth companies, one of the most important elements is solidifying at the highest levels a clear understanding of treasury’s role and responsibilities.

To help ensure treasury objectives reinforce the company’s goals, a firm understanding of the ongoing strategic vision of the CEO is critical, as well as an analysis of the company’s mission statement for current and future cash flow needs. Many Treasurers believe any mention of capital or business objectives that are capital intensive should be incorporated into treasury planning.

One important way to win support for the treasury function is to deliver specific accomplishments early, the Treasurers said. Specific and quick-to-deliver wins that address the concerns of the C-suite can ensure treasury management is understood as a vital and respected part of the company’s operations.

Finally, as treasury strategy is developed with a global view for expansion, either now or in the future, a multicurrency mindset should be adopted to accommodate the acceptance of local and foreign currencies in payments and receipts. Anticipating future needs and building them into current practices is one of the best ways to ensure relevant and successful treasury management, according to many treasury managers.

4 Tips for Working with FinTech

July 17, 2019 by Emily Wu

Technology has always been a vital part of the financial sector. But these days, technology is not just bringing advances to the industry; it is confronting it with a disruptive force.

To keep up with innovation, many financial firms are pushing more and more resources into research and development specifically in FinTech. Some have created in-house development teams. Others have partnered with or acquired start-ups.

These efforts are accelerating as organizations recognize they don’t always have the level of expertise needed to create, or even dream up, the latest technology or innovation. These firms are also frequently under pressure internally to make compulsory projects a priority, such as implementing regulatory changes or dealing with obsolete platforms.

Although these incumbents can bring greater resources to the table, as well as a deep knowledge of security and compliance requirements, they often need the speed and agility of outside firms to help innovate and scale much faster.

“Working with a start-up helps to evolve an incumbent’s mindset, bring fresh and more daring ideas to the table, and highlight areas—such as the decision-making process—where incumbents need to improve,” said Jean Devambez, Chief Catalyst at BNP Paribas Securities Services’ Digital Transformation Lab.

This realization is precisely what led BNP Paribas Securities Services in 2017 to acquire a minority stake in Fortia Financial Solutions, a FinTech start-up that uses artificial intelligence, machine learning, and business process monitoring to meet compliance and data-management requirements.

The BNP Paribas/Fortia relationship is an example of how incumbents and start-ups can be stronger when working together. Their partnership included four elements, which were vital to their success:

1. The Right People

At its core, a company is all about its people; in the beginning, it’s often all you have. With that, expertise and trust are vital.

“You need to have experts who you can trust because you don’t really have much more than that when you begin the project,” explained Devambez. A strong founding team will enhance your ability to attract and grow talented players in the future.

“With Fortia, we were absolutely convinced by the product, but looking back at the effort they have made from where they were to where they are today, it is all about people and how they are able to attract additional talent and to manage them and to grow them,” said Devambez.

2. Room for Failure

Another element for a successful relationship is that both parties should be open to risk. Start-ups and venture capital firms understand that some projects won’t succeed, and incumbents must be willing to experiment and allow room for failure.

With Fortia, Devambez adopted a three- to six-month timeframe for ideas. This allowed both partners to identify viable use cases, and perform product and market-fit assessments. By allowing a substantial test period, a project can mature enough to either reach a failure point or show sufficient success to justify continued investment.

3. Communication and Collaboration

Start-ups are generally much more nimble than incumbents, and this can result in conflicting working styles. To have a successful relationship, good dialogue is critical. It can be helpful when both sides are clear about their needs while, at the same time, considering the needs of the other partner.

“I think the first thing is to have people prepared to work on a completely different philosophy and flexible protocols because big institutions can be bureaucratic and this could cause big problems,” said Sira Ferradans, Chief Research Scientist at Fortia.

4. A Client Benefit

While more incumbent financial firms are exploring FinTech opportunities, the result must benefit the incumbent’s clients.

Projects should be closely evaluated to distinguish between genuine innovation for their user experience and an exercise that simply checks a “FinTech investment” box.

“Clients love that every time we present our approach to them, they can see we are investing in the future and bring them the possibility of new business through new services,” said Devambez.

This article is based on an interview that first appeared in Quintessence.

The Future of Cash Management

July 16, 2019 by Emily Wu

For many financial managers, the rise of digital investment platforms is disrupting the landscape. But it is also providing great opportunities.

Advances in technology, coupled with an increasing interest from venture capital firms, are fueling a new breed of competition. Completing the perfect storm for transformation are changing customer expectations; more people want to manage their entire financial lives with the simplicity of an app.

These are but some of the warnings of Antony Jenkins, former Barclays CEO and current founder and CEO of the FinTech start-up 10x Banking as he cautions asset managers to be careful how they respond to rapid changes.

“In my 36 years in financial services, one fact has stuck out,” he writes. “People only adapt to new technologies or processes when they are significantly better than what is currently available. Changing habits takes effort—so the payoff has to be worth the trouble. Financial services are now at that inflection point.”

Jenkins says that the asset management field is experiencing a seismic shift, and business is no longer business as usual. Financial managers should consider adapting to changes in the marketplace or risk being bypassed for cheaper, quicker, more effective digital options.

“Think of technological change as an iceberg,” he writes. “While it is easy to get distracted by the front-end use cases that float above the surface, such as app-only banks, the real scale and power of technological change lies hidden from view.”

Instead of fighting or, worse yet, ignoring the inevitable, Jenkins says they should respond to the digital revolution in two important ways:

Invest in Technology

Companies are already using technology for their banking tasks, and the natural next step is to find ways to apply new capabilities to help manage and strengthen their portfolios. Financial managers should welcome and invest in technology that allows them to create profitable lines of business.

“Sophisticated data processing technologies—artificial intelligence and distributed ledgers, supported by cloud computing—will lead to significant improvements in the industry,” Jenkins writes. “They will enable smarter fundamental analysis to strengthen portfolios and better assessments of exposure and risk factors, such as foreign exchange, market volatility, settlement, and reconciliation.”

Invest in People

Financial managers have an advantage over app-only platforms: their people. To capitalize on innovation, invest in teams as well as technology. As routine financial services are automated, asset management firms have an opportunity to reassess practices and processes.

“Whether that frees people up to add value in other ways depends on whether your organization can make the most of its human capital, and how well it is able to mix complementary human and machine skills,” writes Jenkins. “Technology alone cannot replace an investment thesis—yet.”

The days of discretionary managers earning large sums are likely numbered, he says. Agile businesses will triumph over those that rely on their size.

“The criticism that money managers are too slow to adapt to changing technologies is hardly new,” Jenkins concludes. “But familiarity should not breed complacency or skepticism. Only those who are able to seize the opportunities technological change presents will be the winners.”

This article is based on an interview that first appeared in Quintessence