​What are the main applications of embedded treasury?

I personally believe that “embedded treasury” has or can have several applications across different financial domains. To understand better what is behind this concept, your readers should see couple of key areas where it is utilized today, and potentially tomorrow. It is important to specify that it also applies to Financial Institutions too. For example, in Business Loans, embedded treasury solutions can facilitate lending processes, making it easier for businesses to access loans. In Cards and Virtual Accounts, corporates can use embedded finance to issue cards (such as corporate credit cards) and manage virtual accounts efficiently. In Wealth Management, embedded treasury enables real-time monitoring of risk factors, including market, credit, and operational risks. Companies can set up automated alerts for certain risk thresholds, allowing immediate action to mitigate potential threats. In Insurance, some instances of embedded financial services include insurance products, such as car rental insurance or travel insurance. In Cross-Border Payments, embedded treasury solutions can streamline cross-border payment processes, enhancing efficiency and reducing costs. 

However, the best business case in the “real economy” is the Currency Management Automation (CMA). With Foreign Exchange (FX), the companies can leverage embedded finance for FX transactions, managing currency exposure effectively, at the source of the underlying exposure. These applications demonstrate how embedded treasury can enhance financial operations and provide value to businesses and consumers/clients alike. For FX, the most important element is to identify as soon as possible (as time is crucial in FX) the underlying exposure by being connected to ad hoc tools to manage those risks and to be immediately in real-time reported to treasury. This pre-trade phase is crucial and if well integrated and reported to treasury enables the (best) execution via platform (automated 24/7) and then the post-trade phase, including accounting treatments, revaluations, settlements until maturity. If you offer your customers to pay in their local currency and to pay suppliers in their own currency, you will help and support the businesses. And it is only conceivable when FX treasury is fully centrally managed and fully automated. That is in my opinion the best example. The next one is the reconciliations (i.e. accounting and treasury) which can also be fully automated based on MX messaging for bank statements and systems feed by automated postings. This drives towards what I like to describe as “hyper-automation”. We could also find other examples in Cash-Flow Forecasting (including in foreign currencies) and working capital optimization, which are both transversal and vertical projects involving affiliates and the operating businesses. By simplifying and helping the business, the treasury can generate more value and reposition itself up.

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What specific challenges do corporates face when integrating treasury management tools and services into existing systems and processes?

Integrating treasury management tools and services into existing systems can be complex, for various reasons (e.g. systems legacy, obsolescence of IT systems, absence of standardization, multiple formats, multi-sources and multiples data lakes, “autist” systems, need for import-export of data to re-crunch, etc..). The fact everything is today in the cloud and SaaS help in data engineering and for AI. Nevertheless, systems are more “prêt-à-porter” types and therefore less flexible, less agile and thus less adaptable. Here again best is to list examples and their key challenges. The compatibility with existing systems: we should ensure that the Treasury Management System (TMS) works seamlessly with existing financial software can be a hurdle. Solutions involve thorough testing and customization to align with the organization’s unique requirements. For data migration and integration (vital for AI), moving financial data from legacy systems to the new TMS can be daunting. Accurate data migration is crucial for continuity and informed decision-making. The employee training and adaptation require employees need to learn how to use the new system effectively. Proper training and change management are essential to minimize disruptions during the transition. The systems complexity is a real challenge. Existing treasury management systems may have limitations that hinder financial operations. Simplifying and streamlining processes can enhance productivity and agility. Treasurers must remember that addressing these challenges requires a strategic approach and collaboration across departments and subsidiaries. 

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How does embedded treasury change the role or responsibilities of the corporate treasurer?

The adoption of embedded treasury significantly impacts the role and responsibilities of corporate treasurers. The treasury center is usually a “service center” to the subsidiaries. Frequently this service center role is neglected or underdeveloped and embedded treasury can be the solution. Treasury should bring them value, more than in simply financing them. CFOs expect from treasury to deliver real-time summary of financial situations, analyzed, including recommendations and options. But for that they need a strategic decision-making tool, often the “missing piece” and clearly more automation of processes. Corporate treasurers should shift from transactional tasks (such as cash management and payments) to more strategic functions. They should spend more time analyzing data, assessing risks, and making informed decisions to optimize financial operations. For the technology proficiency, the treasurers need to understand and leverage digital tools, APIs, and cloud-based solutions. They can collaborate with IT teams to integrate embedded finance systems seamlessly. The way to achieve it can pass via a collaboration or co-creation with FinTech’s and/or banks. The treasurers can work closely with fintech partners to implement embedded treasury solutions. This involves evaluating providers, negotiating contracts, and ensuring compliance. In terms of risk management, the treasurers play a critical role in managing (all) financial risks. They monitor liquidity, interest rate exposure, commodities, counterparty risk, and currency fluctuations, using real-time data for proactive risk mitigation. The relationship management implies treasurers engage with banks, payment processors, and other stakeholders. Building strong relationships ensures smooth execution of financial transactions. And for data analytics, treasurers analyze data from various sources (including embedded systems) to optimize working capital, reduce costs, and enhance financial performance. To make it short, I guess embedded treasury may transform treasurers into strategic partners (of the businesses and affiliates). It can drive financial innovation and efficiency within organizations. In the ever-evolving landscape of financial operations, businesses continuously seek innovative ways to enhance efficiency, minimize risk, and streamline processes. We see huge head-rooms for internal controls enhancement in treasury organizations, in general. One transformative approach that is emerging is this concept of “Embedded Treasury Management” (ETM), a concept that seamlessly integrates (and will integrate further) financial functions directly into business systems. Great hopes can be expected for treasurers!

 

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).