Tuesday, August 16, 2011

Is Treasury 3.0 Coming?

Treasury Strategies posted on LinkedIn their new whitepaper entitled “Treasury Services 3.0”. Let me say upfront that I am a fan of Treasury Strategies, their website has a lot of useful information to the finance professional and I have read a lot of it and it informs my way of thinking on a lot of things.

What is Treasury 3.0?
The essence of the article is that we are passing into a new era in the Treasury field, from 2.0 to 3.0. This is an era when we are passing from customer-centric products to bank-centric comprehensive liquidity solutions.
If we imagine working capital activities (billing, receivables, invoicing, payables) on one axis and liquidity activities (investing, borrowing, sweeps) on another, the banks’ traditional stronghold has been the intersection of the two, what I would call the commercial checking account.

In Treasury 3.0, the banks will move from this center along both axes to create the bank-centric liquidity and product solutions.

Already in Action…
From one turn of the kaleidoscope, I see what is being talked about here. One of the items that appears “hot” for banks to push these days is their credit card systems. They promise to come in, go through our AP vendor listing with a fine-toothed comb, and identify customers who will accept card payments, and then help us convert these customers to credit card payments, thereby saving the company time because it will process far fewer PO’s and invoices (these being more labor intensive activities).
Conceptually, we can think of the savings in the value chain being split between the bank and the company. Good news for the company, good news for the bank, and bad news if you are an AP clerk.

…Or 2.0 Redux?
However, if we turn the kaleidoscope again, several items can give us pause. It seems (from what I have seen and heard) that more banks are using outsourced providers for these services – the industry term for this being “white-labeling”. Non-bank providers are better able in a lot of instances to meet company requirements because they are not hampered by the strict regulatory regime and rules the banks are subject to. Finally, a lot of the activities we are discussing here are still associated in some manner to the traditional commercial bank account.
This all seems like 2.0 rather than 3.0 behavior.
One item we finance folk who enjoy bank credit need to be concerned about is the ancillary business that banks receive. If we have 5 banks providing 20 million of credit each, we need to make sure our 2 million in annual fees is evenly distributed amongst these institutions.

Issues to Be Addressed Remain
If we move to the bank-centric solutions of 3.0, how are the other 4 banks then compensated? Or are we destined to tie our fate to one financial institution? This is not wise from a risk management standard – diversification is our first and probably most effective tool. Given the events that occurred in 2008, it is not very conceivable companies are going to run to put all their eggs in one banker’s basket.
All this being said, Treasury Strategies is the group that brought us the inverted pyramid of treasury activity - noting that transactional activities were phasing out and analytical and strategic activities were phasing in. This has proven to be correct to a large extent, so we cannot bet against the 3.0 vision lightly.

Key Takeaway
There are things to consider here, but it will take quite a while to sort it all out, and several significant hurdles will need to be climbed. As mentioned in an earlier blog, incremental change will likely rule the day.

·         Have you seen examples of Treasury 3.0?
·         What are the significant hurdles and issues to address?

Add to the discussion with your thoughts, comments, questions and feedback! Please share Treasury CafĂ© with others. Thank you! 


  1. Made minor edits to content and format today from original posting.

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