International treasury and fintech – what’s holding us back? In recent years, the biggest financial players with the strong, established corporate relationships have sought to adopt new technologies in the pursuit of better processes to revolutionise business performance.
Recently, Barclays has been reported to be discussing opening a crypto trading desk with its clients, while Jamie Dimon discussed how JPMorgan Chase API is starting to bear fruit in this year’s annual report. Such moves are sure to be welcomed. However, given the slow adoption of fintech innovation from businesses, there is perhaps scepticism about the ability of banks to deliver real change in financial technology, quickly and efficiently.
The steps taken by Barclays and JPMorgan Chase can be seen in competition with fintechs who may see themselves at the vanguard of innovation. Moves from Revolut and Starling into business banking – small business for now – signify the appetite from both business and fintech to steadily bridge that gap and bring radical changes to markets outside of consumers. But widespread adoption and real, fundamental change, can only happen when the needs of corporates are being met. We need only look at the challenges around legacy systems at large organisations to understand how high the stakes are.
At this month’s conference, EuroFinance: Strategic International Treasury: The Intelligent Treasury we will be discussing exactly what the challenges are for corporate treasury in failing to adopt fintech innovation. As businesses fall behind, they risk missing real opportunities for fintech to help treasury become a true strategic enabler and an important consideration for the C-suite. So where do businesses need the most help from financial technology? And what lessons can we learn from fintechs?
First mover advantages
As mentioned, JPMorgan Chase has sought to innovate in recent years and its API programme is just one of a number of ways it is leveraging technology for tangible gains. Last year’s launch of COIN (Contract Intelligence) used artificial intelligence (in this case, machine learning) on wholesale commercial contracts, reducing huge amounts of man hours of legal work. What’s crucial about this is it chimes with the steady shift to automation which fintech will accelerate. Elsewhere from JPMorgan, LOXM is a tool for executing trades, which learns from past trades to improve its future performance which has been making waves in the last 12 months. Machine learning, however, is just one of the technologies in the mix.
Far from being limited to cursory discussions by banks, cryptocurrencies are steadily beginning to assert themselves, with some interesting developments in recent weeks. Litecoin’s transfer of $100m worth of payment in a matter of minutes underscore the potential benefits of this technology. In payments, companies which operate and process payment around the world still have considerable difficulties – how long will it take the payment to arrive? How sustainable are the high costs of processing the payments? Ultimately, the battle for supremacy between technologies like Ripple and SWIFT are powered by the pressing need for a new approach. From AI to DLT, the foundations are being laid and interesting case studies are starting to emerge. But businesses are still yet to introduce these technologies wholesale – and it’s important to understand why.
What can we learn from fintechs at the sharp end?
While the US and Europe have garnered much of the focus, perhaps the most revolutionary of all fintechs are outside this narrow market. China’s Ant Financial began as part of Alibaba around seven years ago, and since them has become, according to the FT, the world’s largest third-party payments platform accounting for over $8tn of China’s mobile payments market. The rise of Ant Financial has seen it valued in excess of $150bn and delivering consumer lending of up to $95bn. But the key story here is how the consumer payments platform has highlighted a range of ways that companies can expect to see finance play out in the coming years. The impact on transaction banking could be potentially huge.
The proliferation of mobile payments can be seen as one of the biggest drivers of financial inclusion. Lowering the barriers of entry to traditional banking services, across countries and continents which are still adding new consumers into the system, will be aided by complimentary approaches around existing regulation such as KYC. But what lessons does this give for those companies and banks whose activity is far removed from consumer mobile payments and focused heavily on transaction banking?
Multi-billion dollar payments in minutes
With Alipay, Ant Financial has created a multi-billion dollar payments platform that processed $1 billion in the first two minutes of Singles Day last year, $10 billion in the first hour and $25 billion in the whole day. In total, Alipay processed over $5 trillion of mobile payments in 2017, and this case study explains not just how but also why. It shows how the Chinese equivalent of Amazon has taken over the world of money in China and is now doing the same worldwide. Every corporate needs to understand the Alipay phenomena as it will impact all businesses globally in the next decade.
The impact for businesses is clear. Ant Financial is in the process of building a new system architecture to support billions of users making millions of transactions per second. Every transaction has bullet-proof security and risk management built into the system through Artificial Intelligence. Other multinational businesses could manage a global, real-time infrastructure to track and trace billions of items non-stop with full resilience through by adopting Ant Financial’s approach. Turning this tech to the needs of banks and their business customers will speed up processes, significantly reduce costs and steadily evolve in unknown ways, reflecting the differences between businesses as disparate as US heavy industrials companies and pan-European software giants.
The road to success
By learning lessons from outside the narrow purview of “how we’ve always done it” in treasury, businesses can start to shift expectations. Treasury functions can only become strategic enablers for the C-suite if they realise the opportunities from fintech. While stability and robustness of systems will be over paramount importance, as increasingly revolutionary players like Ant Financial show, the use cases are there and the evidence is building. Perhaps most importantly, established banking partners of businesses risk standing still for too long and perhaps eventually being usurped.
About the author: Chris Skinner, Commentator at The Finanser and best-selling author with new book Digital Human, will be presenting at this month’s EuroFinance conference: Strategic International Treasury: The Intelligent Treasury on both 15th May 2018 and 16th May 2018.
For more information and to book: www.eurofinance.com/miami