Blockchain Adoption for Treasurers is Closer Than Anyone Thinks
Though the pandemic has eclipsed many conferences and events over the past year, the Association of Corporate Treasurers’ (ACT) 2021 Annual Conference was undoubtedly a spectacular showing. ACT is a leading treasury association that provides research, training, and education to corporate treasurers. As the only professional treasury body with a Royal Charter, ACT is actively involved with UK treasury policy making.
At this year’s conference, booths were plentiful in digital form as was an abundance of breakout sessions and case studies. Though there was no dumpster filled with money, attendees could gain a wealth of knowledge over the four-day bonanza. Upon registration I knew what I desired to glean from this event: explicit mentions of blockchain projects and underlying trends encouraging treasurers towards blockchain and digital assets. What I heard this week was profoundly thrilling and has led me to realize blockchain’s wide-scale adoption in treasury management is much closer than anyone thought.
INSTANT SETTLEMENT IS NIRVANA
There was no actual mention of digital assets at ACT’s annual conference, not particularly surprising. We at Arca Labs have said many times, most treasurers are not interested in speculative digital assets, like Bitcoin, just yet. However, a few speakers did broach the topic of blockchain, mainly as theoretical references rather than mentions of specific implementation projects. Most notably, James Kelly of Pearson noted that instant settlement with blockchain technology is “nirvana,” in what was the most glowing review of blockchain’s potential.
Realistically, I don’t believe blockchain is the apple of James’ eye. Blockchain, to most panelists, is the theoretical embodiment of instant settlement. However, the current infrastructure for settlement relies on numerous intermediaries. Currently, when a treasurer settles an account, settlement is delayed anywhere between one to three days. During that time, treasurers lose out on deploying unproductive capital. Though this may seem nuanced for most entities, an instant settlement would have a potentially huge impact on balance sheet management. Blockchains, on the other hand, can settle their transactions within a few minutes. Treasurers would thus have a more exact understanding of their capital preservation needs versus holding excess funds to cover arduous settlement timelines.
An instant settlement was top of mind from panelists on “The Final Countdown: Regulatory Insights into IBOR Transition” and “Banks, Why Are You Still Here?” sessions. Multiple panels referenced cross-border, real-time payment schemes that are gaining mass adoption via API bouquet implementation. While these APIs dramatically increase data visibility, the transference of funds continues to take days. Two especially insightful comments relating to instant settlement in treasury management came from:
1. Peter Jones of Fidelity International described his interesting concept of “unpicking processes.” Mr. Jones explained the need for corporations to unbundle their outdated processes and move forward with only the necessary elements to establish modern systems. Treasuries’ bulky, archaic processes are full of years of band-aids piled on top of each other that require significant human capital and man hours to unwind.
2. Yera Hogopian of Barclays discussed liquidity management and its historic end-of-day batch processing: an arrangement that only works on the assumption that the day has an end. With global instant payments, there is no “end of the day”. The working capital cycle is becoming 24/7/365. The consequence of companies not adapting to new settlement norms is likely to be the loss of opportunities and additional risk.
Even more prolific than discussions on instant settlement were those on digitization. “We’re all becoming slaves to this thing right here,” stated Martin Runow, Global Head of Payments and Digital at Barclays, about his phone and the trend towards mobilization. Deutsche Bank's Global Head of Cash Management, Ole Matthiessen, reiterated this trend stating, “direct to customer [and the expediency of digital delivery] means the use of e-commerce models have picked up speed significantly.” Technology is enabling efficiencies in all aspects of our lives, and those that do not engage with modern applications will find themselves irrelevant.
ADOPTION IS ON THE HORIZON
Undoubtedly, treasury management has a sleepy connotation. While bound by strict risk management measures and corporate governance, this conference proved once and for all, sleepy is a misnomer. Every treasurer who discussed their department objectives touched on the innovations being explored and the difficulty of leaning into change. Treasurers want instant settlement for capital efficiency, increased processing times, enhanced transparency, and to stay in front of the digitization movement. Blockchain technology enables these demands, and they know it.
Suitable solutions are just around the corner. Bosonic and Arca Labs are deploying blockchain products designed to meet the needs of the treasurer’s current workflows. Blockchain is here to stay, and this industry needs key players to get their feet wet and push innovation. As a deeply interconnected ecosystem, corporate treasury will only move to more efficient systems when key partners demand it. Adoption is on the horizon but there is only so much blockchain innovators can do to push the industry forward, the rest is up to treasurers.