Treasury Takeaways

>>Jonathon Traer-Clark:
Hello, welcome to Treasury Takeaways, the podcast for Treasury Professionals produced by Wells Fargo. I'm your host, Jonathon Traer-Clark, managing director at Wells Fargo. In this podcast series we’ll delve into topical areas like working capital, liquidity, technology payments and innovation in the Treasury field. We'll also discuss a bit about the future of Treasury, how to plan and what to watch out for. I'm delighted today to be joined by Suraj Kalati, our head of Working Capital Solutions at Wells Fargo. We will discuss the key trends happening in working capital management and the opportunities that these trends present. And then we will discuss some of the best practices that you can deploy in your Treasury function today to help you get prepared for the future. Suraj, welcome. Happy to have you on our first podcast of the series.

>>Suraj Kalati:
It’s really good to be with you this afternoon over here and looking forward to our conversation as well.

>>Jonathon Traer-Clark:
Likewise, me too. So, as I said, we live in interesting times, right? So why don't you talk to us a little bit about what clients are sort of telling you and what you observe as some of the major catalysts that treasurers should think about as they're planning for the future in the world today?

>>Suraj Kalati:
Absolutely. I think in the recent years we've seen as well as I think on, you know, as we look ahead as well, three big areas of change. One has been technology, been a massive acceleration and evolution of Treasury technology, both offered by traditional providers, by banks, but also now, you know, emerging quite rapidly, a number of fintechs who are coming into this space and providing treasuries with a number of solutions that will help them make their treasury practices and solutions much more efficient. We've also seen within the technology domain acceleration of payments and the change and evolution in the payments rails. One of the big examples is the rapid adoption of real-time payments across the industry, across the globe, and particularly in some of the developing markets as well. One data point that I know is I think more than half of nearly half of all real-time payments in the world today come from the developing markets and the more developed markets are increasing their adoption, you know, over 25% year over year adoption. But it is something that we're starting to see the industry sort of pivot towards and switch. And also data, data within the technology realm has been another area or a catalyst for change. But it creates another question, which is how do you harness all the data now that is available across the industry and across the Treasury ecosystem? 

>>Jonathon Traer-Clark:
Thanks Suraj. I mean, just phenomenal level of insight there.

>>Suraj Kalati:
Another area of disruption, or what I would say a catalyst for change, has been interest rates. In the recent years, we've started to see that we're going to look at a higher for a longer rate environment, at least in the foreseeable future. What does that mean for Treasuries and how do they manage the liquidity and working capital in that environment? It also puts a lot of focus on optimization of returns and also of overall funding costs for the company as well as the treasury. Another dimension I would add that has come to surface is geopolitical and macroeconomic environment. Has the Treasury adopted to disruptions caused by these exogenous factors? What does this Treasury construct look like? How centralized are we? How decentralized are we? These are some of the questions that have started to come to surface. Is that the right model? And the adjustments have started to happen across companies, across Treasury functions. You know, moving to a model that provides much more resiliency for the business, even through these disruptive forces as well. Some of that also influences how you structure and manage your liquidity solutions and how do you prepare for contingencies both from an operating model standpoint but also funding.

>>Jonathon Traer-Clark:
So, if I just recap that for our audience, you mentioned three principal areas of change or catalysts that are currently changing the environment at the moment. The first one being rapid and continuous change in technology that we've seen. The second one being the interest rate environment. And then the third, the overall geopolitical or macroeconomic environment. What's interesting to me is do you see anything that kind of can come from that as sort of opportunities? I mean, you mentioned real time payments. What do you think those sort of things can provide for today's business? 

>>Suraj Kalati:
Absolutely. I think the opportunities for us as we look at it from a Treasury perspective is the acceleration of money movement. And as a consequence of that, you know, the opportunity to optimize the liquidity that is running through the pipes of the organization through commercial transactions. Understanding data, the data that comes with these transactions and starting to provide much more value added services to the business’ clients as well. So, this is another opportunity for Treasury to take a deeper role into the strategic execution of the organization's goals, leverage and channel a lot of that technology and data to better improve the overall cost profile, the funding cost profile, but also play that back into the front line for the business as well. 

>>Jonathon Traer-Clark:
But fundamentally, we end up with a much more agile business environment and business operating model as well, which can only be great for our customers and their customers. 

>>Suraj Kalati:
Absolutely. 

>>Jonathon Traer-Clark:
Quite an interesting backdrop of, if you like, external factors that are affecting the world today. I guess from a Treasury perspective, how do we approach dealing with this?

>>Suraj Kalati:
Jonathan, this is really about, in my mind, liquidity risk management. How do we leverage these changes or these factors that are exogenous to the company and really direct them to the success of the Treasury function as well? So, the first thing I would say is, you know, focus on technology. Adoption of technology is essential to staying ahead of this change, and this is, for me, underpinned by a good data strategy as well. So, this leverages the tools and solutions provided by banks across the market, by non-bank providers, also leveraging the API ecosystem that is accessible to the treasurers from both banks as well as non-bank providers as well. This ultimately will help inform better cash forecasting as well as leverage other additional tools such as artificial intelligence and machine learning as well. I think we all recognize in this industry cash forecasting remains top of mind for treasurers and that is really a good quality. Cash forecast is going to be underpinned by good quality data which will require adoption of some of these new technologies that are accessible to treasurers as well. 

>>Jonathon Traer-Clark:
Suraj, thank you. That was incredibly insightful.

>>Suraj Kalati:
The other area of focus, I would say, is to revisit the investment policy that is there within the organization. Especially in this high elevated risk interest rate environment, it's important for companies to sort of look at their overall risk appetite, their risk measurement metrics, the assessment of counterparties that are comfortable with asset classes that are acceptable to the organization, to the Treasury, duration, credit risk, Treasury policies, investment policies. Many companies I have seen have a regular process of reviewing it and updating them. But also, if you don't have a policy in place, it is perhaps a good time to look at that and speak to your banking partners as well who can help you institute one and put that in place as well. The last area of focus, I would say, is resiliency of the funding structure, how are we structured today within the Treasury to reduce fragmentation of liquidity that is currently distributed. Do we even have a funding structure that we could access and consolidate liquidly through? Is our funding structure representative of our business requirements and do we need to continue to add to it or amended to evolve and really prepare for contingency? This will ultimately also lead to optimization of cost around funding and making sure that, you know, the internal liquidity available in the organization is leveraged and maximized. Contingency liquidity sources also need to be prepared as part of this resiliency, managing resiliency in the funding structure. And one of the key things that I think surfaced in the pandemic is stress testing the forecast. I think the forecasts typically prepared for the business as usual scenario. It's also important to stress test these forecasts to see how do they operate under stress scenarios as well. And I think that's a discipline I've seen more often as I've spoken to clients, as I’ve spoken to companies and treasurers, they've started to implement that and integrate that into their forecasting process as well. All of this will come together for a treasury to really channel some of these catalysts of change that are happening externally and pivot them and convert them into opportunities for evolution for the Treasury as well as creating value for the organization as well.

>>Jonathon Traer-Clark:
I guess continuing on the theme of insights and perhaps going back to the name of this podcast, which is Treasury Takeaways, what do you think some of our clients should do by way of best practices? How do we deal with this? 

>>Suraj Kalati:
Jonathon I would say begin with the end in mind. Even if that is a medium-term outlook, you know, put a marker out there from a change standpoint and then plan towards and execute towards that change. What does that end look like? That end looks like being able to answer what's the right level of cash. Do I need within the organization to operate? Am I prepared for contingencies, and do I have the right tools to calibrate the cash levels and address the business's needs should there be any unforeseen circumstances as well? So, it's really about planning, but it only can start with a vision. So, start with the end and then execute towards that vision. One of the key things is about adoption of technology to help you achieve that. Visibility continues to be one of the key areas that I've seen clients struggling with. We were in a recent roundtable with clients and that was one of the areas where we noted a lot of spreadsheet driven insights, delayed information, not accurate information and information with a lot of gaps. So today there are solutions, APIs bank provided solutions, which will allow us to have much better visibility, but also analytics in terms of how much cash position is available to the company where it is allocated, in what currency it is to also then manage even hedging practices. So, visibility, you know, let's take that off the books. One of the quicker ones that treasurers can put us a win on their scorecard and help them achieve, you know, get them to that goal of being able to understand the right level of cash within the organization as well. Data is another piece. Having a data strategy, building out that data strategy, really to start understanding all of the data points that are also necessary for the business to inform itself about its clients, its customers and external trends, which interestingly come through the pipes that the treasurers also see. So, understanding what the payment flaws look like, understanding the speed of payment, but also all of the data that comes with payments and passing that through as intelligence back to the business, back to the sales organization, back to the manufacturing organization, and helping them become much more insightful about their process as well. So, it starts helping treasuries to start adding value and pivot itself to a much more strategic input into the organization as well. Last thing I would say over here is create time for yourself, right? By going with a plan, a plan that I know has worked, many companies have gone through this journey. I've worked with many of them to take them through this change. A plan works, and a plan creates time for the Treasurer to start looking at what's the next situation on the horizon, what is the next area of focus on the horizon that they want to start bringing into the Treasury organization as well.

>>Jonathon Traer-Clark:
A couple of themes that kind of struck me there was you're very pragmatic, right? The first thing is we can't manage what we can't see, right? That's the data. That's the visibility. But then you also talked about being agile. You know, a treasurer has to be able to adapt to the different circumstances and the different situations that are going on around them and be a real partner to the business, not just in the financial sense, but perhaps almost taking the information that they're seeing from the outside world and imparting it to the business so they can be better prepared and think about the future. And it helps everyone. I guess in the spirit of that, I know that you and I both share a background in that we have a more of an international perspective. Are there any sort of things that you've seen across the globe that might sort of give us some clues as to the potential for I mean, you mentioned real time payments, for example, and talked about the enormous growth there. But what else do you see that kind of excites you in the Treasury world today? And how might it help us with working capital perspective or even from a Treasury perspective? 

>>Suraj Kalati:
Jonathon, I think what we see over here, across the landscape, across the global landscape, is there's different levels of evolution happening in different markets. A lot of this is fueled by technology, regulatory influences also that that is driving and becoming an accelerant for change. Companies are looking to adopt and use best practices from different areas across the world and embed that into their organization. Liquidity management is one of the key areas of focus continues to be not just in the United States but globally a big area of focus of Treasurers. Liquidity management and within that I would say cash forecasting continues to be top of mind. So, the adoption of bank provided solutions, solutions provided by vendors who specialize in certain capabilities has been adopted quite extensively across the market. Also looking at cash optimization solutions, how do I pool my cash together? How do I structure my cash sweeps? How do I look at my investment sweeps? What investment sweep options do I have on balance sheet and off-balance sheet that are available to me? Those are some of the solutions that companies started to tie in into their overall working capital management as well. Understanding their payment terms, understanding their contingency lines, understanding credit availability, and also tapping into the capital markets in different avenues in a much more structured and coordinated manner has helped them optimize cost as well. And staying ahead of the regulatory game, working with banking partners who have the ability to provide insights, have the know how around what's happening around the corner, but also have the perspective of the benefit of looking across the industry to share best practices around treasury change and treasury evolution as well. So, digitization has been a big theme. Data strategy has been a big theme. Cash forecasting and new adoption of technology has been a big theme for me. 

>>Jonathon Traer-Clark:
Thank you. And it's evident just from the things that you're saying, that it's not just about the discipline, but it's also about the connectivity in a very literal sense. Networking with your peers, obviously talking to your banking partners and getting their insights on the changes and things that are happening across the world and really just staying informed, right. Though different trends are happening in different parts of the world and all of them can give you a much more comprehensive picture of both opportunities and also things to look out for. 

>>Suraj Kalati:
Yes, the information is available everywhere for us, really, and that connectivity is what allows us to circulate that and provide it to each other. I think I've been very happy to have this conversation with you. It's been an exciting topic, one that's very close to my heart, and over the years I've helped companies sort of move the needle in change and transformation. And I'm really happy to work with our clients here at Wells Fargo to do the same as well. So, looking forward to our next session together, next catch up together as well. 

>>Jonathon Traer-Clark:
And Suraj the feeling is mutual. Thank you for giving us all of these takeaways. We really appreciate it and we're very excited to have you here at Wells Fargo running our liquidity team for us. Thank you again.

>>Suraj Kalati:
Thanks Jonathon.

>>Jonathon Traer-Clark (Disclosures):
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