The Age of Disruption and the Impact on Treasury

By James Lee, Head of Technology, Media and Telecoms Sector Sales, EMEA, Treasury and Trade Solutions, Citi 

Driven by rapid advances in technology and global communications, digital disruption is transforming the world and opening up new possibilities. The way organisations interact with customers and the products and services they offer are changing faster than ever. Companies that don’t adapt their business models, and with it their treasury management, could become casualties of this 4th industrial revolution. This article examines what corporate treasurers need to be aware of and how they can position their companies to thrive in this age of disruption. 
 

Mobile World Congress

All industries recognise the importance of the mobile phone and the availability of ubiquitous and super-fast mobile communication. Mobile World Congress 2017 (MWC17), the world’s largest mobile technology event, attracted a record 110,000 people from all over the world and from diverse industries, far beyond the traditional telecoms ecosystem. A key theme at MWC17 was how to align technological innovation with the realities of mobile technology and how mobile can support company growth and be a force for improving society.  

The challenge for the telecoms industry is the rising need for capital investment at a time when average revenue per user (ARPU) for the mobile network operators (MNOs) is falling. Masayoshi Son (Chairman and CEO of Softbank) talked about this in terms of there being an ‘inconvenient truth’ for the telecoms industry. 

Data usage continues to rise (forecast to grow eight times between 2016 and 2022), requiring an estimated $700bn of capital expenditure; at the same time top line growth is challenged as people are paying less for data – globally ARPU was down 47% between 2006 and 2016, largely due to the growth of users in emerging markets. How can telecoms companies continue to invest in their 4G and roll out 5G networks whist delivering net income growth to their shareholders?

The importance of operating an efficient treasury and the focus on working capital (FCF) has never been greater for tech and telecoms companies. By improving the efficiency of working capital using solutions such as supply chain finance (SCF), sales financing (to support sales growth) and B2B cards payments, it is possible to improve working capital for capital investment, support sales growth and drive payment efficiencies.In the current low interest rate environment, Citi has seen an increase in clients exploring dynamic discounting solutions that complement their existing Citi SCF and B2B card solutions – dynamic discounting allows companies to invest surplus cash in their own accounts payable and dramatically increase returns on surplus cash. 

Internet of Things

A key theme of MWC17 was the Internet of Things (IoT) and the application of connectivity beyond mobile, where everyday items such as cars, clothes and appliances have chips embedded in them and are internet-connected and transmit data on a real-time basis. The processing power of chips is increasing their applications - a chip will have the same number of connections (30 billion) as a human brain as early as 2018. In 2010 there were approximately two connected devices per person - SoftBank forecasts that by 2035 there will be 1 trillion connected devices, equating to 100 devices per person.Again, the implications of this technology reach well beyond the mobile sector, including for the healthcare sector i.e., the ability for doctors to remotely monitor and analyse health data of individuals.

Related to IOT is artificial intelligence (AI) and how this can improve consumer experience.Telefonica explained that it will shortly introduce Aura, a cognitive intelligence platform. Aura will enable users to manage their digital experiences with the company and control the data generated by using Telefonica’s products and services in a transparent and secure manner.

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The auto manufacturers have increased their presence at MWC over the last few years, reflecting the importance of mobile connectivity to the automobile industry (the CEO of Ford spoke last year about Ford transitioning from an ‘automotive company’ to an ‘auto and mobility company’). Autonomous cars werea high profile theme at MWC17, leveraging the increasing processing power of the latest generation of silicon chips, artificial intelligence and the power of 5G telecoms technology (low latency, very high up and down link speeds). Ericsson, together with SK Telecom and BMW, recently tracked a connected car at 170km/hour, achieving a record-breaking downlink speed of 3.6 Gbps (vs. typical 4G downlink speeds of 5 – 12 Mbps). 

The IoT has been hyped for years yet uptake has been limited. However, the adoption of 5G standards – likely to occur soon – could prompt lift-off. A challenge for the MNOs is how to charge for the IoT – it is unclear who should pay for data transmission for connected devices. Some companies are reassessing their business model - SoftBank, which owns the UK chip company ARM Holdings, discussed the feasibility of selling ‘silicon as a service (SaaS) on a pay-as-you-go basis. This model is already used in other industries, such as jet engine manufacturers – however, to make it work for a low value item, it will be vital to find a cheap, real-time collection method.

Digital treasury

The goals and KPIs of treasurers are now, more than ever, aligned with the goals of the underlying business and specifically what tools are available to support the business. Digital disruption has brought benefits for consumers, allowing a far richer and improved customer experience and access to consume products in real-time, whether to download the latest film, order and track a taxi home or to order a takeaway utilising true digital natives to facilitate the transaction. 

The shift to ‘on-demand’ has also been reflected in banking: we have also seen a shift to real-time from batch processing in transactional services – people want to pay (and to be paid) in real time (especially in the gig economy), in greater volumes and in the most efficient way possible. Citi is able to support companies to effectively manage the increase in payment volumes that will result from the growth of the IoT and digital disrupters by using real-time low-cost payment solutions through the growth of faster payments schemes around the world.

Citi has also recognised the importance of facilitating connectivity for ‘traditional’ as well as new digital native companies. Earlier this year Citi announced the launch of CitiConnect for API. This allows our clients to facilitate payment initiation, monitor payment status and account balance inquiries in real-time and straight-through process into the corporate’s ERP/TMS, utilising API technology, a technology which digital natives are used to working with, and one which drives efficiency and enhanced risk management. 

The need to adapt

Disruption is happening in every industry and companies need to adapt their business models to survive in the new always connected world. Treasurers are similarly challenged to be more efficient and innovative in driving forward the treasury strategies that are aligned with the underlying business, supporting the working capital goals (for their partners in both procurement and sales) and embrace new technologies such as bank connectivity and low-cost real-time payments and collections. These are exciting times.