The Association for Financial Professionals (AFP) recently published its annual 2019 AFP Risk Survey Report. The survey, supported by Marsh & McLennan Companies (Celent’s parent company), added an interesting new twist this year – examining the use of non-traditional vendors by treasury departments globally, the pros/cons of using them and, most importantly, highlights the risks that might arise as a result. The survey is the eight in the series, incorporating responses from 291 treasury practitioners in this year’s report.
As risk is the top-line topic of the report, it is always interesting to see how Corporate practitioners rank current and anticipated risks. The majority of respondents (60 percent) ranks strategic risks (which include competitor and industry disruptions) as the top risks impacting their organizations. Just over half (51 percent) report that cybersecurity risks need to be watched closely, followed by financial risks, cited by 39 percent of respondents.
Looking at the anticipated focus of treasury operations over the next three years, the perennial favorite, cash management and forecasting, remains the greatest focus (chosen by 55% of respondents). The next highest ranked focus areas are financing and capital allocation (41%) and treasury services and technologies (36%).
As an analyst in Celent’s Corporate Banking practice, much of my research focuses on treasury and cash management technology. As such, I was excited to see a set of new questions asking practitioners about their use of non-traditional vendors, defined as niche providers such as technology providers, payment providers, fintechs, and task-oriented contract employees, etc. The headline is that the majority of treasury departments has no plans to increase the use of non-traditional vendors.
To put this into perspective, treasury departments have long adopted solutions from “entrenched” traditional vendors, buying best of breed solutions for payroll, FX hedging, electronic invoicing, supply chain finance, payables automation, etc. This is especially the case for larger firms that have the sophistication to select, manage, and integrate solutions from multiple providers.
For those firms using non-traditional firms, they are used most often for four specific functions:
The report goes on to say that nontraditional vendors can serve a niche segment that has a high barrier/cost of entry into the market or perceived to have a limited return on investment (ROI) in terms of product deployment from traditional vendors.
Mirroring my discussions with bankers on their use of emerging technologies, the survey found that robotics shows promise in reporting, reconciling and routine data entry. Artificial intelligence (AI) is utilized in A/R (Accounts Receivable) decisions and cash application, and credit card transaction screening. Blockchain is not a solution currently utilized.
How should bankers and traditional tech providers view the survey results?
Treasury practitioners value the existing relationships, greater credibility, stability/reliability, and industry experience offered by banks and entrenched vendors. For bankers, the findings suggest they continue to partner with exceptional fintech providers to provide unique, innovative cash management solutions. For traditional providers, continue to look out for acquisitions or partnerships with fintech providers that round out solutions, or offering a new twist on existing functionality.
If you are a corporate banker, treasury management professional, entrenched vendor, or non-traditional vendor, I highly recommend a reading of the 2019 AFP Risk Survey results. With stretched resources and limited IT resources, organizations want to work with providers that can solve real-world treasury challenges. The challenge for providers is to ensure that they have the credentials to support treasury due diligence efforts.
You can download the report from Oliver Wyman here: http://www.oliverwyman.com/our-expertise/insights/2018/jan/2018-afp-risk-survey-report.html