Treasury Management as a utility presents undiscovered opportunities for neobanks and financial services. Cloud acceptance by regulators and banks, is paving the way for treasury to be delivered as a service. We look at the impact of this on Neobanks.
Neobank treasury functions are primarily tasked with managing:
1. Balance Sheet
2. Capital
3. Liquidity
Can treasury technology be run as a service in the cloud and meet all these needs? Simply put, yes!
However, the answer is not as simple as we would like to hope for. One must keep in mind the reality of modern treasury management. As the treasury function is key to how a bank operates, the functional areas it influences, have morphed, and evolved over decades as the demands on banking operations have grown, through risk, regulation or evolution of customer demands. As neobanks mature, the key accelerators within their businesses meet the very conservative prudential oversight of regulators and the need to manage what is, by its very nature, a highly leveraged balance sheet, which it must do effectively and safely.
Bank Treasury Functions
- Balance Sheet
Generate good risk adjusted returns on assets• Provide centralised transfer pricing to all areas of the business on both sides of the balance sheet• De-risk through use of hedging instruments and functionality• Enhance returns through sophisticated management of securities on balance sheet
2 CapitalMaintain appropriate capital levels to support the balance sheet• Capital allocation and rationing in line with risk and return appetites• Manage buffers and tiers from a regulatory perspective
3 LiquidityAccurate liquidity and cash forecasting
Hedging of rate and fx exposures across tenors
Active cash and liquidity management across the business
This has resulted in modern a Treasury Management System (TMS) and its functions, having a significant influence across:
- Front office
- Risk
- Product Management
- Middle Office
- Treasury – ALCO
- Back office
- Compliance
- Audit
- Management Information & Business Intelligence
- Finance and Accounting
- Technology & IT
- Information Security and Cyber
This reality is, like core banking, the key behind understanding how and why a bank would want to consume Treasury as a Service (TaaS).
The inherent complexity in crossing between all disciplines, has created potentially huge change and integration programmes within banks. A fragile infrastructure also creates significant operational resilience risks for banks and make these solutions difficult to maintain, adapt and evolve.
One often witnesses that rapid growth of business inevitably requires use of EUC tools and over time these prevent adoption of good practice operating models with the incumbent technology driving operating models rather than the bank being able to adopt best practice approaches to organising themselves.
The internal culture of organisations is always symptomatic of how it functions from an operational perspective (i.e., what really goes on inside a bank when button ‘A’ is pressed?. Neobanks are no different to their legacy counterparts although the cultures are often different and likely to reflect agility and growth. For example, organisations that are used to maintaining a multitude of spreadsheets will recognise behaviours which are often highly valued:
- “…I’ll have the spreadsheet updated in the next hour…”;
- “…need to re-do the spreadsheet completely as the links are not working…”;
- “…need to wait for John to come back as he’s the only one who knows how the spreadsheet works…”, etc.
The need for adopting better practices and standardised operating models is very real but as described above, often too big a hill to climb for lots of organisations.
And this is where the ability to adopt an ‘as a Service’ offering provides real value. The ability to integrate with standardised operating models with rich functionality but not having to replace all existing infrastructure is key to de-risking critical operations within banks. Using technology components as needed, which integrate via robust APIs, allows banks to replace discrete functions over time and gives the banks a clearer path through the monolithic legacy.
Neobanks as cloud natives are well placed to take advantage of this opportunity and drive further business and service value to their customers. Efficient treasury management is key to providing competitive products for the neobank customers who are able to switch providers at a moments notice.
This, coupled with the ability to use these services remotely hosted as cloud offerings, further de-risks the implementation as it again removes the overt need for internal infrastructure specialists within the banks.
Low risk implementations which drive standardised operating models are therefore both the driving force and attraction in exploring how ‘TaaS’ can help neobanks build on their scale and competitive advantages.
In summary, if it’s this obvious, there must be valid barriers to these services being developed? Yes? Read our whitepaper to find out more.
Can Treasury as a Service Provide Competitive Advantages For Neobanks
