2020 Treasury Perspectives Survey Implications

INTRO: 

On this episode of the podcast, host Craig Jeffery sits down with Tom Gregory, senior vice president and head of treasury management sales at TD Bank to discuss the findings from the 2020 Treasury Perspective Survey. For the third year running, this annual study polls treasury and finance professionals on their views regarding the economy, technology, industry innovation and regulation to better understand top challenges and opportunities in the marketplace. Listen in to the discussion to find out more. 

Craig Jeffery: 

Welcome to the Treasury Update podcast. This is Craig Jeffery. I’m here with Tom Gregory from TD Bank, and we’re discussing some of the findings and implications of the Treasury Perspective Survey. Welcome to the podcast, Tom. 

Tom Gregory: 

Thank you, Craig. Great to be here. 

Craig Jeffery: 

Tom, you and TD Bank have underwritten the Treasury Perspective Survey for three years now, can you give us a little bit of background on when it ran this year, and just some information on the scope of it? 

Tom Gregory: 

Yeah. This year, fortunately, or unfortunately, depending upon how you look at it, the survey was taken right in the midst of the pandemic stay at home orders. So it was launched right after everyone in the country except for essential workers was told to work from home in March. And it ran through about early June, as I recall. We were lucky enough to once again, for three years running, get over 300 respondents from around the world. Most of them in North America, and most of them corporate practitioners that ranged from treasurer CFOs, controllers, ATS. And so, like I said, depending upon how you look at it, the fact that it was taken right in the midst of the pandemic made for some very interesting responses. 

Craig Jeffery: 

Yeah. Thanks Tom. This idea of the first year in a pandemic taking it certainly colors and flavors the results in different ways. I think it’s also interesting for those that are listening, this research asks a lot of corporate treasury practitioners what they’re thinking, payables, professionals, but it also has a way of branching out. So quite a few banks responded as well, so there’s learning from both sides of the table, which is really excellent with this type of global research. But Tom, I wanted to start our discussion on technology, and you’ve long been a technology enthusiast, but I wanted to start on the era of, we’re talking about technology adoption. What are we seeing? What have we seen from the survey? And I know you can weave in some of your anecdotes from conversations you’ve had with your clients, you’re in charge of a large sales organization, so you get a lot of feedback, but what have we learned here on the technology adoption front? 

Tom Gregory: 

Well, we learned that there is a surge in the level of enthusiasm around adopting technology. This is one of those questions where you can’t help but attribute the change in year over year sentiment to the pandemic. We had been seeing a year over year rises in the level of adoption or planned adoption in such things as mobile banking for commercial uses, APIs, AI for predictive analytics. And so, as you would expect with emerging technology, you would see a rise in adoption. But this year it was dramatically. 80% of respondents are using or plan to use really soon, mobile banking, 74% APIs, 69% artificial intelligence for predictive analytics. These are significantly higher numbers than the year prior. 

Craig Jeffery: 

Yeah, I know we’ve had some conversations like on the API front, what was expected. In the prior year survey we looked at API adoption by corporates. Banks have been talking about it, been more enthusiastic about it for a longer period of time. But when we look at corporates actual adoption, this year, versus what the next two year expectation was in the prior year survey, it actually exceeded what had happened. So expecting two years worth of growth would hit us around 38%. And we already had 39% on the API side, which is doubling the two years worth of growth got sucked up in that one-year period, which is fascinating. We’ve also seen from this survey and a couple others, we’re seeing this adoption on the tech front. It appears to us that we’re getting about two to two and a half years worth of growth in the movement from paper to electronic or to automation in 2020. So that’s definitely a bright side with the downside being the pandemic, the bright side being this move, an excitement about tech and leveraging that. 

Tom Gregory: 

Well, we have consistently observed practitioners indicate a preference or an urge if you will, for automation and straight-through processing, we’ve consistently seen a preference to apply automation over adding human resources to an operation, but we got the sense that practitioners haven’t been really able to act on those urges. And sometimes we surmise that treasury operations can be looked upon as overhead, and that the investment in technology and automation is going to happen in the core business. But this year we’ve seen real action on those urges, and a lot of practitioners admitting that they need to act now, that they’ve been waiting, they’ve been talking to their banker about certain ways to achieve straight through processing of things like payables and receivables, ways to leverage machine learning and automated application of cash to accounts receivable. And now they’re ready to go. 

Tom Gregory: 

And it’s pretty clear that it really is because they’re trapped at home. Their communication practices, maybe some of their control processes have been fractured, checks are at the office, the check printer is at the office, and this is no way to do business if there are better ways to do business. And there are. So we do think that as unpleasant as this has been for everybody, it really has served as a catalyst for treasury practitioners to do the things that they have intended and aspired to do for several years now. 

Craig Jeffery: 

Yeah. Very good Tom. You mentioned something about AI and predictive analytics, this expectation of a tripling from 15% to 47% within two years is another indicator. And there’s so many uses for AI that can help with everything from forecasting to anomaly detection, for quality control or security. I don’t want to get hung up on that, because I want to shift to payments, and faster, better, stronger payments, Tom. There’s definite growth of faster payments. Maybe you could talk about some of the findings in the context of how do you know what customers need or want? Because there’s two aspects of that. 

Craig Jeffery: 

Some is the voice of the customer, hey, we need this, and others, as we have seen, banks know what’s needed before the corporate customers do. And I don’t mean that if a banker said that, that might sound conceited, but the reality is, sometimes like with the example of APIs, bankers were pushing that much harder. They thought it was much more important. And now we’ve seen the uptake has more matched what the bankers thought than what the corporate treasury and payables professionals thought. So how do you know what they need and want? How do you listen to them and make sure you know what’s coming down the road because you have this position of seeing so many customers at once? 

Tom Gregory: 

The real-time payments in the commercial realm has really yet to hit the mainstream. Certainly same-day ACH is something that has come about, and corporate practitioners, they understand ACH. They know how it works. They have origination tools that they utilize, whether it’s bulk file transfer, online banking, what have you, sending smoke signals up in the air and the originating bank knows how to turn it into an ACH. So they understand same-day ACH. They’ve yet to really embrace things like real-time payments, Zelle For Business, and we banks, until we understand exactly what the use cases that carry real value are, we have to be careful in where we invest our resources in building send capabilities if you will. Banks have been coaching practitioners for years to take a look at their payment operations, and segment their payables. They have payroll, they have vendor payments. They may have settlements from time to time, and we’ve been somewhat successful in having practitioners embrace ACH, embrace a purchasing card, to some degree outsource payment initiation. 

Tom Gregory: 

On the other hand, for business to business payments, there’s still an awful lot of checks out there. And so to the extent that businesses continue to cut checks, put them in the mail, take advantage of 2/10 net 30 trade terms, they may not have really thought through how will I, how can I utilize faster payments? Whether they be real-time, near real-time, same day, which takes a few hours perhaps. So we’re really in that formative stage in collaborating with corporate practitioners on exactly what might be valuable uses for faster payments in the short-term, the medium-term, and the long-term. There are some people that think that payroll is going to become a same day thing as a convention. Someday, that certain workers, payday will be every day that they work. And very few companies are thinking about that, payroll providers, ERP systems. So there’s a whole lot that needs to catch up with that concept, but that’s the kind of thing that is possible with faster payments. And it’s just a matter of that give and take, that push and pull, understanding where can we add value most soonest, and then place our bets based on that? 

Craig Jeffery: 

Sure, sure. Timing is one of the dimensions of value. Daily, and I think we’ve seen cases where ride share companies have sometimes said you can get paid four times a day. So I think the payment professionals will like that. Our volume grew dramatically because instead of paying it every two weeks or monthly, it’s four times a day. I don’t want to cut that short, but I do want to move off of faster payments over to a couple of these elements related to forecasting, planning, diversification of credit sources. We have a number of, I’ll call them chapters in this research. And one of them talks about borrowing, business expectations, economic expectations. Maybe you could weave a little story about what we learned there. And again, you gave a great setup earlier about this took place during the depths of the pandemic of the work from home, stay at home orders. I’ll let you go from there and then I’ll probably ask you some questions as you respond. 

Tom Gregory: 

Well, to take kind of a step back and create the context that this question is being posed within. Remember the survey indicated a dramatic shift from what had been two years of pretty optimistic outlooks relative to the economy, relative to the organizations that the survey respondents worked for to being pretty darn grim. So if you look at three years of survey data, we went from 51% of organizations having an optimistic outlook, to 14%. and 10% having a pessimistic outlook to more than half, 56%. We’re talking to practitioners in the midst of what most people call a crisis. And so when times are good and things are going well, and you expect things to get even better, you don’t really feel the pressures to do the things we’re talking about here as much. But when those things happen, not to mention a dramatic drop in interest rates, it’s time to buckle down, take stock, and be strategic operating in the new, I don’t want to call it a norm, I certainly hope it isn’t a norm. 

Tom Gregory: 

It kind of feels like an old boss once used to say, “You know that light at the end of the tunnel?” “Yeah.” “Get used to the tunnel.” So we continue to be in this low interest rate, low economic activity, not quite sure when economic GDP growth will return. So we see organizations stockpiling cash. We saw many borrowers that had unused lines of credit draw on their lines of credit to stockpile cash. We observed what amounted to a flight to safety. When interest rates are close to zero, there’s not a whole heck of a lot of safe investments where you’re going to get much of a return. We saw the PPP loan funding where deposits were made for loan proceeds. Banks expected those deposits to kind of wane over time, but they haven’t. Deposit levels have remained at historic high levels. And that does reflect a hunkering down and perhaps taking a step back in terms of where do we go from here? 

Tom Gregory: 

And when it comes to borrowing, we see the strategic thinking corporate practitioners look to renew their lines with longer tenors because after all, most people do think that the rates are going to remain low, and that the curve is going to remain somewhat flat. 

Craig Jeffery: 

It’s been interesting to see the dip that we saw in things like GDP in the US for example, what a hit it took in April, the total trough there, and the most recent month annualized GDP was about 21 and a half trillion versus the peak right before the crisis was 22 trillion. So that is almost back in total, but there’s certainly a lot of dislocation in a number of industries and a lot of pain being felt in areas where some are doing better, some are doing fine, there’s quite a bit that are down a bit or down a lot. And so a lot of our peers are working hard to turn that around. 

Tom Gregory: 

We saw the priorities change with what plans practitioners have relative to what they’re going to do with cash. Year over year, we saw there are less plans for capital investment. A lower level of expectations to acquire. Lower level of intent to spend money on personnel. Yet we saw increases in things like, well, we’re going to hold cash for future investments. There was a minor increase in the expectation to invest in IT, which foots with what we were talking about earlier, the increased adoption of tech in this changed environment that we find ourselves in. 

Craig Jeffery: 

One of the chapters in this research, we cover the topic in different ways in different years, about relationship management, this interplay between the corporate treasurer, the corporate CFO and banks, how are these relationships maintained? How are they aligned? How do they grow? What’s changing in terms of where do people see value? Is it just credit? Is advice playing a big role? Based on this information and the things that you’ve been learning, how can we help move business forward? What do bankers need to know? What do they need to do? Because this survey had questions from both sides, what are the corporates seeing? What are they asking of their bankers? What are bankers seeing, or what do they expect to provide? So help us make sense of this deluge of data on this. 

Tom Gregory: 

Some of the data that spoke to bank relationship management took me a bit by surprise. One of the headlines was that bank pricing, earnings credit rate negotiations could be one of the top reasons for choosing or changing a cash management bank. Secondary were things like links to the credit relationship. And I’ve always had those two things reversed. I look at really, you’re going to choose or change banks for pricing and rates. I might argue well, that might be true if you’re shopping for a new bank. But I look at the data and say, well, what might compel an organization to shop for a new bank? Because I have no problem with the sensitivity to pricing, but then the data began to make sense to me. And it spoke to consistency of service, high quality advice, new ideas. 

Tom Gregory: 

And that’s something that we stress at my organization, corporate practitioners, they don’t necessarily want to hear from you every month or every quarter, unless it’s going to be meaningful to them. Unless it’s going to provide some ideas, advice, and solutions to help them move their bank forward. Corporate practitioners can’t afford to have low service quality in cash management banking. I often call it the messiest part of high finance, because there’s so much going on all the time, file transfers, payroll, revenue cycle management. We don’t have one closing a year and go celebrate, the debits and credits are settling 24/7, 365. And deteriorating quality has a material impact on the practitioner’s business operations and their overall experience. So from that standpoint, that really does reinforce I think how banks win in this business, consistency of service is table stakes, providing high quality ideas and insights are points of differentiation. And I still think that the credit relationship also has a good amount of influence on where the practitioner would choose to put their cash management banking. 

Craig Jeffery: 

So, Tom, why is that? Why is the consistency of services and high quality advice becoming so important now? Is it due to COVID? Is it the change in the environment? What are you seeing as the driver of this morphing of the key elements and the shuffling of the drivers? 

Tom Gregory: 

This is one area of the survey where I don’t think the results were changed in large part because of COVID. I think that most of these drivers, practitioners had just doubled down on them. That now more than ever, things need to move smoothly. When they don’t move smoothly, remember, people are in their homes, they’re not able to just walk over to the next office or cubicle and say, “We have an issue, and it’s with our bank.” So I think that the issue of service quality has been just reinforced with a changed world. But I also think that the value of advice and insights carries even greater value now that we’re dealing with the pandemic, because companies are looking for better ways to operate, safer ways to operate, more efficient ways to operate. And frankly, highly capable banks can help with those desires. 

Craig Jeffery: 

As we come to the close, I wanted to give you an opportunity to share any final thoughts, or any points of emphasis, maybe something you’ve said already, or something that you want to leave with the audience. 

Tom Gregory: 

As I reflect on some of the things that I just said, I don’t want to come across too much of a promoter of bankers. I do however, want to emphasize that your banker may be a source of some impactful solutions. If you’re a practitioner, and you are looking for ways to automate, digitize, outsource component parts of your financial operations, I’m director of sales at TD Bank. And I often say to people that sales is the highest form of service. If we’re really looking after the wellbeing of our customers, then we’ll have success. And so will our customers. 

OUTRO: 

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