Treasury Review of 2021

INTRO  0:09   

Welcome to The Treasury Update podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in. On this episode of the podcast, Craig Jeffery, Managing Partner of Strategic Treasurer, gives a treasury your review of 2021. He discusses the implication of major activities and trends over the past year and looks ahead to what’s next in the coming year. Tune in to the conversation to find out more.  

Meredith Zonsius  0:59   

Welcome to the show, Craig. 

Craig Jeffery  1:01   

It’s good to be here, Meredith. 

Meredith Zonsius  1:03   

So, as we approach the end of the year, I’d like to take a look back at 2021 so we can look forward to what’s ahead in treasury in the coming year. So, I’m pretty excited about the topic today. Let’s begin with a review of COVID-19’s impact on treasury. I know you formed the Treasury Coalition to assist treasury and finance professionals to gather data on the crisis and recovery through the COVID-19 impact and response survey. Can you share a little bit about the Treasury Coalition, you know and what it is? 

Craig Jeffery  1:35   

Sure. So, we formed a coalition which was over 20 organizations, financial institutions, consulting firms, media companies to help collect and distribute data. Basically, take regular taking by taking regular surveys about the attitudes, response plans, economic impact preparations. We took this survey beginning in March of 2020 and ran it through into April of 2021. I began on a weekly basis, went to biweekly, monthly, and then bimonthly. So, we have a massive amount of data as we move through the trough and on to the recovery and look at economic to attitudes about virus vaccines, stay at home, travel, things like that. So, captured a lot of information really quickly, so we have that data during a crisis or during a pandemic as opposed to trying to do a debrief later on. 

Meredith Zonsius  2:39   

How much were treasury and finance organizations impacted overall, and do you think that they bounced back this year? 

Craig Jeffery  2:46   

That needs an answer that’s a bit calibrated because it depends on the industry mostly, somewhat to some extent on the particular company. But yes, there was, you know, ongoing return in some organizations this year. Last year, recovery started after several months in the trough the lost quarter, if you will, from the middle of March, April, May, even much of June, was part of the lost quarter and then things started recovering at different speeds in different areas. So, most have responded well over time. Some took a lot longer, hospitality, travel, restaurants, as we go in and out of restrictions depending on the area of the country and staff issues caused by several different areas, caused by several different reasons. Yeah, generally it’s responded well, many organizations have added cash as an ongoing buffer, heavily in the beginning but still are quite cash heavy. Now the economic ripples still continue. I think as we all know and see there’s unemployment issues, while many of them have abated, there was this long period of heavy unemployment that bounced back. There’s the great resignation so many people leaving the workforce that’s a significant impact globally, certainly not just in Europe or the US. Yeah, so the idea that there was some funding in the US that created more demand coupled with supply chain delivery issues. Some of the compensation on unemployment, created a dearth of workers in some areas. So, some of this has had a compounding effect. I think we’re looking forward to see how we move through this and have this on an ongoing basis. 

Meredith Zonsius  4:36   

Yeah. Hopefully a little bit more better news next year with those ripples continue. So, switching gears a little, what are some buzzwords you’ve been 2021, and will that change in 2022? 

Craig Jeffery  4:50   

Yeah, I’m glad you told me you’re gonna ask about buzzwords because I’m not sure I would have been able to come up with them off the cuff, but “transitory” was a buzzword transitory inflation, the Fed used those a little bit and it seemed like that was more of a projection of a hope, maybe somewhat against the fundamentals. We thought it’s a short term, very short-term spike, but we see that continuing, so transitory is, I think, came into our vocabulary. Maybe it’s a little derision, and it seems to have left. The second was “cloud native.” And we see that as the beginning of the use of that as a buzzword. It’s becoming more common, and it seems to be replacing SAS or software as a service as a term. And we expect that to be fully entrenched in 2022. So, cloud native, expect to hear that more, you know, running things on Azure, Amazon Web Services, Google Cloud, those types of services, and that ties into the third one which is “platforms” and “platforms as a service.” That’s, that’s a near synonym to cloud native. There are some differences as well. And you’re going to hear that more frequently as well. So, platform as a service is, can we run everything like we were talking about on Azure, Amazon Web Services, etc. And the idea of platforms, even SWIFT has they’re shifting to a payment messaging platform, as opposed to just transporting data and ensuring the handoffs are right, a central place for managing messages, providing better visibility. So, platform touches on other areas, too, not just SWIFT, and not just the platform as a service model. The fourth one, I’ve got five if that’s okay, the fourth one is “API’s.” So, 2021 I think in terms of the use of a buzzword, 2021 was a big year for API’s, spent several years ramping up, big big year in 2021 for using the term API’s that may bleed over to the next year as well. But I think API directories, I think we’re gonna be using that, perhaps more in 2022. So, this ability to house lots of these connectors that help you connect either internally to your systems with banks, with other information providers or trading partners. I think we’re gonna be hearing API and expect that to transition to directories. And the fifth one, Meredith, is “ecosystems”, “open banking”, “open treasury.” We’ve heard about open banking for a while back from when PSD two came into play. So just this idea of we want to use API’s or make our systems open. So, there can be faster development with tech firms, between banks, etc. So, there’s open banking, open treasury has been…can’t come more common. “How good and how broad is your ecosystem?” fits into this type of model. I think those are some of the some of the big buzzwords I found most interesting in 2021 and some of the changes of 2022. 

Meredith Zonsius  8:17   

These are very interesting. Let’s continue with some major topics, fraud is a top-ranking concern for treasury, as we all know, and this year it has become a bigger issue worldwide. What happened with fraud and security this year? 

Craig Jeffery  8:34   

So, criminals have continued to become more sophisticated and realize more success. When we look at imposter fraud loss, business email compromise, we definitely see what you hear me say over and over again, the crime is paying and continues to pay pay, and the criminals have added more plays into their playbook. They leverage automation and networking to their advantage. This is this is very significant, disconcerting, their targeting all areas of an organization from data to payment processes, and their patient. Those are those are significant. You know, a couple a couple items. You and I had talked about what’s happening. One of the conversations we had was on “Why are people stealing data that’s encrypted?” And as we talked about during the year was, we will be able to decrypt the data that we steal. We get it now and if it’s great information we eventually get to a point where we can decrypt it. Now, we have access to all that information. That’s pretty interesting. Do you want me to touch on a few highlights from Treasury Fraud and Control survey?  

Meredith Zonsius  9:46   

Yeah, I would love that.  

Craig Jeffery  9:48   

Okay. 86% of banks indicated, BEC, or business email compromise is the greatest threat in the coming two years. That’s a massive majority in the game that that type of spoofing is a number one element. I think is useful to know is that small firms have seen a significant increase in fraud attempts at the rate of 2.3x what larger firms are seeing, and this is not that they’re being mean to small firms. But automation is rolling these types of firms up into the net that the criminals are spreading. There were more targeted attacks at larger companies, but automation is democratizing the attacks of small firms are experiencing a very significant shift. And they don’t have as many years of getting ready for this. That’s a both interesting point of concerning point, a point and requiring action both by bankers to help their smaller firms adjust to this change, but also for anybody involved in the payment process–IT and treasury. Third point here, 1/5 about 20%, 21%, or 1/5 of fraud experiences had a COVID-19 connection, that’s the opportunistic angle that criminals took. And just know that whatever is hot on the news, they want you to click on it. So, if COVID hot, you’ll see COVID if something else comes up, they’ll take advantage of that. So, be forewarned and forearmed about that. We have three years of plans to spend more significantly more on security. I think that’s a good sign that there’s plans to spend. Spending has gone up not at that rate, but we need to have better defenses to reduce the yield of the criminals. And then finally, and also encouraging was that having specific accountability of staff to manage fraud to understand what’s going on: What are criminals doing? How can they defend against things? Companies, the number of companies that are assigning people individually and specifically to different areas, has grown by 50% over a relatively short period of time. I think those are all big, big developments on the fraud front. 

Meredith Zonsius  12:14   

Craig, can you share a little bit about how some of these companies are addressing these issues? What are they doing to kind of guard against fraud? 

Craig Jeffery  12:22   

So, the different things so training, protecting the human side is a big deal that’s increased significantly. That comes in the form of general training, ransomware, to desktop hygiene, to not clicking on emails, to payment specific training, training about fraud attack methods on the payment process. Those are those are pretty significant. I think there’s a couple other things that are taking place. Banks are getting more involved in talking to the customers. Their getting frustrated when they’re having five or six conversations a week with one of their customers who’s lost money, who’s hoping to resolve and reduce what the exposure is and they find that far less effective than trying to sell them something new, because they’re dealing with a situation where someone lost money. And so, we see more banks getting more prescriptive about it. And that’s something we just encourage companies, particularly maybe smaller firms or midsize firms that maybe haven’t put in place account level or transaction level controls that your bankers have talked to you about. They’re proposing commercially reasonable procedures, something at or above standard of good corporate conduct some minimum standard. So, I think there is some movement people listening to their bankers in this regard, and that needs to continue. The use of machine learning is another area where we’re seeing within systems within payment hubs, treasury systems, different platforms, the ability to detect patterns or anomalous behavior, if something that’s outside the normal pattern is being used an increasing measure, and there are great plans to increase that across the board. So, those are those are a few of the areas, Meredith. 

Meredith Zonsius  14:21   

So, this isn’t a plan question, maybe off the cuff but I think it kind of relates to this. What about I mean, I know that a hot topic this year has been around cryptocurrency. Would you say that companies are investing more in that or to safeguard their assets? 

Craig Jeffery  14:39   

I would be on the corporate side. I think there’s it’s an area that’s worth spending some time monitoring what’s going on, but it’s not an area that’s receiving great adoption. That’s one thing when Tesla says they’ll take payments using different types of digital currency when MassMutual acquired $100 million worth of digital currency, which is a tiny fraction of their portfolio. Yeah, there’s a number of areas where there’s activity on the edges. And I think those are worth noting. We have a country in South America who requires that people take either their currency for Bitcoin, for example. So, it’s interesting. It’s worth monitoring. It’s certainly not primetime for the vast majority of organizations but staying up with what’s going on make sense whether it’s a currency like Bitcoin, or the news and activity around Central Bank digital currencies. There’s a number of areas here that you can say, this is important, or this is not really something that businesses are going to do. But given the ranges of options, that are being developed and what that can mean for trade and settlement, it’s absolutely worth monitoring. And I know we’re going to do some series on these things as well. But no, you shouldn’t convert all your cash to Dogecoin or Bitcoin. 

Meredith Zonsius  16:11   

That’s good advice. Before we talk about technology in 2021, can we cover what Strategic Treasurer you know their content delivery, what you’re doing new, you know, trends. What are you seeing? 

Craig Jeffery  16:26   

That’s a great setup and I’ll try to make this more informative than a commercial. Treasure Update podcast is listened to in over 140 countries, which is at least 100 more countries than I would have ever expected to get a hearing and so everyone is listening. Thank you. Especially the non…where English is maybe the third or fourth language on the country’s list. So, it’s that’s fairly encouraging. It’s getting a broad reach. We also added an Open Treasury podcast. And I’ll tell you a little bit more of that in the context of CTM file or cash and treasury management file activities that we did. So, there’s a there’s another podcast that you can listen to. It’s called Open Treasury. Right now, it’s coming every other week. You can find that wherever you get your podcasts from, and that may move to a weekly podcast sometime in January but most certainly by February that biweekly treasury news update will increase the frequency. The Coffee Break series, this podcast treasure update continues. We’re gonna put more voices on that more than just Alexa and Craig. So, we’re pretty excited about that. There’s a couple new series of very, I think people have heard the term snackable and snackable content for better marketing. And so, I’m going to use it that we’re putting more snack size, pieces of content, for Coffee Break series. Other things and we’re putting out more ebooks and visual guides as well as our annual series on analyst reports. That’s the area where we put out deeper and richer content so there’s more writing that’s coming out to through our main channels. In August, we acquired all the assets of CTM file, Cash and Treasury Management file. Some of the listeners will know Jack Large and what he’s done there. It’s been great. He continues to work with us and we’re loving the relationship that we have with Jack and this great news and media outlet. So, we’re expanding, it’s going on in Europe, a huge portion of the activity there is in Europe, Asia PAC and Latam that’s over three quarters of the audience’s in that space. And that gives us a broader European footprint with that acquisition that we have. And as I mentioned, we have the Open Treasury podcast but in terms of content we’ve added multiple new writers to primarily focus on CTM file, but some over other writing and content to educate, inform, and influence that the entire market. 

Meredith Zonsius  19:06   

Excellent. Well, thanks for sharing that overview. I mean, these are great resources for folks that are in treasury and finances for them to tap into all these different channels. So, I love that the Open Treasury podcast, with the news that’s happening weekly Jack large is awesome in that I mean he provides up to date news, and it’s very interesting, engaging, to listen to. Let’s move into technology. What trends have you seen in 2021? 

Craig Jeffery  19:40   

One is the use of API, API’s and machine learning is above expectations and plans. And if you’ve listened to the podcast, you’ve heard me say this before, when people say we plan to use this tag or these types of services at this rate in the next year in the next two years. Almost always you can consider that that needs to be discounted. Budgets change, priorities change. And so, you know it might be 60% or 70% of what people typically expect in different areas. Not so with API’s machine learning. These are above expectations, actual adoption, in a one-year period exceeded what expectations were for a two-year period. That’s really surprising to us. Seeing has we monitored so many things for well over a decade. Usually it’s never, maybe not never, I can’t remember when we had items that were being adopted that much above expectations. In terms of tech, APIs for data, for payments not so much yet. I think that’s coming. But this idea of APIs for faster connections, more readily updated data is moving us to faster treasury, towards real time. And I think that’s slowly becoming the expectation. We want to I know what’s going on. Machine learning use is happening definitely within systems, for sure. So, when a company is providing created machine learning capabilities, people are using it there not necessarily building around against their own data. They’re using it within systems, and we’ll see how that fares as we go forward. And then think finally, what trends, familiarity with data lakes, these places to store data, massive amounts of data, and then interrogate it or use business intelligence tools to analyze it, to do great analytics work, to do this self-serve self-discovery with the data is becoming much more commonplace, broadly, but also in treasury. So, those are those are a few of the trends. 

Meredith Zonsius  21:52   

What are the key takeaways on what treasury, you know, has been up to, you know, working on thinking about and acting on this past year as we kind of come to a close? And how can that influence our thinking and plans as we move forward to 2022? 

Craig Jeffery  22:10   

Thanks for leaving an easy one at the end. But no, I mean, seriously, you had asked you told me you’re gonna ask about takeaways for this, this forward look, and so I just thought of a few things that I wanted to emphasize. Fasters isn’t first, better is better, platforms and shifting demographics. So that’s four things. Faster isn’t first, but it isn’t to be ignored. No one wants to wait. Faster Payments, etc. are important, but not nearly as important as better information, deeper connections, thinking about the other party, not just what you need to do. Nothing’s getting slower, but faster isn’t first in the priority. Better is better. Whether it’s richer data and end to end process or something that makes life easier for all parties involved in the entire value chain. That’s significant, payment platforms, what some organizations are doing, like SWIFT, I think can really change how we think about business processes and data, instead of this linear process where data takes this journey. It’s you’re all looking at the same data and changing attributes and adding to it, so, better is better, whether it’s with formats, platforms, etc. And then third is kind of extension on that and you see the how these are puzzle pieces fit together. Platforms, platforms as a service, cloud native, these are significant developments. That mean faster development, more development, incremental and so that can add and continues to add value to systems processes that we set up. We increasingly have assets and systems that grow in value rather than decline over time. That’s been showing a lot of promise and hold significant promise for the future. And then finally, shifting demographics. This is the new demographic cohorts, Gen Z or Zoomers and why and all the other ones are involved. I think these shifts as new groups are entering their workforces, there’s a great resignation. Some of these have accelerated, especially with the great resignation, and this will change how we recruit and how we retain staff and also this will most certainly influence spend on newer technology. There are different levels of patience for doing things in a manual basis. Not many of the Gen Z or Gen Y wants lots of processes when they know that there’s tech that can help get that done and that’s going to have a big influence on how treasury organizations are set up, what they do and how that moves forward. 

Meredith Zonsius  24:55   

Is a great that’s a great lineup of key takeaways, a lot of food for thought there. Any final thoughts? 

Craig Jeffery  25:03   

I’ll give you one but it’s a multi part. So, you might say that’s more than a final thought. It is a bunch of final thoughts, but I’ll just call a multi part and it’s I would say reserve five to 10% of your time. And this is your work time to learn and stay current on treasury and technology. So, five to 10% of your time. That’s two to four hours a week to learn and to stay current on treasury and technology. So, I’ll give you a couple of thoughts here. This is a little bit of a pitch. So, use at least one treasury new source, encourage you to read CTM file.com CTMfile.com. Yeah, there’s new articles. We have curated things on there. It’s a really, really good asset. Number two, add two treasury or payment podcast to your list. I assume since you’re listening to The Treasurer Update podcasts already have The Treasury Update podcast already. But as you look at adding some good content, listen to different ones, figure out what works. I’d encourage you to subscribe to Open Treasury and just occurred to make that one of your two new podcasts that you’ll listen to and take advantage of the downtime or travel time so you can think while you’re in motion. So that’s my final thought. Several parts. 

Meredith Zonsius  26:15   

Thanks for leaving us with those final thoughts. And Craig, thanks so much for the chat today. I enjoyed the conversation I wish you much success in the coming year. 

OUTRO  26:26   

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