Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes. Thanks for listening. And now onto today's show.
Speaker: Hello and welcome to TMI's Treasurycast. I'm Eleanor Hill, Editorial Consultant at TMI, and this is the first episode in our new Redefining Treasury series in partnership with HSBC. So across this series, we'll be looking at how Treasury is changing in response to a world of structural volatility, shifting trade patterns and rapid technological change. And of course, we'll be interpreting what all of that means for the role that Treasury can play in the wider business. So to kick off this series i'm joined by two very familiar treasury cast guests they were so good in previous episodes that we've invited them back again and delighted that they accepted so we've got manish kohli who is head of global payment solutions at hsbc and vivek ramachandran Head of Global Trade Solutions, also from HSBC. Guys, welcome. Thank you both for joining me.
Speaker: Back in the hot seat, it's really good to have you here. And I know we've got loads to talk about. So Manish, I'm going to dive straight into it with you and talk a little bit about this changing world that is happening out there. Although, interestingly, I think when we're talking about volatility, certainly when I'm writing my 900th article on it, We often talk about it being almost a temporary period to navigate, but it feels like it's so much more structurally embedded now. So how do you feel that should change Treasury's mandate, particularly when businesses are looking at things like decisions on growth, sourcing, market entry? Manish, your thoughts?
Speaker: Yeah, for sure, Eleanor. And first of all, it's always a pleasure to speak to you and to Vivek. And I've been enjoying a little podcast that we've been doing together. So ah lan let me try to answer your question. I think, first of all, the reality that we live in today, we do not believe volatility is an event to manage around.
Speaker: It is the environment in which, you know, businesses must exist and grow and thrive. So, you know, we did research at HSBC. We found like 95% of companies see volatility as structural. It's based on policy, geopolitics, regulations, all of these forces that are reshaping trade corridors, cost structures, and the movement of data and capital. So while, yes, there will be the odd cyber incident or a supply chain shock that can cause some liquidity issues overnight, but the general theme is that it is a trend to stay. And you know more relevant to our audience, this really does change Treasury's mandate. We believe that it needs to move from periodically mitigating risk to continuously thinking about how the enterprise can make better choices. So, for example, if a company is changing suppliers, it's changing the markets in which it's operating in, Treasury has to show before a contract is signed what the consequences would be for working capital, for FX, for funding, for for payment timings, and so on and so forth.
Speaker: So I think ah this this change about volatility that you touched upon, it's a good topic for us to kick this off. It is also helping pressure hours have a strategic seat at the table focus on growth focus on sourcing and helping growth become more resilient fundable and executable brilliant stuff manish thank you for that and that 95% stat i'm sure most of our audience listening would agree with that as well although i'm now as a journalist of course curious about who those five percent are that think it's not but we will come to that Vivek, what would you add there on the the volatility part? Are there any kind of risk assumptions about trade corridors, settlement timing, forecasting, liquidity, working capital, all of those things that are maybe no longer safe in inverted commas in the way that they used to be? As Manish said, volatility is yet a stable. What's interesting and equally a challenge is the nature of the volatility is changing quite a lot.
Speaker: Yeah. So it's not just exchange rate risk or commodity risk. It's supply chain risk. It's geopolitical risk. It's choke points. And Treasury now is in a unique situation where they need to understand the business volatility in a lot more detail because that's going to drive cash flow volatility.
Speaker: And I think that's the big shift. And scenario planning is never been more important because what you do know is whatever scenario you plan for is going to be wrong. But planning for multiple scenarios will help you realize what optionality you have and how you can plan for this.
Speaker: Brilliant stuff. I agree. I think it's always so tempting when you're doing that scenario planning and then looking back on it thinking, well well, we didn't get any of that right. But actually, you know, that's kind of the point. You don't have to get it right. You just have to be prepared for all of those different scenarios and and do the best that you can. But that being prepared piece is so, so important.
Speaker: Guys, let's look a little bit about resilience as well. That's obviously one of those topics that we touch on so much with this changing world. But Manish, I feel like over the last couple of years, the way that we talk about resilience, the way that we think about it has changed a fair bit. So it used to mean in very simple terms, kind of having enough liquidity and a decent contingency plan. But with disruption now essentially being the base case, as we've just said,
Speaker: What does a truly resilient treasury function look like, not just in name, but actually in practice? I know that's a good question. And, you know, conventional wisdom used to always say a resilient treasury is one that, you know, has the largest amount of cash buffer. yeah and and And don't get me wrong, I run a cash management business. We love companies with large cash cash buffers. But we believe now that a resilient treasury is one that goes much beyond that. It's one that has the ability to see, decide and act before disruption becomes a constraint, not just a company that has the highest liquidity headroom.
Speaker: Now, again, liquidity headrooms help and they always kind of, you're sitting on cash. It also helps in the short term for you to be able to navigate through a short term challenge. But in the long term or even the midterm, what resilient treasuries need to do is they need to have adaptable operating models. They need to have real-time visibilities, you know scenario planning, decision rights agreed in advance, you know things like that, that in a dynamic world that we live in, they're able to adapt.
Speaker: yeah And again, from my experience, I've seen that you know the biggest weakness is often operational latency. Again, as part of our survey, we found out that spreadsheets drive a third of treasury activity. I'm not surprised about that. But again, when you put the stats out there, it does appear concerning. And if you look at an average treasury, automation is something that is hasn't historically been a priority and maybe only less than 50% of core functions are automated.
Speaker: So our view remains like under pressure, we have to make an assumption that every manual handoff is a point of failure. So I always say, you know, whenever I'm giving advice to group treasurers, i you know, i say that your near term agenda should be practically ensuring that you are automating decision-critical workflows, you're strengthening your data and exception management process, and you're embedding controls like, especially fraud controls, pay validations, et cetera, deep into your process because When an issue happens, those are the places where the vulnerabilities get exposed the more. So, ah you know, just to kind of put a wrapper on this, I'd say the goal should not be to predict a V-shock. It should be to preserve enough visibility, optionality,
Speaker: and control that you can change course at speed that a dynamic world that we live in absolutely demands. Yeah, absolutely. I can't agree more on the getting rid of those manual steps and the spreadsheets, but it's so hard. i mean, it is a proper dependency. I was chatting to a a treasurer. last week who was looking at new ways to automate with everything that's happening around ai which we'll no doubt get into they were saying well i've had this spreadsheet for 16 and a half years and it's working really well so you know it's hard for me to then move away from it and trust all of these other things but it absolutely is key as we move to this much faster environment where we need everything at our fingertips vivek what would you add to that from a trade perspective
Speaker: The bit I'd add to that is I think a lot of conventional wisdom in terms of what treasurers are meant to do is getting flipped on its head. yeah So your day's sales is outstanding.
Speaker: Ironically, you might want to find a way to extend that because you're in a world where price competition is going to damage the businesses otherwise. yeah How do you extend that without taking on more counterparty risk on your books? How do you offer your sellers extended terms perversely or pay them earlier without introducing a risk into your supply chain?
Speaker: So how do you build supply chain resilience and yet pay your suppliers early? How do you have access to inventory without any effort on your balance sheet? So treasurers now need to think about the world slightly differently, not just in terms of cash. Yes, to Manisha's point, cash gives you optionality and you want to tighten your working capital cycle, but you want to do it in the context of where the business is going and in the context of the previous question that you asked in terms of the volatility that the business is dealing Yeah, absolutely. And like you say, it's looking at that ecosystem as well, not just what's the impact for me, but what's the impact for my suppliers, what's the trickle down, and many more considerations to to take into account. And on that Vivek, obviously, we're seeing with everything that's going on geopolitically, there's there's quite a lot of changes in and sourcing decisions at the moment, particularly for certain industries. So that in itself can then knock on to changing things like pay Payment flows, currency exposures, if you're looking at new geographies, inventory needs, financing needs, supplier risk, all of those things to think about. How can having a joined up view of trade and cash flows, which is something we haven't necessarily had always in the past, how can that help Treasury make better decisions across these areas, do you think? What's interesting, you touched upon sourcing and everyone assumes the world is getting smaller and companies are sourcing closer to home.
Speaker: Yeah. The underlying data actually tells you supply chains on aggregate are actually getting longer, yeah which would actually suggest they're getting longer and in many cases less transparent.
Speaker: And that lack of visibility is a huge impediment to treasurers optimizing. And so having one joined up view of not just your cash flows, but your trade flows,
Speaker: is really integral to helping Treasury make better decisions. And perversely enough, we're in 2026, but the average company, I would wager, does not know who is in their supply chain. Yeah.
Speaker: They know the tier one suppliers, they may be nominating tier two suppliers, but upstream there's zero visibility for the average company. And if you don't have this visibility, it's very difficult to plan for shocks in the supply chain.
Speaker: Very difficult to figure out where you deploy your credit standing and your balance sheet to support your suppliers and how you do that. So transparency and visibility and having one view of payment flows, currency exposure, inventory, and financing for needs for your suppliers is absolutely integral. Every treasurer I talk to realizes the importance of doing this and the importance of having data sitting in one place and not just treasury data, procurement data and sales data, all of it together in one place and having one risk dashboard that cuts across both from a financial perspective, but also counterparty perspective.
Speaker: Yeah, sometimes perhaps easier said than done though Rebecca, although I know we've got you know AI enabled tools that are coming down the line as well. But I think we are living in a world where it is possible.
Speaker: It's no longer a pipe dream to have this visibility. yeah The tools exist and i think we'll be, I'm sure we'll get to it, but as we talk about laying the foundations for AI technology and transformation there's going to be a big emphasis on getting your data architecture sorted out.
Speaker: Okay, good stuff. Manish, can you just build on that for us a little bit? Maybe give us an example of of how that hybrid model that we've spoken about can change decisions in practice? Well, Eleanor, first of all, it's always difficult to build on top of ah what Vivek says, because here's a man who can write books and books on trade.
Speaker: ah But let let me let me try to make a feeble attempt at it. And again, I'll go back to actual client discussions that I've had over the last couple of months. So, you know, a small event happened and I was with a corporate treasurer and they were talking about how they are changing where their business is buying from. And they said, well, you know, as a result of this little disruption, we figured out actually cheaper suppliers, even after you add shipping costs.
Speaker: And as the conversation progressed, it turned out that, well, you know, maybe the cost element, when you add the cost of goods moving to a different market for the new supplier, and even after shipping, cost was cheaper. But it was actually adding about 23 days more in transit time.
Speaker: And, you know, the the reason I mentioned this is the Treasurer turned around and he said, well, actually, if you start looking at it very narrowly, this appears cheaper. But you look at end-to-end, This trade is actually now consuming more inventory funding. It's extending the cash conversion cycle. It's you know creating additional FX risk.
Speaker: And I thought that was a perfect example where treasurers are moving away from funding yesterday's decisions to shaping tomorrow's economics. yeah And I see more and more of that in client conversations. And this goes back to the point i was making in the beginning about the strategic role of treasury and treasurers specifically as the man navigating change that is happening in the economy today.
Speaker: Absolutely, Manish. And it oh there you go. It wasn't a feeble attempt at all. It was an amazing little story. so Thank you for that. But really, just just picking up on that kind of strategic point particularly when we come to the treasury transformation angle i think their treasurers need to just be so much more savvy and targeted than they used to be there's so much coming at them and i think these projects can easily become a kind of shopping list for want of a better word of the latest tech out there so where should treasurers start how should they move from
Speaker: fixing data and connectivity and processes to using the the elephant in the room AI that we've kind of alluded to a little bit and also things like new forms of money but without losing control. An intuitive way to start is to think about the art of the possible based upon the technology that is available.
Speaker: And I would say that is absolutely the most incorrect way to begin because the intuitive way over here is not the correct way to begin. I think treasurers should start with the decision that they want their treasuries to make better and then work back from there to fixing the foundations that make that decision better.
Speaker: And and it isn ah it isn't normally the most intuitive way human brains think. And you know so sometimes even I struggle to kind of get that order right. But we always go back to the things that we want to make better and then look at what's available. yeah And once you start focusing on the foundations that need fixing, that means simpler architecture, better connectivity, cleaner data, more automated controls that keep coming back to controls, and one reliable view of cash.
Speaker: And once those foundations are in place, then you can then overlay technology on top of that. For example, AI can create practical value today in forecasting and reconciliation, fraud detection, working capital prioritization, and so And again, this kind of also reinforces our view that, you know, in the future, the distinguishing capability will not be accessed to AI because it'll become so commoditized. It'll be the quality of data, governance, and the judgment behind it. And and and this while I talked about AI, the same it it goes towards digital money and tokenized deposits, et cetera, where The adoption should focus on where there are real liquidity and commercial problems, not just the novelty of doing something yeah a unique with with digital money. So I'll just maybe end with saying my rule is simple and our advice is consistent.
Speaker: Automate the repeatable. Augment what is judgment intensive. But never outsource accountability because accountability has to say with the humans that man the treasuries. And I think their role as a result of these changes in technology going to become more and more important.
Speaker: Absolutely echo that, especially on the accountability point. But I also feel you on the... ah You know, try not to get distracted by all of these shiny things and don't always go for the dopamine hit. You've got to get that the basics in in place first, but it's sometimes easier said than done. But Vivek, let's bring you in. It's now over to you for the the difficult job of following up on that. I'll add a couple of points to it, Manish, and I completely agree with the view, which his point, which he starts with, which is AI with intent is the way to go. And implicit, I guess, in what he was talking through is getting your data governance layer sorted out.
Speaker: And yes, you have treasury teams setting up data lakes. That's a starting point, but it's getting the data lineage and getting the data ontology and making sure your data talks to each other. And it's not just your financial data, it's your business data that sits alongside that.
Speaker: And then getting your AI architecture. Because you don't want to be building a world where everyone gets to build agents and use it because a your side your tokens work cost will go up and also cyber risk goes up.
Speaker: And so having a vision for what's the architecture and the governance model that's going to frame how you go about building AI is very, very important. And then start with practical use cases, but also recognize that prepare to be disappointed. Mm-hmm.
Speaker: With the caveat that the AI you use today is arguably going to be the worst AI you ever use again. Yes. So it's only going to get better. So you have to kind of keep the faith and you want belt and races. But to Manish's point, what's going to set companies apart is not the adoption of AI.
Speaker: But it is the quality of the data and the quality of the context that they put into it. So it's the proprietary knowledge and the domain expertise that they put into it. yeah That's what's going to set companies apart. The only other point I'd add to this, which treasurers need to become acutely aware of, is depending on the sector, is the cost of AI is going to go up.
Speaker: Yes. And it's not just the cost of tokens, it's consumption based pricing, but also licensing and subscription pricing. So as you think through cashflow forecasting, you need to work through the dynamics of how coplets are adopting AI.
Speaker: And as a consequence, what that means for treasury functions and the cash that they have. Yeah, absolutely. It's going to get better, the AI, but it's also going to get more expensive. So everyone needs to start factoring that in. We're in a bit of ah a honeymoon period with it all at the moment.
Speaker: But hopefully by the time we get to 2040, we'll be in a better place. So that's my next question for you, Vivek, is to get the old crystal ball out, which I know we tend to dust off for these podcasts and see what's happening. So if we think about that date, what do you think will distinguish a truly future fit Treasury function? What will feel fundamentally different about how Treasury supports the business by then? And what do they need to do to be able to to achieve that? There's an Indian saying that if you are a hammer, every problem looks like a nail. Now, Manish and I are transaction bankers and we work with treasurers every day. So maybe there's a bias in me saying it, but I do think the treasurer's role is going to become much, much more important.
Speaker: ah It's going to move away from being a technical role to a cross-functional orchestration role. And I can see a world where, at least in the leading organizations, Treasury sits at the heart of orchestrating between finance, sales, procurement, and risk management.
Speaker: I'm not sure that's a forecast as much as a hope, because I do believe large companies and complex organizations need that function, and I can't see any other central team better equipped to deal with that.
Speaker: yeah In terms of what the world will look like, I guess we can all make predictions, but I could not have been born wrong about what the end of 2026 would look like, even even if I predicted 18 months ago.
Speaker: But this change in the importance and the functionality and the strategic premium placed on Treasury, I see it's going to move only in one direction. And so I think Treasurers are incredibly well equipped.
Speaker: And the other point I'd make is in the world of AI, ironically, human judgment becomes so much more important. Yeah. i clearly so So treasurers who understand their businesses. And I do think we talk to treasurers and the best treasurers understand the business. They understand the business dynamics. They understand the business forces.
Speaker: But often you do talk to treasurers who actually view their job as actually technical as managing cash and managing liquidity. And they miss a trick by doing not understanding the business a lot more so. But I do think human judgment becomes a lot more important too.
Speaker: Yeah, completely agree. And it's actually the the most interesting part of the job as well, being able to, you know, apply that judgment and use your brain and get into all of these more strategic activities as well. So certainly not worried. And I would venture to say we are going to see some treasurers actually talking to investors lot more actively and lock more strategically too. Yeah. Well, it'll be interesting times for everyone, certainly. Manish, what would you say, bringing that back to where we are now, how can treasurers start building towards that 2040 model?
Speaker: Okay, well, i again want to say everything Vivek said, but what I would say is for us, we have to take something as given. Otherwise, you know, if you have are uncertain about where you're going, it's very difficult to talk about the actions that you take. So yeah in my view, there'll be a few things that we will have to take as given, which is For treasurers, there will be a world in which they have access to real-time payments, real-time information, real-time liquidity, and real-time insights. I think, first of all, that has to be, i mean, if we are not as an industry able to get there by 2040,
Speaker: I think we have collectively failed the potential that new technology and this massive human capital is able to achieve. So I'm going to take that as a given. And then more directly now answering your question about if that is a reality, what do treasurers need to do? I'd say three things.
Speaker: One is start by creating trusted connected data. And this came out and you know when Vivek was answering the previous question too. I mean, that has to be priority number one, trusted connected data. The second is, I believe there is a tremendous opportunity that treasurers have to modernize their payment processes, their trade process and the liquidity processes.
Speaker: Looking at the art of the possible of the technology that exists today and also what is around the corner. And finally, you know, I would say ai is going to be real and here forever. Digital money is going to be here and all forever.
Speaker: And I think there are strong opportunities to better enhance governance and link to that. enhance operational resilience before these become existential things. I think there is some runway before, you know, we reach that point. So yeah in my mind, this is the destination is not an autonomous treasury. It is an augmented treasury, which is going to be faster, more predictive, and like Vivek said, more strategic with accountability, firmly, even more human. I love it. Augmented treasury. What he said. Yeah.
Speaker: brilliant stuff i don't think we can top that so guys that is a really great place to leave it and i think we've given in the listeners so many actionable insights suggestions but also i feel a little bit of life advice and some nice philosophical quotes along the way so thank you so much for coming on joining us and thanks for everyone who's been listening and just reminder this is very much the first episode in our new redefining treasury series So we've got many more coming and we'll be hearing from more HSBC experts about the forces reshaping Treasury and what they mean in practice for you and your teams. So please do keep an eye out or an ear out for those wherever you get your podcasts. But thanks again for being with us and we look forward to the rest of the series. Thank you, Eleanor.
Speaker: Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.
