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Building Digital Bridges for Treasury Optimization
Hello. And thank you for joining us today. We're excited to talk to you about digitization and treasury, which is something that is top of mind for a lot of the companies that we work with.
My name is Adam Kruis. I'm the manager of our Working Capital Consulting Team here in Treasury Management at U.S. Bank. And I'm joined by Anu Somani, the leader of our Faster Payments and Payment Innovation Team here in Treasury Management at U.S. Bank.
Anu, digitization is, the topic that I mentioned, is really top of mind for a lot of the clients we work with. And it's really not something new, right? To automate payments and treasury processes is something that's been going on for a long time, utilizing more traditional technologies, like ACH, lockbox, EDI, transmissions. But now, given environmental and economic factors, it has taken a heightened level of importance like we've never seen before, right?
Absolutely, Adam. In fact, I would say, contrary to common understanding, digitization is not just about technology. It is actually about the harmonious coming together of people, processes, and technology to serve a larger business goal. In fact, I would go as far as to say that in the context of treasury management, it is about the transformation of a treasury or division from a cost center to actually a revenue generating center.
And as you can imagine, right, a change of this order is not achieved overnight. It requires meticulous planning, coordination, and execution. And one of the things and one of the concepts that we've seen emerging to make this transformation is this thing called digital transformation. Adam, do want to share a little bit about what your thoughts are on digital bridges?
Yeah. No, I mean, we think of digital bridges as a way to transform, right? As you mentioned, right, it's a way to get from point A to point B in as optimal fashion as possible. And that's really why technology exists, when you think about treasury. Or really, technology in general is due to take a terrain that's difficult to traverse, right, because of, in this case, you know, fraud potential, lack of visibility, inefficiencies, lack of optimized financial benefit, and really trying to find a way to, again, get from point A to point B as optimally as possible.
And that requires a bridge. It requires building a bridge and it requires crossing the bridge. So as we think about digitization, we've actually looked at our client base and looked at the different really, quote, unquote, "bridges" that they're on in order to accomplish the digitization that they desire.
Yeah. And the reality of it is that there are multiple digital bridges and none of these are even mutually exclusive or even sequential. So a lot of our clients find themselves traversing multiple bridges at the same time. Of course, the key is that any digital journey transformation is resource intensive, whether it's people's, technology, or money. So there is a high level of strategizing as well as prioritization that is absolutely vital to make that transformation.
Absolutely. And for those of you joining us here today, my guess is a majority of you are probably on this first bridge, and we see a majority of our clients on this first bridge, which we call spanning cost to contribution. And this is taking your treasury organization and taking it from simply being a cost center to one that's adding some value, right? And it's really all around taking payment-- or I'm sorry, paper out of payment and treasury processes. And again, this isn't anything new. This has been going on for decades.
And we have seen a reduction in paper, right? The biggest paper culprit, if you will, is checks. But we've seen, you know, since 2004 for example, the number of checks sent and received, you know, cut in half, for the most part. So we've made progress here, and the companies we work with have made a lot of progress, though, this continues to be a major focus.
And I will say, it's not just about payments, it's also around how bills are generated from an accounts receivable standpoint, how bills are processed from an AP standpoint, and really trying to look at paper end to end from a treasury standpoint. You know, one example that many of you can probably relate to, who are over your AP functions, are getting checks out of B2B payments, the way you're paying vendors. And we'll see an example client who may have a lot of checks really focus on, one, getting virtual card payments, right? Utilizing card as a form of payment to enhance and potentially a rebate back to the organization. To extend DPO and get enhanced working capital out of it, and then also utilize ACH as an established electronic payment vehicle to transition some of those checks. And then for those remaining checks, we'll see companies, you know, actually outsource those and utilizing a check printing partner such as U.S. Bank to be able to create a fully automated outbound payment process, which is becoming more and more common today and something we work with a number of our clients on.
But I know it's not just from accounts payable standpoint. I knew, from an AR standpoint, there's certainly some use cases that have been very common when it comes to transitioning away from checks.
Absolutely, Adam. So from an AR point of view, companies have been receiving check payments, as you rightly said, for decades, right? And while there's a lot of focus on converting these payments to electronic options-- you know, think ACH, cards, et cetera-- the focus is also about processing the check most efficiently. Let me give you a small example.
Despite all of the migration to electronic that we talked about, one industry that continues to still be very, very paper heavy is rental payments, right? So 85% of rent payments continue to happen through paper, for a variety of reasons. So this has been a big, big, big pain point for our clients, which are typically real estate management companies, property owners, property management companies. Imagine an already existing payment pain point that became even worse when the pandemic hit and there was nobody in our client's offices to receive and process these paper based payments.
So what we ended up doing for our client is developing a solution which was really targeted at the renters. So the renters, through an app, would be able to take a picture of the check and be able to pay their property management company. So the renter doesn't have to go out and, you know, think about mailing the check. At the same time, our clients don't have to think about who's going to be there in the office to receive payment [INAUDIBLE], et cetera, to receive and process these checks. So again, this is one of the examples where the client did not migrate to a complete state of art latest digital payment, but at least they kick the process of slowly ousting paper from the processes.
Similarly, traditional technologies like lockbox, online payments, electronic bills, remote deposit capture, EDI, technologies that have existed for a very long time, still have a very, very important role to play while the clients are making the transformation on this bridge. Adam, do you want to share a couple of key questions that the clients should consider while they're making this journey on the bridge?
Yeah, exactly. As you're sitting there looking at your organization, I mean, you want to look at where there's paper. Paper, right? And paper being checks, paper being cash. Really understanding why there's paper in place and if there's an opportunity to, you know, if they have to remain in place, you know, still make the processes as efficient as possible, as you just mentioned Anu. It's a great example of where checks are still being received, but they're being processed more efficiently.
And then again, as mentioned earlier, not just looking at the payments, but also looking at the billing process from an AR and AP standpoint. Where are they still paper laden and where can they be improved? And then finally, looking at how your deposits are being made, right? Are they being made in as an electronic fashion as possible? And if not, looking for ways to improve that as well.
So again, we've talked about this being a very common bridge. And the second one we'll touch on here is oftentimes in parallel with this first bridge or sometimes sequential. But we call it connecting progress with optimization. And this is really looking at the processes around the payments, as well as utilizing potentially newer technology, such as some of the faster payments technologies, APIs, things like that, to really create an end to end process that's hands off, automated, or what you may hear referred to as straight through processing.
And this is a focus, really, to create a lot of benefit for the organization. I mean, it can result in not only DPO and DSO benefit, which we know all treasury organizations are after, but also process efficiency and stakeholder satisfaction, right? If we look at internal and external stakeholders, being able to serve them and allow them to do things as efficiently as possible will benefit the organization overall.
So while this is the goal is to create the straight through process, we know it's not easy. And we know a lot of companies, you know, 64% for example, saying that they don't feel they're capable of truly getting there today. And that's why this bridge is so important, right? Really looking at ways to utilize these technologies to be able to fill those gaps to create that straight through a process that many companies don't have today.
So one example I'll give that I've seen is utilizing a bank, like our bank, to be able to store bank account information of vendor payments, right? So from an accounts payable standpoint, having us initiate the payments on our client's behalf, not have them have to have that, again, hands on approach of storing and validating bank account information and have the risk that goes along with it. And I know beyond that, there's a number of other areas, such as real time transactions, APIs, things like that that offer a lot of benefit here too, right Anu?
Absolutely, Adam. I'll give you one more example of how clients are using some of the emerging platforms like the faster payment technologies to solve problems that have existed for a very long time. Think about payment and delivery. A truck goes out, delivers a cart full of, you know, consignment, and at the end of the-- when the consignment gets delivered, the truck driver is handed a check, which he has to carry to the next point of delivery, he has to collect it at the end of the day and then drop it off at his warehouse. As you can imagine, as I'm even perhaps describing, the process there might be some to whom this feels too real, too big of a problem. There might be others for whom all sorts of alarm bells are ringing in their head, because this process is fraught with risk, right?
Now, turn this around with the existence of technology, such as real-time payments. Now our clients have the ability to turn a check driven, paper driven payment and delivery process to include things like real-time updates of where the truck location is, where their consignment is, to even converting that paper check into a real-time payment through use of request for pay. And what truly is enabling this real-time payment, whether it's payment or even exchange of data, is underlying technologies like API, which again, not new, but because of the emergence of newer payment technologies are just more pervasive now.
So the reality of it is that, you know, the evolving expectations of all stakeholders, whether it's internal or external, your customers, your vendors, your business partners, that is always going to have a major role to play in, you know, sort of your decision to digitize and transform your organization. In fact, I would cite, you know, one of the most recent AFP surveys. Historically, you would think that a big driver for digitizing and electronification could be cost savings. But the biggest driver is optimization and straight-through reconciliation. So that's really a proof of how many clients are, right now, on the second digital bridge and experiencing challenges and their keen desire to optimize their functions while achieving a better business process overall, Adam.
No, it's a great point. And you're sitting here doing this and thinking about whether, A, you're on this bridge, or B, want to be on this bridge. You may, you know, ask yourself, you know, are there processes you have where the payments are electronic, but the processes around those payments are still very manual intensive and paper laden, right? And we see that a lot with our clients. They may have moved to ACH, they may have moved to virtual card, but the processes around them, the remittance information, things like that are still very manual.
And then ask yourself, you know, is batch processing creating inefficiencies or suboptimal stakeholder satisfaction, right? The expectation from a consumer level, certainly bleeding over in the commercial level, is really that things are real-time. That things are available to people when they want it right away. So is batch processing creating a hurdle for you there?
And then are you examining newer technologies to determine if targeted application, meaning, you know, putting one toe in and trying some newer technologies, can make sense to start move toward-- moving towards more of these straight through processing hands off processes? So are you open to looking at new technologies and starting to examine what's out there? You know, these are questions you should certainly be asking yourself when you're on this second digital bridge.
So that brings us to the third. And this one gets a bit more challenging and one that fewer clients we work with are certainly on. It's what we call the route from being reactive to proactive. And this is where you are a leader when it comes to technology, and it's about becoming really agile, flexible, and really proactive with the deployment of new tech within your treasury processes.
So this is where you might be willing to build new things with your bank. For example, we have clients that partner with us. Anu, just gave an example earlier with the rent collections, but we have a number of clients that will co-create solutions with us, where they actually look at things like real-time payments or Zelle. Or you know, for example, we have clients that have worked with us to actually initiate payments to consumers that allows consumers to choose whether they want a Zelle payment, a card payment, an ACH payment. And these are clients who are on this bridge to help develop this with us and be able to figure out what's going to be best for their organization, you know, to help optimize their treasury processes.
So it's not an easy bridge to build and cross for large companies. You find that they have the resources available, but they typically can struggle with the coordination, right? Typically, it's some kind of decentralized approach, and getting the resources aligned can be a challenge to really getting that proactive state. And then for smaller organizations that are more agile in nature, typically, you know, lack those resources, the financial resources, the technology resources, to really cross this bridge. But it is something that is an opportunity for clients. And Anu, we've seen a number of these examples, right?
Absolutely, Adam. And I think you've hit the nail on the head, right? This is not an easy bridge to cross, but it is one of those bridges where, when it is crossed, the benefits are going to be exponential. So it's very important for our clients to choose the right partnership, whether it is the co-creation of products, whether it is for, you know, reimagining and rolling out new processes.
So one example I would give you is how a client of ours came to us with a very, very lofty goal of completely getting rid of paper over the next 10 years. And for that, they came to us and asked us to think about not only what is existing now, ready now and that can be rolled out to remove the low hanging fruit for getting rid of paper, but they also wanted to partner with us to, as you rightly said, co-create new products which would help them get rid of, you know, sort of some of the most difficult, more deeply integrated papers, whether it's in AP or AR, that existed in their processes. So it is really important for companies, as they think about this bridge, to think about their enterprise wide technology strategy. Because this bridge is going to take a significant amount of coordination, not just within the organization, but also with your selected partners. And really, the, you know, sort of the partners that you choose is going to be key here, because there exists a lot of disparity out there. Truly, I think picking your right partner, making sure the goals are aligned are going to be really critical in traversing this bridge.
Yeah. And I would say a few questions to ask yourself on this bridge is are you communicating with all the key stakeholders in your organization. And beyond communicating, do they feel ownership in the initiatives, right? This is key. For the companies that we really see that are out front here, they have stakeholders who feel ownership. So really ask yourself that, are you establishing that culture?
And then along with that culture, are you looking to utilize new technology in pockets, right? You have to be willing to try new things. There's a term I've used in the past called trystorm, right? Not just brainstorm, but trystorm. Actually trying to gauge benefit of new technologies, trying them in pockets, and then having the ability, again, with those stakeholders that feel the ownership, to create that enterprise wide strategy that you just referred to, Anu. So if you can look at those areas of your organization and feel confident about your ability to do that, you do have the ability to go from being reactive to proactive and really traversing this third difficult bridge.
Which brings us to the final bridge we'll talk about here today, the fourth bridge. The one that very few clients are on, but are aspirational about. It's what we call boundaryless, right? And this is really re-examining and reimagining the entire engagement experience of your stakeholders, vendors, clients, consumer, commercial, whatever it may be.
And this is looking at all different ways to engage, even utilizing things such as like virtual technology, for example, to maybe imagine ways that you could take big data and allow yourself to decision that data in a much more real-time fashion, which can happen in treasury sometimes, right? There's things that you have to take a lot of data and make decisions quickly. But this is really an area that requires imagination. And I know, Anu, we've seen this in some industries start to take hold, for sure.
Absolutely. I think the key to be on this bridge, if I could put it in one word, it's reimagination. It's reimagining your existing processes. It's disrupting perhaps some of the processes that might actually be working today so that to make sure that you are invested for the future.
So I would give you an example of the insurance process, right? So think about how perhaps the insurance buying process where you are perhaps providing a credit card for deduction of monthly premiums. Taking that around and thinking about how that same information could perhaps be used when it comes to policy renewal, when it comes to actually claim disbursements.
Another example would be car buying, right? So today, you know, a car buying process is not the most favorite for anybody. It involves going to a dealership, you know, hours within sitting in the dealership. Lots of sort of, you know, bargaining. Overall, not the most pleasant experience, right?
Now, take a step back and think about how cool would it be if you could upload your VIN number, a few photos of your car, you get an e-quote for the car. You could choose how you want to get paid. You could, you know, get paid digitally. And at the same time, if you wanted to buy a new car, you could choose the specs, order the new car, and all of this is happening completely contactless. So really, this bridge is about looking at your intrinsic business processes, reimagining the customer journey, and really putting your customers front and center, and then using some of the existing technology, some of the new technologies and stitching it all together to deliver an experience that is truly boundaryless, like you said, Adam.
Should be an easy task, right? Doesn't sound that difficult.
[LAUGHS] Absolutely. Absolutely.
Yeah. But I would say just, you know, in closing, you know, we talked a lot about questions to ask yourself about these bridges today. But take one step at a time, right? You can't accomplish everything at once. So really look at areas that you can communicate, that you can coordinate, and really, areas to execute to benefit your organization.
We look forward to continuing these discussions throughout the year. We're going to have more specific dialogue around areas to digitize within AP, within AR, within different parts of the organization throughout 2021. So we hope you'll join more of our discussions and engage with your U.S. Bank partner to help look at your processes and identify which digital bridge or bridges makes sense for you to tackle next. Thanks for joining us.
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