The 2024 global macroeconomic outlook points towards escalating geopolitical risks, a volatile interest rate and FX environment, and heightened counterparty considerations. Faced with uncertainty, treasurers should continue to optimize and streamline their operations. Concurrently, they must also support longer-term initiatives that drive growth and continue to establish themselves as key strategic partners across their organization.
J.P. Morgan’s Forecasting Payments webinar showcased the most relevant macroeconomic and payments trends and identified five overarching themes that can help treasury and payments executives as they navigate 2024 and beyond.
By improving their account structures, treasurers can bolster their visibility into cash, which can help to increase their ability to manage working capital amid a dynamic macroeconomic environment.
For treasurers to build core strength, they must work to consolidate their account structures to increase operational efficiencies. For instance, virtual account management allows a single account to serve as dozens (or more) accounts with virtual subledgers, which allows treasurers to free cash by instantly moving it around these subledgers in a way that you cannot with multiple accounts. Alternatively, a multi-currency notional pool allows treasurers to draw payments in any desired currency without physical conversion, helps to reduce FX management costs -- thereby increasing working capital.
By improving account structures, treasurers can gain better visibility into where their cash sits across the globe. Multibank reporting, APIs and H2H solutions are all helping treasurers to have real-time visibility into where all cash sits at all times. With this visibility, treasurers can start identifying opportunities to enhance their cash conversion cycle and incorporate solutions such as multi-bank reporting and cross-currency sweeps.
All of this work can aid treasurers in helping their organizations fund strategic opportunities. As high interest rates make it expensive to borrow money via debt for financing purposes, businesses can instead use a treasurer’s working capital, which can be seen as an interest-free loan. Therefore, treasurers will want to maximize how much working capital they have to increase the amount of liquidity they can provide to the business. There’s ample opportunity for this, as an estimated $633 billion in working capital could be released within S&P 1500 companies.
Treasurers have ownership over vast amounts of valuable data related to their businesses and clients, and this data makes it imperative that they fortify payments through investments to reduce both traditional and other risks.
Treasurers can help reduce risk by moving away from manual payment validation. Approximately half of respondents to the 2023 AFP Payments Fraud and Control Survey Report still validate beneficiaries verbally. To do this, they can first implement fraud controls to protect against their business’s unique sensitivities. They can also advocate for their organization to use proper encryption and tokenization techniques. Treasurers should also work to get buy-in from members across their organization as well as their ecosystem partners (e.g. upstream suppliers, banks, and clients) to adopt and implement advanced tools to mitigate against risks. Finally, they should be on the lookout for emerging validation services.
Other risks also remain a concern. Cyberattacks impact 65% of organizations across the globe and result in $6 trillion in annual costs, as well as payments fraud. Another is ESG compliance, as 75% of global companies report feeling unprepared to have their ESG data audited.
For ESG, treasurers should monitor changes that the broader organization is making and support these efforts wherever possible. Some organizations are divesting from carbon-intensive businesses and raising capital for sustainable initiatives in which treasurers could assist with freed working capital. They can also identify opportunities to incorporate ESG into supply-chain finance.
AI (Artificial Intelligence) is slated to remain a dominant topic in 2024, so payments leaders will want to understand both short-term and long-term opportunities and how their payments providers can help them to bring these opportunities to life.
AI felt like the topic of 2023. It has been referred to as AI’s breakout year, as nearly four in five respondents to a survey had at least some exposure with generative AI. And roughly one-quarter of surveyed C-suite executives use generative AI tools for work. This rise in awareness and exposure is setting the stage for more usage in 2024 and beyond, as 40% of respondents say their organization will increase their overall generative AI investment next year.
AI presents many opportunities for treasurers and broader payments leaders. It can help to automatically create insights such as in cashflow forecasting. It can also fortify payments (discussed before) with account validation and fraud management as well as commerce (discussed next) with embedded banking. Further, opportunities abound for generative AI to make larger-scale impacts such as enabling virtual assistants for treasurer tasks, supporting payment-related dispute resolution, and offering developer tools. Across these innovations, modern data platforms and capabilities will be paramount to power AI uses.
The right payments provider can support treasurers to enable bigger opportunities. Those with a heavy AI investment are set up for success to support. And our second consecutive win in the Evident AI index — an independent commercial AI adoption and performance evaluation in financial services — speaks volumes to our AI investment and strength as a partner.
As consumers increasingly demand modern commerce experiences, payments leaders are implementing omnichannel, embedded banking, and alternative payment methods.
Businesses are evolving their shopping experiences to accommodate what have become needs and expectations from consumers. Payments enable many of these innovative solutions, and as a result, treasurers should understand how payments will power these new experiences and business models.
The first consideration centers around omnichannel solutions that support modern commerce experiences. These solutions are the new normal as 90% of consumers expect businesses to offer integrated physical and digital channel experiences. These solutions can include omnichannel support for various payments methods as well as tap-to-pay and biometrics. As consumers build profiles to shop across these channels, treasurers are likely to have better information that they can use to help their businesses bridge the gap between ‘bits and bytes’ with ‘brick and mortar’.
Another opportunity that continues to gain momentum is to enhance customer experiences with embedded banking, which is forecasted to grow from $2.7 trillion to $7 trillion between 2021 and 2026 in the United States alone. Through embedded banking, businesses can nearly seamlessly weave payments and account services into their platforms to enhance customer experience and drive new revenue opportunities. These innovations can introduce business model considerations such as third-party money, or managing client money.
Finally, treasurers must consider the adoption of alternative payment methods to remain competitive and satisfy customer demands. As commerce becomes increasingly global, treasurers may receive payments from new jurisdictions that come from schemes such as Brazil’s PIX or India’s UPI that help to enable more real-time payments. Or they may see payments from countries with popular pay-by-bank, CBDCs and tokenization solutions like JPM Coin. Regardless, they’ll want to integrate new local payments methods for the impacts to these systems such as high-volume low-value payments. More than ever, firms will benefit from a payments provider with global reach and local expertise.
The opportunities in 2024 will be a catalyst for many organizations to accelerate treasury and payments modernization efforts. It’s critical for leaders to focus on return on investment while addressing skills gaps.
Many organizations have delayed payments and treasury modernization efforts despite nearly 3 out of 4 CFOs stating that the digitalization of financial functions remains a high priority. Leaders have some hurdles to overcome. One is articulating the value of the investment, as 88% of CFOs are concerned with realizing return on modernization initiatives. Another emerging concern is skill shortages, as only 1 in 5 finance leaders report having the necessary skills on their team to drive technology-centric projects. These challenges, while valid, should not hinder finance leaders from pursuing digitization initiatives as the alternative of rising technical debt is not in the long-term interest of the organization.
In order to move forward, treasurers must be deliberate in their modernization approach. Solutions and platforms that automate these repetitive and manual tasks have direct and quantifiable efficiency benefits as well as improve organizational controls. For instance, workflow tools may help reduce time spent data keying, and document necessary approvals for audit purposes. Building off advancements in AI, leaders should also explore solutions that automate analytics and insights, not just for efficiency benefits but for the strategic value the information can bring to the business.
Alongside this effort, leaders should not forget to also invest in their finance teams and their digital and business fluency. From technical training for new programs and systems, to skills that drive analytical thinking and organizational acumen, investing in people is a core success factor for an organization to maximize the value of a more digital and modern environment.
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