EMEA in Conversation (Ep. 4) | The future of Treasury: From back office to strategic forefront

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Charlotte Broom: Hello Making Sense listeners. Today we’re handing over the feed to EMEA in Conversation, a J.P. Morgan podcast with industry leaders on what’s happening across Europe, the Middle East and Africa. Making Sense will return to its regular schedule in the next episode. But for now, enjoy this special episode from J.P. Morgan’s EMEA in Conversation. 

Roxana Montazerian: For a second, imagine you're walking into a Treasury Department 10 years ago. You would probably see teams focused on cash positioning, payments, funding, and risk management. Now imagine walking into the same Treasury Department today. You will find discussions about AI, instant payments, cyber resilience, predictive analytics and data. Treasury hasn't just evolved. It has fundamentally changed. And that's what today's conversation is about.

I'm Roxana Montazerian, EMEA head of broker dealer and specialty finance sales. And I'm joined by Sara Castelhano, head of UK, Europe and Canada Treasury services at J.P. Morgan. Welcome, Sara.

Sara Castelhano: Thank you. Roxie. It's a pleasure to be here.

Roxana Montazerian: Sara, before we dive into the conversation, I would love to start somewhere little different. If Treasury had a different job title, what would it be?

Sara Castelhano: I probably say Chief Connector. Treasury sits at the epicentre between risk, liquidity, business growth, innovation and big transformational programs. They are really that key to bringing the full business together.

Roxana Montazerian: We've seen such a shift in the roles and responsibilities of a treasurer. I would say even the profile of treasurer has changed. The personas have changed. We are seeing different skill set required for the Treasurer's now as you speak to clients and based on your previous experiences, are you also seeing the same thing, different personas? Are they seeing as a buying center?

Sara Castelhano: Yeah, absolutely. I would say that Treasury is evolved from being a back office function to be really at the forefront of strategy. And if we think about just business shifts, geopolitical changes, the complexity in managing the money of a company that has significantly changed. And then you layer on things like innovation, technology, artificial intelligence, and then risks around cyber fraud, etc. The job of a treasurer is not just, “Let's put a position, let's look at a report.” It's really about how do I protect my company, but also how do I help the company succeed with future growth.

Roxana Montazerian: And this is there's so much for a treasurer to think about as you mentioned. So they've become far more strategic. What were you saying is that they're working far closer with CFOs and executive committees as well. And as you mentioned, there's so much for them to think about. Their business models are becoming far more complex, global in nature.

Roxana Montazerian: And that complexity brings risk to the business. What are your thoughts with regards to firms such as us supporting the Treasurer's when they're thinking about all of these ambitions? Do they need to compromise some of that when it comes to, for example, resilience?

Sara Castelhano: Absolutely. I would go and say that everything you do, resiliency is at the core of it, because if you can't make a transaction or you can't necessarily support the CEO or CFO when they ask you a question, that's really a fault. And I would say that the days of looking at yesterday's positions today are long gone. And today what is more important is getting access to real time information. And that real time information is not just let's get the information, it's how does that information lead to insights, and how can Treasury make more strategic decisions to ultimately help the company's bottom line? Also, I would say that from a corporate treasurer perspective, being able to help expand into new markets or manage acquisitions becomes more important for Treasury than ever before.

Roxana Montazerian: I mean, you've shared a lot and there is so much we can unpack during this conversation. What we continuously hear from clients is how can I expand internationally as I speak to many of our clients, especially the ones that are fitting more towards the new entrant sector, such as fintech. We are hearing a lot about the global expansion plans moving into different markets. But one really key theme that is coming through is how can we grow globally, receive a consistent and harmonize global services, but yet remain with the local feel and experience specially for the end customer? What are your views on that? How are we supporting clients?

Sara Castelhano: Absolutely. So payments are local and when you think about payments, you need to make sure that you're understanding the local market. And that's from an individual how they pay in a country. I think that expansion is really, really key to focus on the local needs, but also recognize that regulation is different country by country. So understanding that you want to provide a global experience with that local relevance, it's quite hard. From my perspective, I do think that where you can act global is being with a banking partner that already has that experience, because ultimately, in order to move payments borderless, you need a really consistent offering.

Roxana Montazerian: When you look at existing more newer players and you look at their current operating model versus the future. They've ended up having many different providers or different vendors, different fintechs. The reporting model has become quite complex, more connectivity, that brings additional risk. That is costly, because every provider, be it a traditional bank, or a vendor, they’ve got different pricing points. Choosing a banking provider that has a global presence that can not only support the existing business model, but also future proofing their business. I think it's extremely important.

Sara Castelhano: So you make an excellent point. The point that we've seen a lot of the new entrance is growing without looking at cost. It's about speed to market and growth, growth, growth as an ambition. And I would say that actually the market is shifted over the last couple of years, where cost stability resiliency becomes more important to operating in this landscape than ever before. And where I've seen the trend is, is bank consolidation, account consolidation, being able to leverage one account with one set of liquidity versus pockets of liquidity spread across the region. And I would say Europe is complex. It's not just one currency. It's multiple currencies in multiple markets. And if you were growing at speed without thinking about cost, that's now something that is really important to Treasury. It's to understand how they can maximize and deploy their cash.

And that's very difficult to do when you have it fragmented across multiple banking providers and in multiple banking accounts. And AI, the evolution in AI has extremely sped up from originally Treasury using machine learning to look at automating tasks, or robotics to really make processes move faster. What that did was move linear movements within a treasury function. Now, with agentic commerce and generative AI, you don't have to follow a path. You can actually use multiple use cases and take multiple sources of data into helping you form insights. I think that we're just at the cusp of what the potential is here. There's a lot of talk about how do we think about agentic treasury and what does agentic mean for Treasury. And in my opinion, it's really early days, but the speed in which we've seen, use cases and let's say at the end of last year versus what we're experienced today is unbelievably fast. And that's thinking about instead of just going into a TMS or ERP system and looking through and toggling in screens. Do you go to an agent and say, what is my cash position? But there's still a long way to come.

Roxana Montazerian: Yeah, I mean, at that point that's actually reducing a lot of the inquiries, even coming to banks such as ourselves, because our clients are becoming so much more self-sufficient, faster access to data, and they can make better decisions on the back of that. Do you feel that AI will make the Treasury becoming more autonomous?

Sara Castelhano: In my opinion, AI still requires a human in the loop, and that I would say AI can help automate. It can help make better decisions. But are you going to have your AI agent start instructing transactions? And I think we haven't gotten there yet.

Roxana Montazerian: No, I fully agree. And I think the governance is now becoming so much more important as the utilization of AI is increasing, because trust is extremely important. Innovation will not succeed if there is no human trust.

Sara Castelhano: The roles are going to shift because you're going to have more people auditing your AI than creating your AI because you don't need to code anymore. You need to really make sure that you can find anomalies, or look at AI decisioning to see with the human make that same decision. Or is the AI hallucinating? And yes, it's getting better and smarter as the technology continuously improves, but we're still in a situation where we're moving money and we need to, as you rightly say, be a trusted partner. And that I still don't think we're at the time where an agent is going to make a transaction. It's more to your point, having that conversation, whether it's payment, formatting or anything that you would might send over email, you can now talk agent to agent.

Roxana Montazerian: So speed is not everything. And I know our clients constantly talk about faster payments, faster decision making. You know, fast access to data. With all of that brings an element of risk bid, operational risk bid, cyber security and threat. What are you saying?

Sara Castelhano: Absolutely. So I look at this in a couple of parts. Cyber security is super important, and the criminals are just getting smarter and smarter and smarter. And AI tools help them really become even smarter than the individual. So making sure that the cyber protocols within a company are continuously upgraded. One of the big things that we've been talking about is making sure that everyone's looking at entitlements, the right people have the right access to the right systems, etc. but I do think that what's really, really important is training. AI is very advanced. We at J.P. Morgan, we got one yesterday, have phishing tests all the time. But those phishing tests evolve into even more scary generative kind of people. So it's making sure that your employees know when to challenge and that they're making decisions based off of processes and known protocols. And that is really, really important.

Roxana Montazerian: Again, it comes down back to the governance and control. And how are the employees are being trained and fully up to date with the cyber threat. But again, to, to the point of trust and having a trusted partner. This is I think where really international banks could also play a massive role here by sharing information with the customers, educating them with regards to what were you saying and also helping them to improve their procedures in how they are handling the transactions.

Sara Castelhano: Absolutely. I think scenario planning is something really important. We do scenario planning all the time within J.P. Morgan, just making sure that if something does happen, we have the right procedures, protocols, etc. it's like who pushes the button on the kill switch? It's those type of things that I think are really important, and having that education is, is critical. But I also think that there's some great new innovations and products out there that really help, because things that have been built, such as account validation, it's really looking at does this account belong to this individual? And as central banks and payment systems build out this capability around the world, we’ll start to be able to get to the bottom and the crux of money going to the wrong place, because we will know who that account holder is. And I think that having that global capability to basically look and validate beneficiaries around the world really helps drive that security element. But it's not just that, it's being able to continuously leverage new technologies to improve your processes. So for us, we've been using AI in sanctions screening and fraud for years. We're just getting smarter at it. We can determine: Is it Saint Petersburg, Russia? Is it Saint Petersburg, Florida? And that is something that you're just continuing to make smarter so that in a world where you want things and transactions to move real time, it's adding friction. But technology overlaid by that can actually help make smarter decisions in the transaction process.

Roxana Montazerian: Absolutely. So, Sarah, as we are seeing the move towards 24/7 models, always on operating models from our clients and having access to cash liquidity in real time data. What are your views with regards to how the Treasury is evolving?

Sara Castelhano: I think the big shift in Treasury is that the hours are changing. The idea of a 9 to 3:00 cutoff operating window is just obsolete. We are seeing real time payment networks pop up all around the world. 24/7/365 movement of money is really changing the way that Treasury needs to manage their cash. From my perspective, I think that technology is the catalyst to this, but I do think that having the right sort of visibility as to your point is so important, because not every treasurer is going to be staffing on the weekends.

Roxana Montazerian: Absolutely not, yes. I mean, that's really interesting point, because when you think about different sectors of clients that we cover, they have different needs, they have different requirements, and not all of them are going to be 24/7. If you have a banking provider that can help you move your liquidity 24/7, it's 100% advantageous. But always on 24/7 is not a requirement for a lot of, especially the traditional players. Having said that, there is a lot of talk about digital money, bank deposit on chain blockchain offering. And obviously J.P. Morgan has been looking at this for a number of years, our Kinexys platform. What are your thoughts about that interoperability between different banks that are coming up with their ecosystem, their own product offerings, but they're all siloed. What are your thoughts on that?

Sara Castelhano: Roxie, the evolution in this space is enormous. We started with very close loop knit circle blockchain platforms, and I think this was always a platform play trying to solve a very difficult problem. And that problem was how do I move money cross-border 24/7/365? And having it closed loop ecosystem, you only can move money between those players in that ecosystem. And that evolution has dramatically shifted to making sure that that platforms are more interoperable, and they have the right on/off ramps so that you can use different forms of money depending on the different use case which you need. But to your point, I don't believe the likes of stablecoins or tokens or deposit tokens, etc. are going to replace traditional movement of money. I truly believe that they will sit alongside, depending on the use case, and one of the use cases that I think is really relevant is sometimes within corporate treasurers or global corporations. They need to move money across their own entities. And being able to move money from New York to Luxembourg to Singapore amongst your own company to balance out your books is extremely powerful without going out to the payment rails. Now, do I think that's going to move everybody's money? No. But I do think that the blockchain platforms and products are opening up wider so that you can essentially have those better on off ramps in a more 24/7/365 manner.

Roxana Montazerian: When we think about Treasury transformation, there is one thing which is becoming really dominant within a sector that we cover, which is market infrastructure. They're all thinking about moving money near real time 24/7, not only for themselves, but also for the members who are the key broker dealers that we support. And this links back to having access to liquidity and data and so forth. Today's operating model obviously is not 24/7, but we are having really innovative conversations with the market infrastructures right at the core of those discussions and the members who are the key broker dealers and in some cases, large financial institutions to understand how can blockchain platform capability could bring a lot of efficiencies into collection of margin.

Sara Castelhano: As they change their operating models. There's a ripple down effect to the members, then financial institutions, eventually, then down to the corporate.

Roxana Montazerian: That’s correct.

Sara Castelhano: Because it is everyone that is trying to essentially make a, trade a product on these financial market infrastructures. So if they move, the rest of the market is going to have to move. And it's really about how does the market get ready for that 24/7/365 potential move in trading.

Roxana Montazerian: And can you double click on some of the core challenges for Treasury teams?

Sara Castelhano: Given the role of Treasury is so dynamic and so different than it's ever been before. It's a one of the core priorities is actually prioritization. Which initiative are you following? How are you embracing AI? Will you embrace AI? The cost of using AI versus the cost of people? But ultimately, all of this is underpinned by talent. It's making sure you're bringing the right people into your organization. You're retaining talent, and you're teaching your talent how to leverage new skills. Because the skill set for today isn't going to be the skill set we're going to need for the future.

Roxana Montazerian: Could not agree more. The personas of completely change the expectations of those treasures of change as well. By the CFOs, by the executive committees. So yes, talent is extremely important. So Sara, one theme that has come through constantly during today's conversation has been that, Treasury is no longer a back office function. They've become far more strategic. They are having a seat at the senior management table to actually have an influence in the direction of the business. With that, it comes a lot of complexities and a lot of responsibilities. How can technology help Treasury simplify that complexity but provide them with resiliency?

Sara Castelhano: Wow, Roxie, we've covered so many topics today. But I do think your key point here is, it's that perfect balance. It's not just technology. It's going to solve everything. I'm asked all the time if I can predict the future. And I would have never been able to predict the last six years. Therefore, being able to protect the next six years is nearly impossible. It's balancing. How do I leverage my people in a more efficient way? How do I think about my risk profiles? But also how does technology underpin everything I do? Because it's not about just leveraging technology to move things faster. It's about leveraging technology to transform the way that Treasury operates today.

Roxana Montazerian: Sarah, we have such a great conversation today and we've unpacked quite a lot of different topics. Treasury is no longer a back office function, but they are very much of a strategic decision influences within an organization.

Sara Castelhano: Absolutely. The complexity is absolutely there. And all of that is underpinned by the speed in which technology is moving. And there isn't just a winner or a loser in this scenario. It's making sure that you're balancing all of that. And it's not just technology that's going to take us forward, it's having the right skill set into the future.

Roxana Montazerian: Sara, thank you so much for joining us today and sharing all of your insights.

Sara Castelhano: Thank you, Roxie, for having me.

Roxana Montazerian: This has been EMEA in Conversation.

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