Six Trends Shaping the Landscape
- Global synchronous recovery led by emerging markets—especially India and China—will help lead the recovery with a forecasted 7.1 percent growth.1 Accommodative monetary policies and low interest rates will help spur economic growth and may contribute to a ripe environment for mergers and acquisitions (M&A).
- Global M&A activity from the second half of 2020 will likely continue accelerating because of the favorable environment created by: (1) an availability of capital, such as cash from corporates, and low interest rates; and (2) an increased confidence from the resolution of major political events and the foreseeable improvement of the pandemic.
- The focus on supply chain resiliency will likely increase due to continued geopolitical pressure, production reduction and challenges, and even industry pivots like e-commerce and the gig-economy. Additionally, the rise of environmental, social and governance (ESG) is helping drive a movement on supply chain sustainability.
- Digitally driven business model shifts will likely accelerate as the leap in goods and services coming online2 are fast-tracking changes that had been picking up steam even before 2020. The explosion of connected devices may also propel the momentum forward.
- Treasury and finance transformation is important as 2020 laid bare the challenges presented by manual processes. Many businesses moved quickly to eliminate the legacy inefficiencies, which helped serve as a catalyst for a broader transformation efforts focused on new digital technologies like APIs.
- ESG pillars are gaining momentum and reaching a tipping point because the events of 2020 served as a long-term catalyst, especially for social and governance. ESG has become a key factor in decision-making and may translate into more tangible objectives and results.
Five Priorities for Treasury and Payments to Navigate the New Environment
Amidst uncertainty and crisis, the role of treasury and payment teams in supporting business objectives has been amplified. Across our client engagements, we’ve helped teams take advantage of the positive trends and mitigate the negative ones. Here are the top five priorities every corporate treasury department should consider.
More than 60 percent of our clients globally cited business model pivots as the driver for their priorities.3 As they become must-haves for businesses to drive immediate and long-term growth, corporate treasury and payment teams need to join the journey and have a seat at the table.
Existing business models are predicted to gain more ground:
- Recurring revenue models are expanding beyond the typical industries and into B2B.
- Platform and ecosystem models are common in APAC and will likely now rise in NAMR and LATAM.
- Direct-to-consumer (D2C) was a common “Band-Aid” solution, but many businesses look to make the pivot permanent.
With the explosion of e-commerce, two new models will likely rise in prominence:
- Contextual commerce is currently small but fast-growing, especially as consumers gain familiarity and use more of the various digital channels—such as social media, voice-enabled, IoT and so on.
- The sharing economy model will likely gain popularity in the emerging e-commerce economies to bring more goods and services online and, therefore, grow the e-commerce environment further.
With the continued disruption on supply chain, as the economy rebounds, it is critical to strengthen the resiliency of your supply chain. Doing so will likely help position your business to capture the opportunities as demand comes back. A few practical considerations for the short and long term:
- Digitize your supply chain to help shift supply chain and trade processes away from paper, including using tools such as online bank platforms or industry tools.
- Review solutions for supplier resiliency and ensure your treasury processes align to your objectives whether it’s prioritizing critical suppliers or ensuring alignment with your ESG goals.
- Work together with procurement to analyze the full impact of supply chain sourcing and financing shifts. For instance, what are the FX risks associated with geopolitical pressures?
With expected fluctuations in the economy and with supply chain disruption, having a good pulse on working capital and visibility to liquidity is important for resiliency.
About 50 percent of our global clients identify accelerating their digital transformation as a priority.3 This was expected given the holistic push for digital acceleration and because leaders across all levels of the organization—board, executives and treasury—are aligned on prioritizing digital transformation.
Many clients are focusing on eliminating manual legacy processes with automation, but also look to redesign the core business for fundamental, meaningful shifts. It’s crucial for treasury and payments to align with their peers’ digital transformation plans.
Start on your journey today
ESG pillars are increasingly being incorporated into targets and objectives within organizations, even though it is still relatively early stage for treasury and payments. The corporate treasury can help support their organization’s ESG agenda through a broad set of treasury activities like payments strategy and execution, capital planning and allocation, working capital management, insurance purchasing, counterparty risk analysis, long-term investments, and long-term borrowing.
Other areas for corporate treasury to get involved include: (1) Making ESG-friendly investments (e.g. sustainability, green funds), (2) deploying ESG principles into supply chain management, (3) using sustainable financing and (4) incorporating ESG as an evaluating factor for counterparties.
As you and your teams dig deeper into your priorities, you may face a multitude of solutions, partnerships and strategies.
About the Authors:
Alison Livesey, Global Market Management
Varoon Mandhana and Sim Ung, APAC Solutions
Yousif Mohammed, EMEA Market Management
Lucia Li, NAMR Market Management
Dennis Paula, LATAM Solutions
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