4. digital treasury alma 01feb19 pv-col · the services and materials provided by the boston...

Digital Treasury

Pascal Vogt

Egham, 1st February 2019

2 Copyright © 2018 by The Boston Consulting Group, Inc. All rights reserved.

Associate Director, Cologne

Global Topic Leader Treasury/ALM

Co-Head of G&A Risk Team

Dr. Pascal Vogt

Short CV

2003 PhD in Probability Theory, University of Bath

2003-05 Lecturer in Probability Theory, University of Bath

2005-07 Consultant, ifb AG Cologne

2007- Boston Consulting Group

Project experience

Treasury/ALM Operating Model Transformation

Balance Sheet Optimization

Digital Treasury


BCG with bi-annual Treasury Survey

A Sisyphean struggle

Trimming the sails

2010 2012 2014 2016

Checks and balances

Time for rebalancing

In the centerof the storm

2018


Two topics for today

Disruption Faster horses


Overture: Treasury Operating Model transformations along four stages over the last 10-12 years

Source: BCG Treasury Benchmark Survey 2018

Stage 1

• Treasury often part of

markets

• No real liquidity risk

measurement/limits

• Limited funds transfer pricing

• No visibility of Treasury

position in front office system

• Steering primarily focused on

present value

Before 2007/08

Stage 2

• Treasury starts to move away from

markets

• Day-to-day measurement and

reporting

• Establishing of liquidity buffers

• Adequate quantitative modeling

risk/FTP

• No interest rate and liquidity P&L

transparency

• GAAP view starts to come into focus

~ 2008 - 2014

Stage 3

• Treasury as single point of truth for

liquidity

• Steering of interest rate and

liquidity from O/N to ∞

• Integrated steering of all key ratios

• Full transparency of positions and

P&L

• FTP fully integrates collateral value

• Dual steering view (accounting and

economic)

~ 2014 - today

Stage 4

?tomorrow


BCG view: transition to Banking 4.0 in two steps

Source: BCG

Banking 1.0 – 3.0

Operational

excellence

Plateau 1

Use smart technologies

Doing things

leaner and smarter

Banking 4.0

Plateau 2

Managing disruption

Doing things differently


How to manage disruption?

Henry Ford

If I had asked people what they wanted,

they would have said faster horses

Mark Twain

The man with a new idea is a crank —

until the idea succeeds

Charles Darwin

Without speculation there is no good

and original observation


Hypothesis 1:all banking core functions are predestined to be digitized


Hypothesis 2: the functional essence of banking will not change, but the way future players operate will change

Platform

player

Client

experience

specialist

Traditional provider New entrant

Customer

interface

Traditional

bank

Product platform

Product

specialist


Hypothesis 3: The bank of the future will operate like a tech company

When will this change occur?

We always overestimate the change

that will occur in the next two years

and underestimate the change that

will occur in the next ten. Don’t let

yourself be lulled into inaction.

Bill Gates, 1995


Some traditional banks already share this vision

We want to be a

tech company with

a banking license

Ralph Hamers

Goldman Sachs is

a tech company

with engineers

representing >25%

of its employees

Lloyd Blankfein

https://tinyurl.com/BankLab2

At the end of the

day, we won’t be a

bank any more,

but a digital house

Francisco Rodriguez


"Tech banks" will operate

differently from today

Tech banks are very lean and cost efficientthrough full automation of standard processes

adapting a fully agile way of working

Tech banks create value for themselves and clients through

smart automation

Tech banks are run on a single cloud & service based software

along the whole value chain

Tech banks use real time data

along the whole value chain, big

data and AI play a dominant role

Tech banks still have an intermediation role but balance

sheet usage is less important

Tech banks operate 24/7 and payments occur instantaneously


"Tech Banks" need to attract a different type of talent

Let us make a little poll:

What is the percentage of

tech job offerings at Goldman Sachs

(vs. total job offerings)?

A 10-20%

B 20-30%

C >50%

Source: CB Insights, https://www.cbinsights.com/research/report/goldman-sachs-strategy-teardown/

GSAM

Technology

Finance

Securities

Technology

Operations

X

Copyright © 2018 by The Boston Consulting Group, Inc. All rights reserved.

14

Change towards a "tech bank" with massive implications for Treasury

Mandate will move from balance sheet optimization

to intermediation management

Real time trade execution and reporting processes

will be automated

Funding execution will mainly take place via

platforms

Team composition and talent requirement

will change drastically

Steering will be operated by a small and

highly skilled team


Let us step back and look for faster horses …


Doing things leaner and smarter can already have a significant impact

Efficiency gains

Expected over the next 3-5 years1

~20%

Effectiveness gains

Expected to outweigh efficiency by 5-10x2

5-10x

1. BCG Treasury survey 2018 2. BCG view

Source: BCG Treasury Survey 2018, BCG analysis

Automation will drive

efficiencies, but we are mostly

looking for deeper insights and

better decisions.

All digital enhancements will

create greater effectiveness,

accuracy and timeliness. We do

not see them as cost saving

initiatives.

Survey participant comments


Not many digital front runners yet — three groups of bank Treasuries observed in the market

Status of implementation

Ambition/technologies setup

Source: BCG Treasury Benchmark Survey 2018

0

7

14

Group 1:

Limited thinking

about digital

Group 2:

Start exploring value creation through

new technologies & use cases

Group 3:

Digital front runner


Potential impact for Treasury and maturity varies by technology group

Robotic Process

Automation (RPA)

Big Data & Machine Learning / AI

Blockchain

Source: BCG

Data Capture

Low Medium HighLegend:

Maturity

Impact for

Treasury

Too early

to assess

— Big Data/ML leading by impact


Sample of Digital Treasury use cases

Interest rate

6 IR cash flow forecasting

7 IRRBB hedging

decision support

Funding

4 Business forecasting for funding planning

5 Investor relations/ funding platform

ALM

8 Tokenization of the balance sheet

9 FTP tool for large transactions

10 Enhanced ALMmodelling

Illustrative client examples

Digital Treasury

Use-Cases

Short-term

liquidity

2 Collateral optimization

3 Liquidity buffer decision support

1 Cash management

forecasting

Process

11 Manual process automation

12 Smart workflow

tools

13 Digital Treasury dashboard


20

Let us make it concrete …

Example 1: Digital ALM dashboard prototype


Example 2: cash management forecasting

Day

40 20 1

LCR

Working

capital 50 10 30

LCR and working capital

may suffer from volatility

AI helps to improve

cashflow projections


Two potential paths for 'Digital Treasury' to consider

Digital Treasury

Diagnostic

• Baseline and opportunity sizing

• Identification of 2-3 pilots

• Op model & implementation plan

Digital Treasury

Pilots

• Design and prototype

• Working prototype & parallel run

• Full roll-out and go-live

23

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