Top priorities driving your Treasury agenda in 2022

December 2021
7 min read

What will the next year bring for corporate treasury?

Now that we have passed and are still in an uncertain period, it is time to discover opportunities to reposition and prepare for new challenges and developments. How should you, as a treasurer, prepare for another unpredictable year? What can your company, and the treasury organization specifically, do to add value by recognizing the trends? How can Treasury contribute to dealing with current challenges in global supply chains?

While much about what 2022 will hold is uncertain, there are a few trends that will definitely play an important role. In this article we explore three main topics to navigate through the new environment and which are crucial to guide your treasury plan for the coming year.

Foresee the accelerating winds of change within the payments landscape
Innovation within the payments industry is closely linked to the continued digitization of commercial and consumer transactions. There are three topics worth mentioning when discussing the main points of attention for corporate treasury within the global payment landscape, being: (1) integration of e-commerce, (2) rise of alternative payment instruments, and (3) further payment standardization.

Integration of e-commerce into corporate treasury is an important topic for many treasurers. Consumers are driving the significant rise in the usage of alternative payments methods, like digital wallets (e-wallets), mobile payments, and ‘buy now, pay later’ solutions. Chinese consumers are leading the way with digital wallets which now account for over 72% of e-commerce purchases . Additionally, 56 countries are now providing real-time payment rails and the rising use of APIs promises to deliver a frictionless experience for more consumer payments. As a result, one of the important actions for Treasury in 2022, is to ensure that Treasury is linked into the different e-commerce platforms in the group in a similar fashion to how Treasury is responsible for managing traditional payments and bank relationships. Treasury should be the guardian of a safe payments infrastructure (including e-commerce payments) performed by reliable counterparties that are compliant with international regulation.

In terms of the rise of alternative instruments, we see the introduction of new digital coins, aimed at reducing volatility compared to the ‘traditional’ cryptos. This includes governments looking at the possibility of launching their own central bank digital currencies (CBDCs) which leverages the underlying distributed ledger technology as well as the introduction of so-called stablecoins, which are pegged to the value of an underlying asset. While the Bahamas was the world’s first CBDC with the launch of the Sand Dollar in October 2020, China is currently taking the lead with around 70 million digital Yuan transactions reported since the start of its pilot, which initially covered 4 cities. According to Atlantic Council, there are now 81 countries considering CBDCs, including the Federal Reserve, the European Central bank, the Bank of Japan and the Bank of England. While the future remains uncertain, these developments could lead to more mainstream use cases for digital currencies. This would have a potential impact on the payment formats we use, timing of payments and the role of traditional (network) banks. While use cases are limited at this moment, treasurers should be aware of the potential material impact on the payments landscape.

When it comes to payments standardization, API adoption is starting to accelerate, which will have a profound impact on both corporate treasury and financial shared service centers through the acceleration of information and processes. However, the lack of standardization within the industry appears to be causing the primary drag on adoption. This will become a foundational technology for real-time treasury, as real time balance and transactional information will provide immediate visibility and enable faster, more informed decisions to be made.
The final payments innovations on the horizon are a combination of global messaging and infrastructure projects. First, there is the planned SWIFT adoption of a selection of the ISO20022 XML messages included in the 2019 annual standards release. While this will initially be adopted within the banking community as part of the publicized MT-MX migration, the expectation is that banks will look for corporates to migrate at some point to take advantage of the more structured data opportunities and, if the CGI-MP is successful, greater alignment around the implementation within the banking sector. Moving onto the country level infrastructure, the UK is progressing its RTGS renewal program which will be underpinned by the adoption of ISO 20022 XML messaging. In addition, Hong Kong and Singapore are also building new RTGS payment rails underpinned by ISO 20022. Within the Nordics, there is P27, which aims to establish the first integrated region for domestic and cross-border payments in multiple currencies.

Stay ahead of new global tax regimes
The BEPS initiative impacted Treasury structures and the pricing of financial transactions in recent years. For example, thin capitalization rules, limitations to interest deductions and transfer pricing guidance have initiated multinationals to rethink their intercompany finance practices.

More specifically, the final OECD transfer pricing guidelines for financial transactions had a major impact on the internal corporate finance function of corporate treasuries. Numerous corporates revisited their pricing framework for intercompany loans, financial guarantees, cash pools and in-house banks in order to prevent issues during tax audits and possible transfer pricing adjustments.

We observe that more scrutiny is placed on the ‘at arm’s length’ pricing of treasury transactions and expects this to continue in 2022. It is thus advisable for treasurers to ensure that their intercompany lending framework is consistent, transparent and compliant with the latest transfer pricing guidelines. Especially since the simplified practice of using one group credit spread for all in-house bank participants is not compliant with the OECD guidelines. Therefore, as the burden of compliance increases, corporates are being pushed to look for solutions which can support them in automating this onerous process whilst still be fully compliant.

Lastly, treasurers should be aware of the latest development in international taxation: the global minimum tax. The G20 and all OECD member countries agreed on 8 October 2021 that multinationals will have to pay a minimum global tax of 15%. As the scope and the details of the tax reform are not clear yet, treasurers are advised to be aware of the topic and align with the internal tax team in order to identify the potential business impact. Treasury and tax can collaboratively serve as a strategic advisor towards their organization.

Seize the strategic opportunity in ESG
When talking about sustainability within treasury, many treasurers’ first port of call is to investigate a sustainable financing framework, either via green or social financing. ESG (environmental, social and governance) considerations play an important role in the external financing and the internal capital allocation process. In the long run, companies that have not implemented an ESG strategy may be deprived from fresh capital. This particular case is becoming more apparent within certain industries, like polluting industries or the so-called sin stocks (gambling, alcohol, tobacco, and weapons industry), where the transition from Greenium to a Brown money penalty may be more present than in other industries. However, there is more than just green or social financing. The topic around ESG is currently gaining momentum. ESG considerations are essential for long-term success; it is no longer just a necessity, but also a strategic opportunity.
So how should Treasury drive the ESG agenda? There are numerous innovative ways for Treasury to incorporate ESG into its strategy. For example, in addition to including ESG factors in the financing documentation or SCF programs, Treasury may incorporate ESG elements in the internal capital allocation process too. This can be done by adding ESG-related risk factors to the weighted average cost of capital (WACC) or internal hurdle investment rates for its capital allocation decisions. By having an ESG-adjusted WACC, one can evaluate projects by considering the ESG impact of an investment. By adjusting the WACC to, for example, the level of CO2 that is emitted by a project, the capital allocation process favors projects with low CO2 emissions. Another example of how Treasury can contribute to the company’s ESG goals is to encourage new and existing partners (e.g. banks or vendors) to take sustainable measures, by embedding ESG requirements into selections processes.

A corporate reaps the most benefits from its ESG policy when initiatives are mapped to the right KPIs to track the sustainable performance over time. KPI’s should be SMART, forward looking and focus on material themes. For Treasury, an example of such a metric is the percentage of suppliers rewarded with preferred supply chain finance (SCF) terms because of their ESG performance. To enlarge the impact of an ESG policy even more, and increase market transparency, KPIs should be benchmarked against industry standards.

Another way to increase market transparency is to maintain a corporate’s records by getting an external verification of its sustainable performance. This is enabled by the EU taxonomy model to avoid greenwashing.

Are you ready for your treasury journey?
2022 promises to be another exiting year with many opportunities to drive the Treasury function forward. The three main topics described in this article highlight the longer-term trend of Treasury moving closer to the business. The changing role of Treasury towards a comprehensive value-added center towards the business often requires a transformation in the Treasury organization. Zanders looks forward to discussing these and other trends with you and to support you on your treasury journey in 2022!

1) 2021 Global Payments Report by Worldpay from FIS
2) Common Global Implementation – Market Practice Group (formed October 2009)


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