How technology is helping banks treasure tomorrow

by Wissam Khoury, EVP, Treasury & Capital Markets at Finastra

It’s not a new phenomenon that technology is having a profound impact on the financial services industry. Cloud, composable banking and newer innovations such as AI have been discussed as drivers of how the market is evolving and will continue to evolve. While such technologies and concepts may have historically been seen as a nice-to-have for banks, in today’s climate, they cannot afford to take a passive approach.

Recent data from the Office for National Statistics shows the UK economic growth forecast is slightly looking up, rising by 0.5% in June 2023 and 0.2% in the three months leading to June. However, challenges remain, as GDP growth globally continues to fluctuate and the UK still falls behind many other regions. Fluctuations in financial markets and growth across industries is expected. However, in an era of global political uncertainty, rising inflation, interest rates and unforeseen events, banks need to remain agile enough to adapt quickly and effectively manage their balance sheets for optimal risk management and long-term growth.

Manual processes and outdated infrastructures can stunt a bank’s ability to navigate this environment. What’s more, newer technologies are quickly progressing from industry trends to providing banks with real-world use cases that enhance how they do business. Global banks need to have a strategy in place to effectively implement these technologies in a way that solves specific business challenges. Otherwise, they risk falling behind competitors who are already embracing innovation.

Leveraging cloud and managed services for treasury operations

The treasury function within a bank plays a critical role in managing financial assets and liabilities, optimizing liquidity and mitigating risks. Cloud-based solutions provide treasurers with the necessary agility to adapt their strategies according to industry, customer and regulatory demands, reduce operational complexity and costs and enhance their security.

As treasury operations expand or evolve, cloud services can effortlessly scale up or down and support the ability to handle increasing volumes of transactions and data without compromising performance. Having access to real-time data from various sources facilitates faster and more informed decision-making, as well as improved cash management, liquidity forecasting, asset liability management and investment strategies to reduce the impact of market volatility.

Additionally, cloud enables rapid deployment and updates to ensure organizations stay up to date with the latest technologies and regulations. Managed services, provided by trusted technology companies, can alleviate the need for banks to manage these upgrades, implementations and security measures themselves, allowing treasurers to focus on what they do best.

Embracing microservices architecture and composable banking

Cloud paves the way for a more modular and architectural approach to software development and banking. Microservices architecture and composable banking further enhance agility, scalability, innovation and speed of deployment by breaking down applications and services into smaller parts. Each microservice, in the context of software development, serves a specific function and can be developed, deployed and scaled independently by breaking down monolithic applications into smaller, manageable components.

Composable banking is a specific application of microservices within the banking industry. It refers to the ability of institutions to build and customize their banking services by integrating modular, third-party applications and services through open APIs. Composable banking aims to create a flexible and dynamic banking ecosystem by enabling banks to plug-and-play various services from internal and external providers.

As a result, financial institutions can quickly integrate new functionalities and innovative solutions from third-party fintechs, such as services focused on tackling payments fraud. For treasurers, this means having the agility to react quickly to economic events and adjust risk accordingly. They can innovate quicker and scale specific functionalities to, for example, expand into new markets, accommodate higher transaction volumes or implement requirements for specific regulations.

This approach can also alleviate concerns about heavy upfront investments, as banks can choose from a wide range of pre-built, best-in-class components and integrate them seamlessly into their existing infrastructure.

Future proofing with AI

Technologies such as AI – and more recently generative AI – have gained a lot of attention. While the latter is still in its infancy, the use cases and viability for both technologies in financial services are rapidly expanding. AI technologies such as machine learning, data analytics, natural language processing and predictive modeling are proving instrumental for the modern bank treasury by providing advanced tools and insights that enhance decision-making, risk management and operational efficiency.

AI-powered algorithms can analyze vast amounts of data in real-time and detect patterns and anomalies that might be missed by traditional methods, improving the accuracy of forecasts and reducing the potential for errors. By identifying potential liquidity shortages or market fluctuations, treasurers can implement timely measures to safeguard the bank’s financial stability. By automating routine tasks such as cash flow management, reconciliations and reporting, operations are further streamlined. Yet despite these advancements, human expertise remains essential. Bank treasurers need a deep understanding of financial markets and regulations to interpret AI-generated insights effectively.

The treasury department in a bank is at the heart of financial management and decision-making. As institutions in the UK and worldwide continue to face an ever-changing landscape of challenges and opportunities, embracing technology and modular architecture is necessary for remaining competitive within the global marketplace. It empowers bank’s treasury departments to confidently navigate the complexities of modern financial services, enabling them to grow and deliver exceptional value to their customers and stakeholders.

Author: Wissam Khoury