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Digital Treasury
Pascal Vogt
Egham, 1st February 2019
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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
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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
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Two topics for today
Disruption Faster horses
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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
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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
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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
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Hypothesis 1:all banking core functions are predestined to be digitized
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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
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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
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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
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"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
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"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
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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
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Let us step back and look for faster horses …
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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
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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
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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
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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
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20
Let us make it concrete …
Example 1: Digital ALM dashboard prototype
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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
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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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