Discussions of cryptocurrency and decentralized finance typically revolve around trends relating to retail investors. However, recent data suggests that institutions are beginning to invest in digital assets in multiple forms, not least of which is their significant investments into financial technology or FinTech.
Corporate treasury managers are also becoming more interested in digital assets and crypto investments thanks to their ability to help them diversify their portfolios. According to Nasdaq, “The investment needs and demands of corporate treasury managers are often more diverse, encompassing varying degrees of risk tolerance than is often perceived by the media.”
Most notable is the adoption of Bitcoin by large corporations, namely MicroStrategy, Square, and Tesla. However, there are several factors driving treasury managers’ interest in digital financial solutions and investment vehicles, and they mirror many of the consumer trends noted for advancing decentralized finance (DeFi) as a whole.
Digital Systems Make Banks More Competitive
Financial technology has proven critical for banks to remain competitive in today’s increasingly digital economic landscape. FinTech companies and traditional banks may have been at odds in the recent past—to some degree, they still are. But large financial institutions have learned some important lessons about why adopting FinTech is not only pertinent but inevitable.
Both businesses and consumers are warming up to the idea of using financial technology in their day-to-day financial transactions and investment portfolios. According to EY, policyholders’ willingness to purchase insurance from big tech companies increased from 17% in 2016 to 44% in April 2020. Almost a quarter of consumers are also likely to make technology companies like Amazon, Apple, and Google their primary financial services providers.
Often, the technology trends that define consumer finance eventually evolve into corporate technology trends. As consumers become more accepting of digital alternatives for their wealth management, so will corporate managers of wealth.
There is already plenty of data to suggest that digital treasury management is an essential strategic advancement for most companies. Alternatives to traditional financial products may even provide treasuries with a competitive advantage, as well as opportunities to cooperate with others for financial gain.
According to an article in Finextra by Andrew Beatty, Head of Global, Next Generation Banking at FIS, “The rules of competition are being continually redrawn and today’s competitor may well be a partner of tomorrow. Shared technologies, such as blockchain, also have the potential to reduce a treasury’s reliance on its bank(s).”
Overall, digitized treasury management has the potential to “future-proof the business and profit from change,” as Beatty puts it.
BaaS Platforms Drive Innovation
Corporate treasury managers have also realized significant gains thanks to their deployment of “as-a-service” FinTech capabilities, particularly Banking-as-a-Service (BaaS) platforms.
BaaS platforms enable non-bank entities to integrate seamlessly with banks and other traditional financial institutions. Users can subscribe to function-specific services over internet protocol instead of having to install applications locally.
Some of the key benefits of BaaS include:
- More options for financial transparency
- Reductions in digitization costs
- Easier collaboration with FinTechs and other innovators
- Market competitiveness
- Innovative new products or services for customers
BaaS also adds an extra layer of compatibility to the company’s transactions and can make treasury managers’ jobs much more streamlined.
BaaS platforms rely on API-driven banking and payment solutions. These enable third parties which have been cleared by the bank’s security to connect directly with real-time banking systems in an environment that is both secure and compliant.
Although BaaS was initially designed as a means for streamlining corporate money management, it has created an entirely new line of innovations. Digital-first organizations of all stripes can embed BaaS technology into their products and services, offering their customers the products and solutions they get from their financial institutions.
This concept lends itself to the idea that “Every company will be a FinTech company.” Cloud-based BaaS platforms, blockchain, decentralized finance, and core treasury management technologies allow companies to start new functions, innovate, and offer customers a wealth of new products in very little time.
These tools also enable corporate treasury managers to deliver more value to the business. Instead of being solely responsible for managing funding, liquidity, and interest rate risk, treasury leaders can use financial technology solutions and other digital assets to help the company embrace new avenues of business.
Redefining Trust with FinTech
Trust in financial institutions has yet to rebound significantly since the “Great Recession” of the early 2000s. Economic challenges brought on by COVID-19 have not helped, either. However, evidence suggests that there are still relatively high levels of trust when it comes to technology companies.
According to a survey by Bain & Company, most of the consumer respondents in countries like Italy, China, Brazil, and the U.K. trust at least one tech company more than banks “in general.” The study also found that 46% of respondents in the U.S. trust at least one technology company more than banks.
Solutions like BaaS are a potential win for both companies and banks. They provide the company with streamlined treasury management, but they also effectively lend the trust consumers put into technology companies to the financial institutions that underwrite other companies’ finance-based products.
According to EY, “Large technology firms, such as Amazon, Google, and Apple, are gaining ground, as well. They possess reams of customer data and already operate fluid ecosystems. To them, financial services offerings are necessary—and potentially lucrative—parts of their broader ‘super app’ ecosystem of strategies.”
Changing the Corporate Treasury Ecosystem
Digital assets come in a variety of forms, all of which corporate treasurers can leverage for streamlined management of their company’s wealth. However, financial technology solutions like BaaS platforms have the potential to alter the corporate financial landscape completely.
With new levels of collaboration, companies and their financial partners could use FinTech to usher in a new era of trust, investment, and smart money management. By leveraging their solutions further, they could provide their customers with a wealth of new financial services, as well.
