Treasury Takeaways

>>Jonathon Traer-Clark:
Hi everyone, and welcome to another edition of Treasury Takeaways. Today I'm delighted to be joined by Art Brieske, our head of instant payments in the Global Treasury Management Business at Wells Fargo. Art, welcome to the podcast. 

>> Art Brieske:
Thanks, Jonathan. I'm happy to be here. Super excited. 

>>Jonathon Traer-Clark:
So let's start with instant payments. Let's go straight into it. I mean, we've had payments around for many, many years. What makes instant payments so special in your mind? Why should customers use them? 

>> Art Brieske:
Jonathan, when I look at instant payments, I look at it as continuing the evolution of value exchange within commerce. So, think way back when commerce first started, we would exchange physical goods, right? I want a blanket that you created for me. I would give you two chickens for that. And then we moved to gold bullion. So instead of the two chickens, I'll give you a little bit of gold bullion for that for that blanket. And then we moved to paper currency for that blanket. And that became pretty efficient, pretty much adopted around the world still being used today. But it's been used for really a long time. So essentially what we're doing with instant payments as opposed to ACH wire transfer or card, we're actually looking to essentially replace that paper currency or the physical cash for the blanket by replicating the experience that you get with that physical cash with using modern technology. If you look at it like this, when we do that physical transaction, we're standing in front of each other. I'm asking for the blanket and give you physical currency for that. It's immediate. The money moves instantly. You've got the $10 for that blanket. I get the blanket, and now you have immediate use of that $10 so you can turn around and buy something else right there. And it's always available 24 by 7 by 365. And it's contextual. It's in the moment. 

So when we look at instant payments. What we're doing here is we're replicating that experience because one of the big use cases for instant payments is digital transformation and displacing that cash and check experience. So with instant payments, you actually have the immediate movement of funds and essentially, debiting the T account, to the Fed and crediting another T account, to the Fed, that allows you immediate availability. And it's also 24 by 7 by 365. So it's always available, it's contextual, etc.. 

• So when we think about why we need instant payments, a digital transformation, and that displacement of cash and checks is a big one that always comes to mind for me. 
• The second one is pay on demand or, as products and services are delivered anywhere, anytime. And most people think of this example that's been used out there quite often,  is the Uber driver example. So you as an Uber driver, you pick somebody up and you want to get paid for that. You've got a working capital problem with some other types of payment rails because the actual settlement, the actual use of funds comes a little bit later, right? Cash is great, but that's not a good experience. You always have to carry a bunch of cash around. And the Uber driver then has to take the cash and put it in their wallet. And they're doing a lot of these, their wallets are going to get pretty big. And then the security around cash in the car. So it doesn't make really a lot of sense. So a lot of people think about that one. It's a good one to think about. Paying on demand as services are being delivered is a great one for the Uber driver, and it's easy one for people to get. So that's the second one. Paying on demand. There's proxy services are delivered anywhere, anytime. 
• The third one is getting paid faster with finality. We also refer to this in industry as request for payment. So this is kind of like taking invoice from, physical mail or email into the banking platform and presenting you with a request for payment. And off the back of that you're paying in real time. So that's the third one. 
• And the fourth one is paying yourself. So it's moving money from one bank account to the other, moving it from your brokerage account to bank or vice versa. So those are the four primary use cases. When I think about why instant payments. 

>>Jonathon Traer-Clark:
Thanks Art and we should just say that there are other ridesharing apps available outside of the one that you mentioned. It was a good illustrative example. So it sounds to me that all of those are pretty compelling reasons. Why hasn't adoption been perhaps as quick as we might have wanted it? Or is it actually going to a lot quicker now? People are becoming more familiar with it. What are you seeing the take up rate being like? 

>> Art Brieske:
Yeah, I think it's actually much quicker than we think. You know, if you think about all the other payment rails, it's taken many, many years for them to take on. I mean, like we started doing ACH, before we had ubiquity in the market. It was a good 20 years, before all banks were up and running to accept and receive, but also for individuals to put trust in that mechanism. I mean, it really wasn't that long ago when check is in the mail or, I get paid via my payroll check. Now everybody gets paid via ACH. It's getting that trust in the new payment infrastructure is really the biggest hurdle here. And that's why focusing on that me-to-me use case is an important one, because it does provide the ability for us to get trust into the ecosystem by the users. An easy way to do that is through this me-to- me use case where I'm taking money out of a wallet or out of a bank account, moving into another. The biggest use case right now has been over the past 4, let's say 5 years since real time payments went live is really that me-to-me use case. And consumers getting used to and building trust around, money moving that quickly. And I think that's the one that now we're expanding on to not only, wallet to bank account, bank account to bank account, brokerage to bank account, and so forth. Now we're seeing it shift from the me-to-me use cases to the digital transformation. This kind of pay on-demand to receiving money, as well as paying faster and getting paid faster with finality through this request for payment. 

>>Jonathon Traer-Clark:
So Art, that's really interesting. So I can see from the if you like, the consumer perspective, right. It's a very valuable experience. They get to trade in real time. They're requesting to be paid or they're making the payment themselves. And certainly for small business owners there's obviously the opportunity to digitally transform the experience. But if we can upscale it a little bit and think about this, instead of a mid to large sized corporation, okay, they have their normal working procedures. They'll reconcile their accounts, and then they'll do all the liquidity management and everything else. But what we're talking about here is a potential for them to be making payments and receiving payments 24 hours a day. So how does that translate into their operational processes? 

>> Art Brieske:
Let me first by just stating kind of something that maybe others are thinking about, but maybe others aren't when it comes to corporate use of instant payments. The first thing I'd like to think about is the opportunities that corporations have, right? If you think about kind of what we're doing here is we're creating a brand new payments clearing settlement infrastructure where essentially, as central bank moves from physical cash in vaults, etc., where we have armored cars moving around and so forth to potentially digitizing that as well. And then when that happens, this will be the rail that's used. So we need to think about it in a context of a longer term as well. Eventually we're just going to not have paper or physical cash anymore. So when that happens this will be the rail that's used for that. So let's think about it from that perspective. But also think about it in terms of we're actually creating no different than if you think about Google Maps and how Google Maps created brand new business models and new companies off the back of it. You know, the rideshare app companies we mentioned before, wouldn't exist today without Google Maps, right? The clearing and settlement infrastructure we're creating today for instant payments is essentially the Google Maps for banking industry. So brand new businesses, brand new corporations, brand new business models will be created off the back of that as well. 

And so corporations should first start thinking about how you see this new clearing settlement infrastructure not only help Treasury, but also help our businesses, our SBU's in terms of creating a differentiated product, a differentiated experience. Just like digital transformation has changed business models for companies, you need to think about how the digitization of money is going to change business models as well. So there's great opportunities here from a strategic perspective, corporate should think about and Treasury should be part of that discussion and educating informing the business units - here's a new thing that's happening. Our business models may change as a result of that. 

So let's first think very strategically as well as then secondly how we become, you know, more efficient in treasury, etc.. Your point is well-taken. It does make Treasury look at, hey, do I need to start working on weekends and holidays? Right. You know, how are we as Treasury, which is a very small group, usually with small engineering resources. How do we do this in this new kind of 24 by 7 by 365 world? Well, the first thing I would suggest is to look at the receivable side of things, because that's super important from a working capital perspective. It's not just the disbursement rate, it's also the receiving side of things. And on the receiving side of things, depending on your business model, you need to think about how when your customers send you payments on a weekend or a holiday, how do we make sure those are recognized as being on time? And you know where we need to disperse out funds. And making sure that there's enough funds in the bank account to disperse on weekends and holidays, and there's an automated process and checks and balances to make sure that those happen as well. 

And then I guess then you can start looking at efficiencies within Treasury as well, and where maybe instant payments could be used to more optimize flows, intercompany, for example. And also where, Treasury could actually look at other efficiencies within the entire Treasury ecosystem. But I would definitely look at the business units first. 

>>Jonathon Traer-Clark:
I think there was a lot there. If I tried to recap it a little bit. Art, I think you talked to it. First of all, let's start with the business experience. How can we create that transformational experience for our clients? That's the opportunity for Treasury to say, here's a new capability to its business partners, right. And candidly, if they've been doing the building, things like working capital councils. Treasury's role within the organization has probably been elevated anyway. This is an opportunity for them to give something back to the organization as much as impose the financial strategic acumen that they would like from the organization by way of managing the capital flows. So that's a huge plus. 

I think the second thing is you've also got to think about is a bit like going to one of those coffee shops and picking how many times do you pick the blend of beans that you actually want. Most of the people would just say, I'll go with whatever the standard house blend is, I'm saying it's another choice. And I think this is also the opportunity for customers to express a preference they might like the paper-based methods, although I think most of them are swaying away from that now, but they'll probably be quite keen on something that's quicker, that's faster. And frankly, to your point, once you send the money, the money is sent, you can't recall it, right? It is a full commitment of monies or funds to the other party. So there's an awful lot to like about that too. And then bridging the gap over the operational efficiency, I think is probably going to be a function of scale. How many payments are you actually doing of this nature? How many receipts are you getting at this nature. And then candidly, the limitation that you will have as an operational function from a capacity perspective. If you're collecting money that much quicker, you might find you can be even more efficient. From a financial perspective. Would that be fair? 

>> Art Brieske:
Yeah, I think that's fair. And maybe, Jonathan, we could drill in on that receivable side a little bit more because you mentioned it. It's the finality side of it too. As you think about companies and how their receivables models work today, in addition to recognizing the payment. it does give Treasury the opportunity to become more efficient. So if you think about receiving checks today, right, it's very inefficient processes. In driving behavior for clients now, to start to digitize that process and eliminate checks is something that Treasury can then focus on. Treasury can say, look, here's a new opportunity for us to motivate our clients, if somebody's still sending a check. A lot of times the reason why they do checks today is because, they like to have the control. And with the request for payment, the control is still with the sender, right? They can push that button whenever they want to send. And like you said, the benefit of receiving instant payment is you get finality as opposed to a check. And it's also the reason why Instant Payments works really well for me-to-me payments, because it's avoiding NFS apps. And so you've got a lot of opportunity here when it comes to the receivable side of things. And to start to help transition the business away from paper checks. 

>>Jonathon Traer-Clark:
Art, that's fascinating stuff. I particularly like your use the word finality. But you're absolutely right. And that whole, I guess, pitcher catcher, thing being completely digital, to paraphrase one of your expressions, is phenomenal. So where do you see this going? Because to me, if we can do commerce in real time or near real time, doesn't that create opportunities for new business models and new experiences for our clients? 

>> Art Brieske:
Yeah, it absolutely does, like I mentioned before, where businesses should start thinking about that from a strategic perspective because they can start to really compete in the marketplace and differentiate themselves with this type of functionality. So a lot of times people think about instant payments as the end customer experience. You get on the phone with one of your clients and there's a problem or an issue that happened, to resolve that problem very quickly is with this instant payment. So a great example is better customer service. If there's an issue an adjustment needs to be made. You can do that was on the phone very contextual. And it creates a huge differentiator for businesses. So they should think about it from that perspective as well. 

>>Jonathon Traer-Clark:
What about from the fraud perspective? If you're moving money faster, how do we ensure that there's, integrity around the whole process in the operation? I mean, we could if you could give us an insight into, if you like, the controls that we have in place, both, as I guess, the pitcher and the receiver. 

>> Art Brieske:
Yeah, I mean, that's great, Jonathan. It actually, as we all know, fraudsters go where the money is.  And, as volumes increase and as instant payments increase in terms of the value that's transitioning through the infrastructures, naturally fraudsters will go there. So of course, we're not just sitting around waiting for that to happen. We're doing that now.  We are making sure that from an industry perspective, we're doing a much better job than we have in the past with sharing information, so getting in front of it. So when we see a bad actor enter the infrastructure, we're letting each other know and we're shutting it down much quicker. But what we're doing is we're building off of that and creating new ways to mitigate the risk of fraudsters entering in. But I think the biggest thing is ensuring that we create much faster responses and we're also being more preventative as well. So shutting things off before they actually happen, if we see certain trends or if we see certain red flags. 

>>Jonathon Traer-Clark:
Fantastic. Is there anything else you'd like to leave our listeners with as kind of key messages? You've mentioned obviously the benefits, we talked about the operational impacts in both positive ways and certainly, again, extending Treasury's reach in the organization, the client experience. But anything else you think that people should take away from this? 

>> Art Brieske:
Yeah, I think the biggest takeaway that people should think about, particularly on Treasury side, is look. Instant payments is new. It's not here to replace, you know, wire, ACH or card. It's here to replace cash and check. And it's here for the future. When central banks move to a digital currency, it can be that rail to move money. Think about it in terms of the infrastructure that you need and the opportunities that would come with that. And also think about it in terms of your partners as well. So, at Wells Fargo, we're investing heavily into this and we're trying to create a differentiated, scalable, always available, interoperable payment experience with instant payments. So I would encourage you to think about it within your treasury infrastructure, but also your partners as well in terms of what they're doing. 

>>Jonathon Traer-Clark:
Art, thank you ever so much for your time. I think you definitely lived up to your nickname, King of Instant Payments. We appreciate you. I'll see you on another podcast maybe, but for now. Thank you, Art. 

>> Art Brieske:
Thank you Jonathan. It was really nice to be here. 

>>Jonathon Traer-Clark (Disclosures):
Global Treasury Management products and services are provided by Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company. Wells Fargo Bank, N.A. is not liable or responsible for obligations of its affiliates. Deposits held in non-U.S. branches, subsidiaries or affiliates are not FDIC or CDIC insured. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC.

>>Jonathon Traer-Clark:
Hello and welcome to another episode of Treasury Takeaways. My name is Jonathan Traer-Clark. I'm a managing director at Wells Fargo, and today I'm absolutely delighted to be joined by Joe Hussey, who is one of our Payables and Receivables Product Executives in our Treasury Management Business. Welcome, Joe. It's great to have you. 

>>Joe Hussey:
Thank you. Glad to be here. I'm Joe Hussey and I'm the payables and receivables executive here at Wells Fargo. I'm also the current chair of the Nacha board. Nacha oversees the ACH network in the US. In both roles, I see our job to make payments seamless, fast, and efficient from a same day ACH to instant payment. We seek to drive innovation to solve the needs of our clients in a safe and secure process. Nacha has a similar focus, and the board has been dedicated to focusing on speed of payment, data delivery and fraud protection initiatives over the last few years. As we continue to see payments transition and innovation occur around those payments, I assume and expect there will be a lot more innovation ahead of us yet to come. 

>>Jonathon Traer-Clark:
Fantastic. Perhaps you'd like to tell our listeners a few of the highlights of the things that you do, both in terms of Wells Fargo, but also how you represent, if you like, the wider Treasury community. 

>>Joe Hussey:
Yeah. Thank you. So from a Wells Fargo perspective, I look at our role as delivering products out to the clients, both the traditional products as well as the innovative products and the emerging products that are continuing to come on board in the payments space. As I look back, 10 or 15 years where we were thinking that everything was still paper for the most part. We had minimal electronic and digitization out there, too. If you spring forward, we've seen a lot of changes and we've seen a tremendous amount of innovation occur in the space. But yet we still know we have about 13 billion checks out there that we're still processing every year. So the one step forward, two step backs somehow feels like it applies. But when you look at it across, you know, the last 20 years or so, you know, we've taken 20, 20 billion checks out of the industry. We just are stuck on the last piece. The other component that you ask about was, how do we see what we do today, and how do we deliver that for Wells Fargo as a firm and then broader in the industry? Probably the industry has become one of the more critical perspectives, because if there's one thing we've learned is we need this ability for a transaction to be easy across multiple platforms. There are certainly across multiple networks. And as we continue to innovate, that ability for a payment to move seamlessly between two providers and even between two clients is incredibly important for us. And everything we do, we try to focus on how quickly and efficiently can we move that payment. 

>>Jonathon Traer-Clark:
I know you've used the term payments continuum, and when I've spoken to you in the past, but you also talked about different networks, different types of payments. I mean, forgive me, it's surprising to think that if you like moving money around transactions representing the movement of money around. Is it so difficult? Can you just kind of give us a few clues as to why that is the case today? 

>>Joe Hussey:
I like the term the continuum of payments because what a payment is today, it may not be tomorrow. And the way we look at how we evolve payments, especially when we're working with our treasury groups across the multiple industries, moving a health care payment across the industry can be very different than moving a simple cell phone bill or a utility bill across it. So when I talk to multiple clients and we talk about what is the payment structure, what is the payment architecture, this continuum of - it depends on what you're trying to pay. If you're a large retailer, a lot of your receipts are going to go through the credit card industry. But yet when you turn it around, you have to buy goods and services, and those are going to go across a completely different rail, which may be ACH card, virtual card or wire. And so as I look across at what I've tried to get clients to open up with is what are your biggest pain points and what would you like for us to solve for you? I've never been really one of those, “if you build it, they will come”,  I'd prefer to go find a problem and solve the problem for a client, because in our industry, if you solve for one client, you've probably solved for multiple vendors or counterparties. If you can do that, you now have an ability to say, it worked over here. Does the same thing apply to you as well? So regardless of the industry, you're touching base in, you can actually say this works for health care. Does it work for the auto dealerships? Does it work for aerospace? And you can find the commonality within those industries. 

>>Jonathon Traer-Clark:
Thank you. But when we talk about payments, which I think is typically how the industry has a conversation, the other side of a payment, of course, is a receipt or receivable. Right. So I am pleased that you have both hats. That's great. And obviously for our clients and perhaps. The industry. You know, the receiving of money in that reconciliation is as important, right? 

>>Joe Hussey:
Definitely. So I think you mentioned earlier, I also sit as chairman of Nacha. And the way the industry is evolved, I'll say over the last probably ten, ten, 15 years is we used to focus a lot on payroll and moving payments out. Right. What we really have focused on now is how do we make that receivable as seamless as possible? And when you look at what we do here, moving the money is often the less important piece. The most important piece is that I just bought something from you, but you need to be credited for my payments. So the fact that you have the money sitting in your organization, but this vendor hasn't been credited with it, is a problem. But also, if you look at the amount of emerging innovation that's occurring within our industry, the fintechs and everyone that we partnered with are now working together to try to simplify. How do we reconcile your payment to my invoice? As quickly as we can and move that into a working capital for the client. 

>>Jonathon Traer-Clark:
I'm so pleased you kind of went into that space about the reconciliation, right? I mean, I can remember a time when field size limit was a massive constraint, within transactional information as it cost around the systems because, frankly, there was a real dollar charge or cost to it. And because of the size of mainframes and all the other sorts of systems, whereas nowadays, obviously infrastructure and telecommunications and indeed just technology as a whole has evolved enormously. So presumably, and not wanting to put words into your mouth, but that should make the process of reconciliation much easier, particularly with AI. 

>>Joe Hussey:
Yes. Let's talk about just field size. All of us can harken back to the Y2K events, where we were all arguing over the two digit or four digit year, right. Where we've evolved from there, though, is with the new file formats, we've added more and more information to our transactions that go through. We even have transactions today that aren't really monetary transactions. They are just simply information transactions that we're passing back and forth, whether it be within Swift, within wire, within ACH, within the card networks, the more information we can pass, the better the reconciliation is. And then I'll add to that, the better the reconciliation is, the better the customer experience is. Whether you are a corporate client or a consumer client working with your biller, the ability to have that information out there and visible on both sides of the transaction is really one of those changes that we've seen that has come into effect, and it started slowly. We added a few more data fields here. We added a few more characters over here. But what it's evolved to is I can almost now literally send a PDF for every single transaction if I chose to. Now, there are some architects out there who just cringed when I said it, because we don't need that on all of our transactions, but that is the ability we have now is we have data, we have image, and we have monetary all sitting within a framework that allows us to keep that package together, that enables then the final client to say, I can reconcile this, and I can also move the money much more quickly into my balances. 

>>Jonathon Traer-Clark:
So interesting there. We talked a lot about, I'm going to call it client experience. It's becoming much simpler for the transactions to represent not just value transfer but information transfer, which obviously facilitates a much better end to end user and customer experience and probably business experience overall. But all of this requires not just investment from our side as an industry, to make the mechanics work and operate better, but also for the customers, the end users. In your experience, what sort of makes a client sort of feel compelled to kind of either update their systems or think about modifying the way they transmit information to us, and how might they go about it? The best way. 

>>Joe Hussey:
I'm going to start with the latter half of that question about how do they go about it, and then we'll talk about why do they do it. Only because I think everyone gets afraid of, how do I go about it before I actually answer, why am I ready to do this? Or why do I need to do it? My perspective on how to go about it. And I talked to several larger groups, if you're waiting on that final solution, that will be the end all, be all, you'll probably be waiting a long time. And as we look at the evolution of our applications and then the evolution of all of the changes that are out there, a lot of the hesitancy, I think at least when I came into banking, candidly, in the 80s, was, you know, you wanted to go with one of the big powerhouses that were out there because you just knew it was going to be safe for you to do that. There was also this theory that you don't want to be the first on any application, because you're debugging it for a client at the current pace of change. Look at where that has changed. And then think about if I wait, what have I lost in waiting? And if I'm waiting to change, has one of my competitors going to leapfrog me because they went ahead and made a bet on an on an application? So that's my, what do I think about the change and how do I think about the change? Answer. Because I think as an organization, both banking and corporate and government, you have to answer that second question. Am I willing to make the change now? Why do I make the change, which is what you asked first. I think it's fairly straightforward. When you look at where are your consumers going and where are your vendors going or the people that you're trying to pay? Are the people buying products from you, even in corporate to corporate,  that has changed tremendously, where we now go online to look at our invoices, even if you're a corporate to corporate, if I am buying from a large consumer supply company, I probably know every day what's on my shelves and what do I need to purchase. If my system can't keep up with that, or if, as I'm building out or looking at what are the new products coming to market and I have a consumer website, what is more frustrating for us as a consumer than to order something, only to get an email saying it's not available later, right? Expectations have been set on the consumer side that if it's not available, it says that when I pull it up, right. That's just the way the marketplace’s work. Why would my corporate applications not do the exact same thing? You and I know, the reason is because the corporate applications - with the plural - probably has multiple receivables sitting under it, payables sitting under it, inventory from mergers and acquisitions that now need to be combined. So the answer I always give, and especially when we're talking to clients thinking of what investments are important to them, the first thing you need to do is to make the corporate experience almost as seamless as what it is when I go home and I try to do a consumer transaction. Because regardless of what we do in our day jobs, our experiences are usually formed on what we get to do on our end, our laptops and our mobile phones at home. 

>>Jonathon Traer-Clark:
I love the way you put that right. I mean, the analogy I use when I try to describe these things to, you know, how non-financial folk is when you go to buy a car, you want to understand how it feels to drive. You trust, if you like, that, the mechanics and the operations will work. And so that defines your experience. But it also defines not just your experience at the point of purchase, but also for the lifetime of it. So the same analogy here in the financial services sector, of course, is that the consumer experience, to your point, should mirror the one at home. And yes, the underlying mechanics are important, but how the engineers, if you like, of the organization, build those, that's where they should be focused. Whilst the overall user experience is much more one of just facilitation of transfer. 

>>Joe Hussey:
I had an interesting dialog with a group of analysts that were coming into the firm one time, and we were talking about the in-office experience versus the at-home experience, and I realized that my in-office experience in ‘85 was more technologically advanced in the office than I was at home with probably my VCR, Betamax, or whatever I had back then, right? Today, if you flip that around, the tools we have at home and our ability to go have double monitors and triple monitors and everything else we can have at home, may be completely different than what we get when we step into our work environment, which is prescribed by our companies. Right. And I thought that was an interesting analogy that I've used with clients before. As we think about both hiring and next generation of Treasury managers coming in, all of those things come together to how do you entice the right people and as well, how does your working environment mirror what I can do at home? Can I, you know, can I make it simple? 

>>Jonathon Traer-Clark:
I love that analogy. It's so true, right? My HP 12 C sitting on my desk at home is not the same as my working for it, wasn't it? Back in the days when we were starting our careers, shall we say. It would be, remiss of us, obviously not to mention, particularly, I think even news this weekend about some data leak, shall we say, how should a client think about, I guess, fraud and security and might I think to some extent it's a continual chasing mechanism. People are trying to keep up with it. But I mean, what's your perspective? What advice would you give our listeners? 

>>Joe Hussey:
It's a funny topic when it comes up with clients, because if you haven't dealt with fraud and security, you probably look at it as a complete sunk cost that you don't have a return on. If you've dealt with the fallout of a security breach or even fraud on your own bank accounts, you quickly see it as an investment and a very preventative tactic, right? The problem we have is, is there is no one right answer to fraud and security, right? There are multiple ways you can tackle each of those fraud in and of itself, will, always evolve to the most sophisticated criminal, if you will, because, you know, everyone's in business to get paid including our criminals. Right. And they continue to up the bar, unfortunately. When we look at things like business, email, compromise, there are tools you can use without a doubt. But those are procedural controls that in many cases need to be applied within a Treasury organization that often are overlooked because of legitimate other higher priorities until something occurs. Right? And then everyone says, wait a minute, how did we let this occur? You know, you move to best practices, and that happens. If you go to a conference, you don't go to a conference anymore without multiple sessions available on fraud and security practices. I think that is really upped the industry overall. So we have stopped a significant amount of it, but there are just more people out there trying to perpetrate against the industry today. Without a doubt, the industry itself has also evolved. I spoke about Nacha before. We probably spend well over a third of our time talking about fraud and within the industry and the tools that we can use. You've seen rule changes that we've put out there that tried to layer a standard approach to everyone, because when you're in a counterparty market, everyone is exposed at the most vulnerable level some time. So we worked on that. If you take it one step further and you say, okay, what can I do to prevent fraud within my company? Every client needs to ask themselves that because it's probably different for every company. I'll close with the security part of everything we do has become so paramount to the trust of our client. And so when I started this answer, I mentioned the fact that it's never important until it's important, losing the trust of your client. And I won't name examples, but all of you had a couple that probably just popped into your head. Once that trust is lost, building back that trust is incredibly difficult, right? And we've all spent in our organizations, you know, some over 100 years building that trust, then gaining it back once you've lost it, because of a security or any other interjection of fraud into the system, puts the whole industry in a problem. So I think we have to look at both incredibly important. Does everyone need to spend 40% of their time on it? If you haven't, you will. 

>>Jonathon Traer-Clark:
So there's an awful lot of information there. And I just also want to connect back to some of the things that you said at the beginning, because you also said transactions don't just represent monetary transfer, they can represent information. And one of the things that occurred to me was, with the advent of if we like more paper to electronic, there's also the opportunity there to use information services like account validation and whatnot to try and ensure or at least give a how shall we put this a greater degree of confidence. Either the recipient or the beneficiary is who you think it is, and therefore, you know you can feel comfortable that your business is operating in a secure manner as possible. I'm guessing from your perspective, do you see the emergence of more solutions like that, giving clients multiple layers of defense? 

>>Joe Hussey:
Without a doubt. When you look at it, account validation and it can mean a lot of different things to different people, doesn't mean that this account is good. Doesn't mean the account is open. The way I look at it, and the way we have tried to talk about it, is use a risk-based approach to it. I think when you move up the continuum, though, if this is a new vendor that is setting up for the first time or two, someone's calling in and saying, hey, I had to get a new account number. And the worst thing to have happen is they call and say, I had fraud on my account, I need a new account. Well, they're the ones frauding you because they didn't get a new account, right? That's the time where there's clearly a need to do an additional level of due diligence on that account number, because the volume and the value you're about to send across that is significant and could represent a significant, charge off to the company. The solutions out in the industry today are varied. And, you know, it goes from a very basic which have a nominal price to them, to the more complex that have a more sophisticated. 

>>Jonathon Traer-Clark:
The point is, if you have a breach, you have a breach. And it's probably a failure of multiple layers, control systems, possibly people, possibly a genuine mistake, quite often a genuine mistake, and usually some element of technology as well. So the challenge the Treasury function has is that as a concentrator of how should we say financial assets, or is the allocation of capital engine, as I like to call it. You know, that responsibility isn't just about collecting, it's also about dispersing it too, which kind of brings us back to your original point. You know, it's customer experience led. 

And as the name of the podcast suggests, what are our takeaways from this? Well, I think there's three of them. I'm going to start, as always with customer experience. Right. One of our responsibilities is to make sure that, as we said, our clients and customers really do experience the very best of the capabilities that we have to offer. But in order to do that, we need to also be very welcoming and think a lot about changing innovation. And I think, Joe, you said it best. It's about having conversations with others. It's about listening and learning, being open to new opportunities, but also taking a measure of that experience and understanding what's worked well in the past and what may still be appropriate today. Which brings me neatly onto the third point I would make, which I think is around fraud and security. And that is always going to be a continuum in the way that we have to operate and run our businesses. We must be aware that. We have a responsibility, to operate and disperse and collect, if you like, the moneys and the capital that flows through our ecosystems. So those are my three takeaways for today. And again, Joe, thanks ever so much for your time today. 

>>Joe Hussey:
Thank you.

>>Jonathon Traer-Clark (Disclosures):
Global Treasury Management products and services are provided by Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company. Wells Fargo Bank, N.A. is not liable or responsible for obligations of its affiliates. Deposits held in non-U.S. branches, subsidiaries or affiliates are not FDIC or CDIC insured. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC.

>>Jonathon Traer-Clark:
Hello, welcome to Treasury Takeaways, the podcast for Treasury Professionals produced by Wells Fargo. I'm your host, Jonathon Traer-Clark, managing director at Wells Fargo. In this podcast series we’ll delve into topical areas like working capital, liquidity, technology payments and innovation in the Treasury field. We'll also discuss a bit about the future of Treasury, how to plan and what to watch out for. I'm delighted today to be joined by Suraj Kalati, our head of Working Capital Solutions at Wells Fargo. We will discuss the key trends happening in working capital management and the opportunities that these trends present. And then we will discuss some of the best practices that you can deploy in your Treasury function today to help you get prepared for the future. Suraj, welcome. Happy to have you on our first podcast of the series.

>>Suraj Kalati:
It’s really good to be with you this afternoon over here and looking forward to our conversation as well.

>>Jonathon Traer-Clark:
Likewise, me too. So, as I said, we live in interesting times, right? So why don't you talk to us a little bit about what clients are sort of telling you and what you observe as some of the major catalysts that treasurers should think about as they're planning for the future in the world today?

>>Suraj Kalati:
Absolutely. I think in the recent years we've seen as well as I think on, you know, as we look ahead as well, three big areas of change. One has been technology, been a massive acceleration and evolution of Treasury technology, both offered by traditional providers, by banks, but also now, you know, emerging quite rapidly, a number of fintechs who are coming into this space and providing treasuries with a number of solutions that will help them make their treasury practices and solutions much more efficient. We've also seen within the technology domain acceleration of payments and the change and evolution in the payments rails. One of the big examples is the rapid adoption of real-time payments across the industry, across the globe, and particularly in some of the developing markets as well. One data point that I know is I think more than half of nearly half of all real-time payments in the world today come from the developing markets and the more developed markets are increasing their adoption, you know, over 25% year over year adoption. But it is something that we're starting to see the industry sort of pivot towards and switch. And also data, data within the technology realm has been another area or a catalyst for change. But it creates another question, which is how do you harness all the data now that is available across the industry and across the Treasury ecosystem? 

>>Jonathon Traer-Clark:
Thanks Suraj. I mean, just phenomenal level of insight there.

>>Suraj Kalati:
Another area of disruption, or what I would say a catalyst for change, has been interest rates. In the recent years, we've started to see that we're going to look at a higher for a longer rate environment, at least in the foreseeable future. What does that mean for Treasuries and how do they manage the liquidity and working capital in that environment? It also puts a lot of focus on optimization of returns and also of overall funding costs for the company as well as the treasury. Another dimension I would add that has come to surface is geopolitical and macroeconomic environment. Has the Treasury adopted to disruptions caused by these exogenous factors? What does this Treasury construct look like? How centralized are we? How decentralized are we? These are some of the questions that have started to come to surface. Is that the right model? And the adjustments have started to happen across companies, across Treasury functions. You know, moving to a model that provides much more resiliency for the business, even through these disruptive forces as well. Some of that also influences how you structure and manage your liquidity solutions and how do you prepare for contingencies both from an operating model standpoint but also funding.

>>Jonathon Traer-Clark:
So, if I just recap that for our audience, you mentioned three principal areas of change or catalysts that are currently changing the environment at the moment. The first one being rapid and continuous change in technology that we've seen. The second one being the interest rate environment. And then the third, the overall geopolitical or macroeconomic environment. What's interesting to me is do you see anything that kind of can come from that as sort of opportunities? I mean, you mentioned real time payments. What do you think those sort of things can provide for today's business? 

>>Suraj Kalati:
Absolutely. I think the opportunities for us as we look at it from a Treasury perspective is the acceleration of money movement. And as a consequence of that, you know, the opportunity to optimize the liquidity that is running through the pipes of the organization through commercial transactions. Understanding data, the data that comes with these transactions and starting to provide much more value added services to the business’ clients as well. So, this is another opportunity for Treasury to take a deeper role into the strategic execution of the organization's goals, leverage and channel a lot of that technology and data to better improve the overall cost profile, the funding cost profile, but also play that back into the front line for the business as well. 

>>Jonathon Traer-Clark:
But fundamentally, we end up with a much more agile business environment and business operating model as well, which can only be great for our customers and their customers. 

>>Suraj Kalati:
Absolutely. 

>>Jonathon Traer-Clark:
Quite an interesting backdrop of, if you like, external factors that are affecting the world today. I guess from a Treasury perspective, how do we approach dealing with this?

>>Suraj Kalati:
Jonathan, this is really about, in my mind, liquidity risk management. How do we leverage these changes or these factors that are exogenous to the company and really direct them to the success of the Treasury function as well? So, the first thing I would say is, you know, focus on technology. Adoption of technology is essential to staying ahead of this change, and this is, for me, underpinned by a good data strategy as well. So, this leverages the tools and solutions provided by banks across the market, by non-bank providers, also leveraging the API ecosystem that is accessible to the treasurers from both banks as well as non-bank providers as well. This ultimately will help inform better cash forecasting as well as leverage other additional tools such as artificial intelligence and machine learning as well. I think we all recognize in this industry cash forecasting remains top of mind for treasurers and that is really a good quality. Cash forecast is going to be underpinned by good quality data which will require adoption of some of these new technologies that are accessible to treasurers as well. 

>>Jonathon Traer-Clark:
Suraj, thank you. That was incredibly insightful.

>>Suraj Kalati:
The other area of focus, I would say, is to revisit the investment policy that is there within the organization. Especially in this high elevated risk interest rate environment, it's important for companies to sort of look at their overall risk appetite, their risk measurement metrics, the assessment of counterparties that are comfortable with asset classes that are acceptable to the organization, to the Treasury, duration, credit risk, Treasury policies, investment policies. Many companies I have seen have a regular process of reviewing it and updating them. But also, if you don't have a policy in place, it is perhaps a good time to look at that and speak to your banking partners as well who can help you institute one and put that in place as well. The last area of focus, I would say, is resiliency of the funding structure, how are we structured today within the Treasury to reduce fragmentation of liquidity that is currently distributed. Do we even have a funding structure that we could access and consolidate liquidly through? Is our funding structure representative of our business requirements and do we need to continue to add to it or amended to evolve and really prepare for contingency? This will ultimately also lead to optimization of cost around funding and making sure that, you know, the internal liquidity available in the organization is leveraged and maximized. Contingency liquidity sources also need to be prepared as part of this resiliency, managing resiliency in the funding structure. And one of the key things that I think surfaced in the pandemic is stress testing the forecast. I think the forecasts typically prepared for the business as usual scenario. It's also important to stress test these forecasts to see how do they operate under stress scenarios as well. And I think that's a discipline I've seen more often as I've spoken to clients, as I’ve spoken to companies and treasurers, they've started to implement that and integrate that into their forecasting process as well. All of this will come together for a treasury to really channel some of these catalysts of change that are happening externally and pivot them and convert them into opportunities for evolution for the Treasury as well as creating value for the organization as well.

>>Jonathon Traer-Clark:
I guess continuing on the theme of insights and perhaps going back to the name of this podcast, which is Treasury Takeaways, what do you think some of our clients should do by way of best practices? How do we deal with this? 

>>Suraj Kalati:
Jonathon I would say begin with the end in mind. Even if that is a medium-term outlook, you know, put a marker out there from a change standpoint and then plan towards and execute towards that change. What does that end look like? That end looks like being able to answer what's the right level of cash. Do I need within the organization to operate? Am I prepared for contingencies, and do I have the right tools to calibrate the cash levels and address the business's needs should there be any unforeseen circumstances as well? So, it's really about planning, but it only can start with a vision. So, start with the end and then execute towards that vision. One of the key things is about adoption of technology to help you achieve that. Visibility continues to be one of the key areas that I've seen clients struggling with. We were in a recent roundtable with clients and that was one of the areas where we noted a lot of spreadsheet driven insights, delayed information, not accurate information and information with a lot of gaps. So today there are solutions, APIs bank provided solutions, which will allow us to have much better visibility, but also analytics in terms of how much cash position is available to the company where it is allocated, in what currency it is to also then manage even hedging practices. So, visibility, you know, let's take that off the books. One of the quicker ones that treasurers can put us a win on their scorecard and help them achieve, you know, get them to that goal of being able to understand the right level of cash within the organization as well. Data is another piece. Having a data strategy, building out that data strategy, really to start understanding all of the data points that are also necessary for the business to inform itself about its clients, its customers and external trends, which interestingly come through the pipes that the treasurers also see. So, understanding what the payment flaws look like, understanding the speed of payment, but also all of the data that comes with payments and passing that through as intelligence back to the business, back to the sales organization, back to the manufacturing organization, and helping them become much more insightful about their process as well. So, it starts helping treasuries to start adding value and pivot itself to a much more strategic input into the organization as well. Last thing I would say over here is create time for yourself, right? By going with a plan, a plan that I know has worked, many companies have gone through this journey. I've worked with many of them to take them through this change. A plan works, and a plan creates time for the Treasurer to start looking at what's the next situation on the horizon, what is the next area of focus on the horizon that they want to start bringing into the Treasury organization as well.

>>Jonathon Traer-Clark:
A couple of themes that kind of struck me there was you're very pragmatic, right? The first thing is we can't manage what we can't see, right? That's the data. That's the visibility. But then you also talked about being agile. You know, a treasurer has to be able to adapt to the different circumstances and the different situations that are going on around them and be a real partner to the business, not just in the financial sense, but perhaps almost taking the information that they're seeing from the outside world and imparting it to the business so they can be better prepared and think about the future. And it helps everyone. I guess in the spirit of that, I know that you and I both share a background in that we have a more of an international perspective. Are there any sort of things that you've seen across the globe that might sort of give us some clues as to the potential for I mean, you mentioned real time payments, for example, and talked about the enormous growth there. But what else do you see that kind of excites you in the Treasury world today? And how might it help us with working capital perspective or even from a Treasury perspective? 

>>Suraj Kalati:
Jonathon, I think what we see over here, across the landscape, across the global landscape, is there's different levels of evolution happening in different markets. A lot of this is fueled by technology, regulatory influences also that that is driving and becoming an accelerant for change. Companies are looking to adopt and use best practices from different areas across the world and embed that into their organization. Liquidity management is one of the key areas of focus continues to be not just in the United States but globally a big area of focus of Treasurers. Liquidity management and within that I would say cash forecasting continues to be top of mind. So, the adoption of bank provided solutions, solutions provided by vendors who specialize in certain capabilities has been adopted quite extensively across the market. Also looking at cash optimization solutions, how do I pool my cash together? How do I structure my cash sweeps? How do I look at my investment sweeps? What investment sweep options do I have on balance sheet and off-balance sheet that are available to me? Those are some of the solutions that companies started to tie in into their overall working capital management as well. Understanding their payment terms, understanding their contingency lines, understanding credit availability, and also tapping into the capital markets in different avenues in a much more structured and coordinated manner has helped them optimize cost as well. And staying ahead of the regulatory game, working with banking partners who have the ability to provide insights, have the know how around what's happening around the corner, but also have the perspective of the benefit of looking across the industry to share best practices around treasury change and treasury evolution as well. So, digitization has been a big theme. Data strategy has been a big theme. Cash forecasting and new adoption of technology has been a big theme for me. 

>>Jonathon Traer-Clark:
Thank you. And it's evident just from the things that you're saying, that it's not just about the discipline, but it's also about the connectivity in a very literal sense. Networking with your peers, obviously talking to your banking partners and getting their insights on the changes and things that are happening across the world and really just staying informed, right. Though different trends are happening in different parts of the world and all of them can give you a much more comprehensive picture of both opportunities and also things to look out for. 

>>Suraj Kalati:
Yes, the information is available everywhere for us, really, and that connectivity is what allows us to circulate that and provide it to each other. I think I've been very happy to have this conversation with you. It's been an exciting topic, one that's very close to my heart, and over the years I've helped companies sort of move the needle in change and transformation. And I'm really happy to work with our clients here at Wells Fargo to do the same as well. So, looking forward to our next session together, next catch up together as well. 

>>Jonathon Traer-Clark:
And Suraj the feeling is mutual. Thank you for giving us all of these takeaways. We really appreciate it and we're very excited to have you here at Wells Fargo running our liquidity team for us. Thank you again.

>>Suraj Kalati:
Thanks Jonathon.

>>Jonathon Traer-Clark (Disclosures):
Global Treasury Management products and services are provided by Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company. Wells Fargo Bank, N.A. is not liable or responsible for obligations of its affiliates. Deposits held in non-U.S. branches, subsidiaries or affiliates are not FDIC or CDIC insured. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC.