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In 2018 evolution speeds up as payment fraud declines and Bitcoin hits reality

2018 is almost here! That means we are obligated to recap the past year and make deep, insightful predictions for 2018. Here are my predictions for 2018.

Payments Fraud

There were more payments fraud attempts in 2017 than in any other year. Treasurers also reported more fraud successes, as criminals’ attempts grew beyond the basic BEC scams that treasury is trained to recognize. Fortunately, we have also begun to see greater sophistication in fraud prevention, including the introduction of real-time payment screening algorithms to ensure that treasury technology aligns with internal payment policies to stop unauthorized payment activity. The combination of external fraud screening (e.g. watchlists such as OFAC) along with internal, scenario-based real-time detection offers a critical protection against this increasing threat of payments fraud in 2018.

2018 Prediction: Increased number of payment fraud attempts, but less success by cybercriminals meaning actual fraud starts to go down.

Faster Payments

Several new faster payment initiatives were introduced or expanded in 2017 including SWIFT GPI, same-day ACH, SEPA Instant Payments, and the very recent introduction of The Clearing House’s Real-Time Payments (RTP) platform. The trend is clearly moving to instant delivery and settlement of payments; the only question being whether existing players will continue to stay relevant amidst the potential disruption of incoming FinTech payment providers. For now, treasury teams will continue to send the vast majority of payments through banks. But the temptation to explore new channels will be too much to resist for those that face extremely high FX translation costs for international payments. Newer Blockchain and distributed ledger technologies will also reduce the perceived risk of working with new types of payment providers.

2018 Prediction: Major banks will support the option of real-time, low value payments in the EU and US. But it will be a costly option, initially limiting the attractiveness to treasury teams.

Hedging

IFRS9 went into effect in 2017 and, somewhat surprisingly, this has been reported as primarily a compliance issue. What IFRS9 actually represents is an opportunity to hedge more easily, with the reigns being loosened for those that used anything but forward contracts to hedge FX or commodity exposures. And even for those ‘simple’ scenarios, the elimination of retrospective effectiveness testing to determine if a hedge was highly effective represents a huge win for those that saw hedge accounting rules as prohibitively difficult to follow. With IFRS9 – and the soon to be updated ASC815 in the US – treasury teams can no longer point to accounting compliance as a reason not to hedge currency and commodity exposures.

2018 Prediction: Simpler compliance offered by IFRS9/ASC815 will encourage companies that previously sat on the sidelines to adopt hedge accounting programs.

Lease Accounting

ASC842 (or IFRS16) is a year away. Considered by some as hedge accounting for leases, the new lease accounting standards will have a profound impact on treasurers who have to manage leases alongside liquidity instruments. 2018 will be the year that treasury starts paying attention to both the processes and technology used to support lease accounting. 2018 will also be the year that treasury systems expand their capabilities to not only manage the accounting for leases, but also upgrade the tracking and reporting of lease instruments.

2018 Prediction: Momentum for lease accounting will build throughout the year, as procrastinators realize there is value to preparing early.

Cryptocurrencies

Bitcoin is once again at an all-time high, with a price reaching $20,000 USD per bitcoin at one point. Yet, bitcoin will still be a quasi-commodity in 2018 owing to the very limited supply that drives the price escalation (and volatility) we have seen over the last several years. While bitcoin itself is unlikely to become a mainstream cryptocurrency that treasury can use in any practical way, cryptocurrencies will make further inroads in 2018 and subsequent years. The use case that we are starting to see is with aspiring FinTech’s developing cross border, peer-to-peer (P2P) solutions. These providers, often leveraging distributed ledger technology (note: blockchain is one of many distributed ledger technologies), are finding opportunity in the FX spread for cross-border payments that banks so often thrive upon. Many of these solutions are using their own cryptocurrency as an intermediary with net settlement occurring later. While the payment provider absorbs some currency risk, there is enough headroom for money to be made without having to charge sending or receiving fees on the payments themselves.

2018 Prediction: This is not the year for cryptocurrency to hit the mainstream (although the revolution is coming, likely led by e-commerce giants). Bitcoin may be exposed for what it really is: a commodity rather than a currency.

CISO in Treasury

This year also saw the Chief Information Security Officer – or CISO – pay more attention to safeguards protecting treasury systems and treasury data. Part of this is regulation driven (e.g. GDPR in the UK, similar to PII in the US), but for the most part this is the best practice of having standardized security and controls across the entire organization. Data hacks – in addition to payment fraud – are becoming more common and no CISO wants the department that manages the organization’s cash to be the weakest link. CISO’s are providing treasury a checklist of requirements including two factor authentication, IP Filtering, and better business continuity planning. The CISO is, in many cases, also taking over security of the treasury systems by implementing single sign-on to their internal environments.

2018 Prediction: Treasury finally gets on board with best practice application and information security practices. And payments fraud is reduced, as a result.

Robotics
Treasury robots are coming. In fact, there are already examples of robotic software managing specified treasury workflows in the US and in Europe. Yet the technology remains limited in that robots are only capable of what we program them to do. While the algorithms may be complex, today’s treasury robot is still at the mercy of predictable data and scenarios. There isn’t much distinguishing a properly implemented TMS from a treasury robot … yet.

But we will see further progress in 2018 where robots with artificial intelligence, including machine learning, will make further commercial inroads. Artificial intelligence offers the tipping point where a technology can actually replace people – giving rise to new types of roles within treasury. This isn’t going to happen overnight; various technology experts across all industries predict disruption to take place within 10 years or less.

Treasury isn’t likely to at the front of the line; there are other functions within organizations that are more likely to benefit from significant process automation. But that should not be an excuse to wait; treasury should begin preparing for its future role as an advisor rather than a processor.

2018 Prediction: 2018 is not the year of ‘treasury as a robot,’ although we are getting closer. Get ready for more press releases and stories about treasury ‘bots.

Tax Reform
Tax reform is almost here, with a few more steps before it becomes legislation. While there remains much political discussion, there is also optimism that the key tenets of what were promised by the current administration will be implemented. These include the cuts in corporate tax rates that support repatriation of overseas cash. There are other complexities, of course, but what the market was promised seems destined to occur.

Most treasurers have begun preparing for repatriation of cash, knowing that if their boards and investors haven’t demanded action yet, they soon will. Repatriation isn’t as simple as wiring everything back to America; there are questions to be asked and answered to optimize shareholder value. Not all overseas cash will be repatriated just like not all cash will be returned directly to shareholders. Yet, all parties seem to agree – this will be a good problem to have compared to the current tax environment.

2018 Prediction: Some investors and analysts will struggle to understand why every penny of overseas cash can’t be repatriated, putting more pressure on CFOs and treasurers to explain what they do to the board and shareholders.


In summary, 2018 should be full of opportunities for treasury. New legislation and regulatory compliance will go into effect, and we will continue to see glimpses into what new treasury technology innovation can deliver.  


This item appears in the following sections:
Connectivity
Dealing & Trading
Fraud Prevention
Payments - Bill Collection
Payments - Collecting at POS
Payments - Making
Risk Management

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