This is the first of a three-part article series
As corporate treasurers and CFOs head into a new year, it is time they reflect and review the most important priorities and challenges of the year gone by, many of which are expected to continue well into 2023.
At CTMfile.com, we have published relevant articles and interviews over the last 12 months that have resonated with our target audience. In the first of this three-part article series, we summarise four key areas from 2022 that are likely to linger into 2023 as priorities for finance and treasury professionals.
The most pertinent article links for each of the focus area sections have also been published below to help corporate treasurers and CFOs revisit the most pressing concerns and issues they faced in 2022 as they prepare and plan for an uncertain 2023.
Real-time payments (RTP) is one of the fastest-growing segments in the new global payments landscape. According to Grand View Research, Inc., “The global real-time payments market size is currently valued at US$17 billion and is expected to reach $193 billion by 2030, growing at a CAGR of 34.9% from 2022 to 2030.”
An evolution is underway in RTP, with Asia Pacific remaining the most developed RTP market globally. With India’s central bank, the Reserve Bank of India (RBI), helping spur a digital payments boom in the country, India has surged ahead as the world’s leader in instant payments.
Research by ACI Worldwide shows that India has extended its global leadership in RTP, hitting a staggering 48.6 billion transactions in 2021, helped by the country’s United Payment Interface (UPI). This is almost three times that of its nearest challenger, China (18 billion transactions in 2021), and almost seven times greater than the combined real-time payments volume of the world's leading economies – the US, Canada, the UK, France and Germany (7.5 billion).
As per data from ACI Worldwide, the US is lagging behind other nations when it comes to RTP. It recorded only 1.8 billion real-time transactions in 2021. However, the US is one of 60 different countries with a real-time payments infrastructure. The launch of the US Federal Reserve’s (Fed) real-payments network, FedNow, which is set for sometime between May and July of 2023, is expected to modernize the way thousands of institutions move money and allow for greater use of instant payments at all times.
CTMfile article links (real-time payments):
- The digital transformation of the global payments landscape: key components and markets
- Seven areas that will shape the future of payments
- 5 predictions for banking in 2022
Working capital and liquidity management
The Russia-Ukraine conflict pushed up global inflation to levels not seen in many countries in decades. Soaring inflation meant massive interest rate hikes by central banks worldwide, and rising interest rates resulted in higher borrowing costs for corporates in 2022.
This impacted their profit margins and dissuaded many from expanding because of their inability to access affordable capital.
Amid a rising interest regime and increasing economic uncertainty, prudent working capital and liquidity management remained top of mind for financial practitioners and corporate treasurers as liquidity concerns could be seen on the horizon.
Managing working capital efficiently in times of disruption can be complicated and difficult terrain for many finance and treasury professionals, but it can make a crucial difference in the liquidity available to further organizational goals.
The pressure to hold adequate cash to fund business operations is tremendous. As a result, corporations found themselves even more in need of real-time visibility into their company’s current cash position to understand the full picture of liquidity across their businesses around the world.
As corporate treasurers and finance chiefs work together to steer their organizations through a potential global recession in 2023, a significant lack of confidence is prevalent among the C-suite and finance and accounting (F&A) professionals “when it comes to the visibility their company has over its cash flow, suggesting that many global organizations could be making decisions without an accurate, up-to-date view of company liquidity”, states the recent Eye of The Storm: F&A’s Role in Responding to Instability & Volatility survey by BlackLine, Inc.
Given that treasury owns corporate cash, they must design and deploy strategic initiatives to manage liquidity and optimise working capital. Working Capital Management: Optimization & Alignment, a 2022 eBook released by Strategic Treasurer and sponsored by Corcentric, will help finance and treasury practitioners lead their organizations into a position of robust liquidity, efficiency and flexibility and assist them in maintaining a well-aligned working capital management programme. ⃰
CTMfile article links (working capital and liquidity management):
- Leading practices in corporate treasury (part 5): Treasury owns cash
- Leading practices in corporate treasury (part 8): Treasury owns working capital
- Key pain points for today’s liquidity management
Central bank digital currency (CBDC)
Central banks around the world are developing a central bank digital currency (CBDC) or a government-backed digital tender that, in essence, is a digital version of their existing national currency. CBDC promises to be a means of payment (domestic and international), a store of value and a common unit of account.
“105 countries, representing over 95 percent of global GDP, are exploring a CBDC”, according to the Atlantic Council GeoEconomic Center’s Central Bank Digital Currency (CBDC) Tracker.
The tracker also mentions that a new high of 50 countries are in an advanced phase of CBDC exploration (development, pilot or launch), with 16 of the Group of Twenty (G20) countries already in the development or pilot stage.
Corporations and banks could also use CBDC. “Twenty percent of large organizations will use digital currencies for payments, stored value or collateral by 2024”, as per Gartner, Inc. This prediction has important implications for corporate treasurers and CFOs as they consider adoption of CBDC.
The pound and the dollar are trailing the euro in the CBDC race, even as the UK and the US are the furthest behind on CBDC development among the G7 economies. To learn why the US has taken a deliberative approach to CBDC development and why CFOs and corporate treasurers should be thinking about CBDCs, we recommend you read the two-part interview series (interview links appended below) with Jennifer B. Lassiter, Executive Director of the Digital Dollar Project (DDP) that was recently published on CTMfile.
In time to come, the CBDC could dethrone cash as the new king and become the future of money.
Given that the digital legal tender race is heating up globally and central banks around the world are accelerating their plans to launch their CBDC, one thing is certain – 2023 will be another busy year for CBDCs.
CTMfile interview and article links (CBDC):
- Interview (Part 1): Jennifer B. Lassiter, Executive Director of the Digital Dollar Project (DDP)
- Interview (Part 2): Jennifer B. Lassiter, Executive Director of the Digital Dollar Project (DDP)
- CBDCs and cross-border payments: a gamechanger for corporate treasury
Environmental, Social and Governance (ESG)
Despite economic and business uncertainty, commitment to ESG and sustainable finance continued to climb up the corporate agenda in 2022.
How well a corporation performs on ESG issues is now becoming an increasingly critical performance metric for investors, management and consumers, even as corporate treasurers and finance chiefs are weaving ESG into strategy and operations. In fact, depending on the industry or region, ESG conversations have made their way to the boards, and corporate treasurers are reviewing their investment policies to include more sustainable instruments and taking a proactive role in the “net-zero” agenda.
According to Capital Group’s ESG Global Study 2022, “Europe continues to lead the world in ESG adoption, with more European investors (31%) citing ESG as central to their investment approach than those in Asia-Pacific and North America. Asia-Pacific ranked second at 22% and North America third at 18%.”
“Europe also boasts the highest percentage of ESG users (93% vs. 79% North America, 88% Asia-Pacific). This reflects the more mature European ESG market and regulatory framework. The North America region, by contrast, has the least conviction in ESG and the lowest percentage of ESG users”, states the report.
Concerns about climate change are at the forefront of investor minds, which explains the more focused allocation to the environmental (E) component of ESG, which has slightly increased its share to 47% in 2022 vs. 44% in 2021, the survey report explains
Source: Capital Group ESG Global Study 2022
Because of the focus on climate change, four in 10 investors (41%) think social issues are being overlooked in the climate change debate. This confirms why global allocations to the social (S) segment of ESG have remained unchanged, while the focus on the governance (G) element had marginally decreased in 2022 – 27% vs. 31% in 2021, the report further added.
In 2023, corporations worldwide will likely continue to recognize the importance of ESG investing, and ESG regulation is expected to become much more prevalent, requiring firms to disclose how they take ESG factors into account when making investment decisions. The shift toward ESG investing is gathering momentum, and given that there is increasing interdependence between environmental, social and governance issues, 2023 may be the year where all ESG components are given equal weight when it comes to investing.
CTMfile article links (ESG):
To conclude, bracing for the challenges of 2023 is an important strategic organizational exercise for corporate treasurers and CFOs. They must keep abreast of developments that involve real-time payments, working capital and liquidity management, CBDCs and ESG, staying ahead of the curve and uncovering opportunities and risks that may otherwise go unseen or unrecognized. Content published on CTMfile can help you stay current while assisting you in honing your expertise. We invite you to keep reading CTMfile and listening to the OpenTreasury Podcast throughout 2023.
⃰ Disclosure: Strategic Treasurer owns CTMfile.
To read the second part of this article series, click here:
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