With the current high interest rate environment and the recent banking turmoils, the significance of treasury management has evolved from being a mere operational function to becoming an essential strategic imperative for businesses of all sizes.
A Paradigm Shift in Finance
Traditionally, treasury management was often confined to rudimentary tasks like cash handling, liquidity management, and risk mitigation. However, this year alone has shown how strategic the impact of treasury management is . This transformation is driven by the compounding effect of three factors which are reshaping the banking service industry.
1. Volatile Markets: The financial landscape has become increasingly complex and uncertain, marked by interest rates volatility which led to some banking turmoils. In such an environment, efficient treasury management becomes essential to safeguard an organization's financial stability.
2. High Interest Rate Environment: The Fed has hiked rates in an unprecedented manner to combat inflation. Interest rates are now sitting close to 20 year high and the Fed doesn't seem to be committed to stop hiking rates yet (not even mentioning cutting rates). It is clear that the economic environment has now changed and long gone are the days of the “lower for longer” for interest rates.
3. Technological Advancements: The advent of cutting-edge technologies like banking as a service, digital custodian, instant account has now made the custody of funds more fungible than ever. Sophisticated treasury management used to be restricted to only very few large corporations, now technology is democratizing access to corporate treasury management to businesses of all sizes.
Numbers Don’t Lie
While the three points above are merely qualitative observations, we can assess their impact in a quantitative manner. As the chart below shows banks deposits have now decreased by more than $0.5 Trillion since their peak while Money Market Fund inflow have seen a commensurate increase. This clearly indicates the seismic shift taking place, businesses in particular are taking notice and are voting with their feet. The trend is clear: Bank deposits are shrinking while on the other side treasury products are gaining market share
Where Do We Go From Here?
While banks are not at risk of extinction given the need for banking service for the economy their number is certainly at risk of attrition. Deposits have not only gone away from banks toward treasury products but have also gone upstream toward the Big 4 banks. The trend toward more banking concentration seems ineluctable and in the process it implies smaller and mid-size players will need to adapt by increasing the sophistication of the services they provide to their customers. The implication is clear, in order to not only retain but grow deposits and customers an efficient treasury management offering has now become table stake for banks.
Reach out to Treasure if you want to seamlessly add a treasury management solution to your services via Treasure Embedded Yield API.
