Listen: How treasurers, CFOs can de-risk idle cash through automation

Company treasurers and chief financial officers are worried about access to cash and the risks associated with keeping cash on hand amid drastic changes to the investment market during the past six months that have followed the pandemic, stimulus payments and rising inflation. “Everything you knew about investing, which really means zero rates on cash for at least 20 years, has suddenly completely gone out the window,” Stephane Lintner, chief executive and co-founder of money movement and storage fintech Jiko , tells Bank Automation News in this episode of “The Buzz” podcast. “People are waking up to the realization, ‘Just because I thought I had cash somewhere, maybe it isn’t there,’” he says. Now, treasurers and chief financial officers are moving back to cash management, counterparty risk and mitigation to the extreme to try to make yields on cash in order to pay bills and payroll, for example, according to Lintner. He noted that clients can look to fintechs for quick, automated access their cash that sits in treasury bills. Listen as Lintner discusses how corporate finance professionals can access and de-risk their idle cash through automation. 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Subscribe to The Buzz Podcast on iTunes , Spotify , Google podcasts , or download the episode . The following is a transcript generated by AI technology that has been lightly edited but still contains errors. Whitney McDonald 0:06 Hello and welcome to the buzz of bank automation news podcast. My name is Whitney McDonald and I'm the deputy editor of bank automation news. Joining me today is Stephane Lintner, chief executive and co founder of FinTech, Jiko. He discusses why automation can be challenging for financial institutions, and how CFOs and other corporate finance professionals can de risk their idle cash. Stephane Lintner 0:27 First, thanks for having us on the podcast. The industry is going through recent in our perspective, same kind of cycles, it's gone sadly, enough of 10 years or so too much leverage too much, overconfidence people building too quickly, and then not a correction. So it's been compounded with COVID, and all the stimulus. So it's been inflation that we haven't seen in years. And so in the last six months, the market has drastically changed. If you're a treasurer, or you own a PE firm, or you want to bank's balance sheet, everything you knew about investing, which really meant zero rates on cash for at least 20 years is suddenly completely gone through the window. And now you have to worry about access to cash if you have to raise it. Ability to look so cost of capital is not cheap anymore. You need to keep your cash on hand and and get as much yield as you can while trying to avoid risks. So you even a couple of months ago, it was that was already in the market, people start to worry about Okay, now that there's rates and there's yield, what should I think about? What do I put my cash, maybe I don't need to be in the stock market anymore. But now over the last two weeks, it's been accelerated and further because with the FTX Yeah, you have to example suddenly, the word counterparty risk is creeping back left and right. People have woken up back to the fact that just because I thought I had cash somewhere, maybe it isn't there. And now where do I have it? Where is my order liquidity, which I'm going to need to pay the bills for the company, the payroll and, and all this stuff over the next few years. So as a treasurer, as a CFO, it's cash management and all its glory back to what it's always been in, which is counterparty risk, mitigate that to the extreme, try to make yield on it. But as almost as a secondary thought, I'd try to navigate all the all the turbulence is hoping for better days, right? So that's, that's what the market looks like right now. And it's a little scary. Whitney McDonald 2:16 So with the same set of what what today's what the industry looks like today, what exactly can CFOs be doing to navigate this? Stephane Lintner 2:25 Well, one of the core things is to come back to core principles. What is cash, what does exist, anything that's wrappers around cash is not really cash, right. And so you can have it really, as a treasure, you don't have many choices, you could still invest, but those investments are risky, into stock markets and others, you have very limited choices. If you're trying to think about cash preservation, a typical instrument is typically a bank deposit. But and there are cities so you can whatever bank you're leaving your cash to, the big question is going to be, well, is this bank, a bank, I should trust long term, big banks obviously have been shored up. And there's been lots of lessons learned from 2008. But still there, counterparty risk exists or one thing, of course, is to diversify across a few banks. But anything above 250,000 is not insured. It's not just the risk of the bank going under, it's which you know, banking is not at the stage of readiness, that crypto is lengthy. But it's really also, even when stocks did that sometimes when it gets gets frozen banks may or may not be able to access it. So there's just diversifying your counterparty risk deciding where you're going to leave some cash on bench. That's the first tool. The second tool is normally if you think about textbooks, you should try to get into your government or short term security. So Chico, in particular, we like to this is what I observed in 2008. When I joined, I joined Goldman Sachs, back then fresh in the fresh out of grad school with a math degree I had no experience about banking and 2008 happened. And one of the first things I learned there was that Treasury bills, short term government debt is actually the collateral that banks pledged to each other, it's not cash, cash doesn't really exist. And so with bandwidth treasures, have a choice and is trying to access treasury bills. That's the safe instrument you're facing the US government, the only risk you have is that they may lose a little bit of value with with market fluctuations. Everybody knows that. But for years, it didn't matter, because these instruments were yielding zero. And so the way to work around was to simply have money at a bank or invest in funds that hold treasury bills and similar instruments and those are the money market funds. So as a treasurer, I have access, typically to bank deposits. We've locked down a lot of lockup and penalties and other things and or money market funds, which are securities I still need to access them and I don't get really get to choose what's in there. Just these are the two choices to try to keep my cash on hand. The last choice is to face the government directly. That's usually not an option. That's really the Treasury direct. government's website is works for retail. For corporates, it's a much more difficult animal. It's got limits 45 days before you can draw 10 million maximum limits on things like that. So the treasurer is having limited choices right now. And we're seeing a lot of demand for directors reveal access, because it's all on the theme of removing the risks removing as many unknowns as you can peel off the layers or on the onions and the wrappers and the the funds of things that hold things, it's just go straight to the actual underlying thing that you're trying to hold, in this case, treasury bills or cash. Whitney McDonald 5:22 Now, with those types of tools in place, I want to shift a little bit to which technologies you should have in place. And that's probably where jiko comes in. Um, can you share a little bit about what the jiko offering is and what it does. Stephane Lintner 5:35 And its current form, it's very simple, we're giving the access to Treasurers and CFOs. And people as well, actually a very streamlined access to Treasury bills, would it through ATI or through our portals, treasurer's can wire cash into their accounts, we make them. Gmail accounts are both a banking and brokerage account tied by the hips, so really, all you can do is move money in without using wires. And then on the back, the accounts automatically invest in the latest Treasuries of Your much of your often maturity you care for and then hold them, roll them at the end, you never have to treat a security, pick a particular CUSIP, that's the identifier that the treasuries go with. So that whole complexity of trying to access the Treasury market, we've simplified it to the extreme, making it look like four, we call them pockets, give everyone four pockets, the one month, three months, six and 12 month, and all you do is wire into your pockets wire out whenever you need to access. And that's it. It's really the least sexy product. But that's why actually right now it is active because everyone can understand it. Everyone can go to the board with them and say actually, we're going to access tables directly their custody that the Bank of New York Mellon, Chico fails, we know exactly where they are. And plus Chico is not going to fail because no balance sheet. So it's this really streamlined, simple, simple product that we initially built for scale through automation. And that's part of the dialogue today. But it's also why it's so relevant in today's today's market. Whitney McDonald 7:01 Yeah, speaking of automation, can we talk about where that that fits into the big picture? Yeah. Stephane Lintner 7:08 Well think about the offering I just described, you have an account that you can wire money in, and the account immediately then purchases Eagles for you. And if you need them out, if you retail, you can even swipe a card against your account, and you just sold treasury bills. And at 2am on a Sunday morning, that level of automation required several years of work, because we have to go all the way to the bottom at the ledgers rebuilt the whole technology stack at Chico because the normal way to approach that is what normally happens, you have a bank account somewhere else ever brokerage account, if you're lucky, you move money from your broker and Q brokers take some time. Now you go plays you choose your security, you buy a specific money market fund or a specific treasury bill, if you really know what you're doing, and wait a day or two to be filled. If you get filled in now you have your T bills. To manage that that's going to at some point, they'll expire maybe coupons at some point, you want to get the cash back, you have to sell them wait for that to settle, then you bring the money back to your bank account. Now you can transact. So everything I've described here, we've compressed that through automation at large scale, our technology platform is able to handle all of that it powers both our bank and our broker dealers, who was not just a technology company, I should have started with that. We're a bank, a broker dealer was fully regulated by the Federal Reserve, the SEC and FINRA. And so through automation, we've integrated all these complex moving pieces into a single offering that's streamlined now and simple and safe that everyone can understand. Yeah, well, maybe I'll reemphasize one piece of it is this is all about automation. Automation is hard, because of all the compliance leaders, but also usually banking is built as an onion layer of layer of layer that being built of just of technology, right? It started with, with punch card machines, then it became IBM mainframes and layers and layers, some of them all the way through card processing. So that makes automation difficult, because you have all these systems to talk to. And if you bought source part of your core, you need everything to talk with each other. In our case, we've taken the hard step of rebuilding everything bottom up, but now we have this really unique clean edge that allows us to automate really quickly change features quickly, safely, and adapt our product to the market. And so one of the key for automation is that vertical vertical integration, that is something that most people will need. And that's what we're so happy to offer now that we've built it the services and the technology through API's to others who may not have had the luxury to rebuild from the bottoms up. Whitney McDonald 9:30 They started to talk about it a little bit, but why don't we dive in to why automation is so difficult for financial institutions kind of walk us through what that what you meant by that? Stephane Lintner 9:40 Yeah. There's different layers in that. The first is that mostly financial institution we're not built as technology firms. Obviously, many banks existed way before the digital age. They used to run on punch cards and machine banking has always historically been kind of the front of technology always reacting a little to Silicon Valley, but things slowly come where most banks now have mobile labs 10 years ago, that was revolutionary. But now they've caught up. So banks, banks catch up with technology, but they're not built at the bottom on technology, because their primary business historically wasn't technology, it's really still is to build the right model to decide who to lend money to, and who to, and then how to process the deposits. But the hard part of the work is the lending book. And that's the whole Defining the Financial work. So banks are not by DNA built as technology companies. But vice versa, if all you're thinking about is even if you have the technology, you still money that you're moving around. So you know, you're doing it for a bank. And there's risk involved there that the bank will underwrite, or you aren't a bank, and you have your tech stack, which is our case. And you still need to figure out, you need to ask the question all along. Whose money is this? Why are we moving this? Does the customer really want this money moved? Did they really want the security? Is this the right thing to buy for them? Are they laundering money? Are they it's just the right amount? There's all these countries questions, you have to ask because once it's gone, it's gone. Or if it's gone to the wrong place, and the customer complaints, your reputation is down or regulatory slip. And so it's it's the scrutiny around every single little movement, every single piece of software. And that's what you need to build natively. And there's risk processes that are embedded compliance embedded all the way to the core from the ledger up all the way to your front end and API's. So automation is crypto has shown that you can go really far and we're we're building similarly. But we've always had compliance piece that needs to go along. And that's what makes money transfers. Not so easy. Technologically, a ledger is just a database, it's easy to move things between the database very cheaply. It's all the rest above that all these questions that make it difficult. One of the key things, what are the key points and of course, everybody knows that I'm sure your audience is a CFOs. Intrusion bankers will know what the rates are. But let's let's remember, and one month treasury bills is holding at 3.5%. Right now, the one year bond is at the 4.6% level, stay tax exempt. That's that's the yield you get for facing your own government. And so we should get get this on tables. That's the first place your money should go. After that you can optimize but start with tables, put it through us if you can involve that Baloney, but that's the rate 3.5 4.6%. Those are, those are very large yield that can make a huge difference on anyone's cash. And that's something everyone should have those numbers on the back of their mind. Whitney McDonald 12:22 You've been listening to the buzz, a bank automation news podcast, please follow us on Twitter and LinkedIn. And as a reminder, you can rate this podcast on your platform of choice. Thank you for your time and be sure to visit us at Bank automation news.com For more automation news Transcribed by https://otter.ai

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