Treasury Management
Treasury management is the function that manages a company's cash and financial risk: where the money is, that there is enough where it is needed, how it is funded, how currency and rate exposure are hedged, and which banks hold it. In a payments company treasury also holds client money it must safeguard and settle, so it is a regulated operation, and a buyer reads its reconciliations before its forecasts.
- Also known as
- Corporate treasury, Treasury operations, Cash management
- Used at
- every company above a certain size; in fintech, from the first day client money is held — safeguarding, settlement, float management and FX are treasury's work before there is a treasurer
- Binding
- the safeguarding rules for payment and e-money institutions (client funds segregated in designated accounts, reconciled daily), liquidity requirements for banks, and the covenants of any debt
- Typical activities
- daily cash positioning across accounts and currencies; forecasting; funding (facilities, intra-group loans); hedging FX and rates; bank relationship and counterparty limits; payments and settlement operations; investment of surplus in permitted instruments
- Typical fintech complication
- the company's own cash, its customers' safeguarded funds, its scheme collateral and its regulatory capital are four pools that must never be confused, and diligence tests that they were not
- Parties
- the treasurer and finance team, the banks and custodians, the card schemes (collateral), the regulator (safeguarding, capital), and the auditors
How treasury management works in practice
Every morning the treasury team knows the balance of every account in every currency, what is coming in — settlements from schemes and acquirers, customer top-ups — and what is going out — merchant payouts, supplier payments, payroll, scheme settlements. Surpluses in one currency fund deficits in another through FX; shortfalls are covered from facilities; the day's payouts are released against the day's receipts. Forecasts run weeks and months ahead so that a large payout or a tax date does not arrive unfunded. Hedging policy fixes how much FX and rate exposure the company carries and how it is covered — forwards, natural hedges, or nothing, deliberately.
In a payments company the same team runs the safeguarding: customer funds sit in designated accounts at a bank, separate from the company's own, and the reconciliation each day proves that the balance covers every customer's claim. A shortfall is a breach the regulator hears about; a surplus is the company's money in the wrong place. Scheme collateral is a third pool, posted to Visa and Mastercard against settlement exposure; regulatory capital a fourth, held in the licensed entity and not lent to the group. The discipline is that money moves between pools only on rules, and that someone can show the rules were followed.
For an acquirer, treasury is where the balance sheet's truth is: the daily safeguarding reconciliations for the last year, the counterparty limits, the FX exposures nobody hedged.
Example
A payments company's treasury on a Tuesday: €38m of customer funds in safeguarding accounts at two banks, reconciled at 08:30 to €37.9m of customer balances (the €0.1m surplus is the company's own settlement timing, swept out at noon); €4.2m of scheme collateral; €6m of own funds in the licensed entity; €11m of operating cash. Inflows expected: €22m of scheme settlement in EUR, £6m from a UK acquirer. Outflows: €24m of merchant payouts at 14:00, $3m to a US supplier. The GBP surplus is sold forward against next week's EUR payouts; the USD is bought spot at a 0.15% margin under the company's bank agreement; the payouts are released at 14:05 when the EUR settlement lands. A buyer's diligence six months later reads 250 such days and finds two on which the payouts were released before the settlement arrived, funded from the operating cash — legal, and the kind of thing it asks about.
Common mistakes
- Client money, own cash, collateral and capital in accounts that treasury sweeps between as one pool. - Forecasting to the month when the risk is the day — a Friday payout larger than the Friday receipts. - FX exposure carried unhedged because nobody decided, rather than because someone did. - Counterparty limits that concentrate the company's and the customers' money at one bank. - Treating treasury as bookkeeping; in a payments company it is the licence.