Defining and shaping the digital treasury
The nature of digitalisation and its potential value to corporate treasury functions globally can vary considerably, so what is driving treasurers’ digital agenda, and what issues are they seeking to address? The following insights are from a panel discussion held at the DBS Reshaping Cash Management Event in Hong Kong, where the different digital perspectives for treasury across a spectrum of industries were discussed.
From left - Moderator: Mark Troutman, Group Head of Sales at DBS Global Transaction Services, Panelists: Tony Lam, General Manager, Finance and Treasury Division at Tai Chong Cheang Steamship Co. (H.K.) Limited, Ravi Chidambaram, Finance Director, Foodservice North Asia at Huhtamaki Hong Kong Limited, William Ross, Chief Executive Officer at Lazada Cross-Border (Hong Kong).
Perspectives on digital transformation
Raof Latiff, DBS: Treasurers understand digital transformation in different ways. For some, digitalisation represents the shift to electronic banking, the use of electronic versus manual payment methods, and an element of process reengineering. For others, digital treasury involves sophisticated data analytics, process automation and bespoke solutions to support innovative business models.
The key to the success of any digital strategy is to address business problems and reduce points of friction. We work with customers to understand their evolving business, including how they interact with their suppliers and how they sell to customers, to identify pain points and opportunities for improvement. We refer to this as a 4-D design thinking process (Discover, Define, Develop, Deliver) which includes a structured approach to designing a concept, evaluating and validating this against the business problem, and then developing the final solution. This approach has already proven to be very successful across a variety of industries and business cases.
: The impetus for digitalisation will differ for each treasury, depending on the business model and trends within the relevant industry. However, while digitalisation affects companies in different ways and at different rates, ultimately every organisation will be impacted. At Lazada, for example, digital is at the heart of the entire business model, but how far does this extend to treasury?
William Ross, Lazada: As an e-commerce market based in Singapore and covering five other countries in the region, Lazada is truly a ‘digital native’ organisation which affects every aspect of how we operate, such as how we integrate new markets. Our market covers two of the world's largest archipelagos. We need a way to offer the same catalogue of products to customers no matter where they are located, and digital integration is the only answer. Secondly, we need to transfer goods to these customers. Here, digital meets physical, specifically in logistics. But with huge and growing volume of transactions – and therefore parcels, the only way to manage scale is through digital enablement.
However, although we are a digitally-enabled business, this approach is not applied universally throughout the company, and treasury is an example of this. In reality, as a fast-growing business, with investment in the front line, it is easy for treasury to lag behind. The opportunity is therefore to replicate the economies of scale that we have achieved in our front-line business to the way that we move money between buyers and sellers. And just as we have digitally enabled logistics to achieve this, the same will apply to treasury. One difficulty is that not all of our customers use cards or e-wallets: in markets such Indonesia and the Philippines, almost 100% of our purchases are through cash on delivery. Treasury therefore needs to be able to manage both digital and physical; however, we also need digital solutions to optimise cash and liquidity management across our business.
Ravi Chidambaram, Huhtamaki: This resonates with our experience too, particularly amongst our smaller customers, even in a relatively open environment like Hong Kong. If a customer runs a small, cash-based business, they may lack electronic payment tools, and so they use cheque or cash to pay us. In time, digitalisation will reduce the risks associated with cash and manual payments significantly, and will also help customers to manage their businesses more efficiently.
Tony Lam, Tai Chong Cheang: It’s absolutely the case that different industries are experiencing or driving digitalisation to different degrees, but there are obstacles to overcome, such as internal and/ or external resistance to change. B2C businesses are typically more advanced, but in many B2B businesses, it is difficult, and requires long internal negotiations, to replace existing manual processes and instruments that have existed for many years.
Our digitalisation agenda is defined by a variety of drivers, of which regulation is a key one. Shipping companies need to have a separate company, and therefore a bank account, for each ship and customers prefer to pay to this entity rather than to a central treasury account. Therefore, we needed to look at cost-effective, automated ways to optimise liquidity across the group. Consequently, we have partnered with DBS to set up our first physical cash pool across Hong Kong and Singapore.
Drivers of digitalisation
Mark Troutman, DBS: We discussed earlier that a driver of digitalisation is to identify customer problems and points of friction: how is technology enabling you to meet the needs of your customers?
Ravi Chidambaram, Huhtamaki: Our customers range from large multinationals to small enterprises, so we need to adopt digital solutions that meet different needs. From a treasury perspective, it is tempting to focus more on the largest customers where you can build electronic interfaces and implement electronic collections. However, smaller customers tend to get left behind, so digitalisation needs to embrace the full spectrum of customer needs. Another challenge is that although we are a global business, we have a local face. This means we have local operations to work with our customers in each country. This makes it difficult to achieve economies of scale, and much of our time is spent supporting these local operations rather than focusing on added value from a treasury perspective. I see solutions such as DBS Treasury Prism fulfilling an important role in this respect.
William Ross, Lazada: We are part of the Alibaba group, which is a major advantage as we are able to leverage their digital resources, such as in the recent release of a new version of our app which has proved very successful, together with the planned launch of our new service marketplace to enable third parties to offer services such as financing and logistics to our sellers. Digital expertise is at a premium during this current period of accelerated innovation, and it is important to leverage different parties’ expertise to solve particular problems.
Mark Troutman, DBS: This community approach to problem is interesting; how does DBS relate to this?
Raof Latiff, DBS: We are engaging directly with customers across the entire digital spectrum, from those in the early stages of digitalisation to the very advanced, to understand their challenges and collaborate on solutions. Many customers approach DBS asking what they should be doing and the potential for digital transformation in their treasury. In some cases, where the business is being disrupted, or is at threat of disruption, digital transformation is essential to survival, so treasury may need to respond more quickly than those in industries where this threat is less apparent.
Whatever the drivers and speed of digitalisation, our 4D approach is a vital way of analysing customers’ business needs, identifying challenges, creating and delivering solutions. Almost 90% of new customer solutions are technology-led, whether using APIs, digital wallets or a variety of other innovative new technologies, which will increasingly use blockchain, or distributed ledger technologies in the future, depending on the problem that customers are looking to solve.
The impact of digitalisation on bank relationships
Mark Troutman, DBS: Treasury Prism is a key example of how DBS has used a collaborative, agile approach to develop a customer-centric solution. How do you think the use of digital technology such as Treasury Prism could change the way that you engage and communicate with your banks in the future?
Tony Lam, Tai Chong Cheang: We need to be specific about the nature of the dialogue we’re referring to. If we're talking about the way that we transfer a payment to the bank, then this is always changing, and will continue to do so. What I think is interesting is how digital technology is allowing a wider spectrum of corporations to interact with their banks in new ways that add value to their business. In the past, banks have typically only been able to engage directly with their largest customers, but the barriers to entry are lowering, so corporations of all sizes will be able to enjoy the benefits that the largest corporations have experienced in the past.
Ravi Chidambaram, Huhtamaki: One of the challenges for treasurers is to keep up with the pace of regulatory change in the countries in which they operate, including what opportunities exist to manage treasury more effectively. Treasury Prism gives us a single window to keep track, simulate and analyse new solutions, and become more proactive in understanding and responding to market and regulatory change. This is a major benefit for a global company where we are constantly challenged to manage cash in different jurisdictions with different regulations.
William Ross, Lazada: The relationship between a corporation and its banks has shifted away from a conversation about functionality to a conversation about insight and expertise, which is a very positive step. Increasingly, we will be coming to banks not just for credit or functionality but for expertise and advice on how to best manage treasury in a way that is compliant, competitive and cost effective across the countries in which we operate.
For example, one of our aims is to transfer products from A to B as quickly and cost-effectively as possible, whilst giving both parties visibility on where the product is in the cycle. This is a competitive factor and an important way of distinguishing ourselves from other platforms. We want any of our sellers, in any location, to be able to sell to customers in any other location seamlessly, without concerns about currency risk or payment delays, that they would otherwise have to include in their markup, and therefore become less competitive. We are therefore looking to our banks to help pinpoint and resolve problems and opportunities to support the business more effectively, and evolve solutions with us as our market evolves. Cash management can be competitive, and a way of differentiating ourselves.
Ravi Chidambaram, Huhtamaki: This resonates strongly with our experiences. We want to present a consistent Huhtamaki experience to customers in any location in a way that would be difficult for another corporation to replicate. We work interactively with customers to create this experience, which is an important way in which we measure performance, and treasury plays a key role in ensuring that this can be replicated across our footprint.
Tony Lam, Tai Chong Cheang: For us, bank connectivity is the first priority on our digital agenda, such as partnering DBS to explore a host-to host solution between the bank and our ERP. Moving cash across borders also remains a challenge due to regulatory restrictions, so the easier banks can help us to make this process, the better. There are a variety of barriers to any new digital initiative, not least creating the internal business plan and educating and convincing the relevant groups across the business. Lack of IT resources is another, so again, support from our banks in addressing this is important.
Optimising bank relationships
Mark Troutman, DBS: If you could improve one aspect of the way that you engage with your bank, what would it be?
Tony Lam, Tai Chong Cheang: For us, I think the top one would be to support our business across all of our locations in a consistent way. This becomes even more of a challenge bearing in mind that we work with multiple banks. As every bank and sometimes each branch of a bank has different Know-Your-Customer (KYC) requirements, it would be helpful to standardise this, potentially by providing this data once, which can then be disseminated across our banks.
Ravi Chidambaram, Huhtamaki: We want our banks to help us keep regional cash levels as low as possible, and how to manage the cost of cash and treasury management as closely as possible. DBS Treasury Prism is really exciting for us as we can see our options and assess potential costs easily.
William Ross, Lazada: Our ideal would be to have a single wallet that we could use to pay in any currency and in any country, without having to exchange currencies or net cash across countries. In the meantime, visibility over cash flows, including where cash is coming from and where it is going, is essential. We can then to net cash flows more effectively or enlist the help of our banks to leverage receivables to provide low cost credit to avoid the need to transfer cash across countries and currencies.
The digital treasury challenge
Mark Troutman, DBS: What’s the biggest challenge your treasury faces this year?
Tony Lam, Tai Chong Cheang: For us, regulation and its impact on financing costs is a major issue. Visibility over cross-border payments, such as USD settlement, is also a real challenge, which we see is likely to be addressed through SWIFT global payment innovation (GPI), but this is only in phase one. There are also fintech companies offering payment solutions, including cross-border, but there are questions around settlement timing, legality and revocability that do not apply when clearing payments through the banking system, as well as questions around trust and credibility. I think in the consumer space, there is a focus on technology innovation and convenience, but in corporate banking, the pressure is more to improve efficiency and reduce costs.
Raof Latiff, DBS: The concept of payments, including payment tracking and settlement, is going through a transformation, in part driven by expectations arising from e-commerce models. If you buy something online, you can see that payment has been made. Today, you do not have this immediate confirmation when making cross-border payments. Digitalisation is creating a step change in this area with a variety of initiatives underway, such as priority payment for instant cross-border payments, that are evolving quickly.
As people become more familiar with online and mobile payments for personal banking, they are likely to become more inclined to use these technologies for business purposes, so we expect to see a consumer and corporate payments become more closely aligned. Lack of financial infrastructure has been an issue in some countries, but this is changing rapidly with the introduction of faster payment networks. Banks are then able to develop a wider range of payment and collection solutions that meet customer demand for faster, more traceable, cashless payments.
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