Business Digital Transformation: Are We At A Game-Changing Moment?

Business Digital Transformation: Are We At A Game-Changing Moment?

Faced with unprecedented challenges of adapting to operational and supply chain changes overnight, remote customer acquisition and economic uncertainty, going digital is right back at the top of the agenda for businesses and corporates in Asia Pacific.

Rewind a year and businesses were still in the early stages of their digital journey with less than one in four (24.8 percent) large businesses in the region having a clearly defined digital strategy, despite most recognising the importance of digital transformation to improve their ability to survive and thrive (http://eastandpartners.com/uploads/files/research-notes/2019/2019-07_Research_Note.html).

So where do we stand now with business digital transformation? The DBS/East & Partners second “Digital Treasurer” benchmarking research is out.

 

Businesses Are Making Strides in Their Digital Transformation Journey

As businesses reshape their overall business strategy in response to the Covid pandemic, taking into account the shift in customer behaviour, supply chain disruptions, business model opportunities and operational continuity, they are having to take a step back and reassess their roadmaps. Many businesses are reporting a shift in their priorities and resources for the digital roadmap itself.

Despite these challenges, a larger proportion of businesses in Asia Pacific now have a clearly defined digital strategy relative to a year ago, according to insights research conducted by East & Partners for the DBS Digital Treasurer Index II. This figure has grown by 7.7 percent to reach 26.2 percent. At the same time, there is a material drop in the proportion of businesses with no strategy, falling from 25.1 percent a year ago to 18.7 percent. Taken together, these highlight an accelerating growth in digital strategy development among businesses in the region.

Current State of Digital Roadmap Development

% of businesses

Insights Research: Current State of Digital Roadmap Development (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

Businesses Are Making Strides in Their Digital Transformation Journey

Reducing cost and improving efficiencies in the long run have always been the emphasis in many business cases for digitisation. But increasingly, enhancing customer experience is rising as a key driver and for good reason. Having a user friendly and seamless digital platform is now integral to ensuring business continuity, especially when direct interactions with customers are becoming increasingly remote.

In fact, improving customer experience has been highlighted as the greatest ROI from investing in technology solutions by treasuries in the region, alongside reducing cost. Perhaps unsurprisingly, our research suggests that middle-market enterprises stand to benefit more relative to the larger corporates when it comes to customer experience enhancement, levelling the playing field for market participants.

“Cost efficiencies were where we began developing business cases together for digitisation investments but we’ve actually found lots of other benefits that flow, in particular making our customers more sticky and spending more with us.”

- Treasurer, US$2.5Bn, Hong Kong Regional Hotel Group

Key Returns to Investment

Rating on a 1-5 scale, with 1= high return and 5=no return at all

Insights Research: Key Returns to Investment (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

Where Are Businesses Investing in Treasury Services?

There has also been a shift in treasury investment focus. Cash management digitisation has initially led treasury digitisation in the region, as evidenced by the higher level of automation reported in cash management for large Asian businesses relative to other functions such as trade and supply chain financing, cross-border payments & FX, and risk & compliance reporting.

But now, businesses seem to have already eked out efficiencies in their cash management operations and looking to digitise their physical and financial supply chains. This is particularly prominent in Malaysia, India, Japan, Hong Kong, China, Singapore and Indonesia where a majority of businesses are investing in new technology solutions related to trade and supply chain financing.

“We’ve currently got 3 supply chain funding and management development projects happening which will then drive a redevelopment of our cross-border payment operations.”

- Treasurer, US$1.4Bn, Malaysian Importer/Exporter

Top Investment Area for Each Market

% of businesses

Insights Research: Top Investment Area for Each Market (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

What is your experience implementing digitisation projects in your organisation? What is the most valuable learning point that helped you along your journey?

We'd like to hear your thoughts and opinions, get in touch with us below.

On behalf of DBS, we are delighted to provide you with access to an interactive benchmarking tool, where you can find out how your organisation measures up against your peers in digital readiness.

Upon completion of the tool, you will receive an assessment of your digital readiness via 4 core digital values. Kindly access the benchmarking tool here: https://treasuryprism.dbs.com/digitaltreasurer

Have a conversation with DBS today.

Start your digital transformation journey today by finding out more about the latest, available digital solutions that can help to solve your treasury challenges. See our most recent articles on Digital Pulse, or sign up/login to Treasury Prism today to discover a world of opportunities.

 

This article was first published by East & Partners on 20 August 2020. The Digital Treasurer Index Research 2020 was conducted by East & Partners, in partnership with DBS and The Corporate Treasurer.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.

Digital Supply Chain Solutions: Asia at the forefront of digital growth

Digital Supply Chain Solutions: Asia at the forefront of digital growth

COVID-19 has made it clear that digitalisation is imperative for organisations to survive and thrive. As the pandemic accelerates global adoption of digital supply chain solutions, Asia is emerging as a catalyst for digital transformation and a beneficiary of economic growth, says Mark Troutman, Group Head of Sales, Global Transaction Services, at DBS Bank.

The COVID-19 crisis has created a need for contact-free interaction between customers, suppliers and employees, directly impacting business strategy, sales transactions, trade finance processes and treasury operations. As a result, many organisations have accelerated their digitalisation plans and treasury professionals are leveraging technology to overcome supply chain disruption – from API-led connectivity to enable remote engagement and eliminate manual workflows in the order-to-settlement journey.

 

Amid all these trends, Asia – spurred by its relatively quick recovery – is at the forefront of global digital transformation and poised to benefit economically from post-pandemic opportunities in Asia.

“There is a serious move to digitalisation and we are here to help,” confirms Troutman. “We are seeing a particularly notable swing amongst organisations operating in Asia.” And within this new normal landscape, he believes banks are playing a greater role in helping businesses adapt to the reality of a post-pandemic world.

A new global supply chain ecosystem

As organisations recover from the effects of the pandemic, there is a need to consider their broader supply chain needs. This is where banks can take a more proactive and far-reaching leadership role in driving digital transformation for their clients.

“Banks can leverage existing strengths of connectivity across the supply chain ecosystem, linking manufacturing lines to supplier lines with data, along with their ability to help finance and deliver on logistics needs in a contact-free manner,” explains Troutman.

APIs are also key in the digital transformation of supply chains; they allow organisations to upload trade applications digitally and directly from their own internal platforms, offering an alternative solution to replace wet signatures, with enhanced real-time status notification capabilities. Recently, DBS offered same-day financing to distributors of products made by Haier, the Chinese electronics manufacturer, via Haier’s own digital supply chain platform. Through a series of APIs, DBS enabled distributors to obtain financing digitally and Haier to sell more products.

The digital priority

Digitised supply chains offer greater efficiency and more robust processes, ensuring access to fast and fluid working capital for all parties and enhancing connectivity across a horizontal ecosystem. Each step in the client journey can be digital – from online account opening and digital onboarding of suppliers, to uploading or presenting transactional documents, online platforms, managing application and resubmission processes, as well as receiving financing.

Shorter processing time is another benefit. For example, DBS completed the first transaction through the CamelONE Trade Finance portal early in 2020, becoming the first Singapore bank to join Contour’s network, enabling shorter settlement times, less paperwork and simpler trade processes for customers.

Efficient liquidity management - crucial during times of crisis – is improved by instant settlement, automated reconciliation and greater visibility of the organisations’ cash. In the wake of COVID-19, banks enabled digital solutions for organisations to leverage surplus funds across entities, enabling treasurers to better manage borrowing costs, and to enjoy greater transparency over transactions and increased control over cash as the result of more instant payment transactions.

Asia at the centre of digital transformation

Troutman believes Asia, with its general resilience based on economic strength, robust domestic and regional demand and agility in digital adoption, is well-positioned to lead its Western counterparts in supply chain transformation and post-pandemic economic recovery.

“The overall recovery is slow, especially for major trading partners in Europe and the US,” explains Troutman. “There is also more economic interdependence between Asian countries as geopolitical and economic forces are impacting traditional relationships.”

As organisations look to minimise supply chain disruption and diversify production bases, this could mean a shift in procurement to countries such as Vietnam and India, where labour costs remain relatively low. In addition, organisations that built out their local and regional supply chains within Asia can benefit from shortened supply chains and expedited transactions as well as strong demand from a demographic that is highly receptive to digital services.

With attractive growth opportunities, Asia is expected to remain a nexus for trade, while propelling digital transformation across global supply chains in a post-pandemic world. This bodes well for organisations able to tap this potential first-hand and ready to embark on the next phase of their journey. “Organisations that prioritise digital transformation and look forward to the ‘new normal’ will position themselves to be more relevant, and improve their relevance in the post-pandemic world,” concludes Troutman.

Have a conversation with DBS today.

Start your digital transformation journey today by finding out more about the latest, available digital solutions that can help to solve your treasury challenges. See our most recent articles on Digital Pulse, or sign up/login to Treasury Prism today to discover a world of opportunities.

 

This article was first published in Global Finance in July 2020.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.

POBO and ROBO: Channelling flows for group-wide value

As a growing range of companies adopt in-house banking (where a treasury centre provides banking services to its group of companies), two of the key techniques, namely payments-on-behalf-of (POBO) and receivables-on-behalf-of (ROBO), are also becoming more familiar and widespread. While these techniques (outlined in Box 1) are most commonly adopted in Europe, where there is a high degree of currency and regulatory synergy, these techniques are also valuable and viable for businesses in Asia, despite the diverse financial and regulatory landscape.

 

Defining POBO and ROBO

Payments-on-behalf-of (POBO)

A regional treasury centre (RTC) or shared service centre (SSC) makes payments "on behalf of" its participating group of companies through a single account (usually by currency). These payments are booked on the originating entity's intercompany account. The beneficiary uses the entity name held on the remittance information to  identify on whose behalf a payment is made, and reconcile the payment.

Receivables-on-behalf-of (ROBO)

A RTC or SSC collects incoming payments "on behalf of" its participating group of companies through a single account (usually by currency). These incoming payments are reconciled centrally and booked on the relevant entity's intercompany account. Virtual accounts are often used to help identify incoming flows to improve automatic reconciliation.

 

Enabling your business through POBO and ROBO

As both Asian corporations, as well as foreign multinationals, set up regional treasury centres (RTCs) in Hong Kong, Singapore or other emerging locations, a growing number of these companies are considering the implementation of POBO and/ or ROBO. These techniques are relevant to a wide range of industries and profiles of companies, and provide a useful way for corporations that are growing internationally to reduce costs, make better use of resources, improve and standardise efficiency and control, optimise working capital and simplify cash and liquidity management (Box 2). For example, manufacturers and fast-moving consumer goods (FMCG) companies can use on-behalf-of solutions to establish a common, centralised payments/ collections processing model to support complex distribution and sales models, and facilitate change without adding to administrative, banking or technical overheads. Furthermore, by building a structured, streamlined approach to payables and receivables, new entities can be added, either through organic growth or M&A, without adding to the number of external bank accounts.

 

Overcoming challenges

While POBO and ROBO have become well-established in Europe and North America, with well-documented benefits, the situation has been more uncertain in Asia, with different views on the viability of these techniques. In particular, the number of currencies and currency controls, restrictions on non-resident account, regulations in intercompany lending and central bank reporting requirements, such as in India, Malaysia and China (where entities need to be registered as a financial institution) have posed obstacles in some parts of Asia. However, the number of success stories in Asia is growing. Banks, regulators and corporations are working through the opportunities and constraints that exist, particularly for USD-denominated flows, while ROBO and ROBO are becoming widespread in locations such as Singapore, Hong Kong, Australia, New Zealand and Japan.

"Clients are keen to explore the potential for POBO or ROBO within their business, leveraging our experience and expertise derived from successful implementations across different industry segments, and our close engagement with regulators to design a strategy that works on a country-by-country basis. Engaging a banking partner that has relevant expertise to provide guidance and support on POBO or ROBO is critical to ensuring that the design and implementation of these strategies are realistic, and achieves the company's liquidity, cost and governance objectives."

Navinder Duggal, Group Head of Cash Product Management, DBS

Another difficulty, although not unique to Asia, is that banks and clearing systems may use different formats to manage and exchange information. This can lead to remittance information being truncated or removed from payment messages between systems/ counterparties, making it difficult to identify and reconcile incoming payments, and potentially resulting in a large number of supplier queries. However, with the use of XML ISO 20022 formats becoming more prevalent, this challenge is becoming less of an issue, as data is passed consistently through the payment process. ISO 20022 formats also include a structured field to indicate the entity on whose behalf a payment is being made, therefore supporting POBO and ROBO, and supporting automated reconciliation and account posting.

 

New opportunities through virtual accounts

A major advancement in automating the reconciliation of incoming flows, is the launch of virtual accounts, which has become integral to the ROBO proposition. Virtual accounts enable companies to provide customers with account details that are specific to that customer, (or to an entity, business line etc.), which are then linked to a central collections account. The virtual account information makes it possible for companies to identify, reconcile and post incoming flows to its customers' accounts automatically.

"DBS provides single-country virtual account solutions in key markets of Asia, which have delivered significant value to our clients in their reporting and reconciliation processes, whether or not they use these solutions in conjunction with ROBO. For example, a shopping mall with multiple tenants can reconcile rents more easily, as can FMCGs with a large number of distributors. We are enhancing this solution to cater to multi-currency, multi-country requirements, with enriched remittance information to support automated processing and enhanced reporting."

Navinder Duggal, Group Head of Cash Product Management, DBS

 

A disciplined approach

Irrespective of the countries in which POBO/ ROBO are implemented, the market and regulatory considerations also need to be balanced with the needs of internal stakeholders, for whom these techniques may represent a major change from existing practices. Effective communication of the benefits, strong senior management support and a proactive approach to change management are essential. In addition, participating business units have an essential role to play in the success of POBO/ ROBO implementation, so they need to be fully engaged. Intercompany agreements between participating group companies and the payments/ receivables are likely to be required, and there may be legal issues to address with customers to ensure that a payment made by one entity settles the debt of another, which may require a change to the contractual conditions.

There are technical implications too. For example, systems used for payments processing need to support the 'on behalf of' field contained in the ISO 20022 format. With a strong business case, dedicated and appropriately skilled teams that include RTC or SSC, the bank, technology vendor(s) and business unit finance leaders, together with a disciplined approach to change management, the advantages of POBO and ROBO can be transformational, and provide a robust platform for growth.

 

Example reasons to consider POBO or ROBO

 

Payments-on-behalf-of (POBO)

Receivables-on-behalf-of (ROBO)

Bank relationships and accounts

Rationalise bank relationships and reduce the total number of accounts by channelling payments/ collections through a single account per currency

Liquidity management

Simplify liquidity management by rationalising accounts

Standardise working capital metrics

Implement more consistent payment terms to improve control and visibility over liquidity requirements.

Implement more consistent customer credit terms to improve control and visibility over liquidity, and refine credit risk decision-making

Use of resources

Centralise payments/ collections processing to concentrate expertise and free up local resources

Technology

Rationalise and centralise technology, reducing IT maintenance and administration

Streamline and standardise bank connectivity

Process and control efficiency

Leverage consistent technology and a centralised organisation to improve consistency and efficiency of processes, controls and reporting

Tackling fraud

Achieve more consistent training, awareness and control over both internal or external fraud attempts

 

Improve payment automation and digitisation

Achieve more consistent use of electronic payment instruments, reducing costs and improving control and auditability

Offer customers greater flexibility in the use of electronic payment instruments by upgrading and standardising collection practices and systems

Accelerate collection reconciliation and account posting

 

By implementing ROBO in combination with virtual accounts, RTCs and SSCs can automate reconciliation of incoming flows and post to customer accounts more quickly, freeing up credit limits to allow more business to be conducted

 

Discover a spectrum of opportunities

Explore DBS Treasury Prism today to start building your own cash management simulations.

 

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.