The future of digital in treasury
From left - Panelists: Sonia Clifton - Bligh, Senior Director at Johnson & Johnson, Samantha Ng, Asia Pacific Treasurer at Endeavor, Christopher Emslie, Asia Pacific Regional Treasurer at General Mills, Raof Latiff, Group Head of Digital, Institutional Banking Group at DBS, and Moderator: Mark Troutman, Group Head of Sales, Global Transaction Services at DBS.
APIs as a digital catalyst
Digitalisation is becoming a strategic imperative for companies of all sizes. In a survey done by Massachusetts Institute of Technology (MIT) in 2017, 23% of large corporations felt that they were ‘future-ready’ through digital enablement of both front-end systems and customer interfaces, and back-end operational processes and systems. These companies had a profit margin that was 16% higher than their industry peers who were not future-ready.
The analysis further demonstrated that B2B companies were actually further ahead in digital enablement than their B2C counterparts. And although B2C companies focused more investment on digitalising their customer interfaces, they tended to spend less time and money on digitalising back-end systems and processes. In fact, the study showed that back-end investment was the greater driver of profit margin improvements.
This is particularly relevant to treasurers seeking to understand how digital solutions and new technologies can help them to engage with their businesses in new ways to add greater overall value to their organisations. A wide variety of digital capabilities already exist in treasury and transaction banking. To give an example (box 1), there is a great deal of discussion about APIs (application programming interfaces) but as yet, there remains limited awareness and even less adoption.
Raof Latiff, DBS: APIs are not new, and in fact, if you have any form of technology in your company that is connected to other applications, you are already likely to be using APIs. APIs are simply the way that two pieces of software talk to each other, and the way that most interfaces between systems connect. The difference today is that APIs have become simpler and easier to configure with the ability to add on business logic to perform certain functions. That means you can extract, format and process information in the way you want, and configure what you want it to do.
When we talk to customers about APIs, they are often uncomfortable initially, but as soon as their technology teams and partners are involved, the conversation often moves very quickly. There can be obstacles if the version of their ERP or TMS does not support some of the newer developments, but this is changing fast with vendors now offering and supporting API-enabled solutions and platforms. Treasurers may not yet be aware of APIs, but they will need to develop a working knowledge of them as API developments will be instrumental in driving digitally-led solutions to solve business problems.
Corporate change in the future will be anchored in digital, and this extends to treasury. Is that the reality today?
Sonia Clifton – Bligh, Johnson & Johnson: Digital technology definitely has a place in our treasury, and is opening up new business opportunities and channels, particularly in places such as China. E-commerce growth is driving a lot of change there, which brings a new set of challenges when dealing with digital payments and service providers.
Whether you set up your own account with your AliPay or Wechat Pay, or you use a service provider or distributor as an intermediary, there is a cost. We use intermediaries today for our B2C business, but there is a concern here about the regulation of these intermediaries, and how data is protected. With 24/7 sales via these platforms, there is also a time component to consider, both from a supply chain and cash management perspective. Finally, there is the information piece. There is a lot of data being produced, but this needs to be used in the right way to develop insights that help our business and drive better consumer relationships.
E-commerce has an impact on our whole business model. In the past, we packaged products in a certain way to go to distributors in pallets. Increasingly, we now ship directly to consumers. A pump bottle, for example, will get broken in transit, so we need to rethink. We also need to consider our brand positioning and profile. It is no longer the brand that sells, but influencers; so social media, bloggers, celebrities all play a role. If a blogger calls out a particular beauty product, there is a spike in demand. You can’t plan for a disparate host of influencers deciding to talk about your products, so it becomes very difficult to anticipate consumer behaviour and demand. From a treasury perspective, we need to make sure that we can support a changing supply chain and get closer to a changing business that is becoming more difficult to predict.
Mark Troutman, DBS: This an interesting point. If you sell through a platform enabled by AliPay, you have to contract directly, rather than through a bank, to receive your funds. This may introduce new regulatory and credit risks but you may also find that you are dealing with a company that is only API-enabled (rather than supporting the host-to-host connectivity for which a corporate is typically equipped). These are relatively new issues for treasurers, and illustrate why it is important to keep up-to-date with digital issues in Asia and the implications for your business.
Christopher Emslie, General Mills: We are on a new journey in Asia. In the US and Europe, the situation is more settled, and we use various routes to market. In Asia, the culture and environment are very new. We are targeting a far wider market, so we are building our presence and capabilities. One of our difficulties is scale: we cover so many different markets so the market potential is extremely large. The route to market can be very different in each country, both from a sales and supply chain perspective. In India, it can take some time to stock, supply and distribute, but in China, Korea and Japan, it is far quicker. While our aim has always been to have our products with our customers as quickly as possible, this can mean same-day or even faster – in some markets within an hour or less. This represents a fundamental change in both customer expectation, and how we need to operate as a business from next day or even longer delivery. Having set that expectation, if you start to slip, you lose customers. You need to change your business, your supply chain, your mindset: if you run out of a product, your consumer will go to a competitor.
This shift is as much an issue for treasury as every other part of the business. How do we get quicker? How do we work smarter and more efficiently as we centralise, standardise and automate? We are building our treasury function from the ground up, which is a great position to be in, as we can build digital into the heart of our treasury. This is not a ‘nice to have’ but a necessity. For example, cash visibility has always been important, but we need to know where this cash has originated from, whether online, such as WeChat Pay, AliPay or PayPal or through our shops. As treasurers, we used to look at cash at the end of the month, for example, but the mindset has changed: we need to look day-to-day and even hour-by-hour, seven days a week. Take the Mooncake Festival, for example. We were selling a large quantity of mooncakes a day. Alibaba processed $35 billion over 24 hours on 11.11 Global Shopping Day 2017, a 40 percent increase on the year before and the biggest shopping day on earth. How does a business prepare for this?
Samantha Ng, Endeavor: Digital is at the heart of our business but as we continue to acquire businesses, there is a lot of disruption, as each is at a different stage of digitisation or has adopted it in a different way. In one part of the business, customers will be asking to pay in bitcoin, while in others, we are struggling to send digital payment instructions to our banks. It is a wide spectrum and unfortunately, the world is not waiting for us to get ready. Like both Johnson & Johnson and General Mills, e-commerce is very important to our business, especially in China. For our mass participation events, such as Color Run, to be a success, participants need be able to click and pay immediately through the event website. If we are too slow, our customers will leave.
Again, like General Mills, we are in the fortunate position of building treasury from scratch, but it can be difficult to know where to start. We are focusing on cash visibility but we would really like to be able to simulate different scenarios so that we change a parameter and see straightaway what the impact on our cash and FX would be. This would help us decide how to structure our cash – for example, whether to hold cash in China or move it offshore and how to do it. At the moment, I spend a lot of time simply trying to plough through the data.
Raof Latiff, DBS: One of the challenges that affects everyone is how to decide where to focus their time and investment. Generally, the first priority should be to ensure that the customer is happy, and you can work backwards from there. A transport company might start with making the ticket purchase process as easy as possible, for example, while a bank may focus on enabling real-time digital fulfilment. Over time, as some of the customer experience becomes digital, new customer demands will come to the fore, requiring a new or improved user experience, leading to the next phase of development for your business to stay competitive and relevant to your customers.
Christopher Emslie, General Mills: One of our problems is that when we adopt new technology, we need to get buy-in and approval: we tell them what it is, what it will cost, what the benefits will be. The first question they ask is whether it will be obsolete in six months’ time. As a business, we look to the long term, so we do not want to have to reinvest every six months. At the same time, we need to change with the times. There are some great ideas and products available, but it is difficult to know whether we should invest today when something even better is likely to come out tomorrow.
Sonia Clifton - Bligh, Johnson & Johnson: A related problem is that many of the solution providers are very new, and we do not have history with them. It may not be to our advantage to be the first movers, so we want to understand what others are doing.
Mark Troutman, DBS: It seems to me that when, and how far, digital comes into corporate treasury really depends more on timing, culture and the application of technology across the wider corporate organisation, as opposed to focusing directly on innovation in treasury. Eighteen months ago, innovation was something that popped up on a number of large multinational corporates’ scorecards. Treasury had its own KPI, and treasurers came to talk to us about innovation, asking what we could give them. We looked at different solutions with customers, but to some extent, it became a scorecard metric; looking for a problem rather than starting with the problem statement and finding the best way to address it. Going back to the point that Raof made earlier, starting with the customer experience and working back is a better approach. In most companies, digital technology is already impacting significant parts of the organisation: supply chain, HR, marketing, sales, product development and so on. This transformation in turn will shape the digital priorities in treasury and within the organisation.
What is driving innovation in your companies?
Sonia Clifton - Bligh, Johnson & Johnson: Digital innovation is definitely part of our corporate culture, and one of our growth drivers. We are constantly being challenged to improve and do better, as well as deliver a better experience for our customers, who include our patients, doctors, nurses and so on. Innovation is key to doing this. Robotic surgery, for example, is already a reality. It improves patient outcomes, is far more efficient and brings down costs, which in turn enables more patients around the world to access sophisticated surgical treatment. 3D printing is also an area that is changing really fast. But we all contribute to our culture of innovation, it is not only the people working in labs and R&D. In finance, including treasury, we’re deploying design thinking: training everyone so that innovation becomes part of our cultural mindset. People are now more willing to share ideas and innovate to improve what we do. This could be improving a cash management process, or communicating better across the treasury team and with the business.
Christopher Emslie, General Mills: We always need to be innovative to adapt to changes in our customers’ behaviours and preferences in order to remain competitive, which is reflected in the way that we work with e-commerce platforms. One of the themes we are exploring is ‘accelerate and grow’, look at what we do now, what improvements we can deliver, and who we will partner to achieve them. At the same time, we need to keep hold of our core values of honesty and fairness, so innovation needs to happen within this context.
As treasurers, do you think you are engaged at the right time in the development of new business models?
Sonia Clifton-Bligh, Johnson & Johnson: It varies. When we are not involved early enough, it may be because the business teams are not familiar with treasury and what we do. Sometimes business decisions are made and it only becomes clearer later that there is an impact on how we collect money, for example. But in general, yes, we are involved early on, and this engagement continues to improve.
Mark Troutman, DBS: It also varies between companies. Digital native companies tend to be more aware of the need for alignment across the business. Longer-established companies may have developed more functional silos, so the need for alignment and communication across functions can be more difficult but no less important.
Sonia Clifton - Bligh, Johnson & Johnson: In treasury, it is also about how we market ourselves, so that businesses know who we are and where we can add value. In many cases, we have already achieved this, but in a large corporation with a lot of businesses, outreach becomes more difficult.
Digital presents new opportunities, but also new threats of fraud or data breach: how do we balance the opportunities with the risks?
Raof Latiff, DBS:This is a very important issue for every organisation, including DBS. We decided back in 2009 that we wanted to become a digital bank, and today, 90% of the bank’s infrastructure is cloud native. We’re probably the only bank of our size with this degree of infrastructure readiness. Covering all the issues from an end-to-end risk perspective has been a challenge. Legal, compliance, risks and credit frameworks have not kept pace with digital technology, so they are learning at the same time. You can never eliminate risk entirely, but you can strengthen the building blocks, including people, technology, processes, controls etc., to make sure they are secure.
Sonia Clifton - Bligh, Johnson & Johnson: The trouble is that it only takes one breach to create enormous damage, whether financial, privacy or reputation-related.
Mark Troutman, DBS: The reality is that even in the non-digital world, breaches such as data leaks also happened: backup data tapes could be delivered by couriers to the wrong address; email could be misused by employees to take client lists to the next employer, etc. The issue is not necessarily that the risk of breach is higher, but I suggest that it has become more visible and its effects more widely disseminated.
Countries in Asia have different levels of digital sophistication: does this affect the company’s digital journey in Asia?
Sonia Clifton – Bligh, Johnson & Johnson: Absolutely: what you can do in China and India is often a step beyond what you can do in other countries. We use India as a benchmark: if we can do something in India, why can’t we do it elsewhere? We have found that banks are keen to promote digital commerce and banking across Asia, and are working in less digitally advanced countries to bring them to a comparable level as China and India, so things are changing.
Samantha Ng, Endeavor: If you look at countries such as Myanmar, as they digitise, they leapfrog other countries that have more legacy payment and banking issues. For example, although Hong Kong is very advanced in many ways, the use of cheques is still common. Myanmar, on the other hand, is moving quickly towards mobile collections, so while countries may have different levels of digital sophistication, they are also moving at different speeds.
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