Digital Transformation – Issue 1
Bankable Insights – Digital Transformation: War on cash – A collection of articles about digital transformation of corporate treasury
*BANKABLE INSIGHTS*Digital Transformation
<p style="color:#3f9c35;">**War on cash**
<p style="color:#0075b0;">October 2020
Over the last six months, we have seen massive changes in the way organisations and businesses operate. Amid the disruptions, one clear trend has emerged. Digital transformation has accelerated across every industry, with digital channels having become the primary conduits of customer engagement, business productivity and supply chain resiliency.
Digitalisation is not a new concept. But the pandemic has shown that digital transformation is about more than just using technology to do business. It is about technology fundamentally changing business processes, altering the way organisations deliver value to customers, employees and stakeholders. And those businesses that have been able to embrace digital transformation have also been able to better adapt – and survive – in a suddenly disrupted world.
Now that the world begins to chart its recovery, we see many of our clients continuing with their COVID-19 digital pivot. The same holds true for Standard Chartered and our core banking services; we remain committed to digitising the way our clients manage their cashflows, trade and supply chain finances, as well as payments and securities services.
Making more agile and real-time decisions across cash, liquidity and risk management are key benefits of digital transformation. But what progress have organisations made in embarking on this journey?
We have compiled the first edition of our Digital Transformation newsletter with a focus on cash. We have examined trends that had been accelerated by the pandemic, how these have spurred digitisation of cash and payments across the Middle East, Africa and Asia, and practical implementations for reducing risk, increasing operational efficiencies and enabling deeper customer engagement.
With many more corporate treasurers starting to embrace digital transformation, it's clear that the pandemic has become both a catalyst and imperative for change.
For instance, one of the key impacts of the pandemic has been the diversification of supply chains which has made access to supply-chain financing more critical than ever.
Embracing digitisation is enabling many companies to better manage their supply chain financing, usually through partnerships and collaboration with digitally enabled partners. A healthcare supply-chain platform in Kenya called Medsource recently collaborated with Standard Chartered.
By automating their entire payments process using APIs, we helped facilitate supplier payments and expedited the shipping of medical supplies during this critical time of need.
We’ve shared many more such real-world instances in our article series. We hope you find the articles insightful and look forward to engaging with you further on your digital journey.
<BR><BR><BR><BR><BR>Four ways businesses are transforming for good in an era of uncertainty
We explore four digitisation trends emerging as a result of the coronavirus pandemic.
In Mandarin and Japanese, the character for ‘crisis’ is written with two symbols, the first meaning ‘danger’ and the second meaning ‘opportunity.’ While crises are always feared, by clearly dividing the way the world was from the way it will be, they also provide unique opportunities to engender long-term resilience.
The Asian financial crisis of 1997-1998, for instance, plunged many Southeast Asian countries into deep recession, rapidly increasing unemployment, poverty and social dislocation. Among other reforms, these economies built up their foreign exchange reserves as a buffer; most have current account surpluses; and many have allowed their exchange rates to float, making their fundamentals stronger that they were in 1997. For the same reasons, they were also able to weather the Global Financial crisis of 2008 better.1
While the COVID-19 pandemic is far more pervasive than any other crisis we have experienced in our lifetime, it has prompted companies to think long and hard about the fundamentals of their business and what they must to do to survive and thrive going forward. Regardless of the industry, at the outset of the crisis digitisation was a crucial first-response action for businesses to implement continuity plans and stabilise operations. Now they are rethinking and accelerating their digitisation strategies to increase resilience and optimise business processes at the same time.2
To navigate their transformation journeys more effectively, many companies are embracing industry partnerships, co-creation and collaboration with digitally enabled partners. Here, the financial services sector plays a vital role.
Technology is a great enabler. It’s often the best path to solving core business problems in good times and bad. We’re seeing that play out right now. Financial services, supply chains, consumer goods – everything is digitising rapidly.”
Kahina Van Dyke
Global Head of Digital Channels and Data Analytics, CCIB, Standard Chartered
Already among the four most digitised sectors before the pandemic, according to McKinsey3, the financial services sector has been leading the digitisation agenda of late. It is emerging as a “standout” sector because it is able to quickly adapt Big Tech techniques to deliver innovative solutions for core business challenges.
The sector has witnessed four key pillars of digital transformation emerging: reinventing supply chains, shifting to e-commerce, pursuing end-to-end digitisation and ensuring operational agility.
3 Harvard Business Review
1. Revolutionising trade and supply chains
Global trade disputes recently created supply-chain headaches.
This year, travel restrictions, higher air-cargo rates and longer transit times stemming from the pandemic have created migraines.
Many companies had already begun redesigning supply chains. Now, the need to diversify production and distribution and ensure access to supply-chain financing during times of risk has become more acute.
“Companies are increasingly embracing digital tools to manage financing and supply-chain disruptions,” said Kahina.
“Standard Chartered recently collaborated with a healthcare supply-chain platform in Kenya called Medsource, automating their entire payments process using APIs. This facilitated supplier payments and expedited the shipping of medical supplies during this critical time of need.”
2. Dramatic increase in B2B e-commerce
Supplying goods is one thing, selling is another.
Aside from the headline-grabbing surge in online retail, the pandemic will be seen as a watershed moment in the comparatively less-developed arena of B2B e-commerce and payments. The growing trend in B2B e-commerce, already forecast by Frost & Sullivan to double in value to USD1.36 trillion a year by 2024 in Asia-Pacific alone4, will accelerate as more companies play catch-up.
“Digitisation is critical for a lot of companies right now, but most don’t have the bandwidth, expertise or regulatory engagement to build the financial infrastructure they need,” said Kelvin Tan, Venture Lead for nexus, Standard Chartered’s Banking-as-a-Service (BaaS) platform.
That’s where deeply integrated / comprehensive partnerships make a massive difference. nexus, for example, enables companies to quickly set up their own branded financial services without the usual pain of becoming a digital financial services provider, instantly opening up new revenue streams and multiple use cases to keep their customers stickier to their ecosystems.”
Venture Lead for nexus, Standard Chartered’s Banking-as-a-Service (BaaS) platform
What is driving your digitisation agenda amid the pandemic crisis?
- Automating supply chains
- Digitising payments
- Enhancing B2B/C eCommerce
- Stepping up cybersecurity
3. Unprecedented focus on end-to-end digitisation
While the mile marker for today’s crisis will eventually pass in the rear-view mirror, one day another will shine in the headlights.
As such, digitisation with the aim of fostering long-term resilience will remain an ongoing focus.
Many businesses are pushing their technology investment plans forward in a multitude of ways: accelerating end-to-end digitisation via AI, automation and APIs, fixing bottlenecks, migrating to cloud and Software-as-a-Service, embedding data-led decision-making, upgrading credit and treasury operations, and investing in cyber-security controls. In most cases, success hinges on working with the right partner.
Digitising paper-based processes is a great example because it’s much harder than it sounds – particularly for trade where there are many different parties to a transaction, but we did just that through Contour, a blockchain-based platform that we invested in recently. We launched a pilot project involving petrochemicals companies in Singapore and Thailand. The system improved transparency, increased cost efficiency and reduced settlement risks across the supply chain.”
Global Head of Transaction Banking, Standard Chartered
4. Operational agility emerges as the new business mantra
Flexibility and agility are also critical to navigate sharp bends in the road.
Here, businesses have rapidly discovered that adopting flexible production strategies and accelerating digitisation during the crisis has made them more resilient.
Whether it was repurposing car-part assembly lines to make ventilators, rapidly expanding digital fulfilment centres, or setting up hyper-local supply chains to feed small-scale physical F&B markets, agility has become a watchword for companies in planning their futures.
Earlier this year, Standard Chartered committed USD1 billion of not-for-profit financing for companies helping to fight COVID-19. Some of those companies ramped up their existing manufacturing of personal protective equipment, while others rejigged their entire production lines.
That agility extends to the workforce. The pandemic has stimulated a transformation in the concept of the workplace, which in turn is triggering investments in digital infrastructure and remote-working technologies. Many of those changes are here to stay.
The essential journey ahead
The COVID-19 pandemic is inflicting a painful human and economic toll, but underlying that pain is the hope that the world can emerge stronger.
No one can be certain about what the future will bring, but COVID-19 has forced businesses to reflect and rethink traditional ways of doing business
In an era when the term “essential” has entered the global lexicon, for businesses around the world digital transformation is proving to be the most essential journey of all.
<BR>War on cash – the automatic choice
Here’s how digital transformation is enabling corporate treasurers to build business resilience
While the need to revamp corporate treasury systems has long been acknowledged, it’s time to declare a war on cash.
Today’s corporate treasuries are more complex and hold more importance in their organisations than ever. A survey1 by Strategic Treasurer found that 37 per cent of corporations now operate across at least 11 countries, 34 per cent utilise six or more banks, and 39 per cent generate payments in six or more currencies. More than half of corporate treasurers are responsible for managing 100 or more corporate bank accounts.
The only effective way to manage this level of complexity is through digital fulfilment. More and more businesses are realising that traditional manual systems that employ paper trails and cheques are inadequate.
Digital fulfilment solutions have been tiptoeing in and adoption has been patchy. Surveys3 show that the level of automation deployed to support decision-making in corporate treasuries is generally low. In contrast, the expected pace of automation adoption among treasurers over the next three years, especially in Artificial Intelligence and Prescriptive Analytics, is high4.
In other words, treasurers are hoping and preparing for a wave of digitisation.
It’s time to declare a war on cash and fight manual, non-digital processes. The sooner we electronify all payment flows, digitise transactions and automate, the faster we’ll reduce the exposure to the risks and costs of dealing with manual processes and physical cash.”
Global Head of Cash Management, Transaction Banking, Standard Chartered
The COVID-19 pandemic has increased the urgency of this process. Corporate treasury departments found themselves at the centre of the crisis, facing unprecedented challenges to build resilience as businesses struggled to cope with broken supply chains and uncertain liquidity. The need to transition away from manual systems is now at the top of corporate to-do lists, but how can organisations best embark on this transformation?
“When it comes to cash and liquidity management and risk management, businesses must figure out how to become more agile in terms of decision making because the external environment is moving faster than the internal environment,” Philip said. “In the past, corporate treasury transformations were a three-step process that entailed digitising, automating and shifting to real time. The way forward is turning that transformation into a one or two-step process.”
Starting that digital journey is not necessarily complex. One of the most basic corporate treasury inefficiencies—the use of cheques—is still widespread, particularly in developing markets. A 2019 survey by the Association of Financial Professionals5 found that while use of cheques in B2B transactions had dropped to a record low, they still accounted for 42 per cent of payments.
Initiating that digital transformation, therefore, can be as fundamental as streamlining systems to enable electronic collection.
As recently as 2016, three-quarters of collections for global shipping giant Maersk’s operations in UAE were handled at physical offices using cash or cheques. After implementing digital payments, today they have no cash counters left.6
It's time for corporate treasuries to declare a war on cash and paper-based processes. Where will you start?
Once this basic account restructuring is in place, a universe of digital treasury tools becomes available that can be implemented at scale, including APIs, artificial intelligence, virtual accounts, and digital collections via QR codes.
The choice of tools depends to a large degree on what makes the most sense for individual businesses and their operational geographies. For the latter, regulatory drives in-market will influence the scope and pace of digital adoption. And in many developing markets, this is now rapidly evolving.
Tools are already available to manage everything from payments to currency hedging to liquidity management. As these tools become more widely adopted and embedded, an environment of 24/7 liquidity will emerge, offering companies the opportunity to reduce borrowing and put more of their capital to work. Indeed, a Euromoney survey7 of corporate treasurers in 2019 found that 50 per cent believe liquidity management is the area in most urgent need of automation.
Being able to fund and de-fund accounts quickly must become the standard. Our ‘just-in-time sweeping,’ for instance, is unique in the way it’s automated. When a debit for payment fails, the funding sweeps run across a client group’s accounts in compliance with intercompany limit rules to fund the insufficient position. This removes the need to monitor, manually fund or maintain idle cash for funding. That’s the kind of speed and automation that businesses must bring to every aspect of their treasuries.”
Head, Liquidity Management and Escrow Solutions, Standard Chartered
Data is another area with enormous potential.
Treasury systems are already rich in data, but its potential is not always maximised. Digital tools that enable treasurers to replace scheduled and batch processing and manage liquidity in real time have huge implications.
Regulatory support is essential to maximising these opportunities – progress is evident here, too. Governments in many markets – including India, Singapore, Egypt and China – are fostering a positive environment for future digitisation.
The COVID-19 crisis has placed enormous pressure on treasury management, but it has also presented an opportunity to accelerate – and in many cases leapfrog – their digital transformation.
“Many treasurers were already on their way to embracing digital real-time to the point that it’s almost cliched,” Philip said. “But the disruption over the past several months accelerated that. Going forward, companies must fast-track their treasury transformations. That’s no longer a nice step, it’s critical in terms of fulfilment and ensuring the survival, growth and lasting objectives of the business.”
Middle East and Africa corporate treasurers forge ahead into the digital era
Once seen as latecomers in the adoption of technology, swathes of Africa and the Middle East are now surging forward
As national economies in both regions expand and companies become more global, accelerating digitisation offers corporate treasuries the opportunity to streamline their businesses in often-complex environments, offering benefits such as reduced clearing times and enhanced cash-flow visibility.
The perception of Africa as a laggard is misplaced. It is already a global leader in mobile money. The sub-Saharan region alone is responsible for over 45 per cent of mobile money payments in the world, with transactions valued at about USD456 billion1 in 2019 – three times that of South Asia, the second-biggest region.
Across the continent, countries are laying the foundations for a digital future. In Nigeria, the implementation of the government’s Vision 2020 strategy has triggered several transformations in a heavily cash and paper-based economy. An automated and interoperable payment clearing system is now in use between major financial institutions, and even cheque clearing times have been cut from 21 days to just 24 hours.
In South Africa, use of cheques has dropped2 from 80 per cent in 2012 to just 1 per cent today.
One of the country’s banks reported two-thirds of its transactions were made through host-to-host platforms in 2019, while elsewhere mobile platform M-Pesa has transformed payments in Kenya, Tanzania and other African countries.
At the same time as many parts of Africa are accelerating domestic digital adoption; the continent is also increasingly looking outward.
Trading links that once followed ex-colonial patterns are branching out. The largest trading partners of countries3 such as Cameroon, Angola, Mali and Tanzania are no longer just France or Belgium, but China, India and several Southeast Asian nations.
Managing this growing complexity of business networks creates additional challenges for treasurers in Africa in areas such as foreign currency exposure, trade finance and cash-flow forecasting. It also creates opportunities to forge ahead and often leapfrog more developed markets, as more and more companies acknowledge that digitisation is the only sustainable way forward.
“Both in Africa and the Middle East, we see a lot of adoption of APIs,” said Viplav Rathore, Head of Cash Products AME and MENA at Standard Chartered. “African treasuries have actually been faster at adoption of technology, and the leapfrogging concept has worked very well in Africa.
In West Africa, for example, we worked with a cement company that needed an ordering platform. Together with a third-party aggregator, Standard Chartered created an API-powered platform that enables distributors to order electronically from the cement company, which then ships from its manufacturing sites. This creates greater transparency and ease of access in a part of the world where cement is a prized commodity that isn’t always readily available.”
In the Middle East, there has also been significant progress. The United Arab Emirates has emerged as a regional treasury hub for many multinationals.
At the regulatory level, government-led programmes such as the UAE’s Vision 2021 and Abu Dhabi’s Vision 2030 are pushing the development of digital treasury operations, while the introduction of a digital gateway for government payments and the UAE Banks Federation’s mobile wallet4 are helping to create the necessary infrastructure.
The story is similar elsewhere in the region, where digital transformation programmes have seen the introduction of payment gateways such as EBPP in Bahrain and BKM in Turkey.
These and other initiatives are creating fertile ground for treasurers in the region to push digital transformation to the forefront of their company’s strategic plans.
The atmosphere among corporates is broadly receptive. A 2020 survey by Finastra5 found that 88 per cent of banks in the UAE expect to implement APIs and Open Banking in the next 12 months, and that appetite is being reflected across the region.
In the past, there was a broad reluctance in the Middle East to spend money on technology. Corporates would be happy with the processes that were running and technology spend was not a top priority. After the pandemic struck, that changed dramatically overnight, across the board – both in the public and corporate sector. People are realising that it’s not just about cost and efficiency, it’s about resilience.”
Regional Head of Transaction Banking Sales AME, Standard Chartered
Challenges remain, however. In the Middle East, company structures in many countries have traditionally featured diverse businesses centred around a holding entity. Though more and more companies are moving towards centralised corporate treasuries, this is a crucial first step many companies still need to take before effective digitisation can be implemented.
Cash, cheques and a preference for documentary trade still predominate in many of the region’s markets, and companies wanting to digitise treasury operations face the difficult task of matching progress with demand.
Despite the widening spread of official “Vision” policies for digitisation, regulatory challenges are still a bugbear. In jurisdictions where commercial and capital-control rules can change suddenly and unexpectedly, it can be difficult for treasurers to perform key tasks like cash management and forecasting to protect businesses. Even in the more digitally progressive markets, about half of banks cited regulatory complexity as a significant obstacle to digitisation.
Liquidity and volatility hurdles also beset many markets. In countries such as South Africa, where about USD10 billion6 moves through onshore and offshore markets every day, managing liquidity and hedging are relatively simple. In smaller markets where flows are a fraction of that amount, even basic functions like currency conversion and liquidity management become more challenging.
Equally, even treasurers who are turning to digital tools to deal with widening global trade links face the problem managing the multiple portals and apps of different local and international banking partners.
The solution often lies in finding the right partnerships.
While the political, regulatory and forex landscape can be complex in Africa and the Middle East, there’s one clear thread that can weave its way through that complexity: the distinct importance of forming deep partnerships with regional banks and regulatory institutions. This, more than anything else, is the key to successfully navigating opportunities.”
Syed Khurrum Zaeem
MD and Head of Trade and Transaction Banking AME, Standard Chartered
<br>Winds of change: three ways Asia’s corporate treasurers are digitising
Digitisation is driving improvements in treasurers’ cash and liquidity management in Asia to safeguard against future disruption
Regulators in Asia emerge as a driving force behind improving treasurers’ cash and liquidity management to safeguard against future disruption.
Through decades of explosive growth, corporate treasurers in Asia have faced twin challenges: having minimal time to adapt treasury functions to the needs of accelerating businesses and battling a corporate philosophy that often prioritises expansion over technology evolution.
The result is that in a region synonymous with technological advancement, most companies lack a digital strategy and risk being left behind. But this is changing. While previous attempts at digitisation have typically focused on increasing control and efficiency, companies in Asia are now seeing digitisation as their top priority to position their businesses for future resilience and growth1.
At the regulatory level, governments in the region, already primed by previous shocks such as the SARS outbreak and global financial crisis, are adapting to the need for rapid digital transformation amidst the COVID-19 pandemic.
There has been a major push by almost every regulator in Asia to upgrade their clearing infrastructure, make it real time and 24X7 and to launch a number of new cashless payment solutions. In addition, there has been a massive push by consumers and businesses for the B2B space to replicate the innovation we’ve seen in the B2C world.”
Regional Head of Cash Management Products for Singapore and ASEAN, Standard Chartered
Here are the main ways in which companies in Asia are responding.
The paperless trend is accelerating even in markets such as the Philippines and Thailand, where Standard Chartered had observed that up to 85% of B2B transactions were formerly conducted by cheque.
One interesting example is Standard Chartered’s partnership with Deutsche Post DHL Group to co-create an online collections solution on the DHL Express portal, which allows their customers across Asia to make online payments in local currencies for shipping charges, taxes and duties, using local payment methods. The solution is live across six countries and expanding.
We support DHL with digitisation of their in-store collections and payments-on-delivery using QR codes and instant payments, powered by our proprietary app and integration with their delivery agents’ handheld devices. This provides DHL with a cost-effective solution, enabling elimination of cash, access to a variety of local payment methods across multiple geographies and automation of their reconciliation, all through a single integration and a single contract.”
Global Head of Payments and Receivables, Standard Chartered
2. Adopting automation tools
Another concurrent trend is the accelerating shift towards treasury centralisation. Kanwar explains that as Asian companies become more multinational, Standard Chartered is seeing that treasurers are prioritising pooling cash for greater visibility and more effective deployment, rather than having it fragmented across multiple banks.
Automated tools are now being deployed around the region to aggregate cash from different bank accounts using the local direct debit network, which cuts costs and gives treasurers greater control over capital.
Automation is also increasingly being deployed in foreign exchange management. A lot of business in Asia is conducted in hard currencies2, but suppliers and smaller companies that do not hold foreign-currency accounts are unable to hedge their exposure and end up paying bank conversion costs, which are passed on to customers. Automation tools can analyse currency exposure on a continuous basis. This minimises risks and, according to one survey3, can save companies up to 5 per cent on each invoice.
3. Using digital processes to counter operational lags
While the pace of transformation is speeding up, the region also faces its own set of challenges. Unlike the US or Eurozone, the payments infrastructure in Asia is quite fragmented. Clearing-house requirements, file formats and currencies are all localised, which slows payments and clogs up the machinery of liquidity management.
However, more and more companies and clearing houses in the region are taking an interest in adopting the ISO 20022 standards, which will provide consistency between countries and make life simpler for corporate treasuries across the region.
In Singapore, for example, the implementation of fast payment networks has cut the payment transfer process between banks from as much as three days to a few seconds. This has enormous implications for future cross-border treasury operations, in terms of payment speeds, security, real-time liquidity and the opportunities for data analysis.
Bridging the digital divide
For unicorns and start-ups that have sprouted into a digital landscape, digitisation is less of a problem, but for larger and more traditional Asian companies, transitioning away from legacy systems and processes is not an easy task.
Making that entire transition in one shot is unrealistic, particularly for companies that do business across such a diverse region, so there is a growing demand for digital advisory services that can help companies adapt smaller portions of a business first.
There’s a big shift towards digital advisory, which is what banks like Standard Chartered can offer. We understand the priorities and processes corporates have and aim to leverage new technology to enhance client processes and help their business priorities. It’s not about just trying to use technology for the sake of it but trying to solve real pain points and help businesses grow.”
Regional Head of Cash Management Products for Singapore and ASEAN, Standard Chartered
Standard Chartered recently partnered with the International Air Transport Association (IATA) to support the development of a multi-country pay-as-you-go solution called IATA EasyPay in Bangladesh, Pakistan, Nepal and Taiwan.
The system enables travel agents to load funds into their Standard Chartered accounts, which are used to pay for air tickets and settle proceeds, enabling agents to book tickets without needing a financial security or bank guarantee. For airlines, the system increases sales channels and enables them to receive settlements within 48-96 hours of tickets being issued, compared with up to four weeks previously.
As the demands on corporate treasurers to digitise continue to grow and evolve, banks should strive to provide innovative solutions to support their strategies and growth agenda.
“Banks like ours are taking the lead in Asia because we are investing in technologies and making sure we offer a standardised set of solutions no matter which countries treasurers are dealing with,” Kanwar said. “We present a consistent experience across these markets, so they don’t need to get bogged down in nuances.”
To succeed in the face of disruption, corporate treasurers in Asia’s dynamic markets need to accelerate their move towards digitisation. This becomes easier by working with FI (financial institution) partners like Standard Chartered that have a widespread regional network, local expertise and market ready technology solutions to provide the necessary support for both local and multinational organisations to operate effectively and efficiently now and in the years ahead.