Treasury Outlook 2019: Disrupted or Disruptor? · 2019. 10. 22. · consumer behaviour, regulation and risk in every respect, tasked with making key decisions about technology and

Treasury Outlook 2019: Disrupted or Disruptor?

© Copyright HSBC Bank Middle East Limited 2019. ALL RIGHTS RESERVED. HSBC Bank Middle East Limited U.A.E. Branch, P.O. Box 66, Dubai, U.A.E., regulated by the Central Bank of the U.A.E. for the purposes of this promotion and lead regulated by the Dubai Financial Services Authority.

2 Treasury Outlook 2019: Disrupted or Disruptor?

Theme 1: The millennial treasurer 04

Theme 2: Digitalisation takes root in the corporate treasury 06

Theme 3: The continuing evolution of digital payments 08

Theme 4: A multi-stakeholder approach to digital innovation 10

Theme 5: Securing digital 12

Theme 6: The future treasury 14

Contents

3Treasury Outlook 2019: Disrupted or Disruptor?

In the world of business, to disrupt means to change the traditional way an industry operates,

way. In the context of treasury, this means that there is no such thing as a traditional treasury solution, or a traditional treasurer, anymore. Disruption is here, and it is taking place at a pace faster than one could imagine.

The treasurer of today is at the heart of consumer behaviour, regulation and risk in every respect, tasked with making key decisions about technology and how to deploy digital payment solutions into an ecosystem in a way that maximises benefit. It is imperative that banks understand the agenda of the modern

21st century treasurer and provide the right level of support.

The other key outcome is the speed of change in the global treasury driven by technology. Not only do treasuries need to keep up with the change, but the very ability to adapt and be more responsive to change will define the way they operate. Hence the question: Are you going to be a disruptor, or

needs to be factored into the processes of business in order for treasuries to continue to drive greater

This document details some of the discussions at the HSBC event around the theme of disruption of treasury functions and the emergence of a more strategic and responsive treasurer.With disruption being a force to reckon with globally as well as in the Middle East, where HSBC has had a presence since the 1940s, the bank is committed to supporting treasurers with

70 jurisdictions.

Foreword

Two clear outcomes emerged from the HSBC event ‘Treasury Outlook 2019: Disrupted or Disruptor?’, held at The Westin Abu Dhabi Golf Resort & Spa on the side lines of the EGA Abu Dhabi HSBC Championship. The first is that the treasurer of today is not merely supporting a business, but is at the heart of driving a business, both domestically and globally.


Corporate treasury is being influenced, and disrupted, by the rapid pace of technological development. At the same time, expectations are being defined by millennials – people who were born in the Eighties – who have joined the workforce and are ready to take on more senior positions.

Millennials have come of age in a digital world and expect instant connectivity, along with user-centric and easy-to-handle technology. Having grown up on a diet of open-source solutions for various pain points, the millennial treasurer may favour a partnership approach to solving problems. By 2025, 75 per cent of the world’s workforce will consist of millennials1, who are currently between 18 and 38 years old.

The millennial treasurer is no stranger to digital disruption. The world has changed rapidly. Also changing is the way we operate, work, play and

perceive our environment. Digital innovation has not only touched banking, but is now transforming corporate treasuries too.

The treasurer of today is a strategist, involved in shaping the future of the company. That the future is digital is a given. Noor Adhami, Regional Head of Global Liquidity and Cash Management, MENAT, HSBC, said: “As the next generation of treasurers comes in, the desire to make things faster, better and more efficient is gathering momentum.”

This is likely to be visible in the pace of disruption in the corporate treasury, as is evident from quick adoption of new technology. In the digital age, products, processes and innovations can attract millions of users in a matter of days2. Whether you’re disrupting or being disrupted, it is likely to happen sooner than expected.

Theme 1

The millennial treasurer

1. Big Demands and high expectations. The Deloitte Millennial Survey, January 2014

2. Should you believe those Pokemon Go download numbers? BBC News, July 2016

SOURCE:www.inc.com/peter-economy/the-millennial-workplace-of-future-is-almost-here-these-3-things-are-about-to-change-big-time.html

By 2025

75%

of the global workforce will comprise of millennials(Born between 1980 and 2000)

www.inc.com/peter-economy/the-millennial-workplace-of-future-is-almost-here-these-3-things-are-about-to-change-big-time.html


“As the next generation of treasurers comes in, the desire to make things faster, better and more efficient is gathering momentum.”


Digital transformation of corporate treasury has been in the works for some time now, but 2019 is the year in which the process is likely to gain momentum. Diane Reyes, Global Head of Global Liquidity and Cash Management, HSBC, said: “This is the year of embedding digital transformation, not just piloting.”

There are several factors that have contributed to this drive to embrace digital. Access to user-friendly, intuitive products, an innovation-driven regulatory ecosystem, and customer expectations are driving faster adoption of digitalisation in the corporate treasury.

Easy access to user-friendly modules or components that are built to suit customer needs means that corporate treasuries can test technology being rolled out by agile financial technology, or fintech, firms more quickly than ever. Product development increasingly favours simplicity – whether it is in the fields required to be filled or in the steps needed for adoption. There is also increasing realisation among corporations globally that the best way to deal with digital disruption is to embrace, not defer it.

This is now taking place in a regulatory environment that favours digitalisation. Regulators around the world and in the region, in the UAE and Egypt, among other countries, are creating ecosystems that make it mandatory to use digital

initiatives as a tool for development and inclusion. The UAE has introduced e-payment regulations covering digital payments3.

In Egypt, digital financial services (DFS) are a crucial component of Sustainable Development Strategy (SDS). Egypt’s Vision 2030 has made financial inclusion a national priority. DFS commitments that have already been achieved include enforcing electronic payments for suppliers from government entities that exceed a certain threshold. A draft law to stimulate digital financial transactions has already been developed4.

Along with financial institutions and governments, the third biggest driver in digitalisation of corporate treasury is customer expectations. For financial institutions such as HSBC, this translates into creating products that address customer problems before they become visible.

“At HSBC, in liquidity and in cash management, we have prioritised our investments to eliminate customer pain points,” Reyes said. An example of this is the use of biometrics. In 2018, HSBC rolled out facial identification in the digital product offering and channel offering, across 40 markets. The user base is fast expanding. Everyone, from corporate treasurers to analysts, is a keen adopter of safe and convenient features when they are made available by trusted partners.

Theme 2

Digitalisation takes root in the corporate treasury

3. FinTech Licensing Framework in the UAE. Al Tamimi & Co., July 2017

4. Financial Inclusion Through Digital Financial Services and Fintech: The Case of Egypt. Alliance for Financial Inclusion (AFI), Central Bank of Egypt,

Digital Financial Services (DFS) Working Group

5. Fasterpayments.org.uk

6. Launch of the Faster Payment System, Hong Kong Monetary Authority, September 2018


Digitally driven products are increasingly being rolled out in response to customer demand. HSBC’s recent offering includes money tracker, real time payments, mobile payments and information reporting.

MI Vision, which is aimed at enhancing information reporting makes it easier to track spends using a set of parameters that are defined by the user. The Middle East became the first region to see this initiative being rolled out by HSBC.

Global disbursement for high-volume payments is also being enhanced, which means that customers can pay anyone using the most efficient system available. Recently, HSBC rolled out the ability to make payments through PayPal.

Real-time payments, already available in

Innovation in treasury solutions Bahrain, and on their way in the UAE, are a global trend. Variously called faster payments, or instant payments or real-time payments, these have emerged as regulator-driven initiatives in markets as varied as the UK, where Faster Payments celebrated a decade in 20185, to Hong Kong where Real Time Gross Settlement (RTGS) went live in four currencies in September 20186.

In the region, next-gen card offerings emerged from customer demand. HSBC’s enhancements include offering virtual accounts so a company does not have to keep issuing new cards for single use.

Mobile payments are already popular with HSBC customers in India and China. The Middle East, specifically Egypt, will soon be the second region to implement real-time settlement of corporate payments with a mobile device.

“At HSBC, in liquidity and in cash management, we have prioritised our investments to eliminate customer pain points”


Making possible more than just payment execution, technological solutions are backed by progressive regulation to deliver payments that are based on the requirements of corporate treasuries. The treasurer of today is part of a generation that is always connected, with any device, in real-time, and expects hyper-relevant services. Client expectations, technology solutions, progressive regulation and new participants are the four forces moulding the future of payments, said Tom Halpin, Global Head of Payments Product, Global Liquidity and Cash Management, HSBC.

“The digital environment, the mobile environment and the need for instant is really changing the way we need to think about delivering our products and services and capabilities. We are being driven by customer expectations, needs and problems,” Halpin said.

Transaction and payment technologies have always been responsive to evolving consumer needs. However, ease-of-use is a defining feature of new technologies, with legacy systems giving way to products that can be used to flow information through the user’s mobile phone or back-end systems. Now, more than ever before, customers rather than technological possibilities are the catalysts of product development.

Citing the example of real-time payments, Halpin said: “More and more of our customers are telling us that their pain points are in the reconciliation, in the ability to accept an incoming payment into their account, and have it reconciled so they can make a business decision and improve their working capital solutions.”

Real-time payments then translate into making and receiving payments in order to meet vendor obligations and close deals. For such instant transactions to be truly useful, it is important that they go beyond a transaction and include richer payment information. Being able to track the

payments is another important component of this process.

Data and insight, modern APIs, artificial intelligence and machine learning come together to facilitate a better customer experience. APIs enable fine-tuning of rich payments information so that it can be delivered to the user in the format that is useful to them. APIs are most effectively used to simplify processes and give the user greater control over data.

Since corporate treasurers are constantly managing credit and liquidity risk, the ability to turn data into decision-enabling information allows predictability. Capturing and effective utilising big data is crucial. Halpin said: “We have created a liquidity portal that allows you to bring together your payment information to understand trends and different cycles in real-time.”

Regulatory initiatives for open banking and real-time payments translate into simplified processes and increased transparency with global impact. Open banking enables access to information from multiple sources in a more consistent manner. At the same time, it allows varied, sometimes competing, service providers to come together and deliver various components of a technological solution in a way that benefits the user. Corporate treasuries will see fintech companies work together with banks to plug in solutions that deliver efficiency.

“We believe your partner journey will likely be a combination of banks and fintechs,” Halpin said, adding that trust is an important factor in this. “We already have a trusted relationship. HSBC handles about 20 million payments daily on behalf of customers. That’s us impacting your business 20 million times a day as a client community. This trust may create other opportunities because HSBC has a proven track record of delivering in a way that creates value.”

Theme 3

The continuing evolution of digital payments


SOURCE: Presentation by Tom Halpin

“We are being driven by customer expectations, needs and problems”


Technology has continued to shape payments throughout history, with innovation being a key characteristic in the journey that enables interoperability. From coins to cheques and cards, the history of payments has hinged on making transactions convenient and safe for both parties.

With digital and mobile-led solutions, it is now possible to push virtual payments via a device that delivers more than just the ability to make a payment. At its core, virtualisation of payments is the ability to take account information that typically exists in a physical form factor, such as a card, and injecting it, using security around cryptographic processes, into a device, said James Anderson, Global Head of Commercial Products, MasterCard, in a Fireside Chat with HSBC’s Noor Adhami.

The commercial payments space is uniquely suited to virtualisation because at its essence are processes of accounts payable and accounts receivable. Virtual cards, including the proposition launched by HSBC and MasterCard in the region,

have been in use in commercial payments and continue to be enhanced to suit the corporate customer.

The Middle East is a growth engine, with several governments such as Egypt and the UAE utilising digitalisation as a tool for economic growth. An effective and modern payments system can be an instrument for fostering economic development, involving financial institutions, governments, regulators and fintechs.

This multi-stakeholder approach has led to the role of financial institutions evolving into entities that are more than mere facilitators of transactions. In the region, one example is Egypt, where HSBC and MasterCard are working together to create solutions and programmes that involve encouraging and growing small businesses, and to improve access to capital in new and different ways. Anderson said: “We want to be viewed as partner to the governments and the regulators, as somebody who can be helping solve the problems of society.”

Theme 4

A multi-stakeholder approach to digital innovation


“We want to be viewed as partner to the governments and the regulators, as somebody who can be helping solve the problems of society”


Security is a key aspect of digitalisation, with millions of dollars being spent on ensuring the cyber resilience of new products. As a constantly evolving process embedded into product development, cyber security is one of the key factors in ensuring smooth digitalisation.

HSBC’s Diane Reyes said: “Hundreds of millions if not billions of dollars are going towards cyber security,” emphasizing that safety-testing is a key component of product rollout.

As digitalisation becomes the norm, financial compliance standards developed by various stakeholders are becoming more stringent and it is common practice for banks such as HSBC to go beyond compliance to ensure security best practice in product rollout by including both mandatory and optional security components.

Technology such as biometrics, tokenisation, digital IDs and private cloud-based systems7 are introduced to ensure cyber security, which means that in real terms, the level of security checks that banks and payment gateways have for digital transactions are far higher than traditional banking practices. “We’ve invested in biometrics. In 2018, we rolled out facial identification in our digital product offering, in our channel offering, in 40 markets,” Reyes said.

However, optimal security is reliant on more than technology. Rahul Tyagi, Co-Founder, Lucideus, said: “Cyber resilience is reliant on proactively securing process, people and technology,” pointing out that human error or user behaviour is a crucial component of securing processes.

Secure processes include ensuring compliance with various types of protocols. Financial institutions comply with multiple regulatory and

mandatory requirements instituted by various stakeholders. Payments Card Industry Data Security Standards (PCI DSS) are developed and employed to ensure security. Tyagi recommended regular security audits as part of the process to keep transactions secure.

Keeping up with emerging security technology is the other key area. As newer technologies are introduced, organisations need to build them into their systems. Regular updates of software need to be made part of an internal process, Tyagi said.

However, it is seen that while payment security remains a step ahead of threats, human error can lead to breaches. Commonly encountered attempts at breaching corporate treasuries demonstrate the importance of cyber security drills and resilience to phishing phone calls and emails.

Nadya Hijazi, Global Head of Digital, Global Liquidity and Cash Management, HSBC, said that hackers tend to rely on the human factor rather than dealing with complex security technology. The most predominant form of hacking attacks is persuading key users to reply to an email seemingly from the CEO, sharing critical details. Targeted phishing attacks remain the number one concern of IT security decision makers8.

The importance of security drills cannot be overemphasised. Statistics show significant reduction in fraud and attempted attacks when organisations have include regular safety training on simple points such as not sharing OTPs, following security protocol while responding to emails, or sharing mobile devices.Being truly cyber secure is a combination of compliance with best practice, updated technology and informed users.

Theme 5

Securing digital

7. EY, Treasury Management Systems Overview, 2018

8. CyberArk Global Advanced Threat Landscape Report 2018: The Cyber Security Inertia Putting Organizations at Risk


“Cyber resilience is reliant on proactively securing process, people and technology”


Rapid digitalisation will result in positively disrupting the processes of corporate treasury departments. While technologies will make treasury functions more efficient, cost-effective, and leaner in terms of staff, they also may require a new set of skills in addition to financial acumen. These and other issues were discussed by a panel of treasurers, moderated by broadcast personality Tom Urquhart.

The treasurer of the future is likely to have more tools at their disposal to improve workflow, which also ensures a strategic role in business decision-making, with strategic activities taking up more time than operational matters10. The impact of digitalisation will be felt in how companies are able to drive not only productivity but also visibility into performance metrics.

Disruption is transforming how technology is deployed to crunch larger amounts of data and provide information that powers effective decisions. HSBC’s Nadya Hijazi said: “Disruption is benefitting the financial industry and helping us to be very customer-centric in the way we are approaching things.”

The external business environment naturally impacts the role of the treasurer. As businesses use technology to drive portfolio changes, innovation and productivity gains, treasurers are in a strategic position to proactively adapt to balance-sheet corrections, use data effectively and apply technological solutions to optimise risk management. Research shows that over 70 per cent treasurers in a survey are concerned about the quality of financial and business data available for strategic planning and decision-making9. Vishal Verma, Regional Treasurer, G.E., said: “The biggest disruption is in the culture of treasury today, where

for the first time we’re hiring data scientists and technical experts.”

Corporate treasuries are coming to terms with disruption being the order of the day. Asli Karapinar, Head of Treasury, Middle East and Africa, Schneider Electric, said: “Digitalisation is quite important for us, so we need to naturalise it.”

For many, it involves working closely with banks to implement digital processes. Companies have a task ahead in integrating effective digitalisation. Saed Arakat, CFO, Bloom Holdings, said: “All companies should adapt to the new model of doing business, otherwise you will be out of business. We engaged with different banks with a target to fully automate our digital processes.”

APIs, real-time payments, robotic process automation (RPI), distributed ledger or blockchain technology are some of the disruptions that are being discussed widely across organisations and affect how corporate treasuries are organised.

Verma said: “Real-time payments are good. But how are you going to organisationally address the fact that there is going to be a tap flowing all the time – incoming and outgoing – in real-time?”

Real-time payments and information, when translated into efficiency, allows treasury to get liquidity positions too in real-time. This allows the plugged-in treasurer to make more effective cash-flow decisions.

Contextual digitalisation is crucial. Hijazi said: “It is not the technology that is the fundamental heart of it. Technology empowers a customer-centric business model. That’s the way one needs to look at technology.”

Theme 6

The future treasury

9. The Business of Treasury 2018, ACT


© Copyright HSBC Bank Middle East Limited 2019. ALL RIGHTS RESERVED. HSBC Bank Middle East Limited U.A.E. Branch, P.O. Box 66, Dubai, U.A.E., regulated by the Central Bank of the U.A.E. for the purposes of this promotion and lead regulated by the Dubai Financial Services Authority.

Treasury Outlook 2019: Disrupted or Disruptor? · 2019. 10. 22. · consumer behaviour, regulation and risk in every respect, tasked with making key decisions about technology and

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