Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the Rethinking Treasury mini-series, where we analyze the changing role of corporate treasury today and the road ahead for corporate risk management.
Speaker: In June and July 2021, HSBC and Acuras partnered to survey CFOs and treasurers across the globe to find out how corporate risk management was evolving to meet the challenges of today and build resilience into the future.
Speaker: A full report titled Rethinking Treasury, The Road Ahead, covering the trends emerging from the survey, has been recently published.
Speaker: You can find a link to access this report in the podcast description.
Speaker: In this series, HSBC is bringing together key experts to discuss the main themes arising from the survey in more detail and discover just what drives the FOs and treasurers today and how those themes will impact their work tomorrow.
Speaker: Welcome to today's episode, where we're going to dive into the world of technological enhancement in Treasury.
Speaker: And thanks for tuning in.
Speaker: My name is Holger Zweiner.
Speaker: I'm the head of HSBC's Corporate Sales Thought Leadership Team for EMEA.
Speaker: Today I'll be talking with Helen Fang and Mark Williamson about how technology is transforming the finance department as digitization becomes even more integrated into day-to-day decisions.
Speaker: Helen Fang is Head of Industrious Research Asia Pacific at HSBC and covers automation, machine vision and robotics companies in Asia, including Japan and some in the US.
Speaker: Mark Williamson is HSBC's global head of FX Everywhere Partnerships and Propositions
Speaker: where its role is expanding to assess the use of the ABCDE, which stands for AI, blockchain, cloud data, and ecosystems across various existing new and emerging digital markets.
Speaker: Helen and Mark, thanks a lot for joining me today.
Speaker: Thank you, Holger.
Speaker: Thanks very much, Holger.
Speaker: From our survey, which
Speaker: It included 200 CFOs and more than 400 senior treasury professionals.
Speaker: One thing that really stood out is that digitization is having an increasing impact on how finance departments work.
Speaker: One of the supporting facts here is that more than half of CFOs expect digitization will give their business model a large boost over the next three to five years.
Speaker: Harold and Mark, you've both been a very close observer of how technology has been shaping corporate businesses initially towards industry 4.0.
Speaker: How do you now see automation and digitization affecting CFOs and treasurers in particular?
Speaker: Helen, maybe you want to start on that one?
Speaker: Yeah, sure.
Speaker: Thanks, Hocker.
Speaker: Well, I think that everybody will agree that treasury plays an essential role in a company.
Speaker: So when companies expand into the international markets like HSBC, usually they will take advantage of the benefits offered by the centralization and the digitization.
Speaker: To enable this treasury centralization and digitization, the company will usually have a digitization project in space.
Speaker: and also establishing the connections between the company's ERPs and the systems of the bank.
Speaker: We see this kind of process with several key advantages.
Speaker: First, it definitely improves the cash flow visibility, optimizes the liquidity across the organization, increases efficiency, and also reduces costs through economy of scale, and enables more effective risk management.
Speaker: Well, just to give you an example for the risk management, as cybercrime and fraud becomes more sophisticated nowadays, if you have the automation risk management solution based on the AI algorithm, it can massively help you identify and block the suspicion payments.
Speaker: These solutions can be also tailored into the organization's rules, helping to catch the money laundry and eliminating the friction points.
Speaker: thus enhancing the process efficiency.
Speaker: However, although we have all these kinds of the benefits from the digitization for the treasuries, we still think that the increased level of digitization requires appropriate security standards to go hand-in-hand with it.
Speaker: We think information security and control policies needs to protect against external attacks must be an internal impact
Speaker: integral part of this automation and also digitization strategy.
Speaker: Thank you, Helen.
Speaker: Mark, how does it look from your perspective?
Speaker: Thanks, Holger.
Speaker: I think we're at a really interesting point in history and the whole financial markets is going from having that blockbuster moment.
Speaker: So we're going from blockbusters to Netflix.
Speaker: And what I mean by that is over the last 18 months to two years, we've seen a real big ramp up in digitization of
Speaker: flows of cash and the way they're represented and the way that treasuries consume that information.
Speaker: And a big driver for that is not only the COVID, China, crypto, moving to a cashless society, but also the move of store of value onto distributed ledger technology or DLT.
Speaker: And when we're looking at distributed ledger technology, what we're seeing is that it's providing an overlay to existing treasury systems, ERPs,
Speaker: Chris Bounds, Business flows and processes, the other big trend that we're seeing out in the marketplace is around CBDC or central bank digital currencies we're seeing that there's.
Speaker: Chris Bounds, 90% of the world's countries are looking at CBDC experiments, and that is acting as a massive catalyst of change.
Speaker: for a lot of the treasuries across the world for adopting new digital technologies and stores of digital currency on distributed data technology.
Speaker: And what's interesting there is HSBC is a large multinational corporate.
Speaker: We're looking at how do we proactively experiment and engage in a lot of these different central bank digital currency experiments.
Speaker: Great, thank you, Mark.
Speaker: And as you already touched on the experience over the past 18 months,
Speaker: Maybe when looking into that more recent part, so how do you see that the sudden switch for finance departments to remote working?
Speaker: How has that affected the timeline and the ambitions for digitization?
Speaker: Helen, maybe to start with you again.
Speaker: Yeah, sure.
Speaker: I think digital adoption has definitely taken a leap at both the organizational and industry level.
Speaker: Like we discussed, due to the pandemic, digitalization has become a must for companies.
Speaker: With the practice of remote working, corporate treasures must be able to operate from anywhere.
Speaker: with secure access to all information at any time in order to manage their day-to-day operations.
Speaker: And at the same time, as many employees continue to work remotely, automation can also play an important role in keeping the process running smoothly, regardless of time zones or work hours.
Speaker: This also frees up valuable employee time by eliminating the new day tasks, adding value to the functions overall.
Speaker: But having said that, we think that the frustration would be, you know, it needs a lot of KPEX and ROI, to be honest.
Speaker: With the booming demand for digitalization, upgrade, automation, and data process, the brand width and IDC room expansion are top on the list.
Speaker: I have seen the CFO's roles nowadays evolve to become more a strategic business oriented enabler.
Speaker: It's more like they need to be digital aware and transnovation obsessed.
Speaker: And the global pandemic has added to the urgency.
Speaker: I think that it's like their decision that they must drive both the short-term gains and long-term transformation in digitalization to free up more working capital.
Speaker: Great, thank you.
Speaker: Maybe looking into one other thing which came out from our survey data is that with respect to treasury, European and Western markets in general appear to be ahead of the curve in making that digitization a priority within the finance departments.
Speaker: Helen, when looking now more broadly into how companies are digitizing and adopting automation across their business units, do you also see the regional differences there or is it more a sector perspective you are aware of?
Speaker: Yeah, that's a very interesting, well, I would say perspective, because as far as I understand that automation is different than digitization.
Speaker: Automation means that running process and tasks autonomously and automatically, that will be automation.
Speaker: And that includes, say, robbers, machine tools, et cetera, et cetera.
Speaker: The Western countries definitely have a higher penetration rate with automation upgrade.
Speaker: But because the eastern countries are relatively behind, they are catching up really fast.
Speaker: For example, I think between 2015 and now, China basically demands more than 30% of the global automation.
Speaker: And across sectors, it's usually, say, automobile, smartphone, semiconductor.
Speaker: Those who have the repetitive tasks require a higher precision level and produce higher value goods that would, well, upgrade with automation the first compared with, say, other kinds of the downstream verticals.
Speaker: But when coming to digitization, which, according to my understanding, will be supporting the processes and tasks digitally, I think that the West is definitely leading the charge, especially in treasury, like we just discussed.
Speaker: Although many big enterprises have completed the transformation in developed Asia,
Speaker: The process has, in general, been slow for smaller countries.
Speaker: To be honest, when we are looking at the Treasury SaaS companies in mainland China, we notice that most of the domestic small private companies tend to use the domestic SaaS to digitalize its taxation system.
Speaker: And I think that one underlying reason behind it could be, you know, they are...
Speaker: they don't have the impeccable algorithms for taxation monitoring so that the small companies can have more room to play around it.
Speaker: So that's, I think, one big hurdle, why you see that the digitization of treasury for small companies in Asia could be relatively slower.
Speaker: Great.
Speaker: Thank you, Helen.
Speaker: And Mark, one other angle we already briefly touched on are the investments required to drive the tech agenda.
Speaker: How do you see business size matter here?
Speaker: Are larger companies at an advantage or is it rather the other way around and some businesses have become too complex and smaller entities are at an advantage in proceeding with technology exchange required?
Speaker: I'll combine my answer with the previous question and this one because I think they're interrelated.
Speaker: I think from a regional and sector specific adoption of this new world technology,
Speaker: The connectivity here is around supply chains.
Speaker: And so what we're seeing across the globe is the digitization of those supply chains and move to technology such as distributed data technology or blockchain.
Speaker: And some of the supply chains are being digitized by tracking and tracing goods and services as they move across the globe.
Speaker: And the interconnectivity between East and West is where a lot of that digitization is happening.
Speaker: So as Helen mentioned, the platforms, et cetera, are a key driver for how we're moving towards digitization.
Speaker: As far as the investment is concerned, I think it's a matter of how you implement the technology and also what you're looking for as a return.
Speaker: So again, from talking to a lot of large multinational corporates,
Speaker: The benefits they get from adopting some of these new digital forms of technology is around, again, improved workflow, transparency and auditability of their goods and services as they move along supply chains and removing a lot of the operational friction.
Speaker: But they're also seeing other benefits around the provenance of some of the goods and services as they move along these new world technologies or distributed ledger technology.
Speaker: So companies like Walmart, Nestle, Carrefour, et cetera, are using these technologies to track and trace their goods as they move from farm through to fork.
Speaker: And because they're able to highlight the provenance of those goods as they move along that supply chain and where they came from, they're getting assurances around the quality of those goods.
Speaker: Also, the green practices of those farmers that they're sourcing their goods and services from as well.
Speaker: So I think that there are benefits, not only from the top line, but also the bottom line.
Speaker: So increases in revenue because they're able to be more efficient around tracking and tracing their goods and services and highlighting the provenance of where those goods come from.
Speaker: And also from operational saves and also from working capital saves, because if you know where your money is at any certain point in time, then you're able to make investment decisions and risk decisions because you have certainty of where your cash is at any certain time.
Speaker: Thanks, Mark.
Speaker: That's a great example.
Speaker: And I'm probably going to stick with you for the next question as well, because when we look into our survey data, a lot of that also comes up from the data points.
Speaker: So we've had a huge 97% of CFOs who were saying, okay, they see at least one future use case for blockchain technology within their organization.
Speaker: And more than half said, like, okay, the main benefit is on the ability to create easier and leaner trade documentation, which your example clearly referred to.
Speaker: Another point coming out that this area is not viewed as optimistic on the Treasury level yet.
Speaker: So maybe if you could give us a bit of example, what are you seeing with the corporates you work with and which kind of concepts have already been handed down to Treasury for execution?
Speaker: Yeah, I think there's a few different points to this, Holger.
Speaker: I think firstly, it's Treasury, right, wrong, good or bad are often the last ones to know about technology adoption outside of Treasury.
Speaker: So when I'm talking about the automation of the supply chain, the treasurers are aware that it's going on, but then their job is to manage the risk and the cash flow and the working capital off the back of it.
Speaker: So if they're able to look at and better understand how that technology has been implemented and what benefits that the treasurers get from that better transparency workflow and auditability of where that cash flow is,
Speaker: then I think there's a connection between delivery versus payments.
Speaker: And so if you're able to join those two concepts together and able to embed your FX payments and financing into that movement of goods and services along DLT or blockchain, then we're seeing there's some interesting developments around that.
Speaker: Specifically, when we dig into the workflow or programmability process,
Speaker: of the items as I move along a distributed ledger technology, you'll often hear about smart contracts.
Speaker: And what smart contracts are is a legal representation of what is being moved along that distributed ledger technology or blockchain.
Speaker: And often within those smart contracts, you can program payment information or financing information.
Speaker: So if you're able to then listen into those smart contracts and connect that into your treasury systems and have
Speaker: and know that those cash flows are coming through into your systems, and you also have consensus of those cash flows, or you've got an agreement of when those cash flows are going to happen, then again, you're able to make better informed working capital and risk management decisions.
Speaker: So we're seeing a lot of that that's going on.
Speaker: And similarly, when we look into capital markets or traditional markets,
Speaker: we're seeing that there is a tokenization of traditional markets and capital markets.
Speaker: So we're seeing that the $867 trillion capital markets business is starting to be tokenized.
Speaker: So whether that's bonds, whether that's gold, whether it's derivatives, whether it's currency, we're seeing that there's a lot of movements within the broader capital markets around how to tokenize those different asset classes.
Speaker: And then coming back to central bank digital currencies and stable coins, what are people looking at and what are we trying to consider here?
Speaker: We're looking at how we can improve the currency supply chain.
Speaker: So how do we digitize that currency supply chain?
Speaker: And how do we improve the $18 trillion a day FX and payments marketplace?
Speaker: And that's where we're starting to see some really interesting developments led predominantly around central bank digital currencies.
Speaker: And a good example is China.
Speaker: So some of the corporates that we're talking with, Western corporates that operate in China, with the digital yuan or ECMI that is in circulation today, so it's more than a twinkle in the eye, it's actually in use today.
Speaker: Some of the Western corporates at point of sale have been asked to accept ECMI or digital yuan
Speaker: And now they're coming to us and saying, okay, now I've got this new form of currency and payment.
Speaker: How do I treat that on my balance sheet?
Speaker: How do I treat that as a form of payment?
Speaker: And how is that going to help me in the longer term for how I operate working capital?
Speaker: Great.
Speaker: Thank you.
Speaker: Thank you, Mark.
Speaker: And obviously all of that which you described also requires a lot of investment and change on the banks and financial service provider side.
Speaker: Maybe Helen has a question to you, especially when looking into the industrial sector.
Speaker: How do you see digitization really impact the interaction corporate clients are having with banks along those lines?
Speaker: Yeah, I think that the treasury digitization redefines the banking experience for the corporate customers, including the industrials, of course.
Speaker: For example, the banks now can use blockchain's verifying capability to help their corporate customers to verify the electronic letters of credits
Speaker: or to provide fast and accurate payments to suppliers across multiple tiers.
Speaker: The faster payments around the world are so important for corporates as well, because a lot of the industrial companies, their suppliers and their well demand were coming from everywhere across the globe.
Speaker: And if you can send and receive cash more transparently, securely, and in many cases in real time, that is crucial for those kind of the, well, operations.
Speaker: With the SWIFT code nowadays, it is possible.
Speaker: And also, I think this technology allows the cooperations to complete the high-speed payment in minutes.
Speaker: and improves the cash forecasting and liquidity optimization, which helps them to better do decisions on either investment or risk management.
Speaker: Great, thank you.
Speaker: Maybe moving into the area of FX a bit, Mark, you already discussed the ability to integrate FX more holistically in the financial value chain.
Speaker: It's a very important distinguishable for corporate clients.
Speaker: Let's zoom in here a bit.
Speaker: So our survey confirmed that currency was still seen as hard to manage both by CFOs and treasurers with a more like gradual progress over the past couple of years.
Speaker: One thing that already came out strongly, however, is that especially execution trends have changed towards digital with multilateral trading platforms and FX algorithms firmly on the cards.
Speaker: As a little stat there, 55% of the treasurer survey said they already today use electronic platforms as their main channel to execute FX hatching.
Speaker: Those ratios are quite a way up across all regions versus our initial risk management survey we did in 2018.
Speaker: How do you see this journey continue?
Speaker: How much more is to come on that end market?
Speaker: I think there's a few different aspects to this.
Speaker: I think, first of all, you can't manage what you can't see.
Speaker: So transparency is key in how you manage your FX risk.
Speaker: Similarly, the adoption of algorithms and different hedging strategies we're seeing more and more of, which is great.
Speaker: I think that as we start to move into this new world of connecting different platforms and ecosystems into treasuries, then there's opportunities to embed your FX rates earlier on in the supply chain because you're going to have certainty of where those goods are.
Speaker: You're going to have certainty of where the money is at any given time.
Speaker: And therefore, once you have that certainty, then you'll be able to hedge your FX risk more proactively.
Speaker: You'll be able to not only have a view of what's happening on the day, but you also have a confirmed cash ladder of what your foreign currency obligations are between different centers, different clients, et cetera.
Speaker: And the reason why you'll have better certainty around what those forward cash flows look like is because
Speaker: adopting some of the paradigms of distributed alleged technology and the underlying paradigms around that, whether that's smart contracts, whether it's the consensus mechanism, whether it's ensuring that you know when those cash flows are going to be clear and free, then that all will help your cash flow decisions.
Speaker: I think also the adoption of AI.
Speaker: So once you have that data and you're able to look backwards to understand what your trends are as far as
Speaker: when foreign currency inflows and outflows happen, then looking at how you can start to
Speaker: to be aware of, okay, I'm expecting these cash flows to come into my foreign currency cash ladder in time, then I'm going to be able to hedge more programmatically as those cash flows come in with certainty.
Speaker: And that, for me, is going to be the big difference moving forward in that as we move more and more value or store of value onto these newer technologies that is backed up by
Speaker: Certainly, if when those cash flows are going to hit, then I think the treasurers of the world are going to have better opportunities to fine tune their FX risk management using things like algo orders and some of the digitization tools that we have and offer to our clients today.
Speaker: Great.
Speaker: That's really some fantastic insight from both of you.
Speaker: And I think we could probably continue to talk about opportunities arising or coming up on the horizon for quite a bit of time.
Speaker: Unfortunately, we are nearing the end of our podcast today.
Speaker: So just one final question for both of you.
Speaker: We're looking into all of that.
Speaker: What do you think should be the priority for corporate clients in the near future to move ahead?
Speaker: What are the main areas companies should be focusing on on their near term agenda?
Speaker: Helen, maybe I would start with you again.
Speaker: Yeah, I think that for most of the cooperates, maybe the need to take into account that digitization transformation is to build an ecosystem, not just to buy, well, certain tools from here and there.
Speaker: you need to make sure that they can work seamlessly together.
Speaker: For example, it is essential that they select the automation tools that the data can flow among all relevant systems, so that minimizes the need for human intervention between different tools, because this is so inefficient if it happens.
Speaker: Ideally, these automation tools need to connect seamlessly with the ERP system.
Speaker: And it's also important to look for a tool that can support the connectivity with other platforms.
Speaker: Thank you, Helen.
Speaker: That's a very good point.
Speaker: Mark, over to you on that question.
Speaker: I think for corporate treasurers, it's trying to think through the transition from heritage to digital.
Speaker: So as Helen touched on, the connectivity between old world and new world is going to be key.
Speaker: And so how you stitch that together is going to be super, super important.
Speaker: I think also remain curious, be educated around some of the trends that are coming in the upcoming years, and think about how to set up your treasury to adopt these newer technologies, these newer stores of value on
Speaker: on DLT, for example, and how you're going to integrate that into your current infrastructure.
Speaker: I think they're the key things to be aware of.
Speaker: And I'll use the example that we've touched on before, Holger, in previous conversations, is if you think about central bank digital currencies, and it seems to be a question of not if, but when.
Speaker: We've had some conversations with some of our peers in the street and also some of the bodies that are looking at how are they going to set up these new digital currencies.
Speaker: And so there is a request out there at the moment for ISO codes, for currency codes to go from three letter codes to four or maybe even eight letter codes.
Speaker: Now, if anyone was around when we adopted the Euro, think about how many different finance and risk systems had to change to accept that new currency code.
Speaker: And if we're doing that time 64 or 90, then there's going to be an incredible upheaval of different finance and risk systems.
Speaker: So it's not an action that needs to be done today, but I think when you're thinking about the transition from heritage to digital, these are the sorts of things that corporate treasurers need to be aware of.
Speaker: But also there's a huge amount of opportunities.
Speaker: Thank you both.
Speaker: Thanks for your time today and your great insights into the accelerated pace of digitization.
Speaker: I think we will all be eager to see how the digital journey plays out for corporate clients going forward.
Speaker: Thank you for tuning in to this episode of Rethinking Treasury.
Speaker: If you're interested in learning more about the 2021 Corporate Treasury Risk Management Survey, click the link in the podcast description or talk to your HSBC representative.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint, Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
