Published: November 24, 2015
The strong emergence of Asian countries on the world stage is creating new competitive dynamics, technology innovation and trade patterns, such as the growth of south – south trade routes. This is impacting business models, growth strategies, trading practices and cash management amongst all businesses operating in Asia and beyond. At the same time, the level and speed of change in financial market infrastructure in many Asian countries, from new clearing systems to currency, tax and trade regulations, is creating complexity but also opportunity for treasurers and finance managers doing business in Asia. For example, the journey towards RMB internationalisation is continuing apace despite the current market correction, and developments such as two-way cross-border sweeping are increasingly driving discussions with corporates.
In this environment when preserving margins and targeting investments is more important than ever, the core fundamentals of treasury management remain the same: to manage risk and liquidity, and optimise financial and operational efficiency and control. However, the way in which treasurers go about achieving these objectives is changing. For example, as their role and influence has extended more widely across the enterprise, treasurers are in a better position to shape the working capital agenda, which has a significant knock-on impact on liquidity and risk objectives.
Consequently, working capital discussions with customers have become more focused. No longer does working capital management involve simply reporting on working capital metrics e.g.,days payable outstanding (DPO), days sales outstanding (DSO) and days inventory outstanding (DIO). Instead, customers are increasingly taking advantage of DBS’ industry benchmarking services to understand their relative performance across a range of cash and trade-related activities. In addition, our in-depth diagnostics enable customers to identify inefficiencies and opportunities for enhancing performance against key working capital metrics. This is the result of considerable investment in sophisticated technology, rich data and expertise: for example, we have invested in training over 2,000 of our customer facing executives trained in working capital advisory to support customers and inform our solution offerings.
As treasurers’ scope of influence becomes wider and they need to respond to changing competitive, market and regulatory conditions, their banking strategy is also changing. Historically, many companies’ goal was to rationalise their banking relationship to a single global banking partner for transaction banking, but this has changed significantly over recent years. In particular, the need to diversify risk has been far better understood since the global financial crisis. This does not simply mean dividing transaction banking business across one or two additional global banks. Instead, treasurers are seeking to shape their banking relationships to balance their risks more precisely, and ensure access to best-in-class solutions, services and depth of network across the company’s geographic footprint. For example, managing bank risk today involves minimising the impact of decisions made by banks to rationalise sprawling global networks by exiting particular countries. This has become a far more apparent trend recently, and it is prompting many companies to appoint regional banks that are more deeply entrenched in the markets they operate. For example, a company operating globally with one or more transaction banks for each of their core regions, and sub-regions (such as North Asia, ASEAN, Australasia etc.) will often select banks that are headquartered and/or have established core markets in these regions. Not only are these banks likely to continue investing in their home and/ or core markets, but they will typically have deep engagement in local markets with effective relationships with regulators and key market participants, as well as integration into financial infrastructures.[[[PAGE]]]
Besides taking a wider view of risk, the type of services treasurers are looking for has changed. In addition to comprehensive transaction banking solutions and efficient customer services, corporates increasingly value the expertise that their partner banks offer based on their knowledge of industry best practices. Consequently, dedicated advisory services are now an essential element of the value added services DBS delivers to our customers.
Secondly, treasurers have never valued regional expertise and depth of presence more than they do today. Global banking is typically characterised by broad geographic reach and high level liquidity solutions. Conversely, treasurers are seeking depth of presence and expertise at a regional level, and increasingly prefer banks that offer local insights and solutions in addition to regional liquidity and risk capabilities. By doing so, treasurers can access best-in-class banking services in each of the regions in which they operate, whilst maintaining operational efficiency and cash visibility and control through connectivity solutions such as SWIFT.
In regions such as Asia, the ability to access specific expertise and solutions is particularly important given the speed and degree of change. For example, we are seeing enormous changes in payments infrastructure across the region, such as FAST (Fast and Secure Transfers) in Singapore and the unified payment interface in India, which is designed to simplify and provide interoperability with a single interface across all payment channels, including C2C, B2C and C2B mobile payments. Important infrastructure developments are also taking place in Australia, Hong Kong and China, such as CIPS (China International Payments System) for cross-border RMB flows, which will be more consistent with SWIFT codes and messaging standards.
In addition to infrastructure changes, there is a huge wave of innovation taking place in the payments space driven by emerging financial technology (‘fintech’) companies. While many of these innovations will have limited or transitory appeal, there is also the potential to revolutionise the way that both consumers and businesses do business. For example, a great deal of work is going on to embrace blockchain technology, the technology that underpins cryptocurrencies, to create new business models such as dematerialising letter of credit processes. DBS is playing a lead role in facilitating and recognising innovation, such as through hackathon events, mentorship of fintech pioneers, and establishing strategic partnerships with entrepreneurial fintech companies on solutions that leverage the financial infrastructure such as FAST in Singapore, with applicability for both retail and corporate clients.
One of the outcomes that we expect to see over the next two or three years, is that evolving customer demand combined with emerging technology will result in convergence between high and low value payments. Same-day or real-time payments are fast-becoming a consumer and corporate expectation, and increasingly, existing thresholds are no longer technology-driven. At the same time, a related trend is the convergence between domestic and cross-border payments, with payment users demanding faster, more standardised, lower cost payments. The first step to achieving this has already happened in Europe with SEPA (Single Euro Payments Area) but we expect the concept of universal payments to apply more widely in the future.
DBS is at the forefront of these developments, not only through our own investment and partnerships with innovative fintech companies, but by embracing and promoting the use of standard, bank-agnostic formats and connectivity wherever possible. We see this is an essential principle of efficient payments processing and information exchange, which will underpin future innovation.
A second trend that we expect is that more banking and technology innovation will originate in Asia. There are a variety of reasons for this, not least as banks in other regions are often still dealing with remediation issues following the global financial crisis including compliance, which restricts not only their investment abilities but also their focus and priorities.
Conversely, banks in Asia such as DBS have been deepening relationships with customers and progressing product innovation as the ramifications of the financial crisis have been less significant and not distracted focus from doing business with customers.
Treasurers and CFOs need to keep up to date with market and regulatory changes, and emerging innovations, and understand the implications for their business. In addition, they need to be confident that their cash management solutions will be developed in line with new market infrastructure and business requirements. Banks with specific understanding of the local and regional payments environment play an essential role in promoting awareness, offering advice and delivering solutions.
At DBS, we are therefore proactive in engaging with clients, regulators and infrastructure providers to anticipate and respond to changing demands. In addition, we are committed to investing in, and prioritising innovations in transaction banking that directly benefit customers and contribute to the transformation of the industry.
Being headquartered in Singapore, a pre-eminent global trade hub with an international focus at its core is clearly a major advantage. Furthermore, our unique contribution to Singapore, past, present and future, has shaped a bank with deep local roots and a pioneering regional and global perspective.
To maintain its aim of offering affordable, precious jewellery, Europe’s THOM Group has invested in improving the efficiency of its treasury operations. A card-acquiring platform from Axepta BNP Paribas has transformed the payments experience for the THOM’s treasury, sales staff and also the all-important customer. As one of the leading jewellery retailers and distributors , […]
