Demystifying Digital Treasury – Lessons from the UAE

Knowing which technology innovations to invest in now, and which to put on the back burner, is a challenge for any treasurer. But it is particularly difficult for those operating in the United Arab Emirates (UAE), where the real-time digital infrastructure is still developing, and paper-based payment methods remain popular. 

There’s no doubt that the UAE is making significant strides towards becoming a smart, cashless society. Local governments across the country are implementing schemes to encourage residents to settle their utility bills and pay for public services via digital platforms. And with a relatively young population, and high smartphone penetration, the country is well-placed to take advantage of digital innovations. 

It comes as no surprise, then, that fintech firms are starting to flourish in the UAE. The support network around such start-ups is growing too: the Dubai International Financial Centre’s (DIFC) FinTech Hive is proactively encouraging innovation in this space, as is the Department of Economic Development of Abu Dhabi, in partnership with the Abu Dhabi Global Market. With the rise of these new entrants, the country’s financial ecosystem is starting to show signs of disruption, and innovative financial solutions and systems are now coming to market.

For corporates, these new technologies bring significant efficiency opportunities, but they also bring risks, and a requirement for new strategies and implementation resources. What’s more, for time-pressured treasurers, knowing your API (application programming interface) from your AI (artificial intelligence) can be both distracting and daunting. With this in mind, ADCB and TMI hosted roundtable discussions in Abu Dhabi and Dubai in November 2018 to help local treasurers demystify the latest technology developments – and to understand how they can prepare for the forthcoming wave of digital innovation.

Cutting through the hype

Following a lively introduction from Colin Fraser, Group Head, Wholesale Banking, ADCB, and an insightful economic overview from Monica Malik, Chief Economist, ADCB, discussion at both roundtable events kicked off with an analysis of how APIs and AI are changing the face of treasury. As in other regions, it was clear that APIs are regularly cropping up in treasurers’ strategic conversations with board members and in-house technology teams, as well as banks and vendors. This is driven in large part by the global move towards open banking and the rise of the API economy.

Nevertheless, many treasurers are yet to fully discern the potential that APIs offer to improve treasury systems and processes. On this point, Neale Croutear-Foy, Ecosystems Design Lead, ADCB, explained that, “since APIs provide a means of connecting systems together seamlessly to allow real-time transfer of data, APIs could enable treasurers to build a fully customisable dashboard that draws multiple data feeds into a single window. This dashboard could aggregate data from multiple banks and fintechs to provide a complete overview of cash and liquidity,” – which the roundtable participants agreed would be a significant benefit, especially for those treasurers without the budget for Treasury Management or Enterprise Resource Planning (ERP) systems. 

An additional point of interest raised during the discussion was that APIs could potentially replace direct host-to-host (H2H) connections to banks, or at least lead to next-generation H2H connections where all data is transferred in real-time, and the capabilities extend beyond payments. These next-gen connections should also be able to be rolled out far more quickly, easily, and cost-effectively than traditional H2H set-ups, making them more accessible for smaller corporates. 

Thomas Baxendale, Programme Manager, Digital Transformation, ADCB, outlined how “the ability of APIs to enable systems to speak to one another in a simple, standardised manner could also be leveraged by treasury to eliminate re-keying of information, freeing up personnel for more strategic tasks”. Similarly, AI is also “enabling treasury teams to focus more of their energy on adding value to the business,” he said. Comments from the audience echoed this, with several treasurers outlining their experiences of using AI to improve automated reconciliations and cash flow forecasting. 

Bhavesh Shivshanker Head of Financial Operations, Etihad Airways

In Abu Dhabi, Bhavesh Shivshanker, Head of Financial Operations, Etihad Airways, shared his insights around AI, saying: “Forecasting is very complex and time consuming given the number of variables involved. The first step toward quality predictive analytics/AI type functionality is good clean data. This has been Etihad’s focus over the past few years and will provide us with a solid foundation for new technologies. Ultimately, the calculation strength of these new technologies – making decisions based on thousands of variables – will go a long way in replacing some of the time-consuming (and gut-based) decision work of a treasurer.”

Meanwhile in Dubai, there was discussion around how banks in the UAE could leverage AI to help corporates predict their working capital needs more accurately. A number of treasurers also voiced a desire to see more collaboration between banks and fintechs to help treasury teams fully leverage the potential of AI and APIs, especially when they are used in combination.

Despite the clear potential benefits that APIs and AI offer, Sherie Morais, Head of Business Development, Transaction Banking, ADCB, emphasised that these technologies aren’t a necessity for every treasury department – at least not right now. But, she said, “it is important to have a business strategy around them, management support for them, and to recognise how they are paving the way for the era of real-time treasury”.  

Pushing the boundaries

Another factor driving this shift towards real-time treasury is the global rise of digital and instant payments. There are now 40 real-time payments schemes live across the world, the majority of which are currently national only – with the SEPA Instant Credit Transfer scheme being the exception to the rule. 

Such schemes enable 24/7/365 clearing and settlement of funds – and payment is final since transactions cannot be recalled. The ability to send and receive funds around-the-clock proved to be of great interest to the Abu Dhabi and Dubai roundtable attendees. This is due to the fact that issues often arise with cut-off times and value dating around cross-border payments to/from the UAE given that the country operates a Friday/Saturday weekend, unlike the majority of other economies. 

Audience members were keen to explore ways in which such issues could be avoided in future, including SWIFT’s global payments innovation (gpi) initiative. As Isaac Thomas, Head of Transaction Banking, ADCB, explained: “SWIFT gpi is a new standard in global payments that enables corporates to send and receive funds quickly and securely anywhere in the world, with full transparency over where a payment is at any given moment thanks to an in-built tracking functionality.” 

Isaac Thomas Head of Transaction Banking, ADCB

Trials are taking place in Asia to conduct real-time cross-border payments through SWIFT gpi and, if successful, this functionality will soon be rolled out in other geographies, he noted. “The beauty of this approach is that banks do not have to invest in new cross-border infrastructure because SWIFT gpi simply plugs in to the domestic instant payment systems. The ultimate aim is to create a truly global real-time cross-border payments scheme that operates every hour of the day, every day of the year,” he added. Some UAE banks are already offering SWIFT gpi functionality, with others quickly following suit.

It is not just UAE banks that are innovating in the payments space, however; fintechs in the country are getting in on the act, too. For example, UAE Exchange, a global money transfer, foreign exchange and payment solutions provider, has recently partnered with Ripple to enable instant, seamless and real-time cross-border payments using blockchain technology. Nevertheless, sentiment from both roundtables suggests that treasurers in the region are somewhat hesitant to use fintechs for their payment needs, given the current lack of regulation around the sector.

Interestingly, a number of roundtable participants also took a conservative approach to using mobile channels for authorising payments, although some treasurers from multinational companies were more comfortable with smartphone technology, having used it successfully in other geographies. As the mobile channel becomes more popular in consumer circles across the UAE, it is likely that corporates will embrace it more enthusiastically – but a shift in mindset will be required in some organisations before mobile authorisations become commonplace. 

“With the right business rules and processes in place around the mobile channel, there is no reason why it cannot be trusted to the same extent as other technologies,” said Shivshanker. “A payment that is being approved on a mobile device has gone through all of the same checks as a payment being approved via another channel. And, actually, there is an argument that says that we spend too much time authorising low value payments and that up to a certain threshold, payments should be authorised automatically.”

Shivshanker’s enthusiasm aside, the hesitance around mobile among many of the other roundtable participants highlights one of the most significant challenges facing the adoption of digital payments in the UAE: legacy behaviours. Paper-based payment methods are still favoured in the country, and there are few incentives that will move buyers away from them. One paper instrument that is particularly popular in Dubai is the post-dated cheque, which not only serves to settle the transaction, but also often has contractual connotations too.

While one treasurer described how he had negotiated with his buyers to move away from post-dated cheques to wire payments, the vast majority of the Dubai audience had not experienced similar success. It was mooted that blockchain-based payments could potentially replace post-dated cheques, especially given the ability to store contract details on the blockchain. Many of the corporate attendees were sceptical as to whether or when this kind of solution would come to market though, and preferred to focus on tangible digital payment innovations happening now, with SWIFT gpi being the frontrunner.

The need for speed

With talk returning to the real-time functionalities that SWIFT gpi would help to enable, discussion then progressed to strategies for managing cash and liquidity in a 24/7/365 environment. With funds moving much more swiftly, one treasurer highlighted the need to consider how this will impact working capital, given that the cash conversion cycle will become shorter.

Debate also centred around how to manage surplus liquidity more efficiently in a world where payments are being received at times when treasury staff might not be at their desks. Attendees discussed the rise of auto-investment solutions and were keen for banks in the UAE to develop more offerings that would enable them to automatically sweep cash into agreed investments according to predefined parameters.

Sherie Morais Head of Business Development, Transaction Banking, ADCB

Attendees also spoke about how the automation that the real-time environment naturally demands means that the treasurer’s time will no longer be dominated by pushing paper and data around between desks and systems. Treasury teams will be able to focus more on strategic tasks and enabling business growth, they said.

This fast-paced, highly digital world would also offer treasurers opportunities to make the company more competitive, some attendees suggested. Being able to move funds instantly could be a huge benefit in an M&A situation, for example. Meanwhile, sending out salaries early in the morning on payday so that employees have funds in their bank accounts before they leave for work could be seen as a perk, and offer a competitive edge when it comes to recruitment and retention. 

However, to be able to make these strategic, competitive decisions, the audience was clear that the treasurer would first need to have complete real-time visibility and control over cash. Products from banks and vendors in the region ought to start reflecting this emerging need, the audience believed. 

As such, Isaac Thomas commented: “We will likely see the rise of intraday cash pooling products from banks in the country. APIs will also have a significant role to play in the real-time treasury environment, offering the ability to deliver standardised, aggregated data in the blink of an eye – if the organisation’s data is clean and well organised to begin with.”

But in an environment where funds and data are moving instantaneously, there are inevitably risks that should be weighed against the opportunities. And one of the most obvious risks that treasurers must prepare for is cybercrime.

Protecting corporate assets

As Baxendale noted, cyberattacks are becoming increasingly sophisticated. “Corporates are now facing attacks from tech-savvy organised crime rings, not just lone hackers. This makes it imperative for everyone within the company – including treasurers – to join the fight against cybercrime.”

Moreover, cybercriminals are increasingly interested in the data held by treasury departments, added Croutear-Foy, making them prime targets. “As such, treasurers need to rigorously assess their data storage arrangements, and put in place strict cybersecurity criteria for any technology partners or cloud storage providers that they work with.”

The same goes for the selection of banking partners, noted Thomas. “Cybersecurity now needs to be part of Know Your Bank and Request for Proposal processes,” he said. 

Thomas also explained how some banks are putting in place “increasingly sophisticated measures to help fight cybercrime – from biometrics such as fingerprint scanners to voice recognition software and analysis of keyboard strokes in order to identify that the user is indeed who they say they are”.

Croutear-Foy added that as part of the Ecosystem Programme, ADCB is also investigating innovative use of technology to leverage data from wearable devices – such as smartwatches – to enhance security for customers. While this has more application in the retail space right now, such innovations are likely to filter through into the corporate world. Possible scenarios include the proximity of wearable devices to the desktop or mobile device being used to authorise a payment also being leveraged as an additional layer of security. 

Elsewhere, the audience discussed best practice tips around cybersecurity, including having a robust contingency plan in place for making payments in case the company’s ERP is hacked, or all of its systems are taken offline by a ransomware attack. And if the latter were to happen, treasurers may also need to know how to procure cryptocurrencies, since such ransoms are often paid in this way.

Other best practice tips shared in both roundtables included having processes in place to double- and even triple-check changes to supplier bank details, as well as suppliers’ contact details. This is because cybercriminals now often change telephone numbers before attempting to insert fraudulent account details into the master data. Ensuring the treasury team is kept up-to-date with information on the latest cyber threats, and strategies for avoiding or managing them, through specific training for all treasury personnel was also voiced as a high priority. One treasurer also mentioned cyber insurance as a risk mitigation tool and expected this to become a more commonplace tactic going forward.

Whichever best practices treasurers choose to embrace, Isaac Thomas emphasised that having a “proper data and cybersecurity strategy is critical”. Keeping your technology – and passwords – regularly updated was also vital, he noted. “Cybercriminals now specifically target companies that do not have failsafe solutions in place. As such, the cost of doing nothing to protect your infrastructure and corporate assets could well outweigh the investment required to keep them safe.”