Leapfrogging into the Digital Age: Smarter Treasury in MENA

Looking from the outside in, the Middle East and North Africa (MENA) region still conjures up numerous business stereotypes – from entirely paper-based payment workflows to over-dependence on oil as a driver of economic growth. On the ground, however, these stereotypes are being swiftly overturned as governmental visions for a digital and sustainable future are embraced by citizens and corporates alike.

Forward-thinking MENA treasury functions are using the momentum behind government development plans, such as the United Arab Emirates’ Vision 2021 and Abu Dhabi’s Vision 2030, to build next generation treasury operations. As discussed at a recent Citi roundtable, thanks to emerging technologies, innovative partnerships, and sharing of best practices, many treasury departments in MENA are embarking on accelerated digital innovation journeys.

Going global

As MENA countries re-orientate themselves for sustainable economic growth, corporates are also shifting their business models – putting the region centre-stage in their global plans. David Aldred, TTS Sales Head for Middle East, North Africa, Pakistan and Turkey (MENAPT) Citi, explains: “While centralisation is not a new theme in the region, since the UAE has long been a regional treasury centre for many corporates across the Middle East and broader Africa region, we are noticing a shift in the dynamics. MENA is now becoming a global hub, not just a regional one. For example, many domestic corporates are expanding out from the region, using their UAE headquarters as their global growth platform.”

Aramex is a perfect example of this in action. The international express logistics freight forwarding company is headquartered in Dubai and present in circa 60 countries worldwide. Global responsibility for treasury is overseen by Arun Singh, the group’s Corporate Treasurer. “We operate a hybrid treasury structure for Aramex entities around the globe with functions managed from Dubai but mostly executed from our centralised shared service centres in India and Jordan. A few countries are yet to be brought into the centralised structure, but they follow the guidelines and policies set out by global treasury in Dubai.”

Emre Karter, Treasury & Trade Solutions Head, MENAPT, Citi, adds that: “As well as the rise of the UAE-based global treasury centres, we are also seeing the rise of mid- and back-office shared service centres across the Indian sub-continent as well as locations such as Jordan, Egypt, and Morocco. At the same time, the UAE also remains a popular location choice for regional treasury hubs among multinationals headquartered in Europe and the US.”

This is indeed the case for Nishat Neelay Deshmuk, Head of Finance, Maersk Kanoo. “Our treasury activities are centralised at our headquarters in Denmark. Local offices such as the one in Dubai, follow the global guidelines and are responsible for managing liquidity, remitting it back to headquarters, and ensuring that we have sufficient balances available locally to make payments,” she explains. “That requires efficient co-ordination, hence having the right technology in place is critical.”

A technology revolution

Arun Singh Corporate Treasurer, Aramex

Indeed, technology is arguably one of the key forces driving the successful rise of regional and global treasury centres in MENA today. “The rapid adoption of technology in the region is pushing treasury to new heights,” says Aldred. “Over the last five years, we have seen a swathe of digital transformation across the region. Governments are investing significantly in the financial and digital infrastructure. On the back of this, MENA treasurers are adopting global best practices, and increasing their technology usage significantly, thereby jumping ahead of some of their peers in other regions.”

Karter agrees, explaining that the push by governments for “financial inclusion” is having a profound impact on the sophistication of treasury operations in MENA. “In countries such as Egypt, Pakistan and Turkey, financial inclusion efforts are leading to increased use of mobile and instant payments. These countries are leapfrogging more developed markets with their solutions, and this is leading to an evolution of treasury operations as they adapt to the 24/7 liquidity environment - these new flows require new technology set-ups to enable visibility and control at the push of a button,” he says.

Maersk is one global company that has taken advantage of this technology wave, having already embarked on an award-winning digitisation journey in the UAE. As Nishat Deshmukh explains: “Until three years ago, 75% of our collections in this region took place over counters at our shipping offices and involved either physical cash or cheques. There were a few larger customers that would pay via bank transfer, but they were the exception to the rule. So, we embarked on a digital transformation journey with Citi to migrate physical collections to digital ones.”

 This involved educating customers around online transactions and making it as easy as possible for them to pay via digital channels. Maersk worked with Citi to implement a payment portal called SmartPay, which acts as a virtual counter. “Today, this and other digi-pay solutions have ensured we have no cash counters left in this region,” Nishat Deshmukh enthuses. “It’s been an incredibly quick turnaround and the technology has delivered huge efficiency benefits, not only from a visibility and control point of view, but in terms of risk management too. Of course, cash application times have also been vastly improved making it a customer-friendly experience.”
 

Remaining local

Emre Karter Treasury & Trade Solutions Head, MENAPT, Citi

Maersk’s digital transformation demonstrates that despite the globalisation of treasury operations in the MENA region, and the global availability of technology, there is still a need for solutions tailored to the nuances of the local market. Karter explains: “It is vital to be aware of on-the-ground realities when devising best practice treasury solutions. Cash is still a huge part of the culture in MENA. So, while the ultimate solution for treasurers might be to have fully digital operations, the realistic goal is to have ‘less cash’ rather than going ‘cashless’.”

Singh could not agree more on the need for tailored local solutions. “Our African operations face precisely this issue. Often, they will ask for tweaks to central treasury policies and decisions because the local situation requires different solutions. They might, for example, ask to bank with a different partner because the bank chosen by central treasury has a branch 10km away, whereas the other bank has a branch 1km away. And the risk of someone being robbed in a 10km journey is much higher.”

Singh also explains how technology-led solutions have to be evaluated on a country-by-country basis, rather than across the MENA region as a whole. “While a cash deposit machine solution might work well in the UAE because the cost of hiring an employee exceeds the rental cost of the machine; that might not be the case in Saudi Arabia, for example.” This makes it even more important to have good communication between local treasury teams and central treasury, a flexible and collaborative approach to problem-solving, and a banking partner that is entrenched in the local market and can offer global domestic solutions alongside global capabilities and technologies, he believes.

Moreover, it is important to recognise that technology is not necessarily a silver bullet, says Singh. “Customers in this region use cheques – it’s a part of their culture. And they often ask us to send a courier to pick up the cheque from them. Although we use a digital cheque scanner to speed things up, the customer often has had several days credit due to the communication process,” he explains.

And customer service is critical to Aramex’s growth, since the competition in the sector is so tough. “So, even if we offer incentives to move customers towards electronic payment methods, they may not take them up, and we have to listen to what they want. Aside from cheques, cash usage in this region also remains high since cash offers benefits such as anonymity. In our industry therefore, the technology is moving at a faster pace than customer demand, which can sometimes make it difficult to digitise.”

Innovation will conquer

Nishat Neelay Deshmuk Head of Finance, Maersk Kanoo

Aldred is confident, however, that buying behaviours and payment preferences will change over time, in particular as e-commerce continues to accelerate, and the banking infrastructure matures. “Citi is working to facilitate near-instant 24/7 payments, directly into four million accounts, across the fourteen MENAPT markets. Soon, customers will also be able to receive funds from as many accounts, through multiple billing and e-invoicing solutions, and financial market infrastructures like eFawateer, eFinance, the payment gateway of the UAE, Bahrain EBPP, BKM Turkey and 1LINK in Pakistan, again almost instantly, 24/7.”

This, says Aldred, should see greater migration towards bank account to bank account settlement. “Request to pay (RTP) solutions are coming to market, and these will help organisations to collect in new ways, leveraging application programming interfaces (APIs) and faster payments,” he notes. And Singh does indeed see RTP as a potential “turning point”, especially since the customer is “in charge of the RTP experience”, and it leverages mobile channels, which are increasingly popular in the region.

Nishat Deshmukh also believes that further leveraging mobile channels could be a game-changer for treasurers in MENA. “We already see some interesting mobile payment and collection capabilities locally, but there are other opportunities too. For example, a significant proportion of retail business in the region is conducted on WhatsApp, and it would be interesting to see solutions whereby payments functionalities are fully integrated into those types of channels.”

“I completely agree,” says Karter. “And we are already seeing this kind of development in India with the Unified Payment Interface (UPI) initiative, allowing all bank account holders in India to send and receive money instantly from their smartphones without the need to enter the login credentials for their online bank services. These types of services are no longer ‘nice to have’; they are becoming ‘must-haves’ for cutting-edge treasury departments in the MENA region. Central banks and banks like Citi are working towards those goals,” he notes.

Similarly, the functionality to approve payments via mobile channels is becoming more popular in the region. Nevertheless, the challenges of logging in to multiple bank portals and apps remain a headache – especially since corporates in the region tend to have numerous local bank relationships alongside their global ones. Singh therefore sees an “aggregation role for fintechs going forward,” as long as there is “collaboration between the banks. Not just one bank and one fintech; there needs to be an in industry-wide effort, a bank-agnostic solution for treasurers.”

 This, says Karter, is precisely why Citi has taken a supportive stance on SWIFT gpi. “Rather than creating our own isolated solution, we recognise the value of a shared industry ecosystem. As a known and trusted player, SWIFT also offers treasurers peace of mind – which is not always the case when we are talking about innovative solutions or partners,” he says.

“Compliance is a concern when it comes to fintechs,” confirms Nishat Deshmukh. “With data sharing, privacy, cyber-security and so on, you have to be able to trust your partners. Fintechs do not necessarily have the same resources as banks and are not so heavily regulated. Treasurers want to be able to benefit from fintech innovations, but within a safe environment controlled by their bank(s), especially in the era of instant payments.”

A new dawn

As well as exploring new partnerships to help them leverage instant payments, Karter believes that the 24/7 payments environment offers corporates an opportunity to “re-evaluate their operating models and potentially discover opportunities to sell more goods or services by eliminating any friction in existing processes.”

Nishat Deshmukh takes that concept a step further, explaining that it is important to ensure the customer service experience keeps pace with real-time technologies, not just from a payments and collections’ perspective. “For instance, we have a fully automated invoice dispute resolution process, which makes the process much smoother for everyone. A person only steps in when the dispute can’t be resolved automatically. It’s these kinds of digital solutions that seem simple but actually make a huge difference.”

Thinking about the possibilities of the digital, real-time environment, her ultimate goal is to have complete visibility over the entire supply chain. “TradeLens, a platform jointly developed by Maersk and IBM, is an open and neutral industry platform underpinned by blockchain technology, supported by major players across the global shipping industry. TradeLens is seeing traction because it brings transparency and digital transformation to the entire supply chain eco-system, providing carriers, their suppliers and customers as well as authorities, a common view of transactions, without hampering privacy or confidentiality”.

Treasury on the front foot

As the above examples demonstrate, in this increasingly digital world, the treasurer’s role is rapidly evolving. “To stay at the cutting-edge, treasury departments in MENA now require a digital strategy. This should cover everything from the digital solutions that could benefit treasury to the cyber-security solutions needed to protect treasury systems and data. In addition, treasury must leverage that data to strategically support the CFO, CEO and the commercial side of the business,” says Aldred.

The growing strategic role of the MENA treasurer should not be underestimated, believes Nishat Deshmukh. “Treasury and wider finance functions have a huge opportunity ahead of them,” she says. “By rethinking payment and collection channels, treasury can actually create competitive differentiators for the business. And the possibilities for treasury to play an even more strategic role going forward are only increasing as technologies such as robotics process automation (RPA) and artificial intelligence (AI) come into their own.”

Financial inclusion initiatives by governments across the MENA region will drive this re-imagining of treasury’s role at an even faster pace, re-iterates Karter. “It’s an extremely exciting time to be a treasurer in the MENA region. The digital economy is evolving at an unprecedented speed and arguably the biggest risk for treasurers is failing to embrace innovative digital solutions in time.”