- Ivo Distelbrink
- Head of Global Transaction Services, Asia Pacific, Bank of America Merrill Lynch
Changes and Opportunities for Asia Pacific Treasurers
by Ivo Distelbrink, Head of Global Transaction Services, Asia Pacific, Bank of America Merrill Lynch
Corporations in Asia Pacific (APAC) currently face a number of challenges and opportunities. Digital and mobile commerce, accelerating regulatory reforms, shifting demographics and declining economic growth all require a response. In addition, Asia’s resilience is likely to be tested as China’s economy continues to slow, whilst US interest rates are set to rise for the first time in almost a decade. These factors fundamentally affect the focus of treasurers in the region. Against this backdrop, strategic treasury advisory will be vital in helping companies deliver against changing objectives and priorities.
Changing economic conditions
Three important concerns for treasurers at present are financial market volatility across asset classes, monetary policy divergence and changes in liquidity cost/availability.
Equity markets, fixed income, commodity and foreign exchange markets are experiencing significant volatility. This volatility is arising in different locations for varying reasons and is no longer unidirectional. These are challenging conditions for any treasurer, but especially for younger treasury professionals who will not have encountered such volatility before.
Major global economies are also starting to diverge in their monetary policy. The US is looking to tighten, while China is loosening and likely to see more policy action until its real economy stabilises and growth turns. A recent World Bank report [1] spells out the possible consequences of higher US interest rates and an appreciating USD, including increased borrowing costs, greater financial volatility, reduced capital flows to East Asia and potential damage to highly-dollarised economies.
At the same time, regulatory changes such as Basel III are imposing tougher capital and liquidity requirements on banks, which may change the way in which they extend liquidity to or take deposits from corporates. The exact extent and nature of the impact is unclear and inconsistent across countries, but it clearly adds complexity from a treasury perspective.
Leading treasuries are working through the implications of these various scenarios and are devoting more time and effort to cash visibility/forecasting and risk management, an emphasis that is both timely and understandable. Improving cash visibility and forecasting opens the door to releasing hidden internal liquidity to reduce dependence on external sources, while increased emphasis on risk management helps mitigate the consequences of current FX/asset volatility.
Changing business models
The economic environment is changing, but so too are the business models that operate within it. New digital and social economies demand a complete transformation in corporate business models and this has meaningful knock-on consequences for treasurers. Digital commerce, social media and mobile innovation are now everyday realities, driving the need for real-time continuous transaction processing to replace the batch based activities of the past.
The 24x7 clearing infrastructure needed to support these new business models with real-time transactions is evolving rapidly across APAC. Korea’s HOFINET, China’s IBPS, India’s IMPS, Singapore’s FAST and the planned Australian NPP all demonstrate that APAC is at the forefront of establishing around the clock real-time clearing services to enable digital commerce.
This transformation in clearing infrastructure and business models is forcing treasurers to rethink traditional, long-established treasury processes, platforms and banking relationships. It also leaves finance professionals with some tough questions to answer:
- How can treasury facilitate new business models that require 24x7 real-time settlement across currencies and time zones?
- How can treasury streamline processes to maximise the commercial opportunity implicit in technology such as mobile wallets?
- How can treasury use big data to make better funding decisions?
- How can treasury safeguard a company’s financial assets and transactions from increasing cyber attacks and fraudulent transactions?
The quality of the answers and treasury’s ability to manage cash flows, supply chains and treasury positions 24x7 in real time will have a major bearing on a company’s ability to capitalise on new, emerging, digital business models.[[[PAGE]]]
Some treasuries are aggressively responding to this challenge by adopting integrated digital payment solutions and treasury management platforms. These can be used to deliver real-time analytics, multi bank visibility, cash flow forecasting and transaction management across wallets, currencies, countries and time zones. Clients are increasingly working on such initiatives with global banking partners that have scalable and flexible digital solutions that can manage local complexities within global structures seamlessly.
Changing bank and payment technology
As economic conditions and business models are changing, so too are the technologies that underpin banking and payments. The rapid pace of digital innovation is affecting all industries and banking is no exception. Banks across regions are transforming how they conduct business to ensure they stay relevant. Particularly pertinent to the corporate treasurer is how digital technology and block chain payment networks are disrupting the traditional correspondent banking model, digitally enabling the financial supply chain.
Block chain technology creates digital, public, cloud-based ledgers allowing for real-time authentication, authorisation, clearing and settlement of transactions. Such distributed ledger technology gives rise to broad-based applications across the cash, trade and supply chain management product suite, benefiting both the banks and their clients through more cost effective, efficient and transparent transaction processing.
Application of block chain technology is not restricted to payments. For instance, digital smart contracts with access to real-time trade data are expected to revolutionise traditional manual trade documentation such as physical bills of lading and letters of credit.
Financial technology start-ups and non-bank e-payment companies are threatening to capture a rising proportion of financial flows from banks as they develop services that are optimised for digital channels, such as parallel digital wallets and alias-based payment networks. Banks will increasingly partner with these new market entrants to create immediately usable, scalable and relevant digital offerings that leverage new open data architecture and application programme interfaces (APIs).
Disruptive technology that processes payments faster, cheaper, and ubiquitously across sales channels will be critical to facilitate the explosive growth in low-value cross-border transactions as digital commerce continues to grow. Successful partnering by banks with non-bank payment innovators will be key to optimising digital payments and monetising payment data to drive customer loyalty and incremental commerce across channels.
Conclusion
APAC treasurers are living in interesting times. A combination of rapidly evolving economic, business and technology conditions is producing an environment playing to the strengths of agile and responsive treasuries. Disruptive innovation in financial services is reshaping how treasury management is conducted across the region.
Individual client priorities in treasury management will always be contingent on company-specific requirements and business models, which can and do change rapidly. Nevertheless, we can expect APAC treasury and finance professionals to embrace and lead with the early adoption of mobile, digital and cloud technology for corporate use. That is a trend that all of us at Bank of America Merrill Lynch, with our deep expertise in technology and the smart management of treasury information, very much welcome.
