In the last edition of TMI (edition 244), we featured an edited transcript of the first part of a roundtable held in Dubai in April 2016, kindly hosted by D+H, chaired by Jags KothandaPani, Citi, which focused on the changing challenges, priorities and role of corporate treasurers in the Middle East (click here to read the article). In the second part of the same roundtable, the panel discuss the role of technology in facilitating corporate treasurers’ objectives in more detail. Edited by Helen Sanders.
Panel:
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With the conference season approaching, most notably Sibos (September), EuroFinance and the AFP Annual Conference (both in October) this topic is particularly timely. In particular, banks, technology vendors and infrastructure providers are considering areas in which emerging technologies, such as blockchain, and solution offerings from the fintech community, can deliver value to corporate treasurers. This is far less straightforward than glossy brochures and slick presentations would appear. Treasurers are already highly technology-literate in many cases, and are quick to see potential value of tools that solve existing problems or create new opportunities. However, they also recognise that introducing new technology brings costs and risks, which may outweigh the benefit. Furthermore, prioritising these projects can be difficult, particularly with stretched IT departments, and during periods of volatility and change.
In the Middle East, the focus of treasury technology projects, whether supported by banks and/ or vendors, is less on smaller, tactical tools than implementing stable, robust platforms that support efficient, integrated cash and treasury processes, provide greater security and control, and offer transparency and richness of data to facilitate decision-making and automation.
Jags KothandaPani, Citi
One of the points we touched on in the first part of this discussion was treasury technology. While some companies are investing in treasury management systems (TMS), we still receive manual instructions. In what areas do you still see technology playing a role and improving efficiency and automation?
Adam Boukadida, Etihad Airways
We aim to automate our end-to-end treasury lifecycle as far as possible, from financial market execution that’s done electronically through to transaction management and confirmations and payment via SWIFT. From an operational point of view therefore, we are only managing exceptions. Some countries in which we operate are not SWIFT- enabled, so we have to use manual payment methods, but we try and avoid this wherever possible. We have also integrated our treasury management system (TMS) with our ERP, and last year implemented an automated supply chain finance programme with both a regional and international bank. So for us, technology is an enabler, and helps with controls and segregation of duties. In addition to reducing operational risk, automation enables us to free up people to plan and deliver on our 36-month treasury roadmap.
James Adams, Chalhoub Group
We use a TMS integrated with an online dealing platform; we are also looking to enhance integration with our ERP. One area of focus from a technology and process standpoint is payments. As each company in our Group grew in a decentralised way, payment systems had become quite fragmented. We are therefore considering an electronic payments process, potentially via a central shared service centre. This level of change takes time though, particularly in a family-owned business.
Jags KothandaPani
I understand you’ve also implemented an in-house bank: how have you managed the organisational impact, people change management etc.?[[[PAGE]]]
James Adams
It’s key to have the right stakeholder support from the outset. We were fortunate that the project was sponsored at a CEO and shareholder level which helped to drive change. Also, there were numerous benefits that everybody could see. We met with all the business units, explained what was happening and made sure they bought into both the concept, and how it would be delivered in practice. It was also essential to have the right blueprint. For example, we use SWIFT for retrieving MT940 messages (balance and transaction information) but we will also be able to use this connection for making payments in the future.
Adam Boukadida
What’s important to communicate in these situations is that you aren’t talking about job losses. Very often, an individual who might have managed local accounts payable can become the finance representative in that country and partner the commercial teams. This is an important development in shifting from a cost centre to a value-added centre.
Audience question
You mentioned risk management earlier: what drives your risk management practices?
James Adams
We follow a standard risk management framework. First, we need to understand our exposures: where the risks are. Second is to assess what the potential impact of that risk is, and based on this, we decide whether we should seek to minimise it. Looking at interest rates, for example, there will be an impact if rates increase, but actually in our business, our gearing at the consolidated level is relatively low. So we choose not to hedge our interest rate risk as we hold cash investments that will benefit from higher rates and offset any increase in the cost of debt.
On the FX side, we take two approaches. If there’s a known exposure and we have a contract rate, we will hedge it to lock that rate in. However, we also believe that FX is an inherent business risk and even if you hedge for a certain period of time, ultimately that hedge will come to an end. So you may hedge to buy time, but this is not always the right decision. In some cases, over-hedging can add risk, particularly for a company with a natural hedge or cyclical business.
Audience question
In our business, treasury is now working in collaboration with risk management teams to avoid risk being managed in silos across the business. How have you used technology to enable that collaboration between risk management and treasury teams?
James Adams
We are enabling local teams across our business to access our TMS and input their exposures directly to create a central consolidated picture to drive our decision-making. Rather than relying on spreadsheets being emailed, which can take time to consolidate, our objective is to get the information quickly so we can respond accordingly.
Jags KothandaPani
From a technology standpoint, in what areas would treasurers expect their banks to be introducing new capabilities?
Audience contribution
We’ve been trying to move away from bank proprietary systems in favour of bank-agnostic solutions. We’re also aiming to get better visibility over the fees we pay to our banks. Given the difficulties in Africa, with some banks exiting the market, there is a significant impact on clients, particularly those with a central treasury team. Is it better to have someone in Angola to manage the relationship with the local bank, or can I manage it from Dubai? And if we need to locate people in-country, are we going backwards in our centralisation objectives as a result?
There is also the question of regulation: while I may like my banks to deliver certain services, the reality is that they are constrained by regulation.
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Rahul Jayakar, Mashreq Bank
You raise two points here, both of which are very important. First is the need for treasurers to be bank-independent to protect their activities against bank exit or failure, which we have seen in Angola, Nigeria and Kenya, for example. Settlement risk is a very significant issue in these situations, as things can move very quickly. The second, related point was on the subject of regulation. Banks are highly regulated, with escalating compliance costs. This has led some international banks to de-risk their business by moving out of some non-core geographies. Fintechs, on the other hand, are not subject to the same regulation, so they are in a fantastic position to innovate. The challenge now is to bring together leading-edge technology with trusted banking services to create a new value proposition for clients.
Sherie Morais, National Bank of Abu Dhabi
I don’t think banks should be frightened of clients moving to bank-agnostic systems, which is a trend that has already been happening in Europe and the US. Since 2008, companies have moved away from the concept of global banking, and treasurers are looking instead at best of breed banking, involving international, regional and in some cases local banks – a combination of banks to get the right mix to supporting their businesses. The pullback of some banks from certain regions has accelerated this trend. Rather than fearing bank-agnostic systems, it is an opportunity for banks to raise their game in the quality of service and depth of solutions they’re offering, and looking at ways to support clients across their footprint more effectively, rather than simply focusing on connectivity.
I also believe that the emergence of fintech companies brings significant opportunities for banks by enabling us to be more nimble in bringing solutions to market quickly. Yes, banks are highly regulated, but regulation is not always a bad thing when ultimately, it protects the clients.
Jags KothandaPani
One of the outcomes of the financial crisis and regulatory developments that have happened since then is that banks – and other industries too – have become quite inward-looking, and have perhaps not prioritised innovation to the same extent as they did in the past. Therefore, the only ‘new’ that we are seeing is from small and start-up companies. This is changing as banks invest in innovation labs and actively encourage innovation: effectively, a venture capital approach within large organisations, where innovations such as blockchain are now taking root.
Haytham Maayergi, ADIB
It’s not just the new ‘fashions’ in technology where innovation labs can add value, it’s also about streamlining the flow of data and transactions across countries, and creating innovation in core processes, such as payments and collections, for example. This is no longer a trend restricted to international banks, but regional banks are also investing heavily in technology, as are local banks that are becoming regional banks.
James Adams
One of the factors driving the corporate interest in technology is the focus on costs, which has become a much greater issue in this region than in the past. When companies were growing rapidly, the focus was all about growing the top line; now that growth is slowing, there’s a lot more focus on cost. Technology is an enabler in this; furthermore, there is the opportunity for competitive advantage because companies adopting sophisticated technology for the first time can ‘leapfrog’ some of their peers overseas.[[[PAGE]]]
Haytham Maayergi
Although a great deal of progress has already been made, there’s still enormous potential, such as in trade. When you do an LC you still print the document, send it by mail, and wait for it to be mailed back. Given that we live in a world of real-time data and social media, these manual processes are difficult to justify. With the emergence of distributed ledger (blockchain) technology, this may change, bringing benefits to corporations and banks alike.
James Adams
We mentioned compliance earlier: this is another key area in which treasurers are looking to their banks to provide solutions. If a company works with twenty banks, compliance processes need to be replicated twenty times, with slightly different documentation and timings. As a result, the compliance overhead has increased substantially over the past two years or so. For example, one of our banks recently produced a new policy which took a significant amount of time for our legal team to provide the information necessary to comply. We need to see some standardisation around what information is required, how, and when, which will allow the compliance process to be more streamline and automated.
Sherie Morais
This is a key area which banks and central banks need to look at, to find ways to manage this process quicker and smarter: not only in this region but globally.
Jags KothandaPani
In the consumer space, in the use of smartphones for example, the quality of the client experience is key. This is effectively lost as soon as you walk into the office and look at the desktop. Banks should be looking to transform the client experience to communicate with clients across multiple channels. There are lots of ‘buzz words’ relating to technology: blockchain, bitcoin and the like, but these will only add value if they enhance the client experience. At Citi, senior managers are now working around 30% of our time on evaluating new solutions and technology, reviewing what’s happening in the market, and seeing how we can leverage solutions to benefit our clients.
Rahul Jayakar
It’s important to be realistic though: does a treasurer need full 24/7 access to the full range of bank services via every device: smartwatch, smartphone, tablet etc.? What we need to focus on is delivering technology that allows treasurers to do their jobs more effectively, not delivery for the sake of it. For example, one of the solutions that clients are really benefitting from now is the concept of ‘virtual branches’, using ATMs to withdraw cash using a voucher rather than a card, and deposit cash and cheques, so they no longer need pay into a bank branch. Understanding industry verticals has again helped us to develop technology. In the real estate industry for example, the emergence of image-based clearing has helped enormously in streamlining and accelerating the transaction process.
Sherie Morais
Absolutely: the growth of direct debits is also having an impact on many industries, as well as initiatives such as cheque imaging. It takes time to educate clients on what opportunities these technologies present, and then to develop a roadmap to introduce them, but the benefits of doing so are compelling and quite evident for customers who have adopted these solutions.
Rahul Jayakar
What’s clear is that while technology innovation from individual banks, central banks and fintechs is valuable, there is greater value in collaboration, to standardise communication and enhance the benefits for corporate users. Furthermore, it’s not just the ‘front end’ where clients need a high quality experience, it’s automating the end-to-end process that will deliver value.
Jags KothandaPani
Thank you so much for your participation today: both our panel and our audience, to TMI for organising and to D+H for hosting.
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Corporate treasurers in the Middle East have to balance established societal norms for conducting business while integrating state of the art treasury technology into evolving business transaction models. As Middle Eastern organisations expand beyond their traditional borders into emerging markets such as Africa, the burden of manual processes such as cheques and Letters of Credit (LC), in addition to increased regulatory and compliance burdens, are generating substantive discussions on streamlining processes and costs. Corporate treasurers have their eye on maintaining the high level of service to which their clients are accustomed while transitioning their treasury operations to ‘value-added’ centres as opposed to purely ‘transaction’ centres.
Automation – centralising processes for ease, accuracy, and efficiency
End-to-end automation is required to generate a holistic view of a corporate’s transaction data and overall financial position. As organisations integrate multiple access points of transaction data to create a single and transparent view, it is important to focus on shifting from a purely transactional and cost centre management point of view to a value-added centre.
Customer experience – onboarding, decision-making and ubiquitous access
Treasury service platforms which deliver robust user experience and interfaces, in addition to end-to-end automation of transaction data, are critical to growing corporations. Corporates in the Middle East are leveraging their treasury service solution as technological enablers to reduce operational risk, maintain control across multiple corporate functions, and implement more rigorous financial planning. At the same time, control processes are central to the management of the treasury function.
As treasury service technology is transformed into a fully integrated and central hub for a corporate’s transactional data and a strategic tool for business planning, the customer experience is critical. Corporates need to have a full view into who has accessed information, ease of decision-making, both at a desktop and from mobile devices, and strong reporting and analytics for financial planning. Most importantly, the technology needs to be user friendly. Treasury service portals are being updated as a result of the ease with which consumers are engaging with their financial institutions globally. Multinational corporations need to be able to set up users and their permissions seamlessly and in a matter of minutes, while implementing transaction approval processes around ‘on the go’ decision-making brought about by access from mobile and tablet devices. Mobile access is critical to Middle Eastern corporates as the span of control will reach across multiple time zones and borders, but still require real-time decision-making.
Strategic business planning – the expanded role of the corporate treasurer
Corporate treasurers in the Middle East are not immune to economic fluctuations and changing business models among the regions in which they do business. Corporate treasurers have evolved from managing accounts payables and receivables to becoming critical in the business strategy and planning process for an organisation. They need to leverage liquidity and forecasting tools to minimise operational costs and the cost of funds to run their businesses. Tools such as liquidity management and cash forecasting modules enable corporate treasurers to assess their cash positions with reporting and trend analysis to make better financial decisions.
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