In a time of great change, corporate treasury professionals in Asia Pacific need not only a bank, but a banking partner. In this article, Citi outlines how it is supporting its clients in new and imaginative ways across cash, liquidity and trade.
For two decades Asia Pacific has been the world’s growth engine and a huge focus for many multinational corporations. However, after two decades of tremendous growth, the region has entered a new phase of its development – one defined by a rapidly changing regulatory, technological and geopolitical environment.
While these changes are creating challenges for businesses operating in the region, they are also fashioning new opportunities for corporates to expand the reach of their businesses and tap into new revenue streams. Asia Pacific, therefore, remains a vital component of many multinational organisations’ growth strategies.
In tandem with this shift in the region’s landscape, the role of corporate treasury is also changing and becoming increasingly complex and multifaceted. As a result, treasurers often find themselves in uncharted territory as they strive to manage a multitude of risks, whilst also shaping strategies that can facilitate business growth.
Asia Pacific Head of Core Cash Management, Treasury and Trade Solutions, Citi
The impact of digitisation is arguably most noticeable in the area of payments, where developments are disrupting corporate business models and changing how companies want to be serviced by their banks. Understanding and being proactive in this area is crucial if a corporate treasurer is to support the business in its next stage of growth.
Indeed, the escalation of cashless payment methods in the region has seen the emergence of a host of digitally native eCommerce companies. What is notable about these organisations is the pace at which they move and the scale of their ambition relative to their size. “Digitally native companies expand at an unprecedented pace and want instant market access,” says Morgan McKenney, Asia Pacific Head of Core Cash Management, Treasury and Trade Solutions at Citi. “Companies like Uber and Airbnb, for instance, are active in over 80 markets around the world, despite being less than a decade old. The challenge then for banks is to match this speed and enable a broad range of payments and collections capabilities that enable these global digital companies to operate and grow in these markets.”
At the same time, more traditional organisations across the full gamut of industries are also now looking to develop their own eCommerce channels in order to grow the business. “This is having a profound impact on business models,” notes McKenney. “We are seeing many organisations assessing their distribution models given the opportunity enabled by these newer technologies to sell and market directly to consumers. And just like digitally native companies, they look to us to be a strategic partner and help them utilise the plethora of collections channels that exist across the region.”
Fast and furious
Facilitating these trends is the emergence of faster payment systems across the region. Not only do these systems enable payments to clear and settle in near real time, they also remove a lot of friction from the process and facilitate a host of new data-driven opportunities.
Citi has been an active participant in the development of these systems and has spent a lot of time and investment plugging into the infrastructure. This work is now paying dividends for the bank, which has recently launched a number of solutions which use faster payment rails.
One such example is the launch of Request to Pay in India which leverages the country’s Immediate Payment Service (IMPS) infrastructure. “This solution enables consumers to make real-time bank debits from their account using a tokenised address such as an email,” says McKenney. “This is particularly powerful for our eCommerce clients, as individuals purchasing from their online marketplace will be able to do so from their bank account in real time without needing to use a card. In India, where card penetration is very low, this is a powerful proposition and enables our institutional clients to reach a broader range of customers.” The solution offers further benefits to corporates in India as it is a low-cost collection method.
Powering this solution – and many others that Citi is building – are Application Programming Interfaces, also known as APIs. Citi is at the forefront when it comes to using APIs to provide new channels for its clients to access the bank.
“APIs enable seamless and real-time data flow,” explains McKenney. “And through our CitiConnect platform, we have launched various APIs for payment initiation, payment status and account balance inquiries. These enable us to service our clients in a much more flexible, real time and dynamic way, providing a great client experience.”
Both APIs and new payment infrastructures support the flow of more data, and thus the ability for banks to offer clients more data-driven insights. “We are already offering our clients lots of pre-sales analytics around their flows to develop bespoke solutions,” says McKenney. “But this is just scratching the surface of what is possible with all these new technologies.”
McKenney adds that there is real interest from the bank’s clients around how bleeding edge technology such as robotics and AI will impact their business in the future. Clients are also asking about how Citi is changing and responding to these emerging technologies. “We will continue to invest markedly in these solutions and innovate across a multitude of areas so that we can continue to develop innovative solutions for our clients leveraging these new technologies” comments McKenney.
Asia Pacific Global Liquidity and Investments Head, Treasury and Trade Solutions, Citi
Liquidity management in challenging times
As treasurers look to take advantage of these developments to support growth, they have to deliver incremental financial efficiency as well as manage liquidity and funding risks to the improved standards in what Sandip Patil, Asia Pacific Global Liquidity and Investments Head, Treasury and Trade Solutions at Citi calls “times of unprecedented challenges”. Patil notes that a combination of increased market volatility and rapidly evolving regulation are creating a new landscape. “If you look at what has happened over the past two years, it is clear that this is one of the most volatile environments that we have seen for some time,” he says.
Such volatile markets can cause a host of issues for corporates. For one thing, cash flows become less predictable, making it extremely difficult to forecast ahead with confidence. “If treasurers have little confidence in their forecasts, it makes managing the funding mix and ensuring that liquidity is where it is needed a very difficult task,” says Patil. “This can increase the cost of doing business significantly.”
The barrage of extra-territorial and in-country regulations is also proving to be challenging. Basel III, for instance, despite being a regulation aimed primarily at the banking system, is having a significant knock-on effect in terms of how banks are able to support their clients. Treasurers are finding that more time and attention needs to be paid to how liquidity is managed as a result. Other than funding cost escalation, this is also calling for new paradigm of treasury and balance sheet risk management in every company.
Elsewhere, in-country regulations in markets such as China, Indonesia and Malaysia have become more rigorous in recent months, hampering companies’ ability to move cash out of these markets. “These are familiar issues for treasurers in the region,” says Patil. “But what is different is that these regulations are evolving quickly and are at times not as black and white. It is therefore not easy to know what you can and can’t do at any point in time.”
Patil believes that a bank like Citi leverages deep presence and local market expertise to advise clients to navigate complex landscapes as well as stepping up and providing value to its clients by acting as a bridge between them and the regulators. “We are constantly in dialogue with the regulators,” he explains. “We are therefore able to bring opportunities to our clients to take advantage of regulation easing or regulatory exceptions as they occur.” Patil remarks, “Our strong footprint in every industry segment helps best practice implementation beyond the advisory domain to realise benefits and deliver efficiency goals.”
Centralise, digitise and compare
While Citi is helping its clients take advantage of these ad hoc opportunities, the bank is also actively involved in helping treasurers shape longer-term strategies to better manage liquidity. For Patil, this can be broken down into three key themes.
The first is centralisation, a topic that has been high on the treasury agenda in Asia for some time. For Patil, however, the conversation has moved on from basic treasury centralisation and is now concentrated around breaking down silos and ensuring that all central units of the business operate in a cohesive and consistent manner. “It starts with a well-structured common treasury policy that brings together people, processes and systems to ensure that the whole business is working towards a collective goal,” says Patil. “It is also about ensuring that treasurers across multiple legal entities and countries are working with a rich and consistent data set to enable more accurate funding, liquidity and FX management.”
To do this, though, treasurers need to be supported by sophisticated technology – something that many organisations do not currently have in place. “A big focus for many of our clients at the moment is moving up the technology curve and implementing or standardising their technology platforms,” says Patil. “Once this is completed, they are looking to integrate these internal systems into those of their counterparties in order to allow for the straight through flow of data. From here, true automation can be established and this will help drive a lot of the risk out of the business.”
The final area that treasurers are paying particular attention to is benchmarking. “Treasurers are very keen to understand what the best in class businesses are doing to see what can be applied to their own operations,” says Patil. “Citi has developed a sophisticated suite of tools in its innovation labs. These leverage the bank’s data on its clients, allowing treasurers to benchmark themselves against their peers in a highly visceral and dynamic way.”
For Citi’s clients, this is a powerful tool: it not only highlights what is possible but also shows what is not possible yet, meaning that clients can build a focused and realistic roadmap in order to improve. “This cements the idea of a partnership with our clients,” says Patil. “We have not just highlighted the path they should take but also helped them complete the journey together and deliver efficiencies through our network, products and services.”
Asia Pacific Trade Head, Treasury and Trade Solutions, Citi
Evolving trading strategies
Alongside developments relating to cash and liquidity management, treasurers are also tackling challenges – and exploring new opportunities – in the area of trade. The recent slump in global trade has created a number of challenges for businesses trading across Asia Pacific, prompting many corporates to review and transform their trading strategies both up and downstream.
Supporting the supply chain
“The nature of trade in Asia is fundamentally changing,” says Vishal Kapoor, Asia Pacific Trade Head, Treasury and Trade Solutions at Citi. “Where once corporates sat at the heart of their supply chains dealing directly with a large number of suppliers, they are now looking to slim down their supply chains by outsourcing the production to a small number of strategic suppliers in low-cost centres like China and Vietnam.”
Dealing with strategic partners can significantly reduce counterparty and settlement risks, enabling corporates to forgo traditional trade instruments like letters of credit in favour of open account trading. As a result, treasurers are taking the opportunity to place a renewed focus on optimising working capital and commercial terms with suppliers.
“A large proportion of our clients are looking at pushing out their payment terms in an effort to improve working capital,” says Kapoor. “But they want to do this without harming their strategic partners. Our role as a bank is to step in and develop win-win solutions that enable this to happen.”
Many corporates are looking to leverage supply chain finance in order to do this, and Kapoor notes that this is a significant growth area for Citi. The reason for this, says Kapoor, is that Citi has invested heavily in its supply chain finance platform over recent years and is a market leader in this space. “Our platform is global and simple to use,” he says. “This gives our clients the opportunity to connect with their suppliers in a consistent manner, no matter what market they are in. The ease of use also means that suppliers will want to keep using the platform.”
The bank’s success in this area is also being driven by the development of diagnostic tools. These enable Citi to leverage client data and highlight opportunities to introduce solutions such as supply chain finance.
No more barriers to business
Corporates, while taking steps to strengthen and support their supply chains, are also looking to do more business in the region. “Sales financing can be an especially powerful tool to facilitate this,” notes Kapoor, adding that Citi is working with a number of its clients on sales financing structures designed to offer competitive financing to clients’ customers. “There are various ways we can do this,” adds Kapoor. “For example, we can enter into a risk-sharing agreement with our client or offer credit wrapped with some insurance cover. Every deal is different so we focus on developing bespoke solutions in partnership with our suppliers.”
This has the added benefit of exposing Citi’s Treasury and Trade Solutions business to a much broader range of stakeholders within the client’s business. “Often, we are not only working with the treasurer on these deals but also the sales team,” says Kapoor. “As we do this we continue to build up our own in-house expertise allowing us to add even more value to our clients. Again, it is really a win-win for all parties involved.”
Finally, digital is also a big theme for Citi in the trade space. Behind the scenes the bank is working hard to streamline its internal trade processes, leveraging a host of cutting-edge digital tools. “We are the leaders using Optical Character Recognition (OCR) technology to digitise the paper-based trade documents that we receive to improve our processing and turnaround times, enabling us to more readily share information and add value for our clients,” says Kapoor.
On the front end, Kapoor states that the bank is working hand-in-hand with regulators promoting digital solutions that remove friction for its clients as they trade across the region. To provide an example, the bank has recently launched a pioneering digital solution in partnership with the regulators in India that enables the bank’s clients to streamline and drive efficiency when making imports payments in a completely paperless way. It is solutions like this, highlighting the bank’s commitment to the region and its desire to be a genuine value-adding partner to its clients, that Kapoor believes sets the bank apart from others and that this strategy will prevail as corporates continue to seek growth in an evolving region.