What does a digital world mean for banking in Asia?

Published: Sep 2020

Even pre-COVID, parts of the Asian banking sector were going through turmoil. When the COVID-19 pandemic hit, businesses and banks alike were thrown into uncertainty. So what exactly has the pandemic done to banking in Asia, what will happen after, and what should treasurers look out for?

It’s true that the Asian banking sector is going through a fair amount of turmoil – for example, a tough macroeconomic environment, geopolitical challenges and trade wars to name a few. But, according to McKinsey, it’s also true that more than 40 of the world’s largest banks by assets are Asian, and account for approximately 50% of the market capitalisation of the top 100 banks globally. Additionally, the continent has been the world’s largest regional banking market for a decade.

Digital banking is the future, and that’s particularly true for Asia Pacific (APAC). “Asia is digital,” says Development Asia, an initiative of Asian Development Bank, and this is seen through the push by Asian central banks to digitise economies – including demonetisation in India and a cashless economy in Thailand – as well as the fact that eight Asian countries are among the top ten countries for mobile payments in the world (six of them in Southeast Asia), thanks to the likes of Alipay and WeChat Pay. In the banking space, the past few years has seen newly licensed digital banks, global digital-only banks and digitalised traditional banks competing across the region.

S&P noted in July 2019 that these developments have not caused “any noteworthy changes” to its outlooks for banking sector country risks across the region, and estimated that virtual banking may not lead to rating or outlook changes for APAC banks over the following two years. Over a longer period, however, it noted that “as virtual banking strategies take hold and further disrupt the traditional bank sector, the potential for ratings differentiation is greater.”

Driving to digital

The COVID-19 pandemic has, for many, accelerated the drive for digitalisation in banking, as companies struggled to complete necessary paperwork while working from home and keeping physical interactions to a minimum. In April 2020, the International Chamber of Commerce (ICC) issued a collection of rapid response measures by trade finance banks to keep trade finance and trade flowing. It included guidance on issues such as the inability to gain wet signatures or witnesses for secure documents, as well as electronic Bills of Lading being unrecognised in many jurisdictions.

The move to digitalisation has been welcomed by corporate treasurers across the region, says Sonia Clifton-Bligh, Director, Regional Treasury Services Centre Asia Pacific at Johnson & Johnson. This is particularly true for treasurers of multinational companies, who might need a signatory in another country. “There’s no certainty or security in sending paperwork around the world,” she says. Clifton-Bligh notes that the company regularly interacts digitally within itself and sister organisations, “even if it’s just digital signatures”, which she believes are often more secure than wet ones, owing to the ability to trace and verify where they came from.

Rajesh Mehta, Asia Pacific Head of Treasury and Trade Solutions at Citi, also notes that “the pandemic has further placed e-commerce and online commerce in the spotlight” and that he is seeing a “significant increase in interest and dialogue on digitising strategies”. Additionally, he has noticed that in the “always-on economy” the world is in, appreciation of digitalisation is especially found in regard to having a real-time treasury.

Keeping connected

As the pandemic struck, a key challenge for many corporate treasurers came in the form of significant liquidity and working capital pressures, says Mehta. Indeed, the situation has been referred to as a “liquidity crisis” by multiple outlets, and the Big Four accounting firms have all issued guidance on how to manage.

“At the onset of the pandemic, we helped clients to prioritise urgent payments and flows, ensure continuity of business with our digital platforms and capabilities, for example digital account opening, and supported their financing needs by speedily facilitating solutions,” says Mehta. He also notes that banks have had to take on stronger advisory components during the pandemic and have actually strengthened their relationships with clients.

Mehta explains that embracing digital communication methods has allowed for the delivery of various country and regional webinars in APAC, with attendees from areas and countries that may not usually be able to attend. This has enabled banks to offer best practice solutions to a wider audience, and also given corporates a platform to share their own experiences and keep connected with the wider treasury community.

Knowing the business

Clifton-Bligh also thinks banking relationships have strengthened, largely because of the banks that were proactive when it came to sharing information and being a valuable partner to the business. “Certainly in the early days, there were a couple of banks that shared how various industries were being impacted, which was really helpful,” she explains. In addition, she thinks value comes from banks that reach out to their treasurer clients to ensure they get to know the business. “I’m always looking for a true partner in my banking relationships,” she says. “Someone who knows my business beyond just KYC. Do they know who our competitors are, what the economic and regulatory factors that impact us are?”

That knowledge of regulations is something that Clifton-Bligh feels is especially imperative as a treasurer in APAC. With myriad regulatory profiles in the region, compliance can become complicated for regional treasurers. “It feels like regulations are released by the minute, so I don’t want a bank to just throw one at me, but interpret it for me,” she says. “Then I know that they understand who I am as a business, as well.”

A 2017 Transaction Banking Survey conducted by Temenos and Ovum found that 80% of corporates are willing to change their banks for those that offer better servicing and products. For Clifton-Bligh, this demonstrates that treasurers want their banks to be value-adding partners – and are willing to look elsewhere when necessary.

One step forward…

Despite the obvious want and need for digital interactions, as lockdowns begin to ease, Clifton-Bligh has noticed the situation beginning to revert. “We are communicating with banks digitally for things like sending instructions, but we’re now still following up with the paperwork and have couriers going back and forth,” she explains. “The banks that wanted paperwork before, still want paperwork. They just deferred the need for it until borders opened and people went back to offices.”

However, Clifton-Bligh is hopeful that change could be on the horizon and that the recent need for digitalisation could have whetted the appetite of banks and corporates alike. She explains that several banks have client councils and treasury boards, in which the topic of digitalisation is often raised. “I hope that somebody is observing that we’ve managed digitally when we’ve needed to, and sees that we just need to ensure we firm up the controls around digitalisation, in order to continue in this vein,” she says.

Utilising new technologies

Mehta is optimistic that the acceleration of digitalisation will be an area of focus across all businesses post-pandemic. “We have seen a significant acceleration in the adoption of our digital capabilities and platforms, from remote connectivity to digital account opening,” he explains, noting that Citi opened over 1,000 corporate accounts digitally in Asia in Q1 20. He adds that the number of accounts onboarded digitally in the region has increased ten-fold year-on-year between the first half of 2020 and the same period in 2019. In addition, the number of users for the digital banking mobile app for corporates has gone up by eight times in the same period.

One area of digitalisation that’s been gaining traction in APAC is real-time payments, and Mehta believes COVID-19 has only strengthened this trend. “The pandemic has coerced businesses to rethink and change conventional collections models, given the accelerated shift from offline to online,” he says. Technologies such as artificial intelligence and machine learning are revolutionising how these new features can be kept efficient and secure, and Mehta is excited to see where the space will move next.

Planning for the future

Looking at banking opportunities for the future, Clifton-Bligh comes back to the importance of partnering with a bank that understands the business. She says key questions treasurers should be asking banks are: “Who are we? What do we do? What do you think is important to us? How can you help me to help my business?”

Mehta also believes that more than ever, clients will be basing their choice of banking relationships on the ability of the bank to support them effectively, should a crisis occur again. “Operational resilience will be central to this decision,” he says. “Treasurers will need and want to know what measures and capabilities are in place to ensure that things remain contained in the event of a crisis.”

Echoing Clifton-Bligh’s advice, Mehta thinks treasurers will want solutions that are sharper, better informed, and more sophisticated as they tackle increasing risks in the operating environment, both now and in the future. “This includes diversifying supply chains, creating redundancy across manufacturing and service footprints, and maintaining continuous access to payments, funding and investment,” he says.

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