Evolving Treasury Trends...lively panel debate at HSBC’s recent Global Liquidity and Cash...

Global Liquidity and Cash Management Corporates Guidebook for Treasurers

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Evolving Treasury Trends

FOREWORD

DIGITAL INNOVATION IN EMERGING MARKETS: INDIA FOCUS

DIGITAL INNOVATION IN EMERGING MARKETS: CHINA FOCUS

BEING OPEN TO OPEN BANKING

SUSTAINABLE TREASURY IN THE DIGITAL WORLD

PROTECTING TREASURY IN A DIGITAL WORLD

LIQUIDITY MANAGEMENT: A WHOLE NEW WORLD

REPRINTED FROM TMI | TREASURY-MANAGEMENT.COM 1

CONTENTS

Foreword

Digital Innovation in India: The Road Ahead

Digital India: A New Dawn for Treasury Management

On the Brink of a Cashless Society?

Being Open to Open Banking

Sustainability in Treasury: A View Beyond Financing

Case Study: Oceanagold - Future Proofing Growth

Latin American Cybersecurity: A Fast-Growth Priority

Case Study: AkzoNobel - A Journey with HSBC, Building a Strong Partnership

Liquidity Management: A Whole New World

Global Liquidity: Faster, Deeper, Greater

Liquidity Management in Asia-Pacific: Change and Opportunity

Liquidity Management: Is Europe the New Asia?

North American Liquidity: Change, Challenge, Opportunity

Liquidity Management Portal: Finance at Your Fingertips

Global Liquidity and Cash ManagementCorporates Guidebook for Treasurers

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Global Liquidity andCash ManagementCorporates Guidebookfor TreasurersForeword by Lance Kawaguchi, ManagingDirector, Global Head – Corporates, GlobalLiquidity and Cash Management, HSBC

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FOREWORD

I would like to introduce this guidebook with a wealth of interesting andinformative articles featuring HSBC’s work across the globe, to helptreasurers keep up to date with some of the most vital elements of their

world today – digitisation and technology. HSBC’s extensive global footprint aswell as some of its innovative product developments are highlighted in the rangeof areas covered in these articles, across the continents of Europe, North America,Latin America, India and Asia Pacific, and validated by recent case studiesprovided by clients.

AN HSBC INDUSTRY VIEW

Lance Kawaguchi

India is already well on the way tobecoming a digitally-empowered country.Many key milestones achieved since the2015 launch of the government’s DigitalIndia initiative are described within,including the Smart Cities project, aimedat increasing the sophistication of India’surban infrastructure and services. The cityof Hangzhou, China, is the home oftechnology giant, Alibaba, and thepayment service provider, Alipay. Almosteverything including utilities, publictransport and retail services can be, andincreasingly more often are, paid for bysmartphone, rendering Hangzhou avirtually cashless city. In Asia-Pacificgenerally, liquidity management is provinga particularly dynamic feature, asregulatory changes within the region, shiftsin US tax legislation and interest rates allpresent corporate treasurers with a widerange of opportunities.

Cybersecurity is frequently at the top ofcorporate treasury agendas and in LatinAmerica it is a ‘fast-growth priority’. Thisbooklet examines the current cybersecuritylandscape in the region and explores someof the best practices for cyber riskmitigation. Indeed many of the articles onthis subject demonstrate how HSBC, withits breadth and depth of security expertiseand ability to effectively operate globallyacross all client sectors, can offerinvaluable assistance to companies insafeguarding their finances data.

Partnership with our clients is ofenormous importance to HSBC, and weare constantly expanding the range ofsolutions available to our customers. Onefeatured here is our new LiquidityManagement Portal (LMP), developed tohelp treasurers maximise liquidity

visibility by streamlining the underlyingdata management.

Other articles illustrate valuedpartnerships in action, with case studiesprovided by OceanaGold and AkzoNobel.OceanaGold, a fast-growing multinationalgold producer, decided in 2012 to refinanceits debt facilities and review its bankingrelationships; at the time it had miningoperations in New Zealand and wasopening a mine in the Philippines managedfrom its Melbourne HQ. For its new primarycash management bank the companychose HSBC. The success of the partnershipvalidated the view taken by its GroupTreasurer that “a partner who couldsupport our growth trajectory and newlocations would add value in terms offuture-proofing”.

HSBC’s journey with AkzoNobel beganin 2007, when the company embarked on atreasury transformation project called OneFinance, a demanding project entailingchanges to its banking infrastructure,treasury policies, technology andrelationship with business units. In view ofour extensive network, HSBC wasappointed as its primary banking partner inmany regions and countries, and wassubsequently also awarded the solemandate for trade finance activities. Sincethen, the relationship has grownsignificantly: AkzoNobel’s Head of Treasurynotes the major benefits her company hasgained from the partnership, and we willcontinue to explore opportunities to expandand strengthen the relationship.

I am confident that the articles in thisguidebook will prove to be a long standingsource of useful information, and insightfulexploration of the future of liquidity andcash management. �

HSBC’s extensiveglobal footprint aswell as some of its

innovativeproduct

developments arehighlighted in the

range of areascovered in these

articles andvalidated by

recent case studiesprovided by

clients.

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Digital Innovation in India:The Road AheadIndia is rapidly becoming a digitally-empowered society and economy, opening up new growthand efficiency opportunities for corporates along the way. Successfully embracing digitalinnovation is both a science and an art, however, as four industry experts explained during alively panel debate at HSBC’s recent Global Liquidity and Cash Management Digital Innovationand Transformation Forumhosted by Lance Kawaguchi, Managing Director, Global Head –Corporates, Global Liquidity and Cash Management, HSBC in Mumbai.


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over 400 million consumers in India areconnected to the internet. The country isalso home to 300 million smartphoneusers, each spending an average of fourhours a day using apps. There is therefore atremendous potential to target a particularaudience; digital media is evolving andnew trends are emerging. The other important aspect of digital

marketing is that brands can now gobeyond the 20- or 30-second televisioncommercial and create more effective, andmore amplified, digital communications.For example, today we are capable oflaunching a product in one city and thenconnecting our trade partners, employeesand consumers to it – across India and theworld – through social media platforms atthe same time. This helps in creatingawareness and recall for a new launch. Italso creates engagement with theaudience, which in turn translates intoleads.

Srinivas Jain, SBI Mutual Fund: We arealso looking into the possibilities that dataholds, as well as digital innovation as ameans to improve legacy processes. Theback end of our business has been digitalfor some time, but the front end hastraditionally been paper-based and manyof our treasury customers still send usinstructions by fax. While we have anautomated fax management system thathas led to process efficiencies, we wanted abetter way to serve our 6,000 oddinstitutional clients. So, in 2016, we set up a digital platform

for our institutional investors. Morerecently, we have also embraced virtualaccounts, to help ensure the appropriateallocation of client funds, in a moreautomated way. Uptake of such solutionsamong clients is currently around 20% butis increasing as clients start to see theefficiency benefits and appreciate the userexperience.For SBI Mutual Fund itself, the value of

these digital solutions stretches beyondautomation to real-time investor insights.The data from the platform enables ourinstitutional sales team to proactivelyreach out to customers with suggestionsfor switching between funds to achieve abetter rate, for example. We’re alsoexperimenting with leveraging theplatform data to create reports on behalf of

Enabling businesstransformation through digitalinnovation

Eleanor Hill, TMI: How is India’sdigitisation journey progressing – andhow can corporates take advantage ofdigital innovation to transform theirbusiness models, drive growth, and re-engineer legacy processes?

Divyesh Dalal, HSBC:Digitisation isadvancing at a rapid pace across India,even in remote locations. Government andregulatory initiatives are among the keydrivers, but consumer trends andtechnology evolution are adding to themomentum.In terms of milestones, the reach of the

country’s digital ecosystem has improvedmarkedly since the government launchedthe Digital India initiative in 2015.Alongside this, the National PaymentsCorporation of India (NPCI) has beenworking hard to build out new digitalinfrastructures, including the UnifiedPayments Interface (UPI) in 2016.On the back of these co-ordinated

efforts, the retail landscape has evolved,since more consumers are now able tomake digital purchases with ease. Theirconfidence in technology is also growing,and cash transactions are steadily beingreplaced by electronic ones – foreverything from utilities to insurance andinvestments. In turn, corporates arequickly adapting their business models tobetter leverage digital innovation andrevamping customer experiences to meetthis new demand.

Rahul Tayal, LG: Absolutely. Updatingand even reinventing our business modelto leverage the power of digitisation is a toppriority at LG. As a consumer electronicsgiant, our aim is to know our customers aswell as we possibly can - in order to drivesales through one-to-one targetedpromotions. The best way for us to do thatright now is to further embrace digitalinnovation.Unlike traditional marketing, digital

marketing provides a platform to focus ona specific target audience. Moreover,campaigns are designed on the basis ofconsumer habits and preferences. Already,

Forum Host:

Lance KawaguchiManaging Director, Global Head -Corporates, Global Liquidity and CashManagement, HSBC

Panellists:

Srinivas JainExecutive Director and Chief MarketingOfficer, SBI Mutual Fund

Nikhil SohoniSenior Vice President – Finance andTreasurer, Mahindra & Mahindra

Rahul TayalDirector Strategic Business andMarketing, Digital and Ecommerce, LGElectronics India Pvt. Ltd

Divyesh DalalIndia Head, Global Liquidity and CashManagement, HSBC

Moderator:

Eleanor HillEditor, TMI



our clients: not just performance reports;but opportunity reports too, flagginginteresting investment options for thetreasurer.Finally, we are using digital innovation to

improve our analytics and modelling,specifically around liquidity. One of thewidely recognised challenges in the mutualfund industry is that liquidity tends totighten at certain points in the cycle – suchas quarter end. Armed with the data fromthe platform, we can now build up a muchclearer picture of liquidity in real time, andthen optimise the portfolio as required.

Nikhil Sohoni, Mahindra & Mahindra:Picking up on some of the points Srinivasraised, it’s very true that many treasurersstill like to send faxes in connection withtheir investments, including instructions tomove monies between investment funds. AtMahindra & Mahindra, we saw this as ahugely inefficient process, so decided toswap to a digital solution: the SWIFT Indiaplatform. We are the first (and currently still the

only) company in India to sign up to thispayment platform and we are alreadyseeing significant efficiency benefits. Today,before coming to this event, I invested largesums in just four clicks. That’s the beauty ofdigitisation. No faxes, no reconciliations andno waiting for confirmations. It is seamless.Besides SWIFT India, we’re exploring a

number of other digital avenues, looking fornew solutions to reduce the resourceburden and increase efficiency within thetreasury function. We’ve also attempted aforeign remittance using blockchain, whichwas a good learning experience. UPI doesn’treally fall into our remit in this part of thebusiness, because the value of the paymentswe send or receive are simply too high. Thatsaid, we absolutely recognise the potentialof UPI within the right marketplace. Wehave explored it in a few of our groupcompanies and are already seeing thebenefits.Elsewhere, we are considering advanced

digitisation tools and are exploringleveraging artificial intelligence (AI) toenhance our foreign exchange (FX) hedgingpractice. On many occasions, we tend toreact to movements in currencies. The ideaof leveraging AI is to be more proactive thanreactive, aim to predict currency moves withgreater accuracy.

For treasury, this kind of digitalinnovation offers significant efficiency gainsas well as strategic wins. Nevertheless, it’simportant to realise that digitisation is anevolving trend, and what’s possible now isactually just the tip of the iceberg.

A pathway to greater strategicfocus

Eleanor Hill, TMI: To what extent doesembracing digital innovation allowbusinesses – as well as finance andtreasury functions – to be morestrategic? Could you give some practicalexamples?

Rahul Tayal, LG: Embracing digitalinnovation undoubtedly opens upopportunities for more strategic thinking –whether that be at the boardroom level,within sales and marketing, or in treasuryand finance. As I explained, at LG,digitisation is allowing us to get to knowour customers that much better, meaningthat we can be far more strategic in the waywe sell to them. Increasingly, we are launching

integrated campaigns with a focus ondigital platforms. As an example, certainranges in our product offering, such as airpurifiers and water purifiers are directedtowards health-conscious people; andthrough digital platforms we are targetingcampaigns for these products throughhealth influencers – namely celebrities.This has helped in reaching a specifictarget group, thereby generating greaterreturn on investment (ROI) for ourmarketing and sales teams.In short, digital innovation is helping us

to be more strategic about the customerswe target and the offers we send them.Blanket marketing is a thing of the past;strategic partnerships fuelled by shareddata are the future.

Nikhil Sohoni, Mahindra & Mahindra:We have been innovating aroundpayments and collections platforms.Although I mentioned that UPI was not theright tool for Mahindra & MahindraLimited, we now use it extensively in one ofour consumer-facing businesses,Mahindra Rural Housing. The companyprovides loans to farmers who are located

Corporates arequickly adapting

their businessmodels to betterleverage digitalinnovation and

revampingcustomer

experiences tomeet this new

demand.

The Boston Consulting Group (BCG) is anAmerican worldwide managementconsulting firm with 90 offices in 50countries. The firm advises clients in theprivate, public, and not-for-profit sectorsaround the world, including more thantwo-thirds of the Fortune 500 and is oneof the 'Big Three' strategy consultingfirms (MBB).

LG Electronics India Pvt. Ltd.manufactures and sells consumerelectronics, home appliances, computerproducts, and mobile phones in India.

SBI Funds Management Pvt. Ltdhas 30years of experience in fundsmanagement and brings forward itsexpertise by consistently delivering valueto its investors. It has a strong and proudlineage that traces back to the StateBank of India (SBI) - India’s largest bank.It is a Joint Venture between SBI andAMUNDI (France), one of the worlds’leading fund management companies.




in the interiors, or even further beyond, inthe very deep interiors. They have low annual incomes and loan

repayment instalments may be as little asINR 2,000-3,000 a month. The point here isthat nearly all of these payments used to bemade in cash. When demonetisationhappened, we encouraged customers tomove to automated clearing house (ACH)payments by offering 2% cash back. Theincentive is starting to kick in and 10-15%of our rural customers are now already onthe ACH platform. This involved a lot ofgroundwork for the company and thebank. It was a task to get people to movefrom cash to digitised payment. Interestingly, if the ACH looks like it will

fail because of insufficient funds in theiraccount, we have also set up a solution thatpings an alert, stating the amount they areshort, to their mobile phone. If they want,they can then transfer this amount to theiraccount via UPI, thereby avoiding anyfailed payment charges relating to the ACHor a delayed payment charge for aninstalment default. Of course, for treasury, the benefits of

speeding up collections have beenenormous. We can now be much moreaccurate with our cash forecasting andmore strategic with investing any excesscash. As a company, we are no longerrequired to send our agents into theinteriors to collect small amounts of cashand this has also led to significant costsavings, which is an additional positive.

Divyesh Dalal, HSBC: From ourinteractions with corporates, it’s clear thattechnology is one of the biggest strategicenablers for businesses in India today –and that ‘instant’ business is a trendcompanies can no longer ignore. Not onlycan businesses leverage these market shiftsto speed up collections, as some of thepanellists have already discussed, but theycan also turn them into strategic marketingand sales tools, as well as competitivebargaining chips. If, for instance, onemicrofinance institution (MFI) can onlydisperse a small ticket loan of say, INR1,000, by tomorrow morning, but acompetitor can release a similar loantoday, it’s clear which MFI will have thestrategic edge.As well as understanding the

opportunities, corporates looking to extract

the maximum strategic potential from theirdigital investments must also consider thedigital and physical worlds together. This isparticularly true in tier 3 and tier 4 townswhere digital infrastructures are stilldeveloping. The secret to success will betying the online and offline pieces togetherinto a seamless solution.

Srinivas Jain, SBI Mutual Fund: For me,the best way to free up resources andenable the business to become morestrategic is to build a friction-freeenvironment for customers, especially onthe retail side. A good example of this iselectronic Know Your Customer (eKYC)solutions. By committing to using eKYC inour consumer business, we haveonboarded more customers than any otherlarge asset manager in India.As well as having an online eKYC

platform available, we also have around10,500 enabled devices across India thatcustomers can use to become KYC-compliant. Interestingly, customers thathave used the eKYC channels foronboarding are three times stickier thanthose who have used the traditional KYCchannels. So, through digital innovation,we have massively improved the customerexperience and garnered significantbusiness benefits, whilst cutting downmanual workloads.In addition, we have built a business-to-

consumer (B2C) architecture, called InvestStack, that rivals our offering in thebusiness-to-business (B2B) space, andmakes use of API technology. Fintechs cansimply pick up these APIs and integratethem into their platforms - and then startselling mutual funds. It really is that easy.We have at least three fintechs alreadydoing this, and this is a totally new arm ofour business strategy – but one that isproving to be highly effective.

Digital disruption: threats andopportunities

Eleanor Hill, TMI: What emerging digitalinnovations should companies watchout for in the months to years ahead?And how can they embrace the agility ofnew technologies, partners, and ways ofworking, whilst retaining the security ofsolutions they know and trust?

We can now bemuch more

accurate with ourcash forecasting

and morestrategic withinvesting anyexcess cash.

Mahindra and Mahindra Limited (M&M)is an Indian multinational carmanufacturing corporationheadquartered in Mumbai, Maharashtra,India. It is one of the largest vehiclemanufacturers by production in India andthe largest manufacturer of tractors inthe world. It is a part of the MahindraGroup, an Indian conglomerate.

Indian Software Products Industry RoundTable (iSPIRT) is a think tank for theIndian software products industry. Ithelps companies with policy – convertingideas into policy proposals to take togovernment stakeholders; playbooks –converting conversations into playbooksfor product entrepreneurs; and marketcatalysts – converting actions of self-helpcommunities into market catalysts forthe software product industry.

National Payments Corporation of India(NPCI) is an umbrella organisation foroperating retail payments andsettlement systems in India. It is aninitiative of Reserve Bank of India (RBI)and Indian Banks’ Association (IBA) underthe provisions of the Payment andSettlement Systems Act, 2007, forcreating a robust Payment & SettlementInfrastructure in India.




Divyesh Dalal, HSBC: There are anumber of misnomers around ‘digitaldisruption’ which often lead to theconcept being perceived as negative. Butdigitisation doesn’t mean that everythingmust be done through digital channels –and that tried and tested means of workinghave to be abandoned. As I alluded tobefore, there are benefits of combining thephysical and digital worlds and essentiallyaugmenting existing processes with digitalelements. And in my view, this is the bestform of digital disruption.Take the lending sector, for instance. A

number of deals are still done offline – butthanks to digital solutions, such as onlinecredit checks and the eKYC solutions thatSrinivas mentioned before, lenders can gothrough a largely offline process and yetstill onboard a customer, identify theircreditworthiness, and sanction a loan inaround five minutes. Approved loans canalso be disbursed more or lessimmediately using an instant paymentsservice via API.So, don’t be fooled into thinking that

embracing digital innovation or disruptionhas to mean a complete overhaul – itcould simply be an upgrade of systemsand processes, enabling companies andconsumers to have the best of both worlds.

Srinivas Jain, SBI Mutual Fund:Personally, I believe that a largeproportion of future digital disruption willbe led by fintechs. The India Stackplatform that I spoke about before cameabout as a direct result of fintechs enteringthe asset management industry andshaking up the way we do business –which was arguably ripe for change. They are bringing a totally new

dimension to investing, with solutionssuch as robo advice. And traditional assetmanagers have to adapt to survive. IndiaStack is our way of doing that. It hasallowed us to work with the fintechs withinan environment that is under our control. We are also leveraging fintechs to

provide us with deep-dive customeranalytics, and for last mile distribution.So, we have combined the best parts ofour existing offering with solutions fromnew entrants to improve the overallpackage for clients. Rather than referringto this as disruption, I prefer to call it‘progress’.

Nikhil Sohoni, Mahindra & Mahindra:When it comes to disruption, I believe thatwe will see more corporates joiningcollaborative projects and effectivelyleading the way around technologicalchange. One area where treasurers wouldno doubt be keen to work together withbanks and fintechs to solve an industry issueis KYC. With each bank requiring different

documentation, as well as multiple physicalcopies of those documents, KYC iscurrently a huge headache for everyone.But blockchain could potentiallyrevolutionise the KYC process, meaningthat corporates would only need to uploadone set of documentation, and then simplygrant permission to each of its banks toaccess it. With such a solution, KYC processes

could be completed in minutes, not days,weeks, or even months. However, treasurersneed to take that leadership role and pushbanks to look towards disruptivetechnologies like blockchain in order tobuild a better future for the industry.

Rahul Tayal, LG: In terms of newtechnologies, we are closely observing newtrends such as chatbots, which will be thenext big thing over the coming years. In fact,by 2020 it is expected that 85% of customerservice interactions will be handled by bots.The trend has started to dominate theindustry already as research suggests that27% of people are unable to figure outwhether they spoke to a person or a chatbotin their last customer service interaction. And on the topic of digital disruption, I’ll

wrap up by saying that meaningfulcollaboration and a large dose of couragewill be required for organisations to fullybenefit from digital disruption andinnovation. If businesses fail to embrace acollaborative mind-set or treat it as a box-ticking exercise, they will fall foul ofdisruption. Certainly, adopting new technologies is

risky; but it is far better to make mistakesalong your digitisation journey, or in yourdigital collaborations, than to let fearprevent you from getting started. As the riseof the Chinese economy, and e-commercegiants like Alibaba, have shown us, digitalinnovation is the new world order – and thebiggest mistake companies can make isfailing to fully recognise this. �

Disclaimer

Issued by HSBC Bank plc

For Professional Clients and Eligible counterparties

only. Not for Retail customers.

It is far better tomake mistakes

along yourdigitisation

journey, or in yourdigital

collaborations,than to let fear

prevent you fromgetting started.




W ith so much ‘noise’ around digital innovation, it can be difficult to filterout the trends and initiatives that truly matter. To help treasurers inIndia do just that, HSBC’s Global Liquidity and Cash Management

business held a Digital Innovation and Transformation Forum, April 2018 inMumbai. The Forum attracted over 100 corporate attendees and was hosted byLance Kawaguchi, Managing Director, Global Head - Corporates, Global Liquidityand Cash Management, HSBC.

Digital India: A New Dawnfor Treasury Management

As well as being technical experts and strategic business partners, today’s treasurers must alsokeep up to speed with digital innovation. This means not only understanding the role ofdigitisation in building a next-generation treasury function, but also recognising the importanceof digital disruption in helping the wider business to grow and prosper.


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The Boston Consulting Group (BCG) is anAmerican worldwide managementconsulting firm with 90 offices in 50countries. The firm advises clients in theprivate, public, and not-for-profit sectorsaround the world, including more thantwo-thirds of the Fortune 500 and is oneof the 'Big Three' strategy consultingfirms (MBB).

LG Electronics India Pvt. Ltd.manufactures and sells consumerelectronics, home appliances, computerproducts, and mobile phones in India.

SBI Funds Management Pvt. Ltdhas 30years of experience in fundsmanagement and brings forward itsexpertise by consistently delivering valueto its investors. It has a strong and proudlineage that traces back to the StateBank of India (SBI) - India’s largest bank.It is a Joint Venture between SBI andAMUNDI (France), one of the worlds’leading fund management companies.

Supporting widespread digitaladoption Opening the Forum with an overview ofIndia’s digital journey to date, Kawaguchiexplained how the country is well on itsway to becoming a digitally-empoweredsociety and economy. He outlined some ofthe key milestones achieved since thelaunch of the government’s Digital Indiainitiative in 2015, including theintroduction of Umung, a unified platformthat supports e-government activities, andthe Smart Cities project aimed at deliveringmore sophisticated urban infrastructureand services. He noted that, “While one might think

that digital innovation projects such as thisare happening purely at a macro level, infact, they are taking hold at a grassrootslevel too, ensuring all citizens have accessto a single ID for government and bankingservices, improving digital literacy andmaking internet accessible for millions ofrural households.” Inevitably, this kind of systemic change

is leading to new consumer and businessexpectations. To support these, HSBC hasinvested in its digital capabilities in thecountry. “We’ve leveraged digitaltechnology in the area of biometric data,making it easier for you to initiate activityon our e-banking platforms whileenhancing security through touch ID,voice recognition and most recently, facialrecognition,” he said.“Furthermore, we were one of the first

banks to launch the Unified PaymentsInterface (UPI), allowing corporates andfinancial institutions digital access to themassive consumer-tobusiness (C2B)market. We were also among the firstbanks to go live with e-mandates for directdebits and electronic support for Goodsand Services Tax (GST) Payments,” heexplained.Kawaguchi then took a moment to

address the elephant in the room: fintech.“It’s been said before, but we truly aim tosee these industry disrupters as partners,rather than threats,” he reassured theaudience – citing the bank’s partnershipwith TradeShift, a fintech focused ondigitising the invoicing and supply chainprocess for corporates, as evidence of this.Collaboration is the order of the day, he

said, since there is no value in corporates

having to ‘choose sides’ between banksand fintechs. “HSBC will continue to focusand invest in these types of partnershipsgoing forward; to keep pace with thechanging market and to best support ourclients,” he noted.

Navigating the new digitallandscapeFollowing Kawaguchi’s opening address,Pranay Mehrotra, Senior Partner, BostonConsulting Group, took to the stage todiscuss how business and bankinteractions are changing as a result of theevolving digital ecosystem. He began byaddressing the global themes of Industry4.0 and the digitisation of supply chains,moving on to the potential of blockchainand robotics to enhance manufacturingand deliver a better customer experience. Homing in on the corporate treasury

sphere, Mehrotra also spoke about the roleof banks in providing corporates withcutting-edge digital solutions. He called outthe growing advisory role of banks, such ashelping treasury to better understand howto optimise the supply chain and improveworking capital metrics, through the use oftechnology. Data analytics would also be akey area where banks and corporates couldcollaborate more closely in the future, hesaid. Providing a counterbalance to these

digital opportunities, Mehrotra alsounderlined one of the well-documenteddrawbacks of digitisation: cybercrime. Heurged treasurers in India to pay closerattention to cyber threats as digitalinnovation continues, and to engage withtheir banks around cybercrime prevention.

Adding value through digitalinnovationNext, four industry experts took to thestage to discuss the power of digitalinnovation in enabling businesstransformation; how digitisation allowscorporates to focus more on strategicgoals; and embracing digitisation withinthe treasury department. Kicking off the session, Divyesh Dalal,

India Head, Global Liquidity and CashManagement, HSBC, explained howforward-thinking corporates in India arequickly adapting their business models to




better leverage digital innovation andrevamping customer experiences to meetnew demands arising from the growth ofelectronic transactions.Rahul Tayal, Director Strategic Business

and Marketing, Digital and E-commerce,LG Electronics India Pvt. Ltd, agreed,saying that: “Updating and evenreinventing our business model to leveragethe power of digitisation is a top priority atLG. As a consumer electronics giant, ouraim is to know our customers as well as wepossibly can - in order to drive salesthrough one-to-one targeted promotions.The best way for us to do that right now isto further embrace digital innovation.” He then explained that, “Unlike

traditional marketing, digital marketingprovides a platform to focus on a specifictarget audience. Moreover, campaigns aredesigned on the basis of consumer habitsand preferences. Already, over 400 millionconsumers in India are connected to theinternet. The country is also home to 300million smartphone users, each spendingan average of four hours a day using apps.There is therefore a tremendous potential totarget a particular audience; digital media isevolving and new trends are emerging.” Likewise, SBI Mutual Fund has

embraced digital innovation to betterrespond to customer needs, explainedSrinivas Jain, Executive Director and ChiefMarketing Officer at the company. “Theback end of our business has been digital forsome time, but the front end hastraditionally been paper-based. We wanteda better way to serve our 6,000 oddinstitutional clients. So, in 2016, we set up adigital platform for our institutionalinvestors. We have also embraced virtualaccounts, to help ensure the appropriateallocation of client funds, in a moreautomated way,” he said.For SBI Mutual Fund itself, the value of

these digital solutions stretches beyondautomation to real-time investor insights.“The data from the platform enables ourinstitutional sales team to proactively reachout to customers with suggestions forswitching between funds to achieve a betterrate, for example. We’re also experimentingwith leveraging the platform data to createreports on behalf of our clients: not justperformance reports, but opportunityreports too, flagging interesting investmentoptions for the treasurer,” he added.

Picking up on some of the points raisedby Jain, Nikhil Sohoni, Senior VicePresident – Finance and Group Treasury,Mahindra & Mahindra admitted that“many treasurers still like to send faxes inconnection with their investments,including instructions to move moniesbetween investment funds”. But seeing thisas “a hugely inefficient process” thecompany decided to swap to a digitalsolution: the SWIFT India platform. “We are the first (and currently still the

only) company in India to sign up to thispayment platform and we are alreadyseeing significant efficiency benefits.Today, before coming to this event, Iinvested large sums in just four clicks.That’s the beauty of digitisation. No faxes,no reconciliations and no waiting forconfirmations. It is seamless,” heexplained.In addition, Mahindra & Mahindra is

looking into the possibilities of technologiessuch as blockchain and artificialintelligence (AI), he said. “For treasury, thiskind of digital innovation offers significantefficiency gains as well as strategic wins.Nevertheless, it’s important to realise thatdigitisation is an evolving trend, and what’spossible now is actually just the tip of theiceberg.”

Gaining a strategic edgeMoving on, the panel then discussed theextent to which embracing digitalinnovation allows businesses – as well astreasury functions – to be more strategic.Here, Dalal shared some insights fromhis interactions with corporates, sayingthat: “Technology is one of the biggeststrategic enablers for businesses in Indiatoday – and that ‘instant’ business is atrend companies can no longer ignore.Not only can businesses leverage thesemarket shifts to speed up collections, butthey can also turn them into strategicmarketing and sales tools, as well ascompetitive bargaining chips.”To Dalal’s point, Sohoni then

explained how Mahindra Rural Housinghas garnered strategic advantages bymoving customers away from cashtowards digital payments. “For treasury,the benefits of speeding up collectionshave been enormous. We can now bemuch more accurate with our cash

Mahindra and Mahindra Limited (M&M)is an Indian multinational carmanufacturing corporationheadquartered in Mumbai, Maharashtra,India. It is one of the largest vehiclemanufacturers by production in India andthe largest manufacturer of tractors inthe world. It is a part of the MahindraGroup, an Indian conglomerate.

Indian Software Products Industry RoundTable (iSPIRT) is a think tank for theIndian software products industry. Ithelps companies with policy – convertingideas into policy proposals to take togovernment stakeholders; playbooks –converting conversations into playbooksfor product entrepreneurs; and marketcatalysts – converting actions of self-helpcommunities into market catalysts forthe software product industry.

National Payments Corporation of India(NPCI) is an umbrella organisation foroperating retail payments andsettlement systems in India. It is aninitiative of Reserve Bank of India (RBI)and Indian Banks’ Association (IBA) underthe provisions of the Payment andSettlement Systems Act, 2007, forcreating a robust Payment & SettlementInfrastructure in India.



Redefining digital disruptionThe panel’s final topic for discussion wasdigital disruption, and the inherent threatsand opportunities. Dalal led the debate,stating that, “There are a number ofmisnomers around ‘digital disruption’which often lead to the concept beingperceived as negative. But digitisationdoesn’t mean that everything must bedone through digital channels – and thattried and tested means of working have tobe abandoned.” There are benefits of combining the

physical and digital worlds and essentiallyaugmenting existing processes with digitalelements, he said. “So, don’t be fooled intothinking that embracing digital innovationor disruption has to mean a completeoverhaul – it could simply be an upgrade ofsystems and processes, enablingcompanies and consumers to have the bestof both worlds.” Jain, meanwhile, explained how he

believed the concept of disruption wasclosely linked to fintechs. “We have built abusiness-to-consumer (B2C) architecture,called Invest Stack, that rivals our offeringin the business-to-business (B2B) space,and makes use of applicationprogramming interface (API) technology.Fintechs can simply pick up these APIs andintegrate them into their platforms - andthen start selling mutual funds,” he said. “This platform came about as a direct

result of fintechs entering the assetmanagement industry and shaking up theway we do business – which was arguablyripe for change,” he continued. “They arebringing a totally new dimension toinvesting, with solutions such as roboadvice. And traditional asset managershave to adapt to survive.”For Sohoni, however, digital disruption

means a different way of working betweencorporates and banks. He believes, “Wewill see more corporates joiningcollaborative projects and effectivelyleading the way around technologicalchange. One area where treasurers wouldno doubt be keen to work together withbanks and fintechs to solve an industryissue is KYC,” he said.Sohoni went on to explain that with

each bank requiring differentdocumentation, as well as multiplephysical copies of those documents, KYC is

currently “a huge headache for everyone.But blockchain could potentiallyrevolutionise the KYC process, meaningthat corporates would only need to uploadone set of documentation, and then simplygrant permission to each of its banks toaccess it.” With such a solution, KYC processes

could be completed in minutes, not days,weeks, or even months, he said. “However,treasurers need to take that leadership roleand push banks to look towards disruptivetechnologies like blockchain in order tobuild a better future for the industry.” Tayal concluded the session, saying that

“meaningful collaboration and a large doseof courage will be required fororganisations to fully benefit from digitaldisruption and innovation. If businessesfail to embrace a collaborative mind-set ortreat it as a box-ticking exercise, they willfall foul of disruption,” he predicted.“Certainly, adopting new technologies is

risky; but it is far better to make mistakesalong your digitisation journey, or in yourdigital collaborations, than to let fearprevent you from getting started. As therise of the Chinese economy, and e-commerce giants like Alibaba, have shownus, digital innovation is the new worldorder – and the biggest mistake companiescan make is failing to fully recognise this,”he advised.

Turning physical negatives intodigital positivesNext, Nakul Saxena, Industry PolicyAdvocacy Fellow at the iSPIRT Foundation,gave an insightful presentation looking atIndia Stack – a set of APIs that allowsgovernments, businesses, startups anddevelopers to utilise an unique digitalinfrastructure to move India’s economytowards a presence-less, paperless, andcashless service delivery model. The openAPI team at the iSPIRT Foundation is apro-bono partner in the development,evolution, and evangelisation of theseAPIs, he explained.After outlining how India Stack works,

Saxena delved into the benefits, whichinclude bringing millions of Indians intothe formal economy by reducing friction intraditional banking channels. He spokeextensively about the role of UPI inachieving this. He described how India

We will see morecorporates joining

collaborativeprojects and

effectively leadingthe way around

technologicalchange.

forecasting and more strategic withinvesting any excess cash,” he noted.In order to see the maximum possible

operational and strategic benefits fromthis move away from cash, Sohoni saidthe company had, “Encouragedcustomers to move to automated clearinghouse (ACH) payments by offering 2%cash back. The incentive is starting to kickin and 10-15% of our rural customers arenow already on the ACH platform.” Tayal was equally bullish on the

potential for digital innovation to unlockstrategic gains, saying simply that:“Digital innovation is helping us to bemore strategic about the customers wetarget and the offers we send them.Blanket marketing is a thing of the past;strategic partnerships fuelled by shareddata are the future.”Meanwhile, Jain explained that, in his

view, “The best way to free up resourcesand enable the business to become morestrategic is to build a friction-freeenvironment for customers, especially onthe retail side. A good example of this iselectronic Know Your Customer (eKYC)solutions. By committing to using eKYCin our consumer business, we haveonboarded more customers than anyother large asset manager in India.”




Stack also stands to revolutionisegovernment services, moving them into amore transparent, accountable and secureenvironment, through solutions such asDigiLocker.Indian citizens who sign up for a

DigiLocker account receive a dedicatedcloud storage space that is linked to theirAadhaar (UIDAI) number. Meanwhile,organisations that are registered withDigiLocker have the ability to pushelectronic copies of documents andcertificates, such as driving licences,directly into citizens’ lockers, he explained.Much to the interest of the audience,

Saxena also outlined how India Stack couldreduce arduous KYC processes down tocirca two minutes, thanks to a paperlessprocess whereby a person’s identity andaddress are verified electronically throughAadhaar Authentication.Saxena wrapped up by saying that

transactions that once would have beenwritten off as science fiction are nowbecoming a reality in India, thanks to APItechnology.

Digital payments innovationThe final presentation came from DilipAsbe, CEO, National PaymentsCorporation of India (NPCI). He began byrecapping the role of the NPCI in aiming isto transform India into a society no longerdependent on cash. “This does not mean‘cashless’, but a society that uses less cash –there is an important difference,” he noted. Asbe then highlighted some of the key

milestones that the not-for-profitorganisation has achieved since itsinception eight years ago. He spoke aboutflagship initiatives such as the ImmediatePayment Service (IMPS), the NationalAutomated Clearing House (NACH), andUPI – which is seen as one of the mostrevolutionary payments products in India. He also mentioned the significant

progress being made through schemessuch as RuPay Credit Card (withcontactless capabilities in the pipeline), theNational Electronic Toll Collection (NETC)and the successful pilot of the Bharat BillPayment System (BBPS). “We have nowtaken BBPS into live mode, and five billpayment categories are allowed,” headded. “Although the solution is relatively new,

we have already seen between four andfive million transactions processed viaBBPS. Over the next 24 months, we expecttransaction volumes to increaseenormously, driven by the government’sdesire to move towards an electronicmodel, together with the growinginteroperability and accessibility of banknetworks,” he predicted.Despite the progress made to date, Asbe

was realistic about the fact that a criticalmass has not yet been reached in terms ofonboarding Indian citizens to digitalchannels. To help achieve this, NPCI willcontinue “firing on all cylinders” and focuson continuous improvement of itssolutions to make them even easier forcitizens to use – and more compelling froma value proposition perspective. “As anexample, we are in the process oflaunching UPI 2.0 (yet to be approved bythe regulator) which will enable mandatesand invoices to be carried along with thetransaction. We believe this will be a usefulfunctionality which will spur even greaterinterest in UPI,” he said.Asbe then opened up the floor to

questions from the audience. Concernsfrom corporates included real-timeconfirmations for UPI transactions,increasing the Rs. 1 lakh daily limit on UPIpayments, and recourse on ACH returns.On all counts, Asbe confirmed that NPCI isworking to iron out any creases, andinvited individual corporates experiencingissues with particular banks, or with ideasfor improving current set-ups, to get intouch with the NPCI. “After all, acollaborative approach to developing oursolutions is critical to moving towards ourvision to be the best payments networkglobally,” he concluded.

Furthering the digital causeThis presentation brought the Forum to aclose, but discussion of the topics did notstop there, with lively debate carrying onover a networking dinner. And, of course,HSBC’s Global Liquidity and CashManagement business will continue theconversation going forward, drawingcorporates’ attention to important digitaltrends and opportunities, as well asinvesting in the most relevant digitalinnovations to enhance the overall clientexperience. �

Disclaimer

Issued by HSBC Bank plc

For Professional Clients and Eligible counterparties

only. Not for Retail customers.



A blueprint for China andbeyondIn addition to being the home of Chinesetechnology giant Alibaba and paymentservice provider Alipay, Hangzhou is avirtually cashless city. Almost everything

including utilities, taxis, public transportand retail, services can be paid viasmartphone. Naturally, many ofHangzhou’s citizens experience quite aculture shock when they visit other citiesand have to pay by cash or card. However,the expectation is that paying with mobile

On the Brink of a Cashless Society?

T he environment in Hangzhou, China today is similar to many other citiesaround the world: building sites become shiny new shops, offices andapartments; new infrastructure moves people faster than ever, and a

vibrant community of people work, study and spend their leisure time. But in oneimportant respect, Hangzhou is quite different.

By Irene Zeng, Director,Head of Sales – GlobalBanking Corporates,Greater China GlobalLiquidity and CashManagement, Asia-Pacific


HSBCDIGIT18 ZENG.qxp_Layout 1 24/09/2018 09:55 Page 14



active users. They spend around a third oftheir total smartphone time on WeChat,equivalent to around two hours a day.

Another closely related trend is thelevel of adoption, and speed of growth ine-commerce. China represents nearly halfof the world’s e-commerce3 whichaccounted for more than 23% of retailsales in 2017, of which 75% – over $1tr -will be transacted via smartphone. Thisfigure is expected to increase to 40.8% by20214.

These phenomena are not only relevantto corporations that have local operationsin China; other markets, such as India,Hong Kong and Singapore are alsoexperiencing similar trends. What isdifferent, however, is the drivers of changein each market. In China, for example, thetrend towards a cashless society is beingdriven by market forces; however, incountries like India the digitisation ofpayments is the result of government orcentral bank initiatives. For example, theIndian government was keen to usedemonetisation as a way to increasetransparency in the economy andencourage financial inclusion. Oneimportant illustration of this has been thegovernment’s support for the ImmediatePayment Service (IMPS), an instant,interbank electronic funds transferplatform.

Taking an omni-channelapproachIn all markets where the use of digitalpayments is proliferating, e-commercevolumes are growing rapidly, as the

example of China illustrates. The difficultyfor businesses selling into China andother markets that are experiencinggrowing e-commerce volumes is the needto support an expanding range of digitalcollection methods; however, at the sametime offline sales still far exceed thoseonline. Consequently, in addition toemerging new payment methods thatsupport e-commerce and m-commerce,companies still need to support face-to-face payment methods, often includingcash. Furthermore, new payment

will become more the norm in otherChinese cities. How will this rapid andprofound shift in the way that people andbusinesses pay for goods and servicesaffect corporate treasurers?

Although the pace of change can bequicker in some markets, the migrationaway from cash collections has been well-received by most businesses, not onlywithin China but also globally. Electroniccollections are now cheaper, more secureand notably accompanied by richer data.This can all be harnessed to offerintelligence and insight into customersand their behaviours to target marketingcampaigns, design incentive programmesand formulate strategies. As regional andglobal corporations gain experience andrecognise the value of electroniccollections in one city or country, they areable to transfer this experience to theiroperations elsewhere, which furtheraccelerates adoption.

Catalysts of changeIn many respects, the shift towardselectronic payments and collections isneither new nor surprising. Consumersand businesses have a wide range ofelectronic payment and collectionmethods available to them, includingcards, direct debits, ACH and wirepayments, as well as, in a growing numberof markets, instant and mobile payments.However, there are three closely-linkedtrends that are now driving cashlesssocieties at an unprecedented rate:

First is the ubiquity of smartphones.Over half of China’s population accessesthe internet through a smartphone1, fivetimes the number of the United States.The growth in smartphone usage is aglobal trend: China is the 26th countryglobally ranked by percentage ofsmartphone penetration, with countries orareas such as the Netherlands, Taiwan,Hong Kong, Norway and Ireland all seeingpenetration rates above 90%2, illustratingthe scale of change and opportunity.

Related to this is the use of socialmedia, such as WeChat, which in Chinaoffers integrated payment capabilitiesthrough WeChat Pay – another trend thatis taking shape globally. For example, inMarch 2018, WeChat’s owner Tencentannounced that WeChat had one billion

Over half ofChina’s

populationaccesses the

internet through asmartphone, fivetimes the number

of the UnitedStates.

Fig 1 Benefits of migration to electronic collection

ELECTRONIC COLLECTIONS

CHEAPER

MORE SECURE

RICHERDATA

INSIGHTS INTO CUSTOMER

BEHAVIOURS AND SPENDING

PATTERNS

TARGETED MARKETING

BESPOKE SALES STRATEGIES

RELEVANT INCENTIVES



Fig 2 Top 15 Countries by Smartphone Users and Penetration

RANK COUNTRY TOTAL SMARTPHONE SMARTPHONE POPULATION USERS PENETRATION

2 India 1,342,513,000 300,124,000 22.4%

3 United States 326,474,000 226,289,000 69.3%

4 Brazil 211,243,000 79,578,000 37.7%

5 Russian Federation 143,375,000 78,364,000 54.7%

6 Japan 126,045,000 63,089,000 50.1%

7 Germany 80,636,000 55,492,000 68.8%

8 Indonesia 263,510,000 54,494,000 20.7%

9 Mexico 130,223,000 52,993,000 40.7%

10 United Kingdom 65,511,000 44,953,000 68.6%

11 France 64,939,000 42,399,000 65.3%

12 Turkey 80,418,000 40,010,000 49.8%

13 Italy 59,798,000 39,323,000 65.8%

14 South Korea 50,705,000 36,262,000 71.5%

15 Spain 46,070,000 30,771,000 66.8%

TOTAL POPULATION1,388,233,000

SMARTPHONE USERS717,310,000

China#1 51.7%

SMAR

TPHO

NE

PENETRA

TION

Source: 2017 Global Mobile Market Report from Newzoo




methods tend to add to (rather thanreplace) existing payment methods,leading to increased complexity and cost.This problem becomes even greater forcompanies that operate internationally aslocal payment practices and instrumentsdiffer across countries.

A fast-growing number of corporationsare choosing to manage the proliferationof emerging and traditional collectionmethods in a consistent way throughomni-channel collection solutions, suchas those in the retail and luxury goodssectors. This type of solution, which isgaining particular traction in China,provides merchants with the ability toaccept and process a comprehensiverange of collection methods through asingle channel. Incoming transactions arepresented in a standard format, andaccompanied with rich information tosupport reconciliation, financial andstrategic analysis. Corporate treasurerstherefore avoid the need to establishseparate channels for different collectionmethods or countries. At the same time,an omni-channel approach also resolvesthe difficulty of different cut-off times andvarying post-transaction documentationrequirements between countries.

The commercial benefits of omni-channel collection solutions are clear,with customers enjoying a better, moreconsistent experience when purchasingproducts and services, leading to fewerabandoned transactions and improvedcustomer satisfaction. Additionally, theworking capital benefits should not beunderestimated. Efficient collection,predictable value-dating and the ability touse data to automate reconciliation are allessential components in an effectivetreasury and working capitalmanagement strategy. Treasurers canaccelerate the cash conversion cycle,improve short-term cash flow forecastingand liquidity planning, and reduce thecash ‘buffer’ maintained for workingcapital purposes.

A global viewThe value proposition of omni-channelcollection solutions extends globally but itis often most compelling in countries suchas China and India where paymentdigitisation is growing fastest. However,this is not an isolated phenomenon. Thecombined stimulus of smartphoneproliferation, use and reach of socialmedia, and growth of e-commerce,particularly in fast-growing and emergingmarkets where these trends are mostacute, will continue to fuel changingconsumer behaviours and treasurers willneed to respond quickly and efficiently.Furthermore, as e-commerce becomesincreasingly cross-border and consumersexpect the same level of paymentconvenience when travelling overseas,electronic and digital payments trends willcontinue to expand to other parts of theworld. The right platforms will allowcorporations to not only accommodatetrends as they appear today, but also toposition their business for change andcompetitive opportunities ahead. �

In all marketswhere the use ofdigital paymentsis proliferating, e-

commercevolumes are

growing rapidly,as the example ofChina illustrates.

Notes1 51.7 percent, Newzoo's Global Mobile Market Report,

April 20172 Zenith’s Mobile Advertising Forecasts 20173 eMarketer, 20174 eMarketer, 2017



T reasurers at multinational corporations face immense pressure to makebetter use of emerging, digital technologies – both to increase efficiency intreasury’s key areas of responsibility and to help the larger company meet

its strategic objectives. And this overarching pressure to automate and embracetransformation has put additional focus on what is perhaps the single mostimportant relationship treasury has outside the company – with its banks.

Being Open toOpen Banking

HSBC has a new global strategy, is investingheavily in technology and is embracing open-architecture to help its clients in digitaltransformation.

By Drew Douglas, Head ofLiquidity and CashManagement, North Americaand Lance Kawaguchi,Global Head – Corporates,Global Liquidity and CashManagement, HSBC


HSBCDIGIT18 OPEN BANK.qxp_Layout 1 24/09/2018 13:28 Page 18



how things are done in London are exactlythe way things are done in Singapore. For alarge multinational client, Mr. Kawaguchisays, there is now “one group that covers itglobally, not just for consistency of clientexperience, but also to make sure that thesolutions they are trying to put forth to thetreasury team are better tailored to what’simportant to them. It’s not one-size fits all.”

This is true of cash management, hesays, adding that while some observershave said it’s become commoditised, atHSBC it’s considered strategic. Thisapproach has helped HSBC secure bothNorth America’s and The World’s BestBank for Transaction Services in theEuromoney magazine’s Awards forExcellence 20182.

“Everything has to be client centric,”says Mr. Kawaguchi. This means all itsproducts and all its solutions have beenbased on the feedback from clients.Previously, he says, banks tended to workinternally “to try and guess what clientswanted instead of asking them what theyneeded.” So far, the sector- based approachis working, based on more recent feedback.“What we’re getting from the market andfrom our sector experts is that it’s actuallymuch more efficient for the bank becausenow we know where to allocate ourresources,” says Mr. Kawaguchi.

Bring on the TechnologyWith its sales structure in place, HSBC’sGlobal Liquidity and Cash Managementsays it can now better deploy its productsand strategy to hit all the needs of itsclientele; needs that, as mentioned, arevery often disparate.

Drew Douglas, Head of Liquidity andCash Management, North America atHSBC, says he and his colleaguesfrequently see examples of these disparateor conflicting priorities when dealing witha range of clients. “We have some clientswhere liquidity and working capitaloptimisation is a priority and we spend alot of time working with them onsolutions,” he says. But the next client mayoffer up a wholly separate set of priorities.“They might be in expansion mode andtherefore liquidity and working capitaloptimisation is going to stay at currentlevels.” Or they decide not to expand theway they use their ERP system, reasoning

HSBC is investing heavily in technologyand partnering with fintechs that can aidtheir effort to make banking faster andeasier while addressing the often varyingneeds of corporate clients. HSBC CEO JohnFlint in June announced the bank plans toinvest USD15-USD17bn in technology aspart of its growth1.

On a conference call, Mr. Flint said,“Technological disruption will accelerate inthe coming years. It is therefore essential forthe long-term competitiveness of the firmthat we keep investing in technology. Beingable to invest at this point of the cycle willdifferentiate future winners from the rest ofthe industry. We’re already seeing leadingbanks push ahead of the rest. Given our sizeand scale, we have an ability to invest thatothers don’t, and we need to be better at thisthan the competition.”

But it’s going to take a strategicapplication of the investment to helpclients. As HSBC acknowledges, when itcomes to automation, companies mayhave different priorities. For instance, acompany with an outdated EnterpriseResource Plan (ERP) may not seeupgrading as a priority, preferring insteadto focus on new methods of acceptingpayments. Or a corporate customer may besolely focused on geographic expansion orreorganisation and may move slowly indigitalisation as it spends timeacclimatising to new markets.

Ultimately, HSBC’s strategy rests on thebelief it can best service its clients using allthe tools available to it—those developedinside the bank and those by third parties—and by organising the bank to best meet theindividual needs of each customer.

New Global ModelAs a result, concurrent with its big techpush, the bank’s Global Liquidity and CashManagement is realigning how it doesbusiness: It has been transitioning from apurely country-based sales model to aglobal sector sales model. This effort isbeing led by Lance Kawaguchi, GlobalHead - Corporates, Global Liquidity andCash Management at HSBC.

“We changed our Global Banking modelto be more industry- aligned,” he says, andto move away from being a very countryand region-specific bank, aiming for asingle approach to client interactions. So

Treasurers atmultinational

corporations faceimmense pressureto make better use

of emerging,digital

technologies.



that they will just use them as they arebecause current objectives are to moveinto new markets and prioritise resourceson the expansion.

What Mr. Douglas and HSBC arelooking to do is to support both scenariosusing the concept of interoperability andopen banking. Interoperability, viaapplication programming interfaces orAPIs, provides the capability for systemsand organisations to work togetherseamlessly, based on common standards.This means partnering to more easilyfacilitate the thousands of transactionsmultinationals make daily by smoothingout bumps that get in the way.

Mr. Douglas says “we have spoken ofinteroperability for many years in assetmanagement, custody, prime brokerageand cash management. With rapidlyexpanding fintech solutions, theimportance of ‘interoperability’ has neverbeen higher in the treasury space. Themore successful large international banksneed to get the open architecture, theopen banking, right,” he says. “We can’tpartner with every fintech , but we thinkthe world is changing quickly to the worldof open APIs; where we have aresponsibility to interoperate across thefintech environment.”

And that means looking at bankingacross everything from HSBC’s own onlineoffering, HSBCnet, “to a client’s treasurymanagement system to their ERP systemsto SWIFT; to ACH payment processproviders and to how that universeinteroperates to the satisfaction of specificclient’s priority. Our focus is to support athriving treasury environment” Mr.Douglas says.

Fintech investmentSince 2015, HSBC has been a strategicinvestor in cloud- based treasurymanagement solutions provider Kyriba3,and it also has investments in procure-to-pay company Tradeshift4. And last year itjoined forces with GT Nexus, a supplychain management platform that providescompanies with end-to- end connectivity,visibility and collaboration with suppliers5.

So HSBC, like many large global banks,is leveraging third parties within its ownplatforms to expand service offerings,enhance client experiences, increase

efficiency, and reduce cost. One of theofferings HSBC says is an attractive optionfor clients is its virtual accounts product,which is currently live in the UK and beingrolled out in several other markets,particularly in the US.

Virtual accounts have been around fora long time, but they are now being used ina wider context. Mr. Douglas sayscustomers often oversimplify the value ofvirtual accounts, thinking they only speedup the way in which one can, for example,open an account under the same entity.But they offer much more, he says,particularly if clients explore their value inthe context of using them for receivablesand payables management, in-housebanking and managing liquidity. They alsohelp companies with the thorny issue ofhaving too many physical accounts.Replacing physical accounts with virtualones, for example, can reduceadministrative costs.

With virtual accounts, Mr. Douglas saysbanks can support multiple purposes forany single bank account. “Through the useof next generation virtual accounts acompany has a specific vendor or supplierit needs to receive from and pay to cancreate as specific virtual accounts andbetter tracking of receipts and payments.”Multipurpose accounts with huge volumesare extremely difficult for largecorporations, he says. However, if thecompany is given a specific virtual accountand payables and receivables land in thataccount, they are much easier to execute,track and reconcile.

Companies can do this very quickly,which then allows them to understandwhere their cash reconciliation stands. “Ifyou’re a company running advanced cashforecasting, then reconciling your futureforecasts of cash against your historicreceivables is critically important. Thefaster you can do that the better,” Mr.Douglas says.

The advantage of virtual accounts isthat the path of that auto reconciliationcan more easily be created and identified,That structure can be extended tomultiple subsidiaries, each with separatevirtual accounts with “cash automaticallybeing pooled.”

Mr. Douglas acknowledges this can bedone on an Excel spreadsheet or evenexecuted through a company’s treasury

HSBC is investingheavily in

technology andpartnering withfintechs that canaid their effort to

make bankingfaster and easier.


management system. But with virtualaccounts, companies are drilling downinto the data at multiple levels, “and that’sthe purpose of virtual accounts.”

Bringing Technology Agility GlobalA good example of where HSBC is using itstechnology capabilities is in the naturalresources sector, specifically oil and gas.Much of the feedback it has received hashelped HSBC refine its product offering tomake it more intuitive.

HSBC says feedback is also keeping thebank ahead when it comes to areas wherecorporations are less mature. “As thebanker that sits in the middle, HSBC canhelp many up- and-coming companies togo international and look at best practicesthat many of the larger multinationalcompanies are using already”6.

“I think you’ll see that we’veundertaken a range of projects at HSBC todevelop agile technology for the long-termbenefit of the bank and our customers,”says Mr. Kawaguchi.

And this is a must, he adds. “The digitalage is right here, right now. It’s no longerlooking at blue skies and what’s going tohappen. It’s happening. And many of thebanks, many of our own suppliers, forinstance, developers of ERPs or TMS,everyone is going digital; so, if you thinkabout it and look at it from a client’sstandpoint, everyone is talking digital now,everyone is talking APIs; everyone istalking about open banking and talkingabout having a seamless connectivity. Soyou’re seeing a convergence betweenmultiple sectors and leveraging some ofthe best practices that are happening inone area of the company to help in others.”

Adding Sustainability in the MixOf course, no discussion of the future ofbanking and technology can ignore howsustainability enters the equation, andHSBC is helping drive corporateconsideration of the trend. For instance,in the shipping sector, which is loadedwith lots of paperwork and too muchdowntime at docks as ships await customsclearance, HSBC is working with partnersto speed up the process and make it moreefficient overall.

“The digital evolution that’s happeningright now has a significant impact onsustainability,” Mr. Kawaguchi says. HSBC,like others in the banking sector, hasrecently come out with its ownsustainability agenda. “So a key factor anddrive for that change is actuallydigitalisation. If you think about reducingthe time ships are docked, there are severalstudies now where they’re talking aboutthe inefficiency of the lag time that’shappening” while ships sit idle “because ofeither paperwork not being reconciled orpaperwork not being stamped or vetted.”7.

The customs world itself is also veryinefficient and paper- driven, Mr.Kawaguchi notes, so HSBC is working withseveral corporates, shipping companiesand customs houses on a blockchainproject to help this part of the shippingprocess become more straight-through8.

“All of this helps fosters moresustainability, helps reduce the carbonfootprint [of the sector] in addition totaking out the whole paper in the treasuryspace. All of these efforts add up to a kindof common goal that that has happened onthe back of the Paris Accords,” Mr.Kawaguchi said.

The Bank of the FutureNo matter where digitalisation is applied –whether virtual accounts, naturalresources or shipping – the bank of thefuture must embrace digitaltransformation and not look back. “Acomprehensive digital transformation is aclear ‘no regrets’ move to prepare for adigital and data-driven world,” states aMcKinsey research report from 20179. Thismeans that as banks become more client-centric, they must get comfortable with theopen architecture/open banking concept.In fact, their distinctiveness may depend

on it, as they strive to enhance thecustomer experience. They also mustcontinually look ahead to and be thinkingof the new digital capabilities that clientswill need not just in the next few years butin the next 10 or 20.

Mr. Douglas encapsulates this thinkingwith an example of one of HSBC’s clientsstarting to embrace robotic processautomation. “I think in today’s world it is aconversation about not only what serviceswe can provide them but also finding outwhat our clients are doing aroundrobotics,” he says. “We're very interested tofind out what they’re doing becausewhenever they employ robotics that meansthere’s some process they’re trying toautomate or pain point they are trying toeliminate. If we can link to that and help,we become that much more valuable as aservice provider.” �



Notes1 (https://www.wsj.com/articles/hsbc-ceo-promises-to-invest-17-billion-in-technology-and-asia-growth-1528725268). 2 (https://www.hsbc.com/news-and-insight/insight-archive/2018/hsbc-best-for-transaction-banking-says-euromoney).3 (https://www.kyriba.com/blog/jean-luc-robert/welcoming-hsbc-new-investor)4 (https://tradeshift.com/press/tradeshift-raises-250-million-in-series-e-funding-round-bringing-company-valuation-to-1-1-

billion/) 5 (https://www.theglobaltreasurer.com/2017/07/11/hsbc-and-gt-nexus-partner-to-offer-digital-supply-chain-platform/).6 (https://www.treasury-management.com/news/1086/hsbc-launches-facial-recognition-banking-for-corporate-

customers.html). 7 (https://multichannelmerchant.com/blog/6-effective-steps-to-create-a-sustainable-shipping-environment/) 8 (https://www.bloomberg.com/news/articles/2018-04-18/drowning-in-a-sea-of-paper-world-s-biggest-ships-seek-a-way-out)9 (https://www.mckinsey.com/industries/financial-services/our-insights/data-sharing-and-open-banking)

Virtual accountshave been around

for a long time,but they are nowbeing used in awider context.




In less than twenty years corporate ethicshave risen dramatically from somethingthat a handful of large corporates did underthe corporate social responsibility (CSR)mantra in a relatively low key manner, to amore comprehensive sustainabilityapproach that is a frequent discussiontopic in numerous boardrooms globally.

KPMG’s most recent Survey of CorporateResponsibility Reporting1 underlines thispoint by revealing that formal reporting ofCR performance among the G2502 hasrisen from 37% of companies in 1999 to93% in 2017. In a survey commissioned byHSBC, East and Partners found that threequarters of European investors judge

Sustainability in Treasury: A View Beyond Financing

T here have historically been questions around whether or not treasuries canactively contribute towards their companies’ sustainability objectives.However, in an age where sustainable financing has become more readily

available, treasuries now have a seat at the table and are more engaged in helping todrive the sustainability agenda for their firms. As Lance Kawaguchi, ManagingDirector, Global Head - Corporates, Global Liquidity and Cash Management atHSBC explains, there are several other areas that corporate treasurers can focus onin today’s environment to influence their sustainability goals positively.

By Lance Kawaguchi,Managing Director, GlobalHead – Corporates, GlobalLiquidity and CashManagement, HSBC


HSBCDIGIT SUSTAIN.qxp_Layout 1 24/09/2018 09:57 Page 23


The reasons why treasury can now play amore active role are varied, but includedynamics such as technological innovation,the rising importance of workplacewellbeing and an increasingly fluidregulatory environment.

EnvironmentalRecent advances in technology mean thattreasuries now have numerousopportunities for making a positiveenvironmental contribution to theircorporations’ sustainability strategy.Digitisation is no longer blue-sky

thinking, but a practical reality. By adoptingelectronic transaction processing, treasuriescan drastically reduce the amount of paperused by both their own corporation, as wellas their corporation’s counterparties. Inaddition to a potential reduction in waterpollution, this also has an environmentalbenefit in terms of emissions, both duringpaper production and in the greenhousegases no longer emitted during paperdocument delivery.The international trade cycle is

something that for many companies todayis unnecessarily extended by a combinationof the use of paper and the large number ofparties involved. Adopting digital processesinstead of paper (and in due course alsoblockchain technology) could appreciablyshorten this cycle. Furthermore, treasury’sadoption of cloud computing can also havea major impact on the environment. Arecent report from WSP and Microsoft4

concluded that Microsoft Cloud was 79-93%more efficient than a traditional in-housedata centre and that Microsoft’s AzureCompute had 92-98% lower annual carbonemissions.All these innovations can be facilitated

with the assistance of a banking partner thathas not only made its own sustainabilitycommitment to digitisation and theenvironment5, but that also has extensiveglobal in-house expertise in these variousareas. An additional incentive is that otherparties, such as tech vendors and clearingsystem providers, are also aligned and readyto facilitate this digital transition.

SocialTreasury’s influence on the corporateecosystem can also be used to support the

social element of sustainability goals. Animportant concept here is the socialperformance of members of the corporatesupply chain. This has become increasinglyrelevant for business reasons too, as largecorporations are now keenly aware of thepotential knock-on reputational andcommercial damage to themselves of asupplier or customer that has poorecological or working practices. Oneapproach adopted by some leadingtreasuries is to apply a minimum ESGrequirement for customers/suppliers beforeonboarding a new relationship. While KnowYour Customer (KYC) has traditionally beenseen by many treasuries as an issue forbanks, a growing number are beginning tosee the value of using a KYC approach whenapplying ESG requirements to their owncounterparties.New tools to facilitate this due diligence

process are already becoming available.The US Natural Resources Defense Council(NRDC) and China’s Institute of Public &Environmental Affairs (IPE) have launchedan IPE Green Supply Chain Map, whichlinks leading multinational corporations totheir suppliers’ environmentalperformance. Using publicly available datafrom the Chinese government, the databaseand map offer real-time data and historicaltrends in air pollution emissions andwastewater discharge for almost 15,000major industrial facilities in China, as well asaccess to environmental supervisionrecords for over half a million more6.Another way in which treasury can send

the right social message is in deployingfunding initiatives for smaller suppliers.These could range from providing supplychain finance, to offering early settlementterms to suppliers below a certain size, andeven perhaps to prepayments for rawmaterials. While DSO/DPO remain coretreasury targets, settlement initiatives forthis supplier demographic can deliver anappreciable CSR benefit for a modestworking capital cost.Digitisation and automation in treasury

can also provide a social gain for treasuryemployees. Manual cash management andinvestment processes result in a heavyworkload and unsocial working hours,which ultimately degrade employee well-being and performance. However, ifimprovements such as automated cashreconciliation and investment have been

companies on their Environmental, Socialand Governance (ESG) credentials. Thisincreased investor focus has led boardmembers to identify the different types ofsustainability measures the various partsof the business can take, and treasury isno exception.

So what can treasury do?These and numerous other examples ofthe rise of an Environmental, Social andGovernance (ESG) approach to capitalmanagement suggest that this is a trendthat will persist and extend into smallercorporates as well (the KPMG reportrevealed a similar CR reporting growthtrajectory among N100 companies to thatof G250 corporates3.) In this sustainability-positive environment, every part of acorporation - including treasury - isexpected to help advance thecorporation’s strategic sustainability aims.But what practical CSR steps can treasuryactually take?Aligned with the investor approach, the

opportunities open to treasuries today canbe divided into three broad categories:

� Environmental� Social� Governance

Treasury’sinfluence on the

corporateecosystem can beused to support

the social elementof sustainability

goals.




implemented, treasury employees will bemore productive and under less stress.

GovernanceTreasury obviously plays a key corporaterole in risk management - one element ofthis lies in ensuring compliance withregulation and corporate policies. Apartfrom safeguarding the company’s financialassets, this also helps to fulfil thegovernance part of ESG.This risk management can take many

forms, from complying with anti-moneylaundering legislation, to following country-specific rules, such as only invoicing in localcurrency. Banks continue to be animportant channel through which treasurycan gather information on changingregulations.Corruption is another major governance

issue that treasury needs to be involved inpreventing. In certain countries, corruptionis still prevalent, so treasuries need to beespecially sensitive to any new countriesinto which their corporation may beexpanding. Treasury’s core control andgovernance role means that it has a majorresponsibility to block any dubious activitiesor transactions.Historically this has sometimes been

extremely difficult for treasury to

accomplish, but fortunately the newboardroom emphasis on all elements ofESG makes it far more likely that treasurerswill have high-level support when they try tostamp out illicit payments, such askickbacks disguised as commissionpayments.Additionaly, cyber security is now

increasingly being regarded as a part of ESGgovernance. This is because it is seen as partof the need for corporate decisions to reflectobligations to society at large, as well as toshareholders, suppliers, customers andemployees. Corporations and treasuriesthat implement robust cyber securitymeasures are implicitly impeding thepropagation of cyber threats such asmalware. Some academics see the conceptof corporations implementing strongercyber security as part of their CSR as beingakin to vaccinating against disease. Ifsufficient numbers are protected, othersalso benefit through ‘herd immunity’7.

FacilitatorsWhile treasury’s responsibilities in relationto sustainability may feel like a furtherburden on what is usually one of the mostlightly-resourced corporate functions, thereare various factors and entities that will helpto facilitate their implementation.An important point is that several of the

actions that support sustainability goals arealso those that treasury is likely to beundertaking anyway for other reasons, suchas introducing automation to improveefficiency and reduce costs. In many casesthese are also actions that certain banks arewell-positioned and willing to assist with aspart of their existing relationshipcommitments.

Board-level support has already beenmentioned as a facilitating factor that is alsolikely to persist or increase as more seniormanagers appreciate the importance of ESGto the corporation. In addition, acomprehensive sustainability approach isalso likely to be supported more generallyby newcomers to the workforce, both intreasury and the corporate world.Millennials continue to increase as aproportion of the total workforce and areexpected to represent 35% of the totalglobally by 20208. As a group, they place astrong emphasis on the importance andvalue of sustainability, with one surveystating that 92.1% of millennials believe thatworking for an environmentally and sociallyresponsible company is important9. Theyare therefore likely to be as supportive ofany ESG activities as the boardroom.

ConclusionTreasuries have a responsibility to supportthe overall corporate sustainability strategy,but many may not realise that theorganisations they deal with on a daily basis– their banks – can be a valuable source ofinformation and assistance with this task.Digitisation, automation, accelerating thetrade cycle and cloud treasury systems arejust some of the areas that banks can helpwith.Elsewhere, treasuries may find they are

pushing a sustainability door that is moreopen than they realised, with other groupssuch as technology providers, seniormanagement and employees also beingsupportive. All of this leads to theconclusion that treasury can make a realdifference to sustainability goals and canstart working on implementing changes. �

Notes1 https://assets.kpmg.com/content/dam/kpmg/be/pdf/2017/kpmg-survey-ofcorporate-responsibility-reporting-2017.pdf2 The G250 are the world’s 250 largest companies by revenue based on the Fortune 500 ranking of 2016.3 The N100 is defined in the KPMG Survey of Corporate Responsibility Reporting as: “...a worldwide sample of 4,900

companies comprising the top 100 companies by revenue in each of the 49 countries researched in the study.”4 “The Carbon Benefits of Cloud Computing: A Study on the Microsoft Cloud” https://www.wsp.com/en-

US/insights/microsoft-cloud-computing-environmentalbenefit-study5 In addition to major investments in digital technology and automation, HSBC has also recently launched a new energy

policy - https://www.hsbc.com/-/media/ hsbc-com/newsroomassets/2018/pdfs/180420-hsbc-energy-policy.pdf?la=en-gb&hash=2BE95DA2F82B9EF99AFF93A05566ECAE8E1774E6 - that aims to reduce environmental damage by no longerproviding financial services to five categories of potentially damaging energy related activity.

6 https://www.nrdc.org/media/2018/180103 and http://wwwen.ipe.org.cn/ MapBrand/Brand.aspx?q=67 https://www.straitstimes.com/opinion/corporate-social-responsibility-should- include-cyber-security8 https://www.manpowergroup.com/millennials9 https://www.morningfuture.com/en/article/2017/08/16/millennials-csr- companies-responsible/60/

Digitisation,automation,

accelerating thetrade cycle andcloud treasurysystems are just

some of the areasthat banks can

help with.



A t HSBC, we partner with our clients across industries and markets, withan extensive on-the ground network of senior bankers with an in-depthunderstanding of their sectors. The following is a client example of our

partnership in the Natural Resources, Utilities and Chemicals sector. As a globalbusiness that is growing quickly, multinational gold producer OceanaGold needsa scalable, flexible, cash management and liquidity investment infrastructure.

So, when a reshuffle in its banking grouptriggered the decision to select a newprimary cash management bank,OceanaGold chose HSBC.

In mid 2012, OceanaGold refinancedits debt facilities and reviewed itsbanking relationships. At the time, thecompany had mining operations in New

Zealand and was constructing a mine inthe Philippines, managed from itsheadquarters in Melbourne, but further international expansion wasalready in prospect. The companytherefore decided to put out a formaltender for a new global cashmanagement provider.

OceanaGold: FutureProofing Growth


By Lance Kawaguchi,Managing Director, GlobalHead – Corporates, GlobalLiquidity and CashManagement, HSBC andDavid Andrada, Global SectorHead – Natural Resources &Utilities, Global Liquidity andCash Management, HSBC

HSBCDIGIT18OCEAN.qxp_Layout 1 24/09/2018 10:22 Page 26



from a treasury perspective. We also likethe fact that it enables us to make the bestuse of any float we have, whilesimultaneously maximising yield.”

ImplementationThe implementation, which involvedincorporating OceanaGold bank accountsglobally into an IEF structure, wassuccessfully completed in early 2014. A keyelement in the implementation’s successwas that HSBC’s implementation managerwas based in the company’s head officelocation of Melbourne.

This proved to be of considerable valueas the implementation progressed. Acommon issue in sectors such as naturalresources and utilities (NRU) is that theoften globally dispersed nature of thebusiness can make global bankingimplementations a major headache forcorporate treasuries. A global treasurybased in the head office location finds itselfhaving to monitor and manageimplementation activities in remotelocations and time zones.

For the OceanaGold implementation,HSBC appointed its Melbourneimplementation manager as the globalcommunication manager for the project.This meant that the company had a singlelocal point of contact for all informationand activities relating to theimplementation globally. The HSBC globalcommunication manager liaised withcolleagues in offices in New Zealand, USA,Canada and the Philippines to streamlinethe implementation process. “Thisarrangement definitely made life easier forus than having to deal with multiple HSBCcontacts globally during theimplementation,” says MatthewMcConnell.

Relationship evolutionSince the implementation, the advantagesof having a single global bankingrelationship with HSBC have beenunderlined by the bank’s support for thecompany’s M&A growth. For instance,when the company added to its presencein New Zealand by acquiring the WaihiGold Mine on New Zealand’s North Island,it opted to transfer its banking to HSBC tofurther leverage the benefits of its IEF

This has validated the viewwe took during the

RFP that apartner who could

support ourgrowth trajectoryand new locationswould add valuein terms of future-

proofing.

Matthew McConnell,Group Treasurer,OceanaGold

Mandate awardThe tender process started in September2012 and concluded in February 2013when OceanaGold announced that it wasawarding its cash management mandateto HSBC. A number of factors played intothis decision, one of which was bankingplatform consistency. “We werepreviously having to use two differentcash management platforms from thesame provider, which was challenging,”says Matthew McConnell, OceanaGold’sGroup Treasurer. “The two systemsweren’t compatible and requiredseparate login credentials and tokens, sothe global consistency of HSBCnet wasappealing. In addition, we had receivedpositive feedback on HSBCnet from ourPhilippine operations where it wasalready in use.”

A single global cash managementpartner would also streamline day to daytreasury operations. This was particularlyrelevant in view of the company’s ongoingexpansion, as considerable efficienciesand cost savings could be achieved iffuture acquisitions did not result in theproliferation of banking relationships. Abanking partner such as HSBC, with aglobal footprint that could support likelyfuture OceanaGold acquisitions, wouldminimise the risk of this.

Finally, OceanaGold maintainedvarious cash balances across itsbusinesses, including one in Philippinepeso (PHP). Therefore, a banking partnerthat could offer interest compensationthat reflected the level of all balancesglobally – including PHP – would beadding value.

HSBC’s Interest Enhancement Facility(IEF) met this criterion. IEF enablesclients to obtain preferential creditinterest rate terms on global balances. Asmentioned above, this was particularlypertinent for OceanaGold in view of itsoperations in the Philippines and its PHPbalances there. In addition, the companyheld USD from its gold sales, as well asNZD, AUD and CAD.

“The IEF was a neat solution for ourneeds,” says Matthew McConnell. “Itsnotional nature is a better fit for us interms of flexibility than a solutioninvolving physical movement of cash andalso incurs less management overhead



structure and a single HSBCnet login forcontrol/visibility. HSBC had the necessarynew banking facilities up and running forWaihi within a month. The company madethe same decision, when it made its first USacquisition, with the Haile gold mine inSouth Carolina. When new bank accountsand corporate cards were required, itturned to HSBC to transition the bankingservices. “This has validated the view wetook during the RFP that a partner whocould support our growth trajectory andnew locations would add value in terms offuture-proofing,” says MatthewMcConnell. The Haile gold mine is now upand running with HSBCnet, travel andexpenses cards, ACH, wires, reporting,statement viewing and file upload. Day to

day operation of the account is handledlocally, but OceanaGold’s central treasuryin Melbourne also has visibility on, andaccess to, the account.

Another development in the evolution ofthe relationship between OceanaGold andHSBC has been the refinement of thecompany’s IEF. At the time of the tender,the company’s anticipated credit balanceswere relatively modest. However, largelydue to a significant increase in production,its actual credit balances have been three tofour times the level originally anticipated. Inresponse, HSBC revised the interest ratetiers in the company’s IEF by adding twotiers on top of the original three, as well asadding new accounts for the newacquisitions in the USA and New Zealand,so the company could fully benefit from itslarger cash balances.

More generally, the IEF has proven agood fit with OceanaGold’s day to daybusiness operations. The company needs tomaintain local currency balances in all thecountries in which it operates in order tomeet operational expenses. As a goldproducer, the company’s primaryreceivables currency is USD. Apart from thespecific benefit the IEF provides in relationto OceanaGold’s Philippine peso balances,the facility is also convenient as regards thecompany’s focus on reducing bank debt. Assoon as cash accrues in Australia it can be

used to repay debt or fund acquisitions.In practical terms, the company treasurerregards the IEF as a more appropriatesolution for the company’s needs than thealternative of sweeping or poolingstructures. Furthermore, keepingconvenient track of balances is trivial viaHSBCnet.

Having a client coverage in key hubs to support our NaturalResources, Utilities and Chemical clients is vital to ensure we deliver

the adequate support to our clients for their liquidity and cashmanagement needs globally. This has been a clear success

throughout our relationship with OceanaGold.

David Andrada, Global Sector Head, Natural Resources & Utilities, Global Liquidity and Cash Management, HSBC

Client profile:OceanaGold

OceanaGold Corporation is a mid-tier, multinational gold producer. Over the years, thecompany has built up extensive global operating and development experience in low-costproduction. OceanaGold owns a portfolio of geographically diverse, high-quality assets inthe Philippines, New Zealand and the USA.

The company has a strong commitment to sustainability and has operated in accordancewith this for more than a quarter of a century, in doing so building a strong reputation forresponsible environmental management and community engagement. It works collabora-tively with valued stakeholders to identify and invest in social programs that are designedto build capacity beyond a mine’s life cycle.

The company’s most recent acquisitions have been the high-grade Waihi Gold Mine onNew Zealand’s North Island and – through the purchase of Romarco Minerals – the top-tierHaile Gold Mine in South Carolina, USA. In October 2017, the company announced thedeclaration of commercial production at Haile.

OceanaGold has a significant pipeline of organic growth and exploration opportunitieswithin the Asia-Pacific and Americas regions and has also made strategic investments intwo junior exploration companies – Gold Standard Ventures and NuLegacy – both focusedon projects in Nevada, USA.




Recent developmentsWhile HSBC has been providingOceanaGold with travel and expensescards for some time, the company is alsoin the late stages of going live with thebank’s MiVision online cardmanagement platform. This will give thecompany’s administrators and card-holders considerable flexibility andconvenience in the day to day operationof cards. In addition to reportingfunctionality, administrators can requestsingle/ multiple cards themselves or byautomatically requesting holders tocomplete an application. They havegranular control of limits in real time, aswell as card/PIN replacement andnumerous other controls. Cardholdersalso have extensive control, includingrequesting card/PIN replacements,updating billing/personal details andrequesting cards be sent to third partyaddresses (such as a hotel, if a card islost/stolen while travelling). MiVision canalso be connected to ERP or othercorporate systems for automated datatransfer.

The relationship between OceanaGoldand HSBC has also continued to evolve interms of day to day operations. A recentexample was where an issue arose with TTremittances from the US to OceanaGold’saccount in New Zealand always arriving aday late due to the international dateline.HSBC’s local client service manager tookthe initiative and discussed the problemdirectly with the paying bank and agreed asolution whereby the remitter wouldschedule the payments a day earlier so theywould arrive with the correct value date. �

ConclusionOceanaGold’s partnership with HSBC exemplifies the company’s desire to maximise itsstrategic agility when making acquisitions. New businesses can be readily rolled intoexisting infrastructure, such as HSBCnet and the company’s IEF. This not only reduces theturnaround time on acquisitions, it also maintains straightforward visibility and control,as well as maximising return on corporate cash.

“Finally, there’s also the consideration that we can have the best ofboth worlds when it comes to service,” says Matthew McConnell.

“In-country, local language support and expertise are available, butif an issue cannot be resolved there, it is straightforward to raise it to

a global level for resolution.”



Latin American Cybersecurity: A Fast-Growth Priority

By Lance Kawaguchi, Managing Director, Global Head –Corporates, Global Liquidity and Cash Management, HSBC andCarlos Gonzalez Fillad, Managing Director, Regional Head ofLatin America, Global Liquidity and Cash Management, HSBC


T he recent cyber breach of five firms in Mexico and the USD15mexploitation of their connections to the SPEI1 domestic payment system2

have placed a spotlight on Latin American cybersecurity. However, whilethe losses may have raised awareness in the region, there is still much work to bedone by corporates and their treasuries to prevent this sort of breach becomingmore commonplace. Lance Kawaguchi, Managing Director, Global Head –Corporates, Global Liquidity and Cash Management and Carlos Gonzalez Fillad,Managing Director, Regional Head of Latin America, Global Liquidity and CashManagement at HSBC, examine the current cybersecurity landscape in the regionand explore some of the best practices for cyber risk mitigation.

HSBCDIGIT LATAM CYBER 5pp.qxp_Layout 1 24/09/2018 11:31 Page 30



The response ofgovernments in

the region tocybersecurity is

almost as diverseas that of

corporates.

implementing global best practice. In bothcases, there is definitely an important rolefor banks to play in supporting clients.This has been very apparent from thestrongly positive response of LatinAmerican corporate treasuries tocybersecurity events and informationsharing offered by HSBC.

Government awareness and activityThe response of governments in theregion to cybersecurity is almost as diverseas that of corporates. Mexico has beenamong the most active. Even before therecent attacks, Mexico's central bank hadset out rules relating to the SPEI systemthat required financial institutions to haveemergency response protocols preparedthat would be triggered in the event of acyber attack4. The central bank has alsoannounced the formation of a dedicatedcybersecurity unit that will design andissue information security guidelines tothe country’s banks.Elsewhere, the Argentine government

has already started working on cyberinitiatives, including a cyber-policypartnership with the US5. Despite theseinitiatives, there is still room forimprovement in other Latin Americancountries, with a recent World EconomicForum paper reporting that Latin Americawas particularly vulnerable to cyberattacks and that many countries in theregion still lacked the capacity to respondto major cyber incidents6. This is perhapsunderstandable, because until now theprimary focus for much of the availablegovernment (and bank) resources in LatinAmerica has been focused on inhibitingthe laundering of physical cash bynarcotics cartels.This further underlines the value of being

able to rely on the support of a bankingpartner that has made a substantiveinvestment and commitment tocybersecurity and that is open to sharing itsknowledge of global best practice. Inaddition, as more Latin Americancompanies expand into new tradecorridors, the geographic extent of thesecapabilities across trade corridors willbecome increasingly important. Forexample, if a Mexican company has abusiness unit in China and there is a cyberattack there, the company will value insighton the Chinese cyber situation that can be

The cyber landscapeCorporate awareness and activityEven before recent events in Mexico, whichfollowed similar breaches from around theglobe, corporate treasurers were becomingincreasingly concerned about cybersecurityissues. A report by Celent3 in November2017 revealed that 82% of treasurers citedcybersecurity as their number one concern.Yet despite this, corporate preparationsappear less than comprehensive, as thereport also revealed that globally:

� 70% of organisations have not developeda cyber-incident response plan

� 46% of organisations have notimplemented or enhanced their phishingawareness training for employees in thepast 12-24 months

� 43% of organisations lacked board-levelresponsibility for the review andmanagement of cyber risk

� 37% of organisations have not yetestimated the financial impact of acyber attack

� 34% of organisations do not assess theirsuppliers or customers for cyber risk

Based upon various conversations withHSBC clients in Latin America, it seemslikely that these figures would probably alsobe regionally representative. However, thepicture is extremely varied, with a smallpercentage of treasuries having asophisticated cybersecurity approach, alarger group who are increasingly cyber-aware, but a majority where both awarenessand activity are low. In general, these groupings seem to

reflect the corporate demographic, with thelargest corporations typically being the mostactive, while the large number of smallercompanies are less active. However,irrespective of size, companies that tradeinternationally seem to be more cyber-aware than purely domestic organisations.At one end of the spectrum, companies

may be taking minimal or no cybersecuritymeasures, but even where companieshave put security processes in place,control gaps still exist. For example,treasury staff may lend each other securitytokens, or access to vendor data may notbe stringently controlled. There istherefore a need not only to raise cyberawareness but also to be discovering and



provided at the head office in Mexico, aswell as elsewhere.

The value of data Treasury's control of cash makes it anobvious target for hackers. However, what isless commonly realised is that directmonetary loss may not actually be thebiggest risk: treasury is also an extremelyattractive target for the theft of financial andcommercial data. The potentialreputational and indirect financial lossesfrom this could be far more severe than astraightforward cash theft.The data stolen could be sold on for

commercial advantage, such as in biddingfor a contract where knowing a competitor'skey price points is a major advantage.However, in industries such as aviation,there is also real concern that stolentechnical data could be used for exploits,such as hijacking an aircraft. More generally, while the average Latin

American citizen may not regardcorporate cash loss through cyber theft asof particular concern to them, they aredefinitely becoming much more aware ofthe personal risks to them of corporate orgovernment cyber data theft. The last fewyears have seen a steady trickle of securityfailures by store chains, credit reportingagencies and government bodies. Whilethe exact extent of the damage dependsupon the data stolen, in some casesindividuals had their identity datacompletely compromised, rendering themexceptionally vulnerable to identity theft.These individuals are unlikely to trustthese organisations again, but the mostsevere failings may also havefundamentally undermined the integrityof the cyber ecosystem and its methods ofidentity validation7.

Interconnection riskIn the case of treasury, this data loss risk hasbecome more acute in recent years as itsrole has changed. Twenty years agotreasuries were far more detached from therest of the business (in terms of bothtechnology and processes) than they aretoday. Treasuries typically now play a muchgreater consultative role in the business,which coupled with the ubiquity ofenterprise resource planning (ERP) systemsmakes them more closely integrated withthe rest of the business and thus a highly

attractive target for the theft of both cashand data. Greater technical connectivity and the

rise of straight-through processing haveunfortunately also given hackers a newattack vector. When a client submits apayment file to their bank, the bankprocesses it automatically. Therefore, ifattackers manage to hack a corporate ERPsystem they could alter payment files tosend payments to bogus vendor bankaccounts that they control. A similar riskapplies to treasury management systems. Inboth cases, having access to processconsulting that includes qualified locallanguage in-country specialists in ERP andtreasury management systems can help inidentifying and rectifying potentialvulnerabilities in existing systems. However,as a growing number of Latin Americancorporates transition from paper toelectronic processes, these specialists canalso be invaluable in supporting secureinitial system setup.A bank that is capable of offering this

breadth and depth of expertise can also addvalue by helping a corporation to do its owndue diligence on its trading partners. Acorporate may be secure, but if its suppliersor customers (and their counterparties inturn) are not, then the corporate itself is alsoindirectly at risk. The good news here is thata bank that operates globally across allcategories and sizes of client will haveconducted its own due diligence on each ofthem. While this obviously doesn't offer astrict guarantee, the extensive scope of thiscounterparty scrutiny offers a measure ofcomfort to companies conducting their owndue diligence if they know theircounterparties also bank with the samereputable bank as themselves.

The weakest link: peopleTechnology measures, such as ensuring allnetwork devices have the latest patchesapplied or installing deception technology,are undoubtedly an important element ineffective cybersecurity. However, thebenefits of these can be (and often are)completely negated by the human element,so a more holistic approach is needed thatalso accommodates this. Individuals stillpersist in clicking on phishing links orcommitting similar security indiscretions,thus giving hackers their opportunity.Hackers are well aware of this

Treasury is alsoan extremely

attractive targetfor the theft offinancial and

commercial data.




unfortunate tendency. While they can anddo automate scanning for technologicalshortcomings (such as unpatchedhardware), they increasingly realise thatcarefully crafting a credible looking emailwith poisoned links to an individual within acompany is likely to prove a more rewardingattack vector. In many cases, rather thantechnology, people (or the businessprocesses they are responsible for) can bethe weakest cybersecurity link.Verizon's most recent annual Data

Breach Investigations Report8 analysed53,000 actual cyber incidents, whichincluded 2,216 confirmed data breachesacross 65 countries. One of the report's keystatistics was that 4% of phishing campaigntargets would click a phishing link.Furthermore, this behaviour was persistent:someone who clicked a link once was morelikely to do so again in the future.One of the biggest challenges here is

changing corporate culture. Whileindividuals will take a measure ofpersonal responsibility for physical risk intheir organisation (such as sounding a firealarm upon discovering a fire) thisbehaviour often doesn't apply to cyberrisks. Instead, the mindset seems to be:'the organisation takes care of all that, Idon't need to do anything'. Nothing couldbe further from the truth. Individuals havea personal responsibility at many levels,especially since the personalisation ofattacks makes it easier for cyber criminalsto succeed. Private indiscretions on socialmedia today will boost the effectiveness ofsocially-engineered spear phishingattacks tomorrow. This indifferent attitude of many

individuals to their personal cyberresponsibilities is alarming given that cybercrime continues to increase at a meteoricrate (partly because of the attractiverisk/reward ratio for perpetrators whencompared to physical crime). Just oneexample of this cyber crime growth in LatinAmerica comes from statistics on Brazil inthe AWPG's most recent quarterly report9,which included:

� a 379% increase in phishing (430 in Q3versus 1,631 in Q4)

� a 245% increase in scam websites (2,562in Q3 versus 6,293 in Q4)

� a 247% increase in social media-basedscams (1,909 in Q3 versus 4,724 in Q4)

Effective cyber trainingSecurity awareness training, phishing tests,plus changing the corporate culture, are allvalid steps in protecting against thesethreats, but a key point here is repetition.Organisations such as the InfoSec Instituterecommend that best practice is to repeatsecurity awareness training every 90 days.10

However, repetition will only be reallyeffective if personnel also understand thereasoning behind the security processesthey learn about during cyber training.Personnel circumventing secure measuresin the interests of convenience is a commonproblem, but one that is less likely to occur ifthey understand the purpose and value ofsuch measures. While there are many generic good

practices, training also needs to containan element of role-specific material. Forexample, a software developer who neverleaves the office faces different threatsfrom a sales person who often works fromhome. Cyber fraud attempts will alsooften be role-specific, such as treasury orfinance personnel receiving boguspayment instructions seemingly fromsenior management via a faked emailaddress. These types of attack haveunfortunately been successful in the past,but the training required to prevent themis not especially onerous.Alongside training, there is the need for

internal measures to prevent corruptemployees from deliberately initiating orassisting cyber crime. Rigorous employeevetting can help, but also needs to besupported by other measures, such aswhistle-blowing policies andtechnological solutions.Another key point is the sharing of best

practice and expertise, both internally andexternally. For example, due to the natureof their role, treasuries have a strongcontrol background and can add value bysharing that mindset with other functionsthat do not. The global nature of cyber threats also

needs to be incorporated into corporatesecurity strategy and training. Companieswith overseas subsidiaries face a particularchallenge here, but the value of rapidinformation exchange is equally applicableto purely domestic entities. A new andsuccessful type of attack in one country islikely to be re-used elsewhere around theglobe shortly thereafter. In some recent

attacks, such as Petya, the speed of spreadboth within corporations and globally hasbeen extremely rapid: on one globalcorporate's network, 62,000 servers andworkstations were knocked offline by Petyawithin an hour11. A global banking partnercan be indispensable in a situation like thisif it is able to aggregate the cybersecurityinformation it collects across its entirenetwork in real time and can share it withclients wherever they require.

Investing in business continuityAlthough the statistics in the Celent reporton the lack of board-level responsibility forcybersecurity are hardly encouraging, thereare signs that this attitude is changing. Fromclient conversations it appears that moreboards are now accepting cyberresponsibility and more treasuries areallocating budgets for cybersecurity, bothwithin treasury as well as in the businessmore generally.A robust strategy coupled with

investment in both technological andpersonnel cybersecurity measures can domuch to make a corporation relativelyunattractive for targeted attacks and lessvulnerable to generic attacks. However, it isunsafe to assume that even the moststringent measures will guarantee

In many cases,rather than

technology, people(or the business

processes they areresponsible for)

can be the weakestcybersecurity link.


invulnerability, so having a businesscontinuity plan (BCP) that incorporatescyber as well as physical threats is essential.This needs to include measures that willenable the business to function (even if onlyat a basic level) while the clean-up takesplace. (It may also include sharinginformation on the attack with trustedpartners so that they can share informationanonymously with other parties to hinderfurther external propagation of the attack.)In the event of a serious attack, it is

possible that the company's usualprocesses for making payments will be outof action. For instance, HSBC has seen atleast one example of a Latin Americanclient whose ERP was the subject of aransomware attack, leaving it unable to paystaff salaries and suppliers. HSBC assistedby scanning its own systems to retrievedetails of previous transactions and payeedetails. Then using a highly secure manualpayment process provided by HSBC, theclient was at least able to make the majorityof the necessary payments. In this example, HSBC provided the

workaround on an ad hoc basis, but havinga back-up process of this nature in place aspart of a cyber BCP makes sense. However,accomplishing this requires the support of abank that has a deep understanding of howthe business functions and the nature of itsfinancial flows and can leverage that on theclient's behalf in a cyber crisis. For many Latin American companies,

the priority in recent years has been growth,so their focus has typically not been ondeveloping a cyber BCP, even though theymay already have a BCP for physical risks.Partly driven by recent cyber events, thisattitude is gradually starting to change. Insome cases they are beginning to appreciatethat growth through acquisition mayrequire a separate cyber BCP in its ownright. A company's existing measures,processes and personnel may be relativelysecure, but what about those of anacquisition it makes? These need to beevaluated, ideally by expert processconsultants who can identify anyweaknesses in processes and technology,and recommend appropriate remedies. Anacquisition may need to be an additionalelement in a cyber BCP that will requireupdating as the acquisition is on-boardedand its systems and processes transition tothose of the acquirer. �



1 1 Sistema de Pagos Electrónicos Interbancarios2 https://www.bloomberg.com/news/articles/2018-05-29/mexico-foiled-a-110-million-bank-heist-then-kept-it-a-secret3 "Combatting Treasury Fraud: External Forces Changing the Cybercrime and Cyberfraud Landscape", Celent, November 20174 https://www.bloomberg.com/news/articles/2018-05-29/mexico-foiled-a-110-million-bank-heist-then-kept-it-a-secret5 https://www.state.gov/r/pa/prs/ps/2017/04/270496.htm6 https://www.weforum.org/agenda/2018/03/this-is-the-biggest-threat-to-latin-america-s-digital-transformation/7 https://blogs.scientificamerican.com/observations/the-equifax-hack-bad-for-them-worse-for-us/8 https://www.verizonenterprise.com/resources/reports/rp_DBIR_2018_Report_execsummary_en_xg.pdf9 http://docs.apwg.org/reports/apwg_trends_report_q4_2017.pdf10 https://resources.infosecinstitute.com/security-awareness-course-design-best-practices/#gref11 https://cloudblogs.microsoft.com/microsoftsecure/2018/01/23/overview-of-rapid-cyberattacks/

Notes

ConclusionLatin American companies and their treasuries are increasingly keen to learn more aboutcybersecurity best practice and how to implement it. However, an important factor inachieving this is to understand that this is an ongoing process (not a 'fit and forget') - as isany investment required to support it. It is therefore not unreasonable for thesecompanies to expect a similar (or greater) level of cyber commitment from their banks. Itis not just that corporates understandably need to feel that their banks are following bestcyber practice in handling client data and payments, but that they are also leading it andsharing it globally. This could cover a broad spectrum, ranging from news of attacks andpossible mitigation methods, to the development of new authentication methods suchbiometrics. Having access to this sort of expertise as part of a close working relationshipcan add significant value for a corporate trying to develop, implement or extend acybersecurity strategy.




AkzoNobel: A Journey with HSBC– Building a Strong Partnership

Treasury Transformation:Delivering ValueOur journey with AkzoNobel started in2007, when they embarked on a treasurytransformation project called ‘OneFinance’, with the intention of achieving anumber of key objectives for their financefunction:

� To operate and be benchmarked as‘best in-class’ level versus our peergroup

� To provide comprehensive support totheir businesses

� To maintain integrity� To meet their corporate values.

The project was demanding and entailedchanges to their banking infrastructure,technology, treasury policies andrelationships with business units.

As part of One Finance, AkzoNobelfloated an Asia cash management RFP in2009 with the intention of increasingvisibility of cash, improving cash flow


Our sectorisedfocus has enabledus to betterunderstandclients like

AkzoNobel andlink their needswith trends in the

industry.

By David Andrada, GlobalSector Head – NaturalResources & Utilities, GlobalLiquidity and CashManagement, HSBC

HSBCDIGIT AKZO.qxp_Layout 1 24/09/2018 10:06 Page 35


modules, such as in-house cash, paymentsfactory, treasury risk management, andSAP XI, together with the application ofXML ISO 20022, MT101/940 messages andSWIFTNet through a Service Bureau. Onceimplemented, these would improvecontrol over cash flow as well as enhancecash management and foreign exchangeexecution.

An in-house bank structure wasdeployed in Asia Pacific and zerobalancing structures were implementedfrom all open and semi-open economiesinto Singapore, where POBO andpayments in the name of are executed.

The benefits captured by successfullyimplementing these solutions have beensubstantial. AkzoNobel has been able toreduce the number of bank accounts itholds by 50%. Furthermore, bystreamlining processes it has been able tolower foreign exchange and transactionalcharges by nearly 70%, as a result ofeconomies of scale and straight-throughprocessing. An important consequence ofthese improvements has been that theyhave been able to enhance their capitalstructure by substantially reducing netdebt and freeing up working capital.

Recent developmentsIn addition to the cash managementmandate, in March 2014 HSBC wasawarded the sole bank mandate for tradefinance activities, which included letters ofcredit and guarantees. (All these werepreviously managed locally by each entity,

control, enhancing cash management andFX efficiency and standardisingdocumentation under global and regionalgroupings.

In view of its extensive network, HSBCwas appointed by AkzoNobel as thecompany’s primary banking partner in abroad range of regions and countries:

� Asia Pacific: China, Hong Kong,Indonesia, Japan, Singapore,Philippines, Taiwan and Vietnam

� Middle East: Bahrain, Egypt, Qatar,Turkey, Saudi Arabia and United ArabEmirates

� Latin America: Mexico and Argentinaas part of subsequent RFP’s for therespective regions.

In order to meet AkzoNobel’s objectives,the solutions that HSBC needed to deliverincluded a single centralised electronicbanking platform, Payment on Behalf of(POBO), payment in the name of and cashpooling structures. In order to accomplishthese implementations successfully, it wasapparent that close collaboration would berequired. This was accomplished by acombination of detailed dialogue androbust project governance by the steeringcommittee, which established a sharedvision and goal. This meant that HSBCunderstood the requirements and was wellprepared from the outset to partner andprovide strategic advisory during thetransformation journey.

The project included design anddevelopment of various SAP treasury

In view of itsextensive network,

HSBC wasappointed by

AkzoNobel as thecompany’s

primary bankingpartner in abroad range ofregions andcountries.




resulting in an inefficient process.) Themandate spanned 14 countries in AsiaPacific, with AkzoNobel NV borrowingunder a single umbrella facility.

AkzoNobel has also revisited themanagement of foreign exchange risk in asearch for further improvements, whichhas since resulted in the introduction ofcentralization of hedging exposures forrestricted currencies in Asia Pacific. Pre-agreed margins have been established upto certain thresholds with HSBC, afterwhich Bloomberg FxGo is used forcompetitive bidding and transactionexecution.

A strong relationship: now andinto the futureOver the past five years AkzoNobel andHSBC have built a robust and trustedrelationship.

Core to the success of the relationshiphas been HSBC’s open approach,consistent engagement, insights on bestpractices, regulatory guidance andinnovative market-leading solutions. Thishas enabled them to leverage HSBC’sinsights to adapt their business agenda inresponse to an era of shifting economicpowers and volatility in the businessenvironment. “Our sectorized focus hasenabled us to better understand clients likeAkzoNobel and link their needs withtrends in the industry” says DavidAndrada, Global Sector Head, NaturalResources and Utilities, Global Liquidityand Cash Management at HSBC.

Asia Pacific, and particularly China,continues to be an important and growingmarket for the company, where theirbanking requirements and the solutionsneeded to satisfy them are continuouslyevolving. AkzoNobel has also recentlyannounced the separation of its SpecialityChemicals business, where HSBC isproviding cash management advisory andsubsequent implementation.

“Our relationship with HSBC has grownsignificantly since 2012 and the teamdemonstrates good collaboration anddelivers commitments on time,” says EvaPang, Head of Treasury at AkzoNobel.“Trust is one of the core components thathas helped to build our strong and enduringbusiness relationship. Therefore, while thecompany has already achievedconsiderable benefits from thetransformation, we look forward tocontinuing our partnership with HSBC tobring further value to our businesses.”

“Our relationship of more than fiveyears with AkzoNobel is a testament toour strong advisory, implementation andongoing services, which are key elementsfor a successful start and longevity in anycash management relationship,” saysSyed Zohair Ahmed, Senior VicePresident, Global Liquidity and CashManagement at HSBC Singapore.“AkzoNobel and HSBC will continue toexplore opportunities to expand andfurther strengthen the partnership. Withan evolving regulatory landscape and ourinvestment in innovation on the rise, thejourney continues.” �

About AkzoNobel

AkzoNobel is a leading global paints andcoatings company and a major producerof speciality chemicals. Customersaround the world use their brands andproducts. Some of these are householdnames, while others are morespecialised products, but they share acommon purpose to create everydayessentials that make people’s lives moreliveable and inspiring.The company announced the sale of

its Specialty Chemicals business inMarch 2018 and is expected to completethe transaction by the end of the year.1

Today, AkzoNobel is a EUR 9.6bncompany with over 35,000 employees.2

Notes1 https://www.akzonobel.com/en/for-media/media-

releases-and-features/akzonobel-sell-specialty-chemicals-carlyle-group-and-gic-eu101

2 https://www.akzonobel.com/en/for-investors/for-investors-overview



Liquidity Management:A Whole New World

W hile the treasury environment is never static, one area where it hasbecome particularly dynamic of late is liquidity management. Multipledrivers have combined to create a situation where continuous

(re)evaluation and evolution have become almost mandatory. Lance Kawaguchi,Managing Director, Global Head – Corporates, Global Liquidity and CashManagement at HSBC examines these factors and how they are affecting theprocess of liquidity management.

By Lance Kawaguchi, Managing Director, Global Head –Corporates, Global Liquidity and Cash Management, HSBC


HSBCDIGIT18 WHOLE NEW WORLD.qxp_Layout 1 24/09/2018 10:08 Page 38



ran successful tests in July 2017 with 16participants with GBP20m payments and isexpected to increase its transaction limitsduring 20188. Elsewhere, the new instantpayments system in the Netherlands, whichis due to go live on May 1 2019, will processunlimited amounts9.A further consideration is that instant

payments currently operate on anationwide basis, but it seems likely thatthey will continue to evolve to the pointwhere they also function cross-border.Taken to its logical conclusion, this couldmean that treasuries would be able tomobilise balances in unrestrictedcurrencies globally in near real time atminimal cost, which compares favourablywith alternative mechanisms such ascorrespondent banking.

InternationalisationCorporate business strategies have beenanother important factor driving the need toreview liquidity management. Internationalexpansion of businesses means that manytreasuries are continually having toaccommodate new countries andcurrencies into their liquidity structures, orremove them in the case of disposals. Theyalso have to do this while complying withlocal regulation (such as thin capitalisationrules) and business practices (such as creditperiods taken by customers). An inkling ofthe pace of this international expansion canbe seen from Eurostat's data on foreignaffiliates10 (FATS): between 2008 and 2015,the number of FATS in Europe rose byalmost a third, an increase representingnearly 70,000 FATS entities. In developingAsia, foreign direct investment (FDI) hasrisen from USD406bn in 2012 to USD476bnin 201711. Combining the pace of thisgeographic corporate expansion with theexternal drivers outlined earlier makesfrequent review and revision of liquiditymanagement structures and processes apriority.

Solution: revisit, revise,futureproofThese revisions may have to be extensive,when one considers that some very largecorporates have essentially been using thesame liquidity structure for 25 years. Afurther internal imperative for treasury (in

addition to all the other drivers) to revisitthis sort of heritage structure is thegovernance angle: e.g., is the structure inline with any corporate policy changes anddoes it comply with regulation such asPSD2?While updating obsolete liquidity

structures and processes may be essential,the pace and persistence of change meansthat doing this alone is insufficient. Anychanges made must also incorporate adegree of flexibility, so that when futurechange is needed (which is highly likely)treasury can make it quickly and easily withthe minimum of effort and cost. Agilethinking and processes are key here toensure sufficient futureproofing. This is definitely not a trivial task, but it

can be considerably easier if undertakenwith the support of a banking partner thathas the necessary expertise and resources.Given the international nature of today'sliquidity management environment, aglobal banking network is an importantfactor here, as are qualified processconsultants in technologies such as ERP12,TMS13 and SWIFT. Furthermore, thisexpertise must be consistent across thewhole end-to-end liquidity managementprocess, from accounts receivable toinvestment of surplus cash and all pointsbetween. The same applies to any solutionsthe bank may provide. If treasuries are tofutureproof their liquidity managementeffectively, they will need consistency ofsystems across collection, aggregation,movement and investment of cash - plusoptimal visibility on all these activities. It is all too easy to lose sight of the big

picture here and not cover the entirespectrum of the liquidity managementprocess. A good example of how this canhappen is when setting up bank accounts ina new country. The first step is to establish alocal corporate entity, which in manyemerging markets will involve dealing witha local partner who will handle theincorporation. A common problem then isthat the local partner will often default toopening the new entity's bank account witha local bank. While this may be acceptablefrom a day-to-day transactional perspective,it is definitely sub-optimal when thataccount needs to participate in a liquiditystructure. A far better alternative is to use asuitable global bank instead. Then, when alocal account is being opened, it can be

Change driversMacroeconomic factorsOne of the most striking changes incorporate liquidity in recent years is itssheer volume. In the aftermath of thefinancial crisis, corporate treasuriesworldwide put huge efforts into freeing upcash from within the business and havecontinued to do so. More recently, theglobal economy has also been picking up,with global GDP growth of 3.2% in 2017 (upfrom 2.5% in 2016) and some commentatorsforecasting growth of 3.3% for 20181. As aresult, the level of cash on corporate balancesheets has now reached exceptional levels:USD1.8trn in the US and EUR974bn inEurope, the Middle East and Africa, whilecollectively the 25 most cash-rich corporatesglobally hold just under USD829bn of cash2.At the same time, interest rates in various

countries have started to rise. The US is themost prominent in this respect with the FedFunds rate now at 2%3, up from 0.25% in late20154. In addition, the Federal Reserve hassignalled that it will raise rates to 2.5% in2018, 3% in 2019, and 3.5% in 20205. Adiverse mix of other countries are alsoforecast to raise rates by Q2 2019 includingChina, Brazil, Mexico, the UK, India,Canada, South Korea, Indonesia and Japan6. Therefore, treasurers now have high cash

levels, plus the opportunity in a growingnumber of countries to obtain better yieldson that cash. This combination is a strongreason to revisit and update their existingliquidity management practices.

Mobilising liquidity: instant payments Other factors are also giving treasurers morereason to undertake this now. As instantpayment systems proliferate and thevelocity of cash movement continues to rise,multiday clearing cycles are rapidlybecoming a thing of the past. There are now45 instant payment systems in productionglobally, with a further 11 being planned7.The near-instant capabilities of thesesystems are opening the door to newinvestment opportunities: treasurers will beable to invest cash for the short term thatpreviously would have taken too long tomobilise, and/or be able to access longer,better yielding tenors. Individualtransaction limits are a hindrance here, butthese are becoming less of a problem. Forinstance, the UK's Faster Payments system




automatically integrated into thecorporate's liquidity structure as part of theaccount opening process. Then the accountwill be immediately visible from centraltreasury and its liquidity (assuming it is notin a restricted currency) immediatelyaccessible at an enterprise-wide level.

FacilitatorsMillennialsDemographic changes in the workforceare an important reason why corporatetreasuries may find revisiting, revising andfutureproofing their liquiditymanagement easier than they might havedone in the past. By 2020, nearly half (46%) of all US

workers will be millennials14 and by 2025,this will also be true of 75% of the globalworkforce15.Millennials stand out for theiruse of technology16 and their willingness toadapt to (and drive) change17. They aretechnically and psychologically well suitedto the sort of liquidity managementreengineering and change that manytreasuries now need to undertake.Digitisation, blockchain and artificialintelligence are all technologies with whichthey are comfortable18 19 20. Even though they may still mostly be in

relatively junior positions, millennials mayalready be having an influence on treasurybehaviour21. For instance, HSBC has

recently seen a corporate treasuryprocessing a multibillion dollar transactionusing a mobile phone22, something thatwould previously have been unthinkable.Millennials' technological capabilities alsomean that as their treasury careers progressthey will be expecting their banks to show aserious commitment and investment in technology23.

VendorsOne of the main reasons that blue skythinking for treasury has for so longremained just that has been the lack ofalignment among the third parties withwhich treasurers deal. Happily, this is nolonger true: banks, ERP and TMS vendors,cloud computing providers, fintechs andclearing systems are currently well-synchronised in terms of capabilities anddelivery24. The level of co-operation andpartnership among these entities is alsostrong, with SAP's recent announcement ofSAP Cloud Platform private edition incollaboration with IBM Cloud being justone example25.Therefore, the historical problem of a

single missing jigsaw piece derailing aproject may no longer apply. Today,treasuries embarking on re-engineeringand futureproofing their liquiditymanagement may be able to do so with farmore ease and confidence than might oncehave been the case. �

1 https://www.telegraph.co.uk/business/2018/03/14/boom-back-world-economy-put-strongest-spurt-since-financial/

2 https://www.gfmag.com/magazine/september-2017/cash-piles-keep-growing3 https://www.thebalance.com/current-federal-reserve-interest-rates-33056944 https://tradingeconomics.com/united-states/interest-rate5 https://www.thebalance.com/current-federal-reserve-interest-rates-33056946 https://tradingeconomics.com/forecast/interest-rate7 https://www.instapay.today/tracker/8 https://www.psr.org.uk/sites/default/files/media/PDF/A-G-Report-March-2018.pdf9 https://home.kpmg.com/nl/en/home/social/2017/12/instant-payments-instant-benefits.html10 Eurostat defines a FAT as: "A foreign affiliate as defined in inward FATS statistics is an

enterprise resident in a country which is under the control of an institutional unit not residentin the same country." http://ec.europa.eu/eurostat/web/structural-business-statistics/global-value-chains/foreign-affiliates

11 http://unctad.org/en/PublicationsLibrary/wir2018_en.pdf12 Enterprise Resource Planning13 Treasury Management System14 https://www.kenan-flagler.unc.edu/executive-development/custom-

programs/~/media/files/documents/executive-development/maximizing-millennials-in-the-workplace.pdf

15 https://www.ey.com/Publication/vwLUAssets/EY-global-generations-a-global-study-on-work-life-challenges-across-generations/$FILE/EY-global-generations-a-global-study-on-work-life-challenges-across-generations.pdf

16 http://www.pewresearch.org/fact-tank/2018/05/02/millennials-stand-out-for-their-technology-use-but-older-generations-also-embrace-digital-life/

17 https://www.entrepreneur.com/article/27174118 https://yourstory.com/2016/11/millennials-changing-traditional-workspace/

19 https://www.nasdaq.com/article/op-ed-why-millennials-migrate-to-blockchain-technology-and-cryptocurrency-in-droves-cm927714

20 https://thefinancialbrand.com/67833/artificial-intelligence-millennials-digital-mobile-banking/

21 https://www.theglobaltreasurer.com/2018/06/14/make-way-for-the-millennial-accounts-payable-activist/https://www.onedigital.com/blog/tech-savvy-millennials-shaping-21st-century-workplace/https://www.business.com/articles/tech-savvy-millennials-at-work/

22 https://www.gbm.hsbc.com/insights/consumer-brands/digital-innovation23 https://www.theglobaltreasurer.com/2018/06/14/make-way-for-the-millennial-accounts-

payable-activist/24 https://en.wikipedia.org/wiki/SAP_HANA

https://www.scmp.com/business/banking-finance/article/2140428/hsbc-spends-us23b-digital-platforms-ai-and-new-technologyhttps://www.globalcustodian.com/hsbc-outlines-17-billion-technology-investment-plans/https://www.finextra.com/newsarticle/32183/citi-spends-more-on-tech-than-all-vc-investment-in-us-fintechhttps://www.kyriba.com/why-kyriba/treasury-cloudhttp://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx

25 https://www.ibm.com/blogs/cloud-computing/2018/06/06/ibm-sap-cloud-partnership/26 https://www.forbes.com/sites/larryalton/2017/12/28/5-ways-millennials-will-transform-the-

workplace-in-2018/#2695cd24558dhttps://www.nbcnews.com/better/business/7-ways-millennials-are-changing-workplace-better-ncna761021https://www.forbes.com/sites/quora/2017/10/10/millennials-are-requesting-these-workplace-changes-to-thrive/#2905f3b550be

Notes

Conclusion

A rapidly changing environment isdriving the need for treasuries toreview, revise and futureproof theirliquidity management. The good newsis that this is now far less of a challengethan it would have been just a fewyears ago. Technological innovationsranging from instant payments, todigitisation, to AI, to cloud computing,all enable more to be done with lesseffort, at lower cost and at greaterspee d. At the same time, the millennialworkforce is ideally suited to implementchange26, while vendors are well-alignedin terms of their capabilities and mutualcollaboration. There could hardly be amore propitious time to act.





Global Liquidity: Faster, Deeper, Greater

L iquidity management is undergoing a period of major change. Liquidity is(re)circulating more quickly, major opportunities are emerging in ‘bigdata’ analysis and the global economy looks set to push liquidity levels

higher. Nick Powell, Global Head of Commercialisation and Ray Suvrodeep, GlobalHead of Deposit and Investments Product Management, Global Liquidity and CashManagement at HSBC examine some of the opportunities arising from thissituation and how treasuries might best maximise them.

Increasing Liquidity VelocityInstant Payments, Faster ClearingLiquidity is moving faster. Innovationssuch as instant payment systems areseeing clearing cycles shrinking to thepoint of being almost instantaneous. Atthe same time, the advent of mobile

payments is triggering 24x7 cash flows atfar higher frequencies. Furthermore, thisacceleration doesn’t just apply locally:various SWIFT initiatives mean that it alsopertains to cross-border and global flowsas well. The net result is that the velocity ofliquidity is increasing and is likely tocontinue doing so.

HSBCDIGIT18 HSBC18 FASTER DEEPER GREATER.qxp_Layout 1 24/09/2018 16:35 Page 41


immediate needs, such as to track balancesand transactions for respective customers/entities. This is faster and more efficientthan opening physical accounts individuallyand managing/reconciling them on anongoing basis.

When using ngVAs, all the liquidity isautomatically concentrated in the singlephysical account that heads each group ofvirtual accounts. This makes rapid liquiditymobilisation far easier to achieve than ifmultiple physical accounts were involved.Essentially, ngVAs address some of the mostfundamental liquidity fragmentationchallenges by supporting speed ofexecution, as well as providing anarchitecture that more generally facilitateshigh speed liquidity management.

Real Time Liquidity ManagementHigher velocity liquidity opens the door tothe challenge/ opportunity of intraday cashforecasting and liquidity management. Onthe one hand, this is concerned with makingsure that the most effective use is made ofinternal sources of liquidity throughout theday. On the other, it involves managing anyexternal sources of credit on a cross-bankbasis. Given that cash is recirculating faster,this involves balancing a situation wherethere may be relatively few liquidity banksversus payment banks involved.

Dealing with this effectively in a real (ornear real) time environment makes accessto similarly timely data essential. Sometreasuries already poll their banks forintraday statements. Some banks alreadyoffer an even better real time alternative tothis, whereby data is streamed to the clientcontinually. While this offers a greatopportunity to improve real time liquidityforecasting and management, it comes withthe caveat that the client’s technologyinfrastructure must obviously be capable ofcapturing and processing the resulting datastream.

Mining for Gold: Big DataAnalyticsThe application of specialised liquiditymanagement techniques and functions(partly in response to higher liquidityvelocity) is contributing to the generation ofvaluable data that can be analysed toenhance treasury-specific processes, as wellas developing more general business

intelligence. In view of the progress madeby many corporate treasuries in recentyears, this is a particularly timelydevelopment. For some time now theprimary goal for many treasurers has beento achieve visibility and control of allcorporate liquidity. While this may not betechnically possible in some cases, agrowing number have nevertheless alreadyachieved this, or made major steps forward.As a result, they are now able to takeadvantage of the next stage in optimisingliquidity management: using that visibilityand control to deliver insight andeffectiveness. Armed with the right data andtools, this is now achievable.

Deeper insightRecent years have seen rapid developmentsin the science of big data analysis. Thesemake it possible for treasuries to analysetheir own data for tasks such as cashforecasting (see page 43 “Revolutionisingforecasting”), as well as to gain moregeneral insight into potential liquidity risksand opportunities. Innovations in artificialintelligence (AI), such as deep neuralnetworks, mean that treasuries will in futurebe able to detect these risks andopportunities quickly and efficiently withinhuge volumes of data – a task that would beimpossible for a human analyst.

However, analysing just thecorporation’s own transaction and liquiditydata is just the first step towards all that isactually possible. As a result of their day-to-day role, major transaction banks haveaccess to vast quantities of external data,such as cash flowing through the bankingsystem. The most innovative of these banksare looking to make this available to clientsso that they can analyse and benchmarktheir performance in areas such as workingcapital and liquidity management.

In this respect, it is important toemphasise the distinctive nature of thisdata: it is real transaction data, not justsurvey or sample data. While this makes itpossible to draw far more robust inferences,a key point is the degree of depth and scopeof the data that is available for analysis. Amajor transaction bank with a globalnetwork will be able to provide cleanbanking system data from around the globein considerable depth and granularity,which will help to support statisticallysignificant analytical output.

In general terms this may be beneficial tocorporations, as their cash conversioncycles diminish, along with latency in theirpayment execution and the amount ofcontingency cash buffer needing to be heldin their bank accounts. This could result inless pressure on cash flow planning andforecasting, as well as assisting workingcapital efficiency.

On the other hand, this new fasterliquidity environment also throws up somechallenges for treasuries. For treasurers,getting cash to the right place, in the rightcurrency, at the right time, is a fundamentaltask. However, as payments become faster,outflows also accelerate, so the responsetimes for fulfilling this obligation becomemore demanding.

Next Generation Virtual AccountsA major obstacle here is liquidityfragmentation. An efficient method forviewing and mobilising liquidity is anabsolute must for addressing this.Fortunately, such a method now exists inthe form of the next generation virtualaccount (ngVA).

In addition to the traditional advantageof virtual accounts – the ability to improvereconciliation rates by giving customerstheir own dedicated account details to payto – ngVAs also include a self-serviceelement. This enables clients to open/closevirtual accounts quickly to suit their

For some timenow the primary

goal for manytreasurers has

been to achievevisibility andcontrol of all

corporateliquidity.




Nevertheless, attractive as thisopportunity is, corporate treasuries arehighly unlikely to have the budget orinclination to build their own platform forwarehousing and analysing this data. Theyneed a suitable interface through whichthey can access it that also provides thenecessary analytical tools. For instance,HSBC has plans to introduce much of thisfunctionality through a new liquiditymanagement portal, which is currently indevelopment.

Managing Macro GrowthLiquidityA good problem to have...The availability of better liquidity insightand forecasting is also a timely developmentin a world where liquidity levels are likely tobe rising. There are currently signs that aperiod of global macro growth is gettingunderway. The US and China are two majorengines here, with current GDP growth of4.2%1 and 6.7% in Q2 of 20182 respectively.The Eurozone also appears to be recoveringto the extent that the European CentralBank is talking of ceasing its quantitativeeasing programme. Many emergingmarkets are also performing well withVietnam seeing GDP growth of 6.79%3 andIndonesia GDP growth of 5.27%4 in Q2 of2018. In April 2018, the world’s emergingmarkets and developing economies grew4.9%.5 Therefore, 2018 could see robustgrowth coupled with low inflation.

From a treasury perspective, this is likelyto result in higher liquidity flows. However,in a strong economic environment there isan incentive to invest in businesses,possibly across multiple markets.Therefore, there is a need to be able tocover funding demands that could arise inmultiple parts of the world in multiplecurrencies. In addition, in a strongermacroeconomic environment, existingbusinesses may be generating higher levelsof surplus cash. So treasury may have tomanage substantial irregular multipleglobal cash deployments, alongside acontinual supply of revenue generation.

...and how to solve itManaging this situation requires an efficientdeployment model that is well diversified.In addition, currency risk needs to beminimised and the tenor profile of

investments must be able to accommodatesudden calls to coverinvestments/acquisitions.

At present, many on balance sheet bankdeposit products tend to fall broadly intoinstant-access/overnight or termcategories. In an environment wheretreasurers are expected to maximise return,while still retaining sufficient liquidityagility to cover possibly numerousacquisitions, something that fits betweenthese two existing poles is clearly desirable.For example, a suitable notice accountproduct available across multiple marketswould give treasuries an additional yieldversus liquidity option, when compared toa typical vanilla term deposit.

For some treasuries, rising liquiditylevels may result in issues related tocounterparty limits specified in theirtreasury investment policy. They maysimply run out of available appetite forbank balance sheet. While this is less likelyto be an issue with counterparty bankswith stronger credit ratings, it neverthelesscreates demand for solutions thatefficiently integrate on and off balancesheet investment opportunities. HSBC’sLiquidity Investment Solutions (LIS)deliver this by providing automatedinvestment of cash above a client-specifiedtrigger level with a range of approved thirdparty asset managers. Automatedredemption based on a minimum balancetrigger level or risk limits on third partymanagers is also supported.

ConclusionWhile various products and solutions areavailable to help treasuries cope in thecurrent shifting liquidity environment, thesein isolation are insufficient. If globaltreasuries are to maximise their liquidityopportunities, the overriding need is for abank service proposition that bindsproducts and solutions into a singleconsistent experience, regardless oftechnology, location, currency or

investment tenor. Anything less than this ispalpably inefficient in the eyes of lightly-resourced treasuries that are perpetuallyexpected to do more with less.

The current environment is a goodexample of this high level of expectation.However, while higher liquidity velocity, bigdata and stronger macroeconomic growthmay seem a daunting prospect, for the mostinnovative treasuries they individually andcollectively represent an importantopportunity. More efficient use of workingcapital, better businessintelligence/forecasting and enhanced yieldon surplus cash are just some of thepotential benefits available.

Revolutionising forecastingBig data analytics create opportunities fortreasurers to re- engineer their cashforecasting processes completely. Commonpractice today is to send out spreadsheets tobusiness units asking them to fill in theirprojected cash flows. These are thenaggregated at a central treasury level toproduce overall forecasts. This is labour-intensive, slow and for practical reasons canonly be done periodically. It is also heavilydependent upon the varying skill andexperience levels of those making theindividual projections.

Given the right big data and analytics,this bottom-up cash forecasting process cannow be replaced by something far moreefficient. Recent advances in artificialintelligence (AI) mean there is no reasonwhy techniques such as deep neuralnetworks cannot be applied to tasks such ascash forecasting, where human judgmentand intuition based on previous experienceare currently key factors in makingforecasts. If AI can replace all or most of thismanual process, then clearly cash flowforecasting as we know it today couldchange fundamentally. The value createdcould be substantial, not just in operationalcost/effort saving, but also in automatingand optimising downstream treasurydecision making and processes. �

Notes1 USA GDP: https://tradingeconomics.com/united-states/gdp-growth2 China GDP: https://tradingeconomics.com/china/gdp-growth-annual3 Vietnam GDP Growth: https://tradingeconomics.com/vietnam/gdp-growth4 Indonesia GDP: https://tradingeconomics.com/indonesia/gdp-growth-annual5 World’s emerging markets and developing economies total GDP growth

:https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD




Liquidity Management in Asia-Pacific:Change and Opportunity

O ne of the most fascinating aspects of liquidity management in Asia-Pacifictoday is its dynamic nature. Apart from regulatory change within theregion, numerous other factors – such as shifts in US tax legislation and

interest rates – also have a bearing. As Harish Kumar, Regional Head of Liquidityand Investment Products, Global Liquidity and Cash Management, Asia Pacific atHSBC explains, these all present corporate treasurers with an interesting range ofopportunities.

Regulatory change in Asia-Pacific is now afact of life for corporate treasuries, butgiven the right information and support, itis definitely not an insuperable problem.

However, a critical point here is clarity.This is because regulation in the regionhas of late been changing frequently andoften also leaving some scope for

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In-country flexibilityOnce corporates have clarity on theinterpretation of current regulation, theycan respond by making appropriateadjustments to their liquidity strategy.Nevertheless, the frequency with whichregulation in Asia-Pacific can changemeans that treasuries need to besufficiently flexible to respond effectively –and have banking partners with the rightcapabilities to assist them in doing so.

For example, a country might introduceregulation on cross- border outflows withthe intention of preventing onshoreincorporated companies from becomingnet lenders. The regulation might thereforelimit remittances offshore to the extent ofrepaying existing offshore borrowing, butnot beyond.

This could result in an accumulation ofonshore liquidity upon which yield wouldneed to be maximised, while alsoremaining within the counterparty riskconstraints of treasury investment policy.For some corporates, situations such asthis would place an onus on their largeinternational banking partners to deliver asuite of investment solutions that spannedthe tenor spectrum.

Some banks have already respondedto this type of challenge by launchingnew onshore products to give furtherdepth to their existing liquidity productrange. For example, HSBC has launchedcertificates of deposit of multiple tenorsin China – the first foreign bank to do so.At the same time, anything partner bankscan do to support more flexible and agileliquidity management adds value from acorporate treasury perspective. Oneexample would be tools, such as HSBC’sLiquidity Investment Solutions, thatfacilitate automated investment anddivestment across multiple investmentoptions and providers from a singlelinked header account.

Pan-regional flexibilityThe regulatory changes that have driventhe onshore accumulation of liquidity inChina since the end of 2016 have beengradually and partially relaxed. Thisagain underlines the need for flexibility inthe design and deployment of liquiditystructures, both in China and across Asia-

Pacific more generally.A concept that could prove invaluable

in this respect is the next generation virtualaccount1 (ngVA). Historically, virtualaccounts have been used to improve theauto-reconciliation of accounts receivableby giving each customer an individualvirtual bank account number to which theysend their remittances.

However, ngVAs add a self-servicecomponent to this, thereby making it easyfor treasuries to open/close virtualaccounts as needed. This can be aninvaluable tool for treasuries seekinggreater strategic flexibility in their liquiditymanagement, as ngVAs can be used toconsolidate liquidity regionally in multiplecurrencies to the single physical account atthe top of each group of virtual accounts.Then, as circumstances change, individualvirtual accounts can also beopened/closed for entities as required.ngVAs also facilitate more sophisticatedcentralised payment mechanisms, such asPayments On Behalf Of.

interpretation, such as whether acorporate might be deemed to fall in oneor another category under a particular setof rules. A further complication is thatregulation in some countries can be issuedat both a provincial and national level, soensuring compliance with both sets ofrules presents additional challenges,whether or not the bank account isresident or non-resident is largelyimmaterial and the movement of funds isstraightforward. This may no longer be thecase post-Brexit. The tax implications for aparticular liquidity structure, or theconsequences of an entity moving funds toanother entity, or to the same entity inanother jurisdiction, remain unknown.

Regulatory clarity and certaintyThe need for treasuries to seek regulatoryclarity and certainty in Asia-Pacific isunderlined by the ‘outline’ nature of somenew regulation. For instance, regulationsmay be introduced that tighten or relaxcertain existing rules relating to cross-border inflows or outflows of corporateliquidity. However, the new regulationsmight not explicitly state the extent towhich the new conditions will apply.

This is the sort of situation where thecapabilities of a corporate’s bank canmake a considerable difference. Somebanks have a long and close relationshipwith local regulators through theircompliance departments. This can beinvaluable in obtaining clarification fromthe regulator on exactly how the regulationapplies in practice. As mentioned above,in some countries (and China is a case inpoint) separate regulations may be issuedat provincial and national levels.Therefore, the corporate’s bank needs tohave good regulatory relations at bothlevels and be able to aggregate anydiscussions to a holistic picture.

The overriding overall point here iscertainty: treasurers need to be confidentthat their bank has been diligent indeveloping the most accurateinterpretation of the regulation based onits dialogue with regulators at all thenecessary levels. If it has, and gives clientsa single consistent version of thisinterpretation, then they can makestrategic decisions with certainty andcomfort.

HSBC haslaunched

certificates ofdeposit of multipletenors in China –

the first foreignbank to do so.




Positive regulationIt is easy to fall into the trap of seeingregulation in Asia-Pacific in the negativelight of protectionism, but the reality isactually very different. Possibly as acontinuing consequence of the 1997 Asianfinancial crisis, most countries in theregion are understandably keen to limitspeculative flows (‘hot money’).

By contrast, they are typically stronglysupportive of legitimate trade and theassociated financial flows. Some countriesare also embracing the fact that they haveglobal corporates in their markets andappreciate that these corporates may have aneed to repatriate cash.

This has recently been reflected invarious relaxations and/ or increases inpermissible transaction limits in the region.For instance, in the latter part of 2017 SouthKorea almost doubled its limit on permittedoutward lending to USD50 million.

In addition, a range of countries in Asia-Pacific - including Malaysia, Hong Kong,Singapore and Thailand - are offeringincentives (not just tax breaks) to encouragecorporates to move operations such astreasury centres to their jurisdictions.

US interest rate rises and tax changesThe increasingly business friendly attitudeof some Asia-Pacific countries in the contextof liquidity management is particularlytimely for US corporations in view of recentand ongoing US interest rate rises.Previously, low borrowing costs andsimilarly low on balance sheet bank depositrates meant that many US corporates couldtake a fairly passive approach to liquiditymanagement. However, now that US rateshave started to rise, borrowing costs havealso risen and money market funds havebecome increasingly active in offeringenhanced returns. At the same time,changes to US tax legislation haveintroduced a one-off tax break for therepatriation of corporate cash at a rate of15.5 per cent (for cash holdings, 8 per centfor less liquid holdings), rather than theusual 35 per cent2.

This combination is motivating thetreasuries of US multinationals to take amore proactive approach to repatriatingsurplus cash from overseas operations in

regions such as Asia- Pacific to pay downexternal debt. In addition, they are lookingfor more efficient ways of investing anyremaining surplus cash – with automationof this process a growing priority.

An important capability for any tool forautomating liquidity investment is that itneeds to cover multiple providers ofliquidity products (both on and off balancesheet) and provide an automated link with abank account to which the treasury movesits surplus liquidity. A tool that can providethis – such as HSBC’s LiquidityManagement Portal – will significantlydecrease the corporate treasury’s liquiditymanagement workload, especially if bothautomatic investment and divestment(based upon cash trigger levels in the bankaccount) are available.

Liquidity consolidationThe availability of this sort of tool also linkswith another accelerating trend in liquiditymanagement: the drive to consolidatebalances and banking relationships. Agrowing number of treasuries areincreasingly aware that in a rising interestrate environment fragmentation reducestheir leverage in relation to both theircredit and debit positions. If theyconsolidate those positions andrelationships, the situation improves -especially if the bank to which theyconsolidate can offer sophisticatedautomated liquidity management tools.

This consolidation has an additionalbenefit in the context of Asia-Pacificjurisdictions where currency controls orother restrictions constrain the movementof funds for liquidity management. Underthese circumstances, a global bank such asHSBC can offer an interest enhancementfacility whereby balances in restrictedjurisdictions can still be taken into accountat a global level when calculating overallcredit interest compensation and/oroffsetting against debit interest. �

Conclusion: managing transitionIn the context of liquidity management,Asia-Pacific has historically been seen aschallenging, with much of thisperception relating to the concept of‘trapped cash’. While this still applies insome jurisdictions and circumstances,the overall situation is graduallyimproving, with several countriesadopting a more relaxed stance,especially in the context of business-related flows.While this is good news, it doesn’t

actually make Asia-Pacific any lesschallenging, but just changes thenature of the challenge to one ofmanaging liquidity in a continuallyshifting regulatory and interest rateenvironment. Staying on top of thissituation is considerably easier if onecan count on the support of a globalbanking partner that can offer thenecessary regulatory intelligence,network, products and tools to facilitatea flexible and responsive liquiditymanagement strategy.

Notes1 1 HSBC intends to launch next generation virtual accounts in Asia2 https://uk.reuters.com/article/us-usa-tax-repatriation/corporations-may-dodge-billions-in-u-s-taxes-through-new-

loophole-experts-idUKKBN1F035Q





Liquidity Management: Is Europe the New Asia?

F or many treasurers, Europe has historically been a benign environment forliquidity management. In contrast with regions such as Asia or LatinAmerica, consistent regulation and unrestricted movement of funds has

made for comparatively straightforward liquidity management. However, a varietyof recent and forthcoming changes, including Brexit, bank ring fencing and thesecond Payment Services Directive (PSD2), will make Europe far more demandingover the next few years. Nevertheless, as Adnan Ahmed, Regional Head of Liquidityfor Europe, Global Liquidity and Cash Management, explains, these changes areconsiderable opportunities for those treasuries that act now to ensure that theirbusinesses, banks, systems, infrastructure and pr ocesses are agile.

HSBCDIGIT18 EUROPE NEW ASIA.qxp_Layout 1 24/09/2018 11:05 Page 47


the movement of funds is straightforward.This may no longer be the case post-Brexit.The tax implications for a particular

liquidity structure, or the consequences ofan entity moving funds to another entity,or to the same entity in anotherjurisdiction, remain unknown.Some more advanced corporate and

other client treasuries are alreadyundertaking considerable scenario scopingto devise strategies that have the flexibilityto cover the broadest possible array ofBrexit outcomes. Much depends on thesize, complexity and location ofoperations. For instance, a corporate that ismostly European-focused with minimalUK operations, but with a UK-basedliquidity structure, may have more at stakein terms of Brexit outcomes than one withmostly UK-based operations.A key consideration in Brexit

preparations is that a treasury’s bankingpartners will be able to support thebroadest range of possible contingencies ifchanges of bank account domicile and/orownership are needed. Those bankingpartners will therefore need to be able todemonstrate both network range as well asdepth, plus a consultative relationshipapproach to devising the optimal post-Brexit liquidity strategy and structures.Furthermore, they must also be able tooffer the necessary tools for corporatetreasuries to have maximum visibility andmobility of their liquidity both withinEurope, as well as globally.There is one very important upside to

the very considerable demands of post-Brexit liquidity preparations. Many of theother changes due to affect the Europeanliquidity landscape over the next few yearsare much more definite in their outcomethan Brexit. Therefore, developingprocesses, systems and structures that aresufficiently flexible to cope with the broadrange of post-Brexit outcomes will alsoimplicitly deliver a more generalcompetitive edge that will be of value intackling these other challenges.

Ring fencingAs from January 2019, major UK bankshave to ring fence core retail banking frominvestment banking. This represents afundamental change that affects largecorporates’ liquidity management.

Historically, UK banks have used thefunding raised from small/mid-sizedbusiness and retail customers to fund theirloan books, with large corporates beingmajor consumers of this loan capacity.After ring fencing, that pool of depositsmay no longer be available to fund thislending.This has two significant implications:

the cost of large corporates’ borrowing willincrease, but so will the value of theirdeposits, possibly quite considerably.These pricing implications are alreadybecoming apparent in the market placeand this trend is likely to become morepronounced as January 2019 approaches.As regards deposit rates, an important

distinction is whether large corporatedeposits are being placed with a ringfenced or non ring fenced banking entityand the credit rating of that entity1. A nonring fenced entity may be perceived ashigher risk and have a lower credit ratingand so will have to pay higher rates toattract deposits. However, it may becontent to do this if it can deploy theresulting deposits at a better return.Therefore corporates’ treasury investmentpolicies will need re-examining todetermine what is or is not acceptable interms of risk/reward when choosingwhether to place deposits with ring fencedor non ring fenced bank entities, or amixture of both.The ring fencing rules are likely to drive

some notable shifts in banks’ liquiditypositions and therefore the rates they areprepared to pay to attract deposits. Somethat were previously flush with liquiditymay have to compete aggressively in thecorporate deposit market to retain it andvice versa. One area likely to seeappreciable change is the large corporateEuro deposit market. Previously manybanks have avoided accepting Eurodeposits because of the negative creditinterest rates involved. However, post ringfencing, some banks may feel they arenevertheless worth attracting as it maynow be possible to use the Euro deposits asa source of funding and redeploy themprofitably.From a practical perspective, this fluid

situation will place a premium upon theability to (re)deploy surplus liquiditywithout incurring a large additionalmanual workload for treasury.

BrexitBrexit represents one of the greatestchallenges for European liquiditymanagement because of continuinguncertainty over the form it will ultimatelytake: ‘hard’, ‘soft’ or somewhere inbetween. At present there is no sense oflinear progression to a predictableoutcome, which makes planning futureliquidity structures near impossible,especially in the context of rules relating tocross border transfer payments in Euros.For example, there may be implications

for treasuries regarding the creation ofintercompany positions and themovement of funds in relation to theircorporate tax positions. At present,whether or not the bank account is residentor non- resident is largely immaterial and

Brexit representsone of the greatestchallenges forEuropeanliquidity

managementbecause ofcontinuing

uncertainty overthe form it willultimately take.




Therefore, tools that provide a singleautomated interface where liquidityinvestment/divestment can beaccomplished across on/off balance sheetinstruments and ring fenced or non ringfenced entities adds appreciable value.

Regulation and agilityThe Second Payment Services Directive(PSD2), which largely took effect fromJanuary 13th 20182, should deliver furtheropportunities for corporate treasuries toenhance their liquidity management agilityin Europe. By opening up banking clientdata (subject to client authorisation) it willbe possible for non- bank third partyproviders to offer additional services. Inmany respects this mimics the situationwith mobile phone networks, where only afew companies actually own physicalnetworks, but multiple virtual networkoperators still leverage these to providetheir own separate services.The requirement under PSD2 for banks

to publish an application programminginterface (API) that third party providerscan use to deliver their services hasimportant implications beyond thoseservices. One of the most striking of these isthe reduction in implementation timelinesfor new services. These are likely to declinesignificantly under PSD2 from perhapsyears to just months or even weeks, andapply across a number of areas includingdata management/mining and payments.This is a major opportunity for

corporate treasuries to becometechnologically far more agile than they aretoday. Switching to the best provider of aparticular service or product need nolonger be a painful and protracted process,which also means that providers can nolonger rely on inertia as a client retentiontechnique. Nevertheless, if treasuries are toextract the maximum benefit from this,they may need to revisit their investmentpolicy more frequently, and their owninternal technology and processes will alsoneed to be sufficiently flexible. Suitablyqualified banks can assist clients inreviewing the entire scope of theirinvestment policy, including re- examiningcounterparty risk policies, permissibleinvestments and yield objectives. Thesebanks can also help in reviewing internaltreasury technology and processes and

implementing any necessary changes,especially if the bank can offer in- countrycertified specialists in enterprise resourceplanning (ERP) systems and/or SWIFT.In addition, depending on their choice

of banking partner, treasuries may alsohave access to a new aid to liquidity agilityand flexibility, in the form of nextgeneration virtual accounts. Historically,virtual accounts have been used as ameans of improving accounts receivablereconciliation by giving each customertheir own specific virtual account to whichthey make remittances. However, someleading banks have reinvented them toinclude an important element of selfservice, whereby clients can open/closevirtual accounts as they require forindividual corporate entities, potentially indiffering currencies. All the liquidity in theindividual next generation virtual accountsis centrally visible and controllable via thesingle physical account that heads eachgroup of next generation virtual accounts.By also automatically concentratingliquidity from each group of virtualaccounts into this physical account, rapidand efficient liquidity mobilisation is fareasier to achieve than if using multiplephysical accounts. They are therefore avaluable tool for treasuries looking for anextra agility edge to cope with a rapidlychanging European liquidity managementenvironment.

2023: all changeIt appears likely that by 2023 the process ofmanaging liquidity in Europe will havechanged radically. In addition to theregulatory changes outlined above, therewill also be broader shifts toaccommodate. There are already signs of agrowth cycle developing in the Eurozone3,so treasuries may well find themselves withconsiderably more surplus Euro liquidityto manage by 2023. It is also notunreasonable to assume that there will begreater political certainty regarding thefinal outcome of Brexit. At the same time,there is likely to be a far greater range ofthird party technology and serviceproviders for treasurers to choose from bythen, as well as far lower barriers toswitching among them.This opportunity to move quickly and

relatively painlessly among these providers

is also likely to be applicable to bankingrelationships as well. In the past, changingbanking partner might have taken perhapsthree years because of the lengthyimplementation times. As technologydevelops, these timelines may falldramatically, making more frequentreviews of banking relationships feasible.Despite some recent examples of

protectionism, globalisation is still likely toremain a major theme in 2023, withbusinesses growing faster beyond theirhistorical geographic boundaries. Theinternet has already had a major influencehere in terms of both speed of expansion,but also the size range of entitiesexpanding globally, with smallercompanies now able to leverage theinternet to establish a global presence withrelative ease.

Switching to thebest provider of aparticular serviceor product needno longer be apainful andprotractedprocess.




Even if just some of these changes havecome about by 2023, it seems reasonable tosuppose that the business environment inEurope will be more benign than it istoday. However, this does not also implythat the liquidity managementenvironment will be any more benign. Infact, partly due to the factors alreadymentioned, it is likely to be even morevolatile and challenging. Furthermore,despite new technological advances,corporate treasuries will also have to findways of optimising liquidity for the newbusiness environment. Inertia is not astrategy, so to maximise any potentialbenefits, treasuries now need to bepreparing for change by ensuring that theyhave the right partners to help themdevelop and maintain the requisite agilityto cope in increasingly changeableconditions. �

Notes1 Unlike small/mid-sized businesses and retail customers, the ring fencing rules do not specify whether large corporate depositsshould be inside or outside a ring fence: https://blogs.treasurers.org/what-do-treasurers-need-to-know-about-bank-ring-fencing/

2 https://www.paymentsuk.org.uk/policy/european-and-uk-developments/second-payment-services-directive-psd23 https://www.bloomberg.com/news/articles/2017-11-13/from-lost-decade-to-golden-years-euro-economy-picks-up-the-pace

Conclusion: network and relationshipThere is the possibility of a more benign European business environment emerging overthe next five years. Nevertheless, the number of changes affecting liquidity managementare likely to see the region morph from one that was once almost ‘set and forget’ from aliquidity management perspective, into something altogether more volatile. Thisnecessitates a fundamental transformation in the way corporate treasuries approachEuropean liquidity management.

As mentioned above, agility and flexibility are vital if treasuries are to succeed in thenew environment, but points of certainty and stability are essential in helping to achievethis in terms of future proofing. Core banking relationships are a good example of this. If atransaction bank can provide comprehensive network coverage across the UK and Europe,as well as globally, then the effort required for liquidity management activities such asopening/closing bank accounts in response to external changes will be materially reduced.If that same bank also offers solutions such as next generation virtual accounts, thentreasury’s workload drops by a further order of magnitude.

Analogous to this network stability is relationship stability in the context ofconsultancy. Most corporate treasuries simply do not have the resources to research theconsequences of every possible factor that might affect their liquidity managementactivities. However, a major network bank that works with numerous global corporationsis able to share that collective perspective and insight to deliver a consultative relationshipthat supports treasury in achieving the agility and flexibility it needs.

It appears likelythat by 2023 the

process ofmanagingliquidity in

Europe will havechangedradically.





North American Liquidity:Change, Challenge, Opportunity

O ver the past year, the interest rate environment in North America hasbeen markedly different from that in regions such as Europe. Couplingthis with potential cross-border cash efficiences associated with NAFTA

trade growth and the availability of innovative balance sheet investment options,means that treasurers in the reg ion are not short of opportunities. MichaelHavraniak, Regional Head of Liquidity, Global Liquidity and Cash Management,HSBC outlines these opportunities and examines some of the ways in whichtreasurers can maximise them.

Interest RatesInteresting TimesWhile interest rates in regions such asEurope have remained low (and in somecases negative), rates in North America

have recently been following a verydifferent trajectory. In the US there havebeen six rate rises over the past 22 months,with Federal Reserve officials projecting asteeper path for rate rises in 2019 and 20201,while in Canada there have been four

HSBCDIGIT18 NORTH AMERICA.qxp_Layout 1 24/09/2018 10:12 Page 51


coupled with lessening emphasis onsecurity – will result in treasuries extendingthe number of banks they are prepared toplace deposits with, or whether they willsimply increase the risk limits on banks withwhich they already place cash.

Changing BucketsApart from interest rate rises, anotherinteresting liquidity dynamic at present isthe change in treasury behaviour inrelation to segmentation of liquidity.Historically, many treasuries have tendedto allocate their liquidity into three‘buckets’: short, medium and long term.Allocation across buckets has usually beendone on the basis of availabilityrequirements. Short-term liquidity wouldneed to be instantly available for workingcapital, while long-term liquidity mightonly need to be tapped very occasionallyand so could be placed in instrumentssuch as 90-120 day notice accounts.It appears that this behaviour is now

changing in two ways. Some treasuries areretaining the same three bucket model butare reassessing the segregation of cashacross the buckets.Others are considering adding new

buckets to achieve a more granularapproach to their liquidity investment. Inboth cases, maximising yield is a coreobjective.An important factor behind this shift is

Basel III. While a few banks, such as HSBC,were quick to draw the attention of theirtreasury clients to the implications of theforthcoming regulation for efficient liquiditymanagement, others were not.As a result, a considerable number of

corporate treasuries have until recentlytended to assume that Basel III was anissue purely for banks, and failed toappreciate the knock-on effect on theirown liquidity management.This situation is now changing and

more treasuries now understand thesignificance for them of Basel III measures,with the Liquidity Coverage Ratio (LCR)being an important example. The purposeof the LCR is to support the short-termresilience of the liquidity risk profile ofbanks by ensuring that banks have anadequate stock of unencumbered highquality liquid assets that can be convertedeasily and immediately in private markets

into cash to meet their liquidity needs for a30 calendar day liquidity stress scenario5.This effectively means that largecorporates’ deposits that can flow out abank within 31 days (and that are notlinked to transactional products) have zeroliquidity value to any bank accepting thedeposit. As a result, banks have minimalincentive to attract these deposits.Growing awareness of this among

treasuries has had two consequences.Firstly, as mentioned above, treasuries arere- examining the way they bucket theirliquidity. More specifically, they areconsidering how much of it they can re-allocate to beyond 30 days. Secondly banksare launching products to target this shift:for instance, HSBC has introduced a 31 daynotice account to extend its liquidityproduct offering, which offers client anuplift in yield over shorter-term products.

NAFTANotwithstanding current politicaluncertainties over NAFTA, the fact remainsthat it accounts for very substantial tradevalue: USD1.1tr in 20166. From a treasuryperspective, this means that NAFTA-related trade can easily result in substantialliquidity balances accruing that aredistributed across several currencies inseveral different countries. Giventreasury’s fundamental task of ensuringthat the corporation has the right liquidityin the right place in the right currency atthe right time, this can represent aconsiderable challenge.

Cash concentrationDealing with this effectively requires anefficient method for cash concentration.While it is perfectly possible to accomplishthis manually, this is inefficient in that thissort of low level transactional activity divertstreasury resources from more importantstrategic concerns. This applies in twoimportant respects: the actual individualinstructions for moving cash, but also thetax-compliant and accurate administrationof any resulting intercompany loans.Automated solutions are available for

running cash concentration structures. Allthe treasury has to do is specify thenecessary balance thresholds andsources/destinations for sweeping cash.The necessary movements of funds then

increases in the policy rate since July 20172.Corporate treasurers in North America

have been quick to respond to this in theirexpectations of the credit interest rates theyare seeking from their banks. There is nowmuch more emphasis on maximising yieldacross the maturity spectrum of surpluscorporate liquidity. This is the most recentdevelopment in the way treasurers’ attitudesto liquidity have evolved over the pastdecade. Back in 2008, the Association ofFinance Professionals (AFP) annualLiquidity Survey3, made it very clear thattreasurers’ emphasis was overwhelminglyon security and far less on yield or liquidity.However, based upon HSBC clientdiscussions, it is evident that treasurers arenow also looking to maximise yield andliquidity. Consequently, there is a lot ofpressure from North American corporatetreasurers on banks to pass on any centralbank rate increases in their entirety.A further incentive for treasurers to

maximise yield is that corporate liquiditylevels continue to rise. According toannual research by S&P Global4, UScorporate holdings of cash and short- andlong-term liquid investments hit a recordUSD1.9tr as of year-end 2016. In somecases this liquidity increase is causingtreasuries issues with the credit risk limitsallocated to their banks in their treasuryinvestment policy.As yet, it is unclear whether this –

For longer-termcash where yield is

an importantobjective, some

corporatetreasuries maystart to look at abroader range ofinstruments.




take place automatically without requiringfurther intervention. If there is a need toadjust any of the parameters, the treasurycan simply log in and make the necessaryadjustments - other than this, operating anautomated cash concentration scheme ofthis type is a comparatively lowmaintenance affair.

Intercompany loan accountingThe same degree of automation can also beapplied to the accounting process for anyresulting intercompany loans. A largeinternational corporate operating indifferent locations across NAFTA is likely tohave different legal entities operating acrossthat geographic base. If funds are flowingacross the organisation and internal sourcesof liquidity are being used, then that willinevitably result in intercompany lending.Historically, many corporate treasuries

have opted to handle accounting for thisthemselves in-house. They have tracked theloans, calculated and applied the relevantinternal company interest rates to thoseloans, and settled them across the bankaccount. As with issuing individual paymentinstructions with a cash concentrationstructure, this is hardly the most efficientapproach – especially if a reliableautomated alternative is available. HSBC’sinter-company solutions offer this facility,freeing up treasury resources for morecrucial strategic tasks.

Off Balance Sheet InvestmentsMaximising return and capacity limitsAs mentioned earlier, North Americantreasuries are highly focused onmaximising return and they currently havehigh levels of cash upon which that returnmust be generated.In some cases, the sheer volume of this

cash is running up against the depositcapacity limits they may have in place fortheir various banks. This combination ofcircumstances is driving many of them toreconsider their off balance sheet options.The ideal here is to have a process that

integrates on and off balance sheetinvestment, so treasury doesn’t have totake on another separate manual process.This was one of the driving factors for thecreation of HSBC’s Liquidity InvestmentSolutions (LIS)7. This enables users toautomate the sweeping of cash from an

HSBC account above a certain triggerlevel into off balance sheet money fundsoffered by a range of investmentmanagers. (Automated fund redemptionscan also be made if the bank accountbalance falls below a trigger level.) Thisgives users the convenience of a singleprocess for managing on/off balancesheet investments.

Further along the curve?Apart from the quest for greater yield,another factor that could cause a shift intreasury investment behaviour is possibleregulatory change in relation to moneyfunds (daily liquidity funds). At present, agreat deal of research is being undertakenby asset managers and fund houses intowhat product changes they may need tomake in response to regulation.In some respects, this situation is not

dissimilar to that which appliedimmediately after the framework of BaselIII was first agreed upon in September20108. Just as then, treasuries do not as yethave sufficient concrete information tounderstand the full investmentimplications for them of the forthcomingregulatory change.Nevertheless, one possibility is that for

longer-term cash where yield is animportant objective, some corporatetreasuries may start to look at a broaderrange of instruments, beyond bank depositsand money market funds. Furthermore, ifcontinued high (or even increasing) levels ofexcess liquidity persist, more liquidity maystart being assigned to the longest-termliquidity bucket. This in combination mightresult in a willingness to look a little furtheralong the yield curve for investmentopportunities. However, even if this specificscenario does not arise, the easy andautomated availability of a broaderspectrum of investment products via asingle platform will still be of value.

InnovationIn an environment of rising interest ratesand high liquidity levels, sophisticatedcorporate treasuries are looking to theirbanks for innovation. Much of theexpectation here focuses on the automationand streamlining of liquidity processes thathave historically been laborious for treasuryto execute manually.

Next Generation Virtual Accounts9

Next Generation Virtual Accounts (ngVAs)are attracting considerable attention in thisrespect. They build upon the existingaccounts reconciliation advantages ofvirtual accounts to add a self-serviceelement. This enables clients to openmultiple new virtual accounts beneath asingle physical account. The administrativeoverhead of opening a new virtual accountis considerably lower than that involvedwhen opening a new physical account.This makes it relatively trivial for

treasuries to achieve a greater degree ofcontrol and flexibility, by being able tocreate sophisticated account structuresusing ngVAs, while still benefiting from thevisibility, control and reporting advantagesof an equivalent physical account structure.At the same time, ngVAs give treasuries

the chance to increase the centralisation oftheir operations. Using ngVAs, they canbuild structures that represent (forexample) sets of business units orsubsidiaries that can be managed centrallyby treasury, such as to conduct paymentson behalf of (POBO) or receivables onbehalf of (ROBO). This sort of structure canprovide the transparency needed at theentity or subsidiary level, while alsodelivering a centralised process for centraltreasury, plus being potentially more cost-effective to operate.

North Americantreasurers have

been quick to pickup on the

opportunities thatfinancialtechnologycompanies

(fintechs) canoffer.




A central point of liquidity controlWhile treasuries increasingly expectliquidity management innovations fromtheir banks, they also expect a convenientmeans for controlling those innovations.Having to log onto multiple separatesystems in order to accomplish individualliquidity-related tasks is inefficient. Bycontrast, being able to log onto a singleinterface where (for instance) ngVAs canbe opened, or trigger levels for money fund(de)investment changed, streamlines day-to-day activities and frees up treasury timefor more important strategic activities.This need for centralised liquidity

control has been one of the drivers behindthe creation of a new liquiditymanagement portal that HSBC isdeveloping. This is intended to enablegranular control of a broad spectrum ofpotentially automated liquiditymanagement related activities. Theseinclude an interface to LIS whereby userscan adjust the managers they invest with,as well as the liquidity levels at whichinvestments and redemptions areautomatically made. HSBC’s new portalwill in due course be connected to thebank’s Global Liquidity Engine. This willdeliver much more than just informationpresentation. It will also enable clients tointeract directly with HSBC systems tomake settings changes for their liquiditymanagement themselves, rather thanhaving to ask HSBC to make the changesfor them.For example, in the context of a

sophisticated cash concentration structure(such as those used across NAFTA by manyNorth American treasuries) clients will beable to log in and adjust the frequency ofsweeps or target balances.

If they are using HSBC’s inter-companysolutions they could amend the inter-company interest rate that is applied, oradjust borrowing limits between entities ifthey are breached to ensure sweeps arenot affected.

Plug and play bankingNorth American treasurers have been quickto pick up on the opportunities thatfinancial technology companies (fintechs)can offer. More specifically, they areinterested in any possible openings that willincrease their flexibility and agility. Forinstance, a corporate may have complexcash management and liquidity structuresin place. These have often been timeconsuming to implement, but if there arechanges to the corporate’s lending orrevolving credit facilities, it may benecessary to make substantial changes inorder to switch some or all ancillarybusiness to another bank or banks.Using conventional methods, this would

typically be a painful and disruptive processfor treasury. To avoid this, corporatetreasuries are now looking to fintechs toprovide plug and play banking, byeffectively acting as a consistent form ofbanking middleware. Under this model, thecorporate is connected to the fintech via asingle consistent interface that essentiallydoesn’t change. However, on the other side,the fintech has connectivity to multiplebanks. If the corporate needs to switchbanks, or add banks to cover a newjurisdiction, the fintech will simplydisconnect/connect the relevant banks onthe treasury’s behalf. However, thecorporate connectivity to the fintech willremain unchanged, thereby minimisingcost and disruption for the treasury. �

ConclusionIt is increasingly apparent that NorthAmerican treasuries are not looking foranything particularly complex to helpthem manage their liquidity. They aresimply in need of innovation that helpsthem to self-service as efficiently aspossible. This not only opens the door tobetter visibility and control of liquidity, italso removes low grade transactionalactivity that adds no value from theirworkflow.

In view of the way that developmentssuch as instant payment systems areboosting the velocity of liquidity, theneed for this streamlining of workflowbecomes ever more imperative.Treasuries need to be increasinglyresponsive and agile in terms of liquiditymanagement, while operating in evershorter timeframes. Solutions thatincorporate self-service and/ or facilitatefaster and less costly changemanagement are therefore welcome.

The good news is that much of thechange needed to deliver this objectiveis already underway. The caveat is thatthere is so much change and innovationthat for treasury to keep abreast of alldevelopments and pick the mostappropriate to adopt is a majorworkload in its own right. This is where abank capable of acting as a trusted andconsultative partner in a truly globalnetwork context helps add real value. Itwill be able to offer support based on adetailed understanding of the client’sbusiness, plus its possible evolution andobjectives. It will thereby assist inmaximising the client’s chances ofmaking the right decisions about theliquidity technology and strategy itadopts.

Notes1 https://tradingeconomics.com/united-states/interest-rate 2 https://tradingeconomics.com/canada/interest-rate3 2008 AFP Liquidity Survey4 https://www.spglobal.com/our-insights/US-Corporate-Cash-Reaches-19-Trillion-But-Rising-Debt-and-Tax-Reform-Pose-

Risk.html5 https://www.bis.org/publ/bcbs238.pdf6 https://www.cfr.org/backgrounder/naftas-economic-impact7 An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation

(FDIC), any other government agency or HSBC.8 https://www.reuters.com/article/us-basel-banks-text/announcement-of-basel-iii-bank-rules-idUSTRE68B1W4201009139 HSBC is planning to launch Next Generation Virtual Accounts in North America.





LMP delivers the tools to give

users the bestpossible insight .

Liquidity Management Portal:Finance at Your Fingertips

P oor visibility is one of corporate treasury's greatest challenges and a majorobstacle to more efficient liquidity management. It also consumes precioustreasury resources that could be devoted to more valuable strategic

activities. HSBC's new Liquidity Management Portal (LMP) has been developedwith the specific aim of resolving these issues and maximising liquidity visibility bystreamlining the underlying data management. Nick Powell, Global Head ofCommercialisation, Liquidity and Investment Products and Ray Suvrodeep, GlobalHead of Deposit and Investments Product Management, Global Liquidity and CashManagement at HSBC explain how LMP can transform liquidity management forthe better, both immediately and in the future, as well as suppo rting treasury'sstrategic participation.

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support, as well as providing thefunctionality to facilitate this. One exampleof this might be the development oftreasury's own internal thought leadershipon the current financial situation of theorganisation, along with the potentialchallenges and benefits of various possiblefuture strategic options. Coupling this withits liquidity management functionality,means that LMP can help treasury tobecome more effective and efficient inexecuting both its traditional and newresponsibilities.

Speed and flexibilityThe data associated with treasury activitieshas changed significantly in recent years inthe context of time. Bank and clearingsystems that once operated on an end ofday batch basis, now function in (or closeto) real time. This opens the door to faster,better decision making, but only if theavailable analytical tools can takeadvantage of streaming as well as historicaldata. In this respect, LMP's database anduser interface technology do not sufferfrom the limitations of the previousgeneration of treasury analytics. By takingadvantage of modern cloud technologythat also embeds extensive big datacapabilities, the processing and mining ofhuge volumes of data in real time could bepossible. As a result, treasury's analysis canbe far more proactive and timely - as canany resulting actions.

Nevertheless, some clients may prefer tohave access to the comprehensive data setsunderpinning LMP, but use their own toolsfor analysis (which also corresponds withthe move to open banking in Europe asrepresented by the Payment ServicesDirective (PSD2)). As a result, HSBC islooking at ways in which the same dataaccessible via LMP might be delivered viaAPI into clients' own systems. �

Data, data, dataLiquidity is only manageable if it is visible.Even if that visibility is achievable, formany treasuries it remains a resourcehungry process. Traversing multiple bankplatforms to download data, emailingsubsidiaries for spreadsheets of cashpositions, then aggregating andnormalising all the resulting information,before trying to analyse, forecast, decideand act.

By automatically aggregating thenecessary information across investments,cash, liquidity structures and providers,LMP radically improves this situation - butinstant data management is only part of thepicture. LMP also delivers the tools to giveusers the best possible insight into theirliquidity data. From that solid basis, theycan move on to take the best possibleliquidity decisions and actions for theirbusiness.

New look treasury: intelligenceand self-serviceThe coupling of holistic data aggregationand user- configurable reporting tools inLMP results in a digital solution ofconsiderable flexibility. As a result, there islittle practical limitation on how treasurersmight choose to slice, manipulate andanalyse their data across multiple criteria,including regions, countries, banks (orother providers) and currencies, amongmany others.

This means that treasurers armed withLMP's actionable analytics are empoweredto make faster and better decisions.Furthermore, because LMP integratesconnectivity with other HSBC liquiditysolutions, such as cash pooling andautomated investment solutions, thosedecisions can be immediately translatedinto action. A key point here is the highlevel of self service implicit in LMP: manytasks can be directly undertaken fromwithin the environment, without having tocontact bank staff to request changes.

This autonomy fits well with the waythat the role of treasury has changed to amore consultative one that the businesslooks to for strategic advice. LMP helpstreasurers make faster and better liquiditydecisions, but in doing so it also frees themup to devote more time to business

Treasurers armed with LMP’s actionable analytics are empowered to make

better and better decisions.

Conclusion: futurepossibilitiesAs it stands today, LMP represents amajor step forward in liquiditymanagement and strategic decisionmaking. However, even more advancedcapabilities may become possible overthe next few years. The high qualitydata management implicit in LMP lendsitself well to the use of artificialintelligence and machine learningtechniques, where access to robust,comprehensive data is a key enabler fortasks such as automated cashforecasting. A possible furtherextension of this information-richenvironment is that in due course itmay also be feasible to buildanonymous benchmarking data sets forindividual industries or geographies.Therefore, in this and many otherrespects LMP is not just an exceptionalstep forward for liquidity managementtoday. It also opens the door to thetreasury of tomorrow.

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For Professional clients and Eligible Counterparties only.

All information is subject to local regulations.Issued by HSBC Bank plc.Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.Registered in England No 14259Registered Offi ce: 8 Canada Square London E14 5HQ United KingdomMember HSBC Group

Evolving Treasury Trends...lively panel debate at HSBC’s recent Global Liquidity and Cash...

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