Interestingly, BaaS can also be beneficial in combination with environmental, social and governance (ESG) initiatives. And according to Smith: “Treasurers have a significant opportunity to work with their banking partners to add value to the wider organisation by proactively contributing to ESG efforts.
McKenney agrees, adding: “Forward-thinking treasurers are already embedding ESG into their daily processes, so it’s business as usual, rather than a standalone initiative. We know that embracing sustainable practices can offer resilience to shocks, and boost growth potential over the longer term, so building ESG into treasury activities is an essential part of robust future-proofing and adaptability.”
ESG adds real value
Despite ‘greenwashing’ being mentioned in the ESG headlines, there is real progress happening in the space, McKenney believes. HSBC’s research shows that more than half of investors and three-quarters of issuers say the pandemic has either reinforced their commitment to ESG or made them realise they’d paid too little attention to it.
HSBC Global Research has also found that stocks of large companies with stronger ESG ratings have outperformed the global average by 4.7% since mid-December 2019. For climate-related stocks the gap is even bigger, with performance 13% better than the global average over the same period 2.
As the focus on ESG intensifies, so the range of sustainable solutions open to treasurers is growing too. “While green assets have been the talk of the town for a while, and flows into our green deposits continue apace, what we’re starting to see is a rise of the ‘S’ and the ‘G’ elements,” says Smith. Sustainable deposits are also being created to enable corporate money to be earmarked against both green and social loans originated by banks, for instance.
More innovation is hotly anticipated in the ESG space, from short-term investments to FX. Cross-product ESG innovation is also on the radar. And it’s an area where McKenney expects much more interaction with corporates in the months ahead. “ESG-conscious organisations are already challenging the banking sector to be even more creative in our provision of sustainable solutions. They are clearly stating their ESG needs and looking to the banks to deliver cutting-edge solutions. As we head towards 2022, this co-creation dynamic will result in products that not only assist treasurers in their day-to-day responsibilities but also benefit the triple bottom line – people, the planet, and profits.”
Co-creation has already proven fruitful in the digital space, says Smith. “I only see this trend accelerating in the years ahead – it is a critical concept that drives many of our client engagements and subsequent product development.” The important element to note about co-creation is that this particular type of collaboration is based firmly on client needs. “This underscores the notion that while banks may be able to provide a capability map for core parts of their products, innovation in the truest sense is largely client led,” emphasises Smith.
One example of this is the collaboration HSBC began in 2019 with Singapore Exchange and Temasek Holdings to explore the use of distributed ledger technology (DLT) in local bond markets. The result was the launch and settlement of the first digital bond issuance on the exchange’s digital servicing platform in September 2020, completed for Olam International. The project took the bank into new areas of explorations, says Smith, using an on-chain payments solution which allowed for seamless settlement in multiple currencies and enabled the transfer of proceeds between Olam and its counterparties.
Lagarmitte adds: “We can now look to deploy similar solutions for other clients – that is the beauty of co-creation. Clients often have similar challenges. Some are just more vocal than others, so they have solutions built for them by the bank and its fintech partners.”
McKenney echoes this, noting that: “Demanding clients have transformed at a rapid pace. They challenge us as a bank to do better for them every day. While once this might have appeared to be an unusual way to approach a banking relationship, it’s now becoming the best way to innovate. We actively encourage open and honest dialogue with our corporate clients – we want to know how we can deliver more for them.”
Arguably, he believes: “Co-creation between clients, banks and fintechs will form the basis of solid relationships in this new era of collaborative working – especially where BaaS is concerned. At every point of reviewing treasury operations and looking to optimise, the corporate and the bank should take time to bounce around ideas and look at ways that innovation can be inserted into workflows, or could even transform the business model.”
Review and upgrade
Against this backdrop of evolution in the transaction banking space, this is the moment for treasurers to consider taking stock of their current treasury set-up – and challenge themselves, and their banking partners, to improve. Manish Kohli, Head of Global Liquidity and Cash Management, HSBC, comments: “Now is the time to look to the future. With the catalyst of the Covid-19 pandemic at their back, and the advent of exciting solutions encompassing embedded finance and ESG innovations, treasurers have a unique window of opportunity.”
From cash flow forecasting tools to real-time data at the touch of a button – treasurers can, and should, challenge their banks to deliver. As Kohli concludes: “This is the era of as-a-service transaction banking. It’s time to let go of the legacy and build for an agile future based on digital and sustainable foundations.”