Digital Innovation in Latin America: Balancing Treasury Risks and Opportunities
Corporate treasurers in Latin America are operating in an increasingly complex and fast-paced environment. To stay one step ahead, treasury teams must re-engineer legacy processes and embrace digital innovation, while closely managing evolving risks such as cyber threats. Striking the right balance can be tricky; but doing so is an essential part of building a next generation treasury function.
The pace of change in the corporate treasury arena continues to accelerate – driven in large part by digital innovation. Technologies such as artificial intelligence, big data, and cloud computing are opening up significant efficiency opportunities for treasury functions, enabling them to do more with less.
Yet, as a growing number of Latin American treasury teams transition from paperless to digital processes, new risks are also emerging. Cybercrime is an obvious – and serious – example, with cyber attacks expected to cost the world USD6 trillion annually by 2021. Treasurers must also consider the challenges posed by digital disruption to business models, and how these may impact future cash flows.
As such, a careful balancing act is required between the threats and opportunities that digitisation brings for treasury. Ways to work towards an equilibrium were discussed by leading industry experts during HSBC Global Liquidity & Cash Management’s recent Digital Innovation & Transformation Regional Roadshows in Mexico and Argentina. Led by Lance Kawaguchi, Managing Director, Global Head – Corporates, Global Liquidity & Cash Management, HSBC, these events saw over 300 treasurers come together to explore ways to prepare for the future, including how to protect their organisation’s assets.
Mexico in the spotlight
Kicking off the Roadshow in Mexico City on 12 September 2018, Kawaguchi used his keynote address to stress the need for Mexican corporates to have the appropriate protection and contingency plans in place for cyber threats. This theme also echoed throughout the opening remarks of José Iragorri, Head of Global Banking for HSBC Mexico, and Carlos González Fillad, Managing Director, Regional Head of Latin America, Global Liquidity & Cash Management, HSBC.
As Kawaguchi explained: “While Mexico has the ninth largest export economy in the world, it is also the seventh most cyber-attacked country in the world. Over the last 12 months 746,000 attacks have been recorded per day in the Latin American region.” And in 2016, Mexico had over 3 million security incidents, “with 87 per cent of companies experiencing some form of privacy breach, which is 13 per cent higher than the global trend,” he added.
Kawaguchi also outlined how HSBC is keeping its clients safe by investing USD2.1 billion in enhancing customer security over the next 12 to 24 months. This is far from the bank’s only technology priority, however. He noted that: “With the digital landscape evolving at a more rapid pace than ever, it’s important for HSBC to provide our clients with faster, better, smarter solutions.” Here, he cited innovations such as Touch ID and Face ID – which were warmly welcomed by treasurers in the audience.
A transformational journey
The theme of digital innovation and transformation was then picked up by Jorge Ruiz Escamilla, Ex-Operational Director of Facebook Mexico. His lively presentation looked at digital disruption and the impact of the Fourth Industrial Revolution on business models.
“A disruptive company is one that transforms products or services that have, until now, been used by society in a certain way – but in the new era, are used in a very different way,” he told the audience. “To date, there have been four major disruptive movements, namely the eras of: mechanised production; mass production; automated production; and now, the Fourth Industrial Revolution, or Industry 4.0 – which is all about digital innovation.”
He went on to explain that Web 2.0 has turned consumers and corporates into "transmitters and receivers of information", while Web 4.0 is based on artificial intelligence. In turn, this has promoted the rapid emergence of new companies that leverage artificial intelligence, such as Uber, Google and Facebook – and the disappearance of organisations not prepared to transform, he cautioned.
Escamilla then explained that for a company to be disruptive and achieve transformation, it has to re-examine its operating model, and incorporate everything from intelligent systems/software that allow the organisation to make decisions based on the analysis of higher quality data, to process automation and resource optimisation. He concluded by presenting “five pillars for transforming for the new era”:
Digital payments innovation
One organisation that is keen to ensure it stays fit for the digital era is the Banco de México (BANXICO), as Miguel Díaz Díaz, Director of Payment Systems at the central bank explained when he took to the stage. He outlined how BANXICO is always looking to develop innovative services, especially ones that will help to promote financial inclusion. But he also explained the challenge of making sure that banking innovations are safe – and the importance of weighing the risks versus the rewards. On this point, he stressed that any regulation in this space must “consider the risks derived from new business models without impeding innovation.”
Speaking about the goals of the central bank, Díaz Díaz described plans to move away from cash as the predominant means of payment in Mexico. “Cash can facilitate certain activities that are to the detriment of the general welfare of society,” he noted. In addition to making illicit activities more difficult to track, cash, he said, is also costly to produce and distribute.
He therefore championed electronic payment formats to help “improve transparency and encourage the entry of new individuals to the financial system.” One exciting new electronic tool that BANXICO is rolling out is a type of ‘request to pay’ scheme known as ‘Digital Collection’. “This would allow instant collections to happen for purchases of goods worth up to MXN 8,000 - in an efficient and safe manner whereby the payment is requested by the payee and authorised by the payer.”
This new tool, which is currently in development, will have benefits for consumers and corporates alike, he explained. Treasurers in particular stand to benefit from “instant receipt of funds, a secure service, and lower costs than other collections channels,” he explained.
While the audience were interested to hear about this new development, they also wanted reassurance from Díaz Díaz around the security of payments systems in Mexico – in the wake of a cyber attack in May 2018, which saw circa MXN 300 million in fraudulent transfers take place via banks’ connections to SPEI, the domestic payments system. However, Díaz Díaz made it clear that the issue lay with the banks’ connectivity channels, not with the payments system itself.
The cyber threat landscape
Despite this reassurance, the attack on the SPEI was a wake-up call for many treasurers, said a panel of experts who closed the Mexico Roadshow with a lively debate around cybersecurity myths and realities. For many treasurers in attendance, this was the first time they had heard this topic discussed at an industry forum in the country.
- Jesús Romo, Treasury Director Mexico, GEPP (Pepsico Bottler in Mexico)
- Sergio Rosengaus, CEO, KIO Networks
- Horacio Ballesteros, Treasurer, Ternium
- Carlos González Fillad, Managing Director, Regional Head of Latin America, Global Liquidity and Cash Management, HSBC
- Humberto González, Head of Cybersecurity, Latin America, HSBC
- Eleanor Hill, Editor, TMI magazine
González Fillad began the panel session by highlighting some of the key cyber threats facing corporate treasurers today. “Something that didn’t happen a few years ago, but is increasingly likely to occur, is that your ERP is compromised by cyber criminals wanting to access your financial data and resources,” he observed. “What used to be the realm of fiction is now reality; and banks and treasurers have a responsibility to help each other protect our organisations’ assets.”
Rosengaus added an interesting perspective here on the nature of valuable assets, explaining that “most treasurers think of protecting financial flows, but not always about protecting data – which is just as important.” Rosengaus also confirmed that treasurers are now prime targets for cybercriminals, given their access to sensitive data such as bank account and credit card information.
This, the treasurers on the panel agreed, means that treasury teams need to be more engaged than ever around cybersecurity – even if it is not a ‘traditional’ part of the treasurer’s role. As Romo noted: “The treasurer sits at the core of the company, and we manage key resources and financial assets using our platforms, which makes us very vulnerable. We need support from our banks to stay safe. We also need support from senior management, and for them to view cybersecurity as an investment in the company, rather than a business expense.”
But Romo was also quick to outline the treasurer’s role: “working alongside the IT team in managing security levels and implementing suitable security perimeters for processing our data, as well as instilling the correct culture within the treasury team around cybersecurity.”
Ballesteros agreed with Romo, adding that it is “imperative to keep security in mind during all treasury operations – and to continue working internally as well as externally to combat cyber threats.” He elaborated on the latter, saying that: “’Internally’ means collaborating with the compliance team to identify the appropriate controls we should have in place, around segregation of duties, for example. Meanwhile, externally we need to look at available market options to safeguard our daily transactions, as well as working with the banks to ensure that their platforms provide the highest security possible.”
Collaboration would be key when it came to protecting organisations from future attacks, felt Ballasteros. Likewise, González said that organisations, including banks, needed to look beyond their own four walls in order to stay ahead of the cyber criminals. Nevertheless, he stressed that security protection also has to revolve around: systems – hardware and software; processes; and people. Rosengaus agreed, noting that “people, possibly pose the greatest risk as they are much harder to control than systems, which can simply be programmed.”
Here, the treasurers on the panel also debated the challenges of having the right controls around processes, in particular payments workflows. “Segregation of duties is absolutely critical. At GEPP, everything is highly compartmentalised, so, for example, the people who release the payment do not have access to supplier accounts or bank account details.” And once the payments are generated, “GEPP has a host-to-host connection with HSBC whereby the data moving between the company and the bank is encrypted,” he explained.
Technology is an enabler of change, not an agent of change – that is down to employees and end-users, who need to be taught how to extract the maximum value from the technology.
Ballasteros said that Ternium has very similar controls in place, and also uses a host-to-host connection with the bank. He then spoke about the need to have back-ups of treasury data and payment files, since ransomware attacks are increasingly common and these can see critical systems taken offline by cyber criminals – in turn, preventing a company from making payments, if they are not prepared. “We have digital back-ups of everything stored physically in an alternative location. Our IT team also liaises closely with our banking partners to ensure there are other options available for us to be able to continue our critical operations, so that we are not vulnerable.”
Given the key role that banks play in treasury teams’ cybersecurity plans, González Fillad explained that it is now vital for treasurers to rigorously assess their financial counterparties “Where RFPs were once based around price and functionality, a bank’s cybersecurity credentials should now form a significant part of that decision-making process,” he said.
Bringing the panel to a close, González Fillad also explained how banks like HSBC are helping to educate clients around emerging cyber threats. “We have experience of both local and global markets, and we understand that cybersecurity is progressing at an unstoppable pace. So, the capacity to learn, absorb, understand, and share information is essential, and having that type of alliance with our clients, to help build awareness, is very important.”
Argentina’s transformation journey
A good example of this educational approach to combatting cybercrime came during the Argentina leg of the Roadshow, held in Buenos Aires on 18 September. After opening remarks from Kawaguchi and an interesting presentation from Javier Finkman, Chief Economist, HSBC Argentina, came a highly informative session led by Ezequiel Glinsky, Director of Innovation, Microsoft Argentina.
His presentation provided an overview of current trends, threats and challenges around cybersecurity – as well as information about state-of-the-art solutions for combatting cyber threats. “These are not just concerns for big corporates,” said Glinsky. “Companies of all sizes may be targeted. But regardless of your cybersecurity budget, there are steps that you can take to help protect your organisation. Even simple things such as password control,” he told the audience.
Glinsky also stressed the need for training and awareness throughout his presentation, which included different real-world scenarios and an excellent motion graphic on the mechanics of phishing, detailing how “one user clicking on a bad link in an email can compromise the entire network.” Finally, Glinsky shared learnings from different industry sectors for successfully dealing with cyber attacks – and explained how different companies are evolving to stay protected.
The concept of evolution, albeit around digital transformation rather than cyber security, was picked up by Matias Alpert, VP – Digital, IBM iX. He began his presentation by explaining that “Digital transformation is often thought of as digitisation; but this fails to grasp the size of the task.” He went on to say that, “Before technology, there are people. And if we do not ask people to step outside of their comfort zones, no matter how much money we invest in technology, it will sit idle.”
Technology, he said, is an enabler of change, not an agent of change – that is down to employees and end-users, who need to be taught how to extract the maximum value from the technology.
Alpert also stressed that culture and organisation need to be part of the initial assessment of a digital transformation project, as these are cornerstones of success. Other factors contributing to successful digital transformation include: “planning the change, executing the change, and – crucially – sustaining that change,” he advised. “Countless projects burn money with no clear objectives, which is why less than 30 per cent of digital transformation efforts help,” he cautioned.
One digital transformation that is on track to be a huge success, however, is the shift in value provision to B2B customers at HSBC – an ongoing project in collaboration with IBM. “Bank employees and end clients are at the core of the transformation, and initial guidelines for usage and channel migration show outstanding promise,” he noted.
Digital innovation in treasury
A handful of the innovations that clients can expect to see from HSBC Argentina in the near future were then discussed during a dynamic panel debate, which touched on everything from cybersecurity to integration of systems and top tips for digital transformation.
- Helena Botero, Chief Financial Officer, WPP
- Ana Cris Cretu, Head of Finance, Helmerich & Payne Argentina
- Gonzalo Torres Posse, Country Head, GLCM HSBC Argentina
- Maximiliano Fodor, Head of Sales CMB & GBM, GLCM Argentina
- Eleanor Hill, Editor, TMI magazine
Torres Posse began by outlining recent digital innovations in the local market, such as the advent of 24/7/365 instant payments. He also described some of the new functionalities that HSBC Argentina has introduced on its platform, including the ability to make international payments, and to invest surplus cash in a selection of investment funds. There are further developments in the pipeline, he told the audience, including a “mobile application for companies that we hope will be ready by the end of the year. With that app, treasurers will have the opportunity to replace their old security token with a virtual token too.”
Fodor then spoke about some of the bank’s global digital innovations, and developments that may migrate from other geographies to Argentina. A great example, he said, is SWIFT gpi. “This is a new standard for making cross-border payments more efficient and transparent. There is a tracker functionality that enables corporates to follow a payment end-to-end through the correspondent banking chain – and HSBC has rolled that out in some countries already, and is bringing it to Argentina next year,” he enthused.
News of these innovations was welcomed by the audience and corporate panellists, who were proponents of digital innovation and transformation. As Botero explained: “My view is that everything needs to be digital within treasury and finance departments. Not only does it free up people, it also minimises manual transactions, which is a great way to reduce fraud risks.”
She went on to outline how challenging digitisation can be in the local market, as it is often heavily reliant on manual and paper-based processes, but said that some treasurers are not aware of the digital capabilities that banks already offer – and what the possibilities for digital transformation are today. “I have managed to digitise all my payments; they are sent from my accounting platform, and they upload to HSBC’s online platform. What’s also great is that our suppliers automatically receive information stating that they have been paid. My tax payments are also computerised – they are either sent from the accounting platform or HSBC’s payment page. So, as you can see, there is a lot that can be done.”
Despite all of this progress, Botero admitted that she still faces challenges with automating reconciliations – and Cretu felt the same. Elaborating on the technology hurdles that the Helmerich & Payne finance function is grappling with, Cretu added that she has “numerous different systems that ideally need to be integrated. What I hope is that the accounting system, the payroll system, the tax statement generation system, and bank platforms can integrate and interact in both directions.”
Not only is it time-consuming operating multiple systems, it is also a significant risk, she explained. “As the person responsible for the company’s finances and controls, I believe the lack of integration leaves large holes in our systems and processes, potentially enabling fraud. I have experienced internal fraud in the company, so I know what it involves and I think the risk of internal fraud is reduced if we have fewer manual processes and more integrated systems. With a more streamlined set-up, we will also be able to take a more targeted approach to cybersecurity and better protect the company against risk,” she said.
Nevertheless, Cretu was keen to point out that technology is only one part of digital transformation. “Contrary to what you may think, the core of digital transformation relies on people rather than technology. People make technology work; so a successful digital transformation requires a significant change in the way of doing things. As such, corporates, including treasurers, need to drive change from the inside, communicating the benefits of the transformation, using training plans and adding digitally aware people to their teams. People buy-in is the key factor,” she advised.
Botero and Fodor agreed, with Fodor highlighting that digital transformation projects inevitably take time and effort, “they do not happen overnight – there is a long game to play,” he said. “But we are moving towards a more digital Argentina, and changes in systems and processes will come, with the right culture in place.”
Achieving this, Torres Posse added, would require – above all – greater collaboration between banks, corporates, consumers, and government. “Only by working together, and having an open dialogue, as we are doing here today at this Forum, can we create an optimal digital ecosystem for Argentina – one that leverages the latest technologies to provide efficiency opportunities, whilst upholding the highest security standards,” he concluded.
Onwards and upwards
Both the Mexico and Argentina Roadshows provided the audience with plenty of food for thought, and a lot to look forward to in terms of digital innovations from HSBC, as well as ongoing advisory support for treasury transformation projects. Kawaguchi neatly summed up how the bank is helping treasurers across Latin America to build next generation treasury functions: “As cash management advisors, our role goes beyond providing best-in-class products and services. We also want to support you with industry experts, treasury design advisors, and highly skilled implementation and integration managers.
“This, combined with HSBC’s global footprint, makes us strategically well-placed to connect Latin American clients to a multitude of global growth opportunities, while helping you to manage the evolving risks that are an inevitable part of the new digital ecosystem – wherever you operate.”