No-one can predict where the next crisis will come from, or what form it will take. It could be another wave of Covid-19, or a different challenge altogether. Regardless of the source of any future turmoil, treasury teams can build on lessons learned from 2020 to be better prepared. Here, three HSBC experts share their insights around making treasury ‘crisis-ready’ – from mining data and embracing real-time payments to upskilling team members and placing sustainability centre stage.

    If a spider’s web were human-sized, it would be strong enough to catch an aeroplane1. This is not only because spider silk is stronger than steel, and even kevlar, but also because it is flexible. During high winds, the strands of a web soften to allow it to flex without breaking2.

    This demonstrates that successfully weathering a storm is not just about having solid foundations; the ability to be nimble in response to events is just as important – as corporates discovered during the Covid-19 crisis. According to Jared Smith, Managing Director, Global Head – Corporates, Global Liquidity and Cash Management, HSBC, “Corporates have done an incredible job in responding to the pandemic and shifting their operational models, almost overnight”.

    Digital ways of working have quickly become the norm, with treasury teams across the globe working from home. “Business models have also evolved, with companies exploring e-commerce and direct-to-consumer sales in a bid to overcome the logistical challenges of reaching consumers through traditional outlets during global lockdown,” says Smith.

    Evaluating progress

    Despite the undeniable pivot towards digital treasury*, it has not been plain sailing for all treasury functions. Smith elaborates: “The pace at which events unfolded took most corporates by surprise. We witnessed a few limited media reports about a new virus in January 2020, which suddenly turned into a worldwide pandemic by March. With this came a global liquidity crunch, extreme levels of FX market volatility and, subsequently, central bank decisions to cut interest rates. This resulted in many companies struggling to access immediate liquidity.”

    Not all corporates were ready to shift to remote working on such a large scale, either says Smith. “For those that relied on manual processes, there were some initial challenges to overcome. Traditional paper-based markets where cheques are commonplace had many more hurdles to contend with – ranging from the logistics of enabling remote access to exploring digital ways to pay and receive.”

    Noor Adhami, Managing Director, Regional Head of Middle East, North Africa and Turkey (MENAT), Global Liquidity and Cash Management, HSBC, has witnessed many such struggles on the ground. “Some pockets of the MENAT region were not as advanced in terms of digitisation, especially when compared with progressive areas such as The United Arab Emirates [UAE],” she explains. “As well as the overnight shift away from longstanding paper-based processes, clients were thrust into an unknown world of remote working. Culturally, this is not a common phenomenon in many parts of MENAT.”

    Fortunately, she says, HSBC has always been forward-thinking in this regard. “We’ve had remote access enabled for employees for well over a decade, and been at the forefront of assisting clients with everything they need for working away from the office – from soft tokens for accessing the banking portal to cybersecurity training. We’ve also placed a huge focus on helping clients to transition to digital ways of working.”

    With many successful stories of digitisation to tell, Adhami believes the pandemic has shifted mindsets in the MENA region. “Where some clients were tied to legacy ways of working, they have now opened their hearts and minds to digital channels. So, while the human cost of the pandemic has been unspeakable, Covid-19 has motivated our clients to embrace ways of working that will help them to grow, prepare for the future, and be more resilient,” she comments.

    * To find out more about digital journeys throughout the pandemic and tools for building digital resilience, please read our article The Resilient Treasurer: Building a Digital Armoury for 2021.

    Moving mountains in MENAT

    HSBC has been helping clients across the globe to progress their digital journeys. But adding more detail on the move away from paper in MENAT in particular, Adhami says: “Usage of HSBCNet is up 134 per cent in the region and mobile transactions, which started from a very low base, have increased by 1037 per cent. More or less all payments are now being made digitally.”

    She continues: “Of course, we work with our clients to adapt at a pace they are comfortable with, but switching off manual alternatives is also important in ensuring clients transform in line with the market. In the UAE, HSBC was one of the first banks to mandate that all payments must be conducted via digital channels, and we’re up to circa 98 per cent client compliance. We’re also working on similar initiatives in other parts of the region.

    This digital effort has clearly paid off. “Feedback from clients around our response to the Covid-19 crisis has been incredible,” says Adhami. “They praised our readiness and the fact that our client service teams were – and are – always available to answer queries. HSBC was also the only bank in the region that was able to commit to keeping the same cut-off times for making cross-border payments and, as matter of fact, increased the window for FX trading, which has been a huge benefit to our clients.”

    Adhami’s team has also been proactive in educating clients on the further potential of digital solutions and improving cybersecurity (see below for more information on these topics). “I cannot over emphasise the importance of the relationship aspect of what we do as a bank,” she says. “Yes, technology is critical, but our people are the backbone of our organisation – and the key to helping our clients through a crisis.”

    Mark Evans, Global Head of Payment Advisory, Global Liquidity and Cash Management, HSBC, agrees: “Treasurers have progressively moved their operating models away from paper. We’ve seen more clients searching for our digital solutions on the web, and this has translated into a record numbers of online enablement. The shift to mobile has also accelerated, with downloads of our HSBCnet Mobile app and mobile transactions up by circa 150 per cent in 2020. In turn, we have seen a significant reduction in cheques and paper. These digital shifts are setting clients on the path to becoming resilient and agile enough to cope with future crises, regardless of the origin of those challenges.”

    That said, there is always more to be done. “Although changes have been made in organisations – and in some cases these adaptations have been almost revolutionary – this is just the start. Treasurers must now continue the great work they have begun and ensure improvements roll on consistently, rather than reaching a plateau,” Evans comments.

    Forging ahead

    The experiences and lessons learned from the Covid-19 crisis can help to create a roadmap for this continuous improvement journey. Smith kicks off with, in his eyes, the number one priority:

    1 Maintain visibility and control, always

    “Visibility is a treasury fundamental; yet many companies didn’t have a complete line of sight over their cash prior to Covid. This was often a result of under-investment in technology, but also of complex legacy cash management structures and relationships, ” he reflects. Fortunately, with the spotlight firmly on treasury, “The board now understands the pitfalls of only having an end of day cash position, and real-time visibility has become essential.”

    Evans adds: “Actively managing payments and receivables during the crisis, in real-time, had a direct effect on organisations’ ability to respond to the crisis in a robust manner. Instant visibility also led to an increased ability to forecast accurately, with the help of intelligent tools, such as our new cash flow forecasting solution [see point 3 for more information]. This meant that the treasurer could make informed and timely decisions, enabling the organisation to be nimble even during the toughest times – which is a key component of a crisis-ready approach.”

    2 Ask smarter questions

    Adhami builds on this, saying: “Once treasurers have visibility, they can start asking smarter questions.” She points to liquidity buffers as a prime example: “At the height of the Covid-19 crisis, many companies drew down on their revolving credit facilities [RCFs]. It was understandable as no-one knew what was going to happen and they wanted a safety net. But ‘safe’ does not necessarily equal ‘effective’ or ‘efficient’ liquidity management.” To be crisis-ready, corporates must take the time to stress test liquidity positions and look at the buffer that’s truly needed, she believes.

    Technology can assist in this endeavour. “Now treasurers have digital access to 24/7/365 insights, and visibility and control over cash flows both domestically and internationally, they can start to really slice and dice their cash positions,” she says – pointing to the bank’s Liquidity Management Portal as a helping hand, here. Armed with this insight, she says treasurers can also review their entire cash and liquidity structure, and assess the potential of solutions such as next generation virtual accounts to help them “work smarter, not harder” – and be ready for any future turmoil.

    3 Harness data like never before

    Of course, underlying these ‘smarter questions’ is smart data. Before the pandemic, treasury teams did not always fully appreciate the value of real-time data, or simply didn’t have the luxury of accessing it, says Smith. “Now that treasurers have digital set-ups, they will be looking to leverage centralised data sets in deeper ways. They realise that to be increasingly nimble, they need actionable data insights, not just information.”

    As a result, Smith believes that we will likely see greater use of tools such as application programming interfaces (APIs), robotic process automation (RPA), artificial intelligence (AI) and predictive analytics going forward. Evans also flags APIs as tools fit for a crisis-ready treasury team. “With APIs, corporates are exploring new ways to consume our services – and the data we hold – in an ‘on demand’, streamlined manner. We have a suite of APIs, with functionality ranging from reporting to payment initiation and payment tracking. If a treasurer needs a balance on an account, they simply ping the bank via an API and the response will come back in a few milliseconds. That’s an incredibly powerful tool at any time – but especially during a crisis.”

    On the data analytics front, Smith points out that “It has been a challenge for some treasury teams to engage with data analytics: they haven’t had the budget, the in-house talent to leverage it, or even the time to properly consider the value it can add.” But banks are now building functionalities into their corporate offerings which enable treasurers to make use of these technologies, without the resource burden.

    Smith cites HSBC’s new cash flow forecasting tool, and intelligent receivables capabilities (in conjunction with solutions such as virtual account management), as examples. The former not only enables forecasting at the touch of a button, but also enables the analysis of customer payment behaviours. In turn, this arms treasury with insights on where to focus the collection team’s efforts, and potentially, which customer relationships are no longer tenable. Meanwhile, the latter leverages ‘smart’ technology ¬– such as artificial intelligence and machine learning – to automate tasks like matching invoices, including part payments. In turn, treasury is freed up for more value-added duties.

    4 Upskill the treasury team

    Even with data crunching done by banks or technology on their behalf, treasury teams of the future will still require a certain ‘fluency’ with data. Evans comments: “With this shift towards data-driven treasury, and towards digital business models, companies must not forget that the workforce also needs to evolve.” Team members, he says, must have the ability to understand technology and ‘read’ data in meaningful ways.

    It is also important to build a culture in which existing team members feel comfortable pointing out areas where they need upskilling, Adhami cautions. “People can be the strongest link in the treasury function, or the weakest. Culture and training both play a vital role in making the treasury team resilient,” she says.

    Despite the undeniable pivot towards digital treasury, it has not been plain sailing for all treasury functions

    5 Protect against fraud and cybercrime

    Nowhere is the need for good training more evident than the world of fraud prevention. Cyberattacks and fraud attempts have increased as a result of Covid-19 – with criminals taking advantage of organisations making huge changes to their operating models**. Adhami says that, as a result, the bank has been conducting “Even more frequent cybersecurity training sessions with clients, and enhancing its own security measures”.

    Smith adds: “The more we rely on technology, the more critical it becomes to have adequate fraud and cyber protection in place.” Nevertheless, technology can also help in the fight against ‘bad actors’. “From biometric security innovations to payment outlier detection tools, technology is one of the most effective ways of staying protected. Algorithms can also continually learn how to mitigate fraud,” he says.

    With this in mind, Smith argues that having access to cuttingedge fraud and cybercrime prevention technologies is now critical when looking to prepare for future crises. And according to a poll conducted by Treasury Management International (TMI) in October 2020, 22 per cent of treasury professionals agree – citing ‘fraud protection services’ as their number one technology for helping to weather another unexpected event.

    Since treasurers do not necessarily have access to the latest cybersecurity tools themselves, they are reliant on their banking partners to provide them. Banks will likely be investing more heavily in this area therefore, while treasury RFPs will doubtless be updated to reflect the evolving nature of cyber and fraud threats.

    ** Discover top tips for staying cybersecure in our article The Resilient Treasurer: Building a Digital Armoury for 2021.

    6 Implement true real-time processes

    The results of the TMI survey mentioned above also found that 57 per cent of treasurers believe real-time data and transactions will be the best tool for assisting them to navigate future crises successfully. While the importance of real-time data has already been discussed, Evans stresses that it is critical not to overlook the transactions themselves – and wider treasury workflows.

    “Real-time payments and collections can assist enormously in optimising working capital – with funds coming in 24/7/365 and monies being paid out ‘just in time’. But it is important to note that real-time payments are only truly efficient when they are executed in realtime,” he says. “This requires corporates to move away from batch processing. Interestingly, going through this shift has enabled clients to look more closely at who they’re paying and when/if they can leverage that for competitive advantage.”

    He cites marketplaces for gig economy workers as an example. “In that environment, an employer offering an instant way to pay workers can make themselves more attractive than a competitor, helping to secure the best talent for their project. This kind of advantage could be critical for a company that has seen a boom in business as a result of a crisis situation,” he notes.

    7 Modernise your supply chain ecosystem

    Another area that Evans believes is important to review is the network of organisations that treasury connects with, both internally and externally. “Preparing to withstand future crises is not just about looking at the treasury organisation in isolation. Corporates must proactively work with their counterparties and their own customers and suppliers to digitise everything in their sphere of interaction. Incentives will be key, such as small discounts for electronic payments, rather than cheques, from buyers – or faster payments if suppliers interact in an entirely digital fashion.”

    Smith echoes this, adding: “A treasury function can’t be truly digital unless the counterparties it deals with are prepared to be part of that digital journey too. Taking an ecosystem approach to digitisation is an important aspect of future-proofing.”

    8 Make ESG part of BAU

    Elsewhere, ESG and sustainability remain a top priority, not just for clients, but also for many corporate employees, regulators and shareholders. Says Smith: “The crisis has generated a huge focus on business practice and ethics, together with wellbeing and the role of corporates in supporting communities. As a result, we feel that it’s no longer an optional aspect of treasury strategy – it’s a necessity. What’s more, all treasuries have the ability to make a positive contribution, regardless of the sector they operate in.”

    And while Smith admits that “Treasury is not the traditional home of ESG,” he believes that with the move towards digital, and the elimination of paper from treasury processes, sustainability is being highlighted. “Treasurers are also looking for creative ways to support the organisation’s wider ESG goals through green and/or sustainable cash and liquidity management solutions***. And as consumer behaviours continue to shift in favour of sustainability, corporates would do well to build ESG into their resilience plans, and indeed their blueprint for business as usual,” he believes.

    ***Green deposits

    HSBC has responded to rising ESG demand with a green deposit offering, which is currently available in the UK, Singapore and India. This product allows corporates to place a deposit that is subsequently ring-fenced and used to fund HSBC’s portfolio of qualified green assets.

    9 Review with a risk lens

    Alongside the exciting tasks of embracing new technologies, exploring data insights and becoming more sustainable, treasurers must also revisit their policies and procedures, says Smith. “This might not sound like the most interesting prospect, but actually there is an opportunity for treasury to embed risk management even more deeply into the department and its workflows,” he notes.

    “It is no longer sufficient for treasury to only have policies for traditional areas of risk like FX and interest rate movements. Treasurers need to approach their role and responsibilities with a fresh risk mindset and have documented guidance to follow in the event of another unexpected occurrence of this magnitude.”

    10 Keep pushing ahead

    As much as it is important to look in the rear view mirror and to learn lessons, what matters most when preparing for the next crisis, says Adhami, is to make sure that positive change is sustainable. “Now that we are on the digitisation journey, there must be no turning back.”

    There can also be no stopping, she says. “As a corporate, it would be easy to reap the initial ‘quick wins’ of digitisation and be satisfied with those alone. But there are many additional benefits to be had: data that can be mined; processes that can be optimised; new technologies like blockchain that can be explored.”

    Even if a treasury function is 100 per cent digital in their operations, there is always further innovation and optimisation to be found, she believes. “Crisis-ready companies, never stand still or rest on their laurels – they explore the boundaries of the possible and consistently push them further,” she concludes.

    For more information on how HSBC can help meet your needs please contact your local HSBC representative or visit gbm.hsbc.com

    Disclosure and disclaimer

    More, collapsed
    Building a Digital Armoury for 2021
    The Resilient Treasurer
    Join the conversation?

    Join our Linkedin group to get an unparalleled view of macro and microeconomic events and trends from a bank that is a leader in both developed and emerging markets.