Digital innovation underpins industry’s resilience amid current turbulence and success in the future

After an absence of almost three years, the SWIFT community was back to meeting in-person at SIBOS 2022 in Amsterdam, the Netherlands. Many had looked forward to finally being able to meet face-to-face at this year’s annual SWIFT banking conference. However, things were not quite back to normal as expected, overseas bankers arriving at Schiphol Airport had to endure multi-hour long queues.

Notwithstanding the inconvenience, the familiar hustle and bustle of SIBOS quickly resumed once the vast halls of the RAI Amsterdam convention centre were filled. More than 10,000 bankers and delegates were in attendance at the hybrid event, albeit those onsite kept hectic schedules at the over 190 exhibition booths, catching up and getting down to business with clients and peers that they have not met physically since the start of COVID.

The theme of this year’s conference, “Progressive finance in a changing world” saw over 500 speakers and panellists discussed topics on the industry’s digitalisation push and adoption of financial technology innovation, challenges and opportunities of operating in an increasingly uncertain landscape disrupted in the last three years by the COVID pandemic and severe mobility restrictions, and more recently by the Russia-Ukraine war.

Both have had catastrophic impact on global trade and supply chains, raised inflationary pressures and continue to threaten economic growth and stability. Climate risk and the industry’s role and action to help the global economy transition to a more sustainable development and growth path was also a hot topic of discussion.   

With the global economy entering a period of heightened uncertainties and risks, how will the transaction banking and treasury business in Asia Pacific be impacted and what adjustments will banks have to make? How will financial innovation and progressive finance help the industry navigate this changing world?

Financial industry resilience underpins continuity of global trade and supply chains

In the current period of turbulence, engaging clients to ensure continuity of their supply chains, supporting suppliers to access financing by using rich data and analytics, are the priorities of banks said Faisal Ameen, head of Asia Pacific for global transaction services at Bank of America.

Faisal Ameen, Head of Asia Pacific, Global Transaction Services, Bank of America

“The challenges are many, when we look at our clients’ business and our business, a couple of things stand out. The majority of the discussions have been around their digital journeys and digitisation within their organisations and treasury functions, a greater orientation towards client servicing, they servicing their clients as we continue our journey of being extremely client centric and focused. Resiliency ahead of efficiency is a theme that seems to resonate both at our client-end and across the economy,” commented Ameen.

He added, “Many clients are looking to secure their supply chains. When they think about challenges ahead, they're trying to see how they can best enable and support continuity of the supply chains throughout these disruptive periods. There's been a lot of demand for supply chain financing solutions, not because our clients need the cash, but because they want to support their suppliers through any period of turbulence. Our clients certainly engage us on the most effective myriad ways of navigating through all the changes, whether XML ISO 2022 and the richer data that it presents for treasuries to apply artificial intelligence (AI), machine learning and robotics over the flows and doing data analytics on those flows. It provides us the opportunity to enhance that analytics and provide them with those data.”

Nicolas Cailly, global head of payments and cash management at Societe Generale observed rapidly changing and deteriorating global business and macroeconomic conditions and is focused on managing risks, utilising available credit to support a sustainable balance sheet expansion.

Nicolas Cailly, Global Head of Payments and Cash Management, Societe Generale

He remarked, “The situation has completely changed in the past six months to 12 months. It has   changed because there's some kind of downturn and there’s even talk of being on the edge of a recession. As a bank, we will continue to support the development of our clients and partners in all reaches of the world. At the same time, we need to be very cautious in managing our balance sheet and our own risk environment where we see risks being ratcheted up, where we see squeeze on liquidity and problems appearing.”

“Customers are using more facilities rather than cash, because it's drying out. We will be very cautious in how we give that credit and support the companies going forward, especially the sectors that are very energy dependent, considering the energy crisis that we're having. From industrial to construction, raw material, and industries that have become difficult to manage and to look at. We need to be very cautious,” he added.

However, trade flows in Asia, especially among ASEAN countries, remained stable said Standard Chartered’s global head of trade and working capital, Kai Fehr. 

Kai Fehr, Global Head of Trade and Working Capital, Standard Chartered 

“Frankly, we haven't seen that much impact yet, the trade flows are still stable, particularly in the first half of the year. We see a slowdown in the third quarter, which we predict will continue to stabilise,” he shared.

Amid liquidity and credit crunch, channelling financing to where it is needed is critical

Fehr believes the ASEAN markets will be the largest winner of the changes happening in global supply chains. China’s continued zero-COVID policy and severe mobility restrictions have significantly eroded its position as the dominant hub of global production and supply chains. In fact, the same factors were responsible for China’s conspicuous absence from SIBOS. The ring-fencing or diversification away from its manufacturing and logistics capabilities with the adoption of China plus one strategy will see greater flows going to a number of ASEAN markets, such as Vietnam.

“Our friends in Vietnam did an amazing job to attract business. And they are accelerating that path. You have other countries like Indonesia, Malaysia, as well as Thailand benefiting from it,” said Fehr. Standard Chartered is helping clients in these with innovative solutions to ensure that they get the needed financing in the current environment, in particular, deep-tier financing that channels the money where it's needed,

“It's relatively easy for a bank to provide level one financing within the supply chain. In particular, if your anchor client, the buyer in the West is a multinational company, their suppliers are rock solid names they can fund within that supply chain, or locally. But what about the suppliers of their suppliers? What about the supplier of the supplier of the supplier? That's where deep-tier financing solutions come in. And that's where we are excited about the partnership with Linklogis, a platform operating in China for domestic supply chains and is providing exactly that solution.”

“We use token technology to enable deep-tier financing on the back of the trade transaction with a token that travels through the supply chain. It splits from level one to level two, level three. You split the token, and two suppliers can to get financing on the back of the first level or second level supplier, that means we are able to channel the financing where it is actually needed. It's an up and running platform. We have more than 20 buyers, more than 350 suppliers on the platform. It has grown in the last 12 months,” said Fehr.

Progress made in scaling the digitalisation of trade processes has also seen significant improvement in speed and quality of service that creates greater customer satisfaction and loyalty said Vinay Mendonca, the global head of product for trade and receivables finance at HSBC.

Vinay Mendonca, Global Head of Product, Trade and Receivables Finance, HSBC

“Digitalisation of trade between our clients and the banks has finally reached scale. A few years ago, less than half of our transactions were initiated digitally, they used to come by paper, manually. Today that is 88%. And it's not going back once the customers have been onboarded to digital, they will just continue to do that because the transactions get processed faster, the service levels are better. What we see are more satisfied customers, our net promoter score now is a record high of 66. They're satisfied. However, that's only one part, between the client and the bank. There is still the bank-to-bank and wider ecosystem that is still not scaled up though there have been some good green seeds of growth. But there's a lot more to do,” he said.

Changes in macro environment and markets provide opportunities for value creation and growth

Wells Fargo's head of banking and capital markets in Asia Pacific, David Ratliff opined that changes in the macro environment and markets provide opportunities for value creation and growth. He highlighted key priorities and hires in the investment banking and capital market team to expand in the region.

David Ratliff, Head of Banking and Capital Markets, Asia Pacific, Wells Fargo

“We are still very focused on transaction banking and trade finance. Our two biggest businesses in Asia are our US dollar fixed income sales and trading business, as well as our transaction banking business. We're one of the leading providers of US dollar payments, clearing, funding, and trade finance, both for financial institutions (FIs) and corporate clients in Asia Pacific. We are looking to invest in both of these businesses. On the markets side, we're investing a lot in our macro businesses, foreign exchange (FX) out of Singapore, rates in Tokyo to match the strength of our credit trading out of Hong Kong,” said Ratliff.

“We're growing some of those macro businesses in Asia Pacific. In banking and capital markets, we've been hiring people for debt capital markets, we have a relatively new debt capital markets head based in Hong Kong. We got a new head of syndication joining next week. And I've hired a new head of mergers and acquisitions (M&A) for Southeast Asia. We're building out our investment banking presence in the region, and looking to provide more advisory and capital market solutions. We are always talking with a lot of our FI group (FIG) clients, and look at sectors where we can compete globally and do more in the broader FIG and corporate space,” he added.

BNY Mellon is also strengthening its regional treasury services team to improve advice, support and solutions for FI clients amid the rapidly changing environment.

Winnie Chen, head of treasury services at BNY Mellon said the pandemic accelerated the digitalisation of banks’ in-person interaction with clients and paper-based transactions, and are busy changing their business model to be able to satisfy client requirements while competing with the likes of the fintechs. 

Winnie Chen, Head of Treasury Services, Asia Pacific, BNY Mellon

“We have certainly adjusted ourselves to meet client requirements and to grow together with them. The majority of our client base in Asia Pacific are banks. We work closely with them to make sure our solutions meet local requirements in regulation, compliance, sanction and anti-money laundering (AML), because of changes in the environment. We have beefed up our entire regional team in Singapore. We have major hirings in Singapore and other key locations to make sure that we are right by the clients, to ensure that we provide the best solutions to them,” she said.

Beyond current challenges to overcome, banks are also working to develop the future model of themselves. Hari Janakiraman, head of industry and innovation for transaction banking at ANZ, shared three distinct but interlinked areas that his team is working on to futureproof the bank in emerging payment technologies and how they can be leveraged to create ecosystems and platforms; digital assets, tokens and central bank digital currencies (CBDCs) to bridge opportunities in Web 3.0, centralised finance (CeFi) and decentralised finance (DeFi), and lastly, rich data and advanced analytics to create and deliver hyper-personalisation and effective risk management.

Hari Janakiraman, Head of Industry and Innovation, Transaction Banking, ANZ

Setting up for future success, fast

He asserted that COVID has changed the world forever and it probably will not go back to what was before. Interestingly, when it comes to transaction banking, the changes started just before COVID, with new and evolving technologies, customer expectations, and the competition from not just banks, but different players who are looking at financial services as an area they can grow.

“When we look at what our customers were asking for in a typical request for proposal (RFP) in 2017, 2018 versus what they asked now. If there were 20 parameters, maybe one or two will match now, everything else is completely different. So that is how much the world has changed. And we need to be prepared for that. My function in the bank is to set ourselves up for success in the future, fast.”

Philip Panaino, Standard Chartered’s global head of cash management is excited by the challenges and opportunities in payment digitalisation and innovation. He opined that the industry would be struggling in the current turbulence had COVID not accelerated digitalisation. It also precipitated the transformation in business and operating models that enhance customer payment journey and uncovered new value in the face of changing economic conditions and market cycles.

Philip Panaino, Global Head of Cash Management, Standard Chartered

“We're exceptionally excited about the post COVID era, and capitalising on the digital advances that we've made in the pandemic era. We as an industry and as a bank have got an amazing amount of unique opportunities ahead of us. Whether it is using technology such as distributed ledgers, working with central banks on building digital currency capability, whether it's working with interconnected networks to create a seamless frictionless cross-border payment experience for a corporate client and the consumers out there,” he remarked.

“That's an opportunity for us at Standard Chartered which we are embracing. There're uncertainties, but uncertainties have got a positive point as well. Change is constant. And as an organisation we learn to adapt to that. And I also think a positive consequence of a more digital world is that if you operate within an ecosystem of players to add value to the payment journey, you also have an opportunity to make it more frictionless, safer, more secure, and leverage data and the system to use it to your advantage to really facilitate commerce,” concluded Panaino.

DeFi is to be taken note of

On the other hand, ANZ sees DeFi as something that it needs to take note of. “We cannot afford to stand on the sidelines and wait for someone. We need to start looking at it now. And we have started working on it. What is the role for a commercial bank when it comes to a central bank digital currency and stable coin?” quipped Janakiraman.

ANZ issued its own Aussie dollar stable coin earlier in the year, it claimed to be one of few banks to do so, and the only one to issue a fully fiat backed stable coin on the Ethereum mainnet, public permissionless ledger. That was done to see how it can enable customers to get into the digital assets and digital services economy, but backed by a very well rated bank who they have been banking with for decades. 

In one pilot and proof of concept, the bank looked at tokenising whiskey with a fintech. The use case was to tokenise the inventory, the amount of whiskey in the distillery, wholesaler and retailer and use our programmable money, the Aussie dollar stable coin to automate processes. In this particular case, to automate tax clearance. But that is the type of experiments  want to do. How can we leverage these new technologies to create a completely new experience for our customers?

ANZ sees DeFi as something that it needs to take note of. “We cannot afford to stand back on the sidelines and wait for someone. We need to start looking at it now. And we have started working on it. What is the role for a commercial bank when it comes to a central bank digital currency and stable coin?” quipped Janakiraman.

ANZ issued its own Aussie dollar stable coin earlier in the year, it claimed to be one of few banks to do so, and the only one to issue a fully fiat backed stable coin on the Ethereum mainnet, public permissionless ledger. That was done to see how we can enable our customers to get into the digital assets and digital services economy, but backed by a very well rated bank who they have been banking with for decades. 

In one pilot and proof of concept, the bank looked at tokenising whiskey with a fintech. The use case was to tokenise the inventory, the amount of whiskey in the distillery, wholesaler and retailer and use our programmable money, the Aussie dollar stable coin to automate processes. In this particular case, automate tax clearance. But that is the type of experiments Janakiraman wants to do. “How can we leverage these new technologies to create a completely new experience for our customers?” he said.