Will digital save treasury?
“If we can’t get digital in treasury, then we are dead.” These are the words of the CFO of a multi-billion dollar Korean food distributor in a stark commentary about being left behind by the digital revolution. The sentiment is one shared by the overwhelming majority of treasurers and finance chiefs across Asia Pacific: If you cannot beat digital, join it.
The comment is from a landmark piece of field research by DBS in partnerhsip with East & Partners Asia. The DBS Digital Treasurer report captures the prevailing thinking of more than 1300 of region’s most influential businesses about the opportunities and challenges that digitisation offers their finance and treasury operations*.
The top three external sources of this heightened pressure to digitise operations are clear: peer-group competition (26.8%), the growing pains of corporate internationalisation (25.8%), and serving customers and chosen markets effectively (25%).
But despite these major business-defining factors, many companies are failing to even put in place the most basic plans and procedures to kickstart an effective digital reformation. Despite a majority of treasury departments thinking they are on top of digitisation, three quarters of those surveyed admitted they had no clearly defined digital strategy; in fact, one in four admitted to having no strategy at all. This is not to say companies are not embracing digital, but it’s unclear whether a universal strategy has been outlined.
LEANER AND MEANER
For treasurers needing a reason to take this issue more seriously, they need not look further than their own professional peer group. Despite core responsibilities of handling liquidity, managing risk and forecasting being vital to a healthy business, the largest companies are set to incrementally cut treasury headcount in the next 12 months (from a regional average of 102 down to 100), placing greater pressure on already stretched staff. As such, investing in digitisation is seen as not only as vital to the business, but also a countermeasure to overall corporate cost savings.
Reducing costs/improving efficiencies came out as achieving the highest return on investment (averaging 1.93 on a one to five scale, with one being high return) when benchmarked against lifting revenue, attracting talent, improving customer experience and lowering barriers for market engagement.
At a more granular level, and with an average score of 1.76 on a one to five scale (one being very valuable), respondents believe strongly that incorporating smart contracts into business processes will offer the best return of investment. Smart contracts are agreements entered on the blockchain by at least two parties to make and receive payment for agreed services.
Another firm favourite was API integration with third parties, ERP systems and TMS, with an average score of 1.96. Demand for API technology was especially prevalent amongst Chinese and Thai companies. As one C-suite executive described it: “It’s all about APIs for us; they are quick to deploy and tend not to require major re-works around our ERP platforms. We’re finding the approach especially useful as well across our supply chain.”
At the other end of the scale, few treasurers seem to believe investing in cryptocurrencies as a form of payment would offer good return on investment; the average score was 3.29.
BARRIERS TO SUCCESS
But even with a clear vision for how digitisation can transform a business, the hurdles to entry are significant: 70.2% of those surveyed admitted concern their staff had the necessary skillset to make digital adoption effective. This was closely followed by anxiety that managing the unknown side effects of change would yield serious problems (69.1%). Just over half surveyed (54.4) believe integration would stifle progress. The up-front cost of investing in digitisation being a top barrier to technology investment was an important factor (41.3%).
Source: DBS, East and Partners Asia
Despite this, commitment to spending on new digital innovation over the next 12 months was robust among most corporates. Typically, the larger the company the more capital expenditure spend would be on financial technology solutions, with 16.6% of the overall facilities management/ERP spend from companies with $1 billion turnover or higher being dedicated to it. For smaller companies, the number drops to 11.2%.
According to the results of The DBS Digital Treasurer research, a large minority, (45.1%) of companies will develop their digital strategy using resources from the company’s in-house technology division. One in four expected their treasury and finance department to develop and foot the bill. In 11% of cases, companies said they were working, or will work, with third parties to help pursue their digital plans; 16.7% said they had set up a special internal, cross-business digitisation support unit.
In terms of pushing the digital agenda internally, the chief technology officer is a major influencer with approximately 43% of companies confirming they were the key advocates. However, digital development is no longer just the preserve of the tech department. Transformation in the Asia Pacific region is now increasingly being driven by the chief financial officer and corporate treasurer. Approximately 30% of CFOs and treasurers see themselves as responsible for pushing the digital strategy of their company.
* Note to reader:
The research is based on direct interviews with 1,304 businesses, an even mix of the top 100 revenue ranked corporates ($1 billion and above in annual turnover) and mid-market enterprises ($100 million to $1 billion) across 13 country markets in Asia Pacific: Australia, China, India, Indonesia, Japan, Hong Kong, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. 97% of those surveyed had treasurer as their designated job title.