Strategic Treasury

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Being Open to Open Banking HSBC has a new global strategy, is investing heavily in technology and is embracing open-architecture to help its clients in digital transformation.

Being Open to Open Banking

Being Open to Open Banking 

By Drew Douglas, Head of Liquidity and Cash Management, North America and Lance Kawaguchi, Global Head – Corporates, Global Liquidity and Cash Management, HSBC

 

HSBC has a new global strategy, is investing heavily in technology and is embracing open-architecture to help its clients in digital transformation.

Treasurers at multinational corporations face immense pressure to make better use of emerging, digital technologies – both to increase efficiency in treasury’s key areas of responsibility and to help the larger company meet its strategic objectives. And this overarching pressure to automate and embrace transformation has put additional focus on what is perhaps the single most important relationship treasury has outside the company – with its banks.

 HSBC is investing heavily in technology and partnering with fintechs that can aid their effort to make banking faster and easier while addressing the often varying needs of corporate clients. HSBC CEO John Flint in June announced the bank plans to invest USD15-USD17bn in technology as part of its growth [1].

On a conference call, Mr. Flint said, “Technological disruption will accelerate in the coming years. It is therefore essential for the long-term competitiveness of the firm that we keep investing in technology. Being able to invest at this point of the cycle will differentiate future winners from the rest of the industry. We’re already seeing leading banks push ahead of the rest. Given our size and scale, we have an ability to invest that others don’t, and we need to be better at this than the competition.”

But it’s going to take a strategic application of the investment to help clients. As HSBC acknowledges, when it comes to automation, companies may have different priorities. For instance, a company with an outdated Enterprise Resource Plan (ERP) may not see upgrading as a priority, preferring instead to focus on new methods of accepting payments. Or a corporate customer may be solely focused on geographic expansion or reorganisation and may move slowly in digitalisation as it spends time acclimatising to new markets.

Ultimately, HSBC’s strategy rests on the belief it can best service its clients using all the tools available to it—those developed inside the bank and those by third parties—and by organising the bank to best meet the individual needs of each customer.


New Global Model

As a result, concurrent with its big tech push, the bank’s Global Liquidity and Cash Management is realigning how it does business: It has been transitioning from a purely country-based sales model to a global sector sales model. This effort is being led by Lance Kawaguchi, Global Head - Corporates, Global Liquidity and Cash Management at HSBC.

“We changed our Global Banking model to be more industry- aligned,” he says, and to move away from being a very country and region-specific bank, aiming for a single approach to client interactions. So how things are done in London are exactly the way things are done in Singapore. For a large multinational client, Mr. Kawaguchi says, there is now “one group that covers it globally, not just for consistency of client experience, but also to make sure that the solutions they are trying to put forth to the treasury team are better tailored to what’s important to them. It’s not one-size fits all.”

This is true of cash management, he says, adding that while some observers have said it’s become commoditised, at HSBC it’s considered strategic. This approach has helped HSBC secure both North America’s and The World’s Best Bank for Transaction Services in the Euromoney magazine’s Awards for Excellence 2018 [2].

“Everything has to be client centric,”  says  Mr.  Kawaguchi. This means all its products and all its solutions have been based on the feedback from clients. Previously, he says, banks tended to work internally “to try and guess what clients wanted instead of asking them what they needed.” So far, the sector- based approach is working, based on more recent feedback. “What we’re getting from the market and from our sector experts is that it’s actually much more efficient for the bank because now we know where to allocate our resources,” says Mr. Kawaguchi.


Bring on the Technology

With its sales structure in place, HSBC’s Global Liquidity and Cash Management says it can now better deploy its products and strategy to hit all the needs of its clientele; needs that, as mentioned, are very often disparate.

Drew Douglas, Head of Liquidity and Cash Management, North America at HSBC, says he and his colleagues frequently see examples of these disparate or conflicting priorities when dealing with a range of clients. “We have some clients where liquidity and working capital optimisation is a priority and we spend a lot of time working with them on solutions,” he says. But the next client may offer up a wholly separate set of priorities. “They might be in expansion mode and therefore liquidity and working capital optimisation is going to stay at current levels.” Or they decide not to expand the way they use their ERP system, reasoning that they will just use them as they are because current objectives are to move into new markets and prioritise resources on the expansion.

What Mr. Douglas and HSBC are looking to do is to support both scenarios using the concept of interoperability and open banking. Interoperability, via application programming interfaces or APIs, provides the capability for systems and organisations to work together seamlessly, based on common standards. This means partnering to more easily facilitate the thousands of transactions multinationals make daily by smoothing out bumps that get in the way.

Mr. Douglas says “we have spoken of interoperability for many years in asset management, custody, prime brokerage and cash management. With rapidly expanding fintech solutions, the importance of ‘interoperability’ has never been higher in the treasury space. The more successful large international banks need to get the open architecture, the open banking, right,” he says. “We can’t partner with every fintech , but we think the world is changing quickly to the world of open APIs; where we have a responsibility to interoperate across the fintech environment.”

And that means looking at banking across everything from HSBC’s own online offering, HSBCnet, “to a client’s treasury management system to their ERP systems to SWIFT; to ACH payment process providers and to how that universe interoperates to the satisfaction of specific client’s priority. Our focus is to support a thriving treasury environment” Mr. Douglas says.


Fintech investment

Since 2015, HSBC has been a strategic investor in cloud- based treasury management solutions provider Kyriba [3], and it also has investments in procure-to-pay company Tradeshift [4]. And last year it joined forces with GT Nexus, a supply chain management platform that provides companies with end-to- end connectivity, visibility and collaboration with suppliers [5].

So HSBC, like many large global banks, is leveraging third parties within its own platforms to expand service offerings, enhance client experiences, increase efficiency, and reduce cost. One of the offerings HSBC says is an attractive option for clients is its virtual accounts product, which is currently live in the UK and being rolled out in several other markets, particularly in the US.

 

Notes

1 (https://www.wsj.com/articles/hsbc-ceo-promises-to-invest-17-billion-in-technology-and-asia-growth-1528725268). 
2 (https://www.hsbc.com/news-and-insight/insight-archive/2018/hsbc-best-for-transaction-banking-says-euromoney).
3 (https://www.kyriba.com/blog/jean-luc-robert/welcoming-hsbc-new-investor)
4 (https://tradeshift.com/press/tradeshift-raises-250-million-in-series-e-funding-round-bringing-company-valuation-to-1-1-billion/) 
5 (https://www.theglobaltreasurer.com/2017/07/11/hsbc-and-gt-nexus-partner-to-offer-digital-supply-chain-platform/).

 

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