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 USD$6tr 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
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
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 USD$2.1bn 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.