New Digital Banking
Businesses have been under the cosh since the pandemic came calling. But they have learnt to adapt, and pushing more of their cash management to digital ways was one such. Image Credit: Supplied

For treasurers and finance managers, COVID-19 has encouraged a shift in financial and operational priorities as they manage the impact of the pandemic and start to look ahead.

The pandemic was accompanied by constrained access to liquidity in foreign currency (FX) and FX volatility. The Middle East and Africa region suffered high levels of capital outflow over this period, accompanied by a tightening of bank funding, widening spreads, and a spike in yields. These challenges emphasise the importance of an agile approach to risk management, flexible cross-border liquidity structures, and a clear digital strategy.

For many corporations, centralising treasury activities, such as in Dubai or South Africa, and building on relationships with international banks that operate across multiple Africa and Middle East markets has been a major factor in weathering the crisis. Not only are these banks more likely to offer the breadth and depth of debt financing, liquidity and risk management solutions, their digital capabilities tend to be more mature than that of local banks.

In addition, four strong priorities have emerged over the past year for treasurers and CFOs to help build their companies towards sustained recovery:

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Supporting digital business

The rapid shift in consumer behaviour towards digital has major implications for financial processes and technology, as well as cash and working capital management, leading to the adoption of largely m-commerce based sales models.

Africa, for instance, continues to lead the world in the use of mobile money. In 2020, there were 310 live mobile money services globally, of which over 55 per cent were in Africa, while 43 per cent of all new mobile money accounts set up in 2020 originated from sub-Saharan Africa.

Contactless solutions are also growing, as well as QR-code based payments, such as Pakistan’s ePay scheme. As businesses extend their digital footprint, treasurers are increasingly using solutions such as Straight2Bank and API-driven solutions to manage new payment and collection methods and exchange data efficiently.

Treasurers are also adopting host-to-host and SWIFT-based connectivity for business-to-business and business-to-government flows. Countries such as Tanzania have introduced electronic payment gateways to increase visibility and efficiency in accessing and paying for government services. Bahrain, Jordan, Saudi Arabia and the UAE, have also been proactive in moving directly from a cash and checque-based payment culture to real-time, digital payments with new national infrastructures.

Supply chain resilience

Many larger companies in Africa and Middle East also faced disruption and delay to supply chains, resulting from working capital constraints. These ‘anchor’ companies quickly implemented supply chain finance (SCF) programmes to support their suppliers, with digital onboarding to boost supply chain resilience.

In some cases, the rollout of SCF programmes has been accompanied with conversations around local currency billing to reduce reliance on hard currency and make use of ‘trapped’ local currency held in-country. Digital wallets play a greater role in SCF programmes in Africa compared to other regions, with payments to mobile wallets serving as a vital way to channel funds to small suppliers, farmers and distributors in a convenient and cost-effective way.

Digitising trade

Trade documentation processes are traditionally manual and paper-based, but this has changed with the introduction and gradual adoption of electronic trade instruments and digital platforms. Governments play a major role in enabling trade digitisation, and COVID-19 has placed far more focus on issues such as digital bills of lading, digital signatures, the use of integrated trade platforms, and the role of innovation to streamline and accelerate trade and trade finance.

Trade Information Network (TIN) is a good example of the future of integrated digital trade. TIN is a global utility established by leading trade banks that is looking to create a data exchange between corporates and banks for purchase orders and invoices to enable financing in underserved market segments.

Fighting financial crime

Regrettably, COVID-19 has fuelled the efforts of not only legitimate businesses, but also illegal actors, with rapid growth in internal and external fraud. In South Africa, for example, rates of economic crime remain significantly higher than the global average. The incidence of senior managers perpetrating fraud increased from 15 per cent in 2016 to 34 per cent in 2020, exploiting weaknesses in internal controls.

From a treasurer’s perspective, remote working, patchy digitisation and manual controls have created opportunities for fraud, with treasurers relying heavily on their international banking partners for secure technology and advice on best practices, as well as the banks’ own fraud protection mechanisms.

In this environment, treasurers are learning the lessons prepare for future uncertainty and working with international partners to increase their resilience. The importance of robust liquidity and risk management strategies, digital processes and controls, and support for digital business models will persist as the immediate challenges of COVID-19 start to alleviate.

While these themes are consistent globally, adoption in this region is different due to the large informal sector, unbanked population and less mature regulatory infrastructure.

Treasury centralisation, simplification and digitisation are critical. The unique impetus presented by the pandemic to digitise must not become a missed opportunity because the way in which customers are moving away from cash to digital is very much accentuated. Treasurers and CFOs need to continue to invest in and deliver finance technology for the benefit of all players.