Misys-Sponsored Transaction Banking Executive Briefing

Misys-Sponsored Transaction Banking Executive Briefing

(In collaboration with FinanceAsia)

FINANCEASIA.COM38 FINANCEASIA MAY 2015

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FINANCEASIA.COM MAY 2015 FINANCEASIA 39

As Taiwan’s manufactures expand into South East Asia and beyond, how can their banks support integration of physical and financial supply chains

Global trade finance is changing. Intense competition for buyers has forced sellers to offer more favora-

ble transaction terms, often by forgoing lengthy and expensive letters of credit in favour of open account transactions. Open account – whereby payment is made only once the goods are received and checked – now represents approximately 80% of transaction volumes within trade finance, data from the International Monetary Fund shows.

This shift has led to questions sur-rounding how banks can maintain their involvement in the trade cycle as export-ers across the globe are clearly more pre-pared to take greater payment risk. One area that is set to grow is the supply of chain finance, which provides both par-ties with short-term credit for working capital purposes and uses a common technology platform to manage the in-voice approval and settlement process.

According to the Boston Consulting Group, supply chain finance could ac-count for approximately 45% of all trade service revenues by 2020.

If true, then the potential opportunities for lenders could be highly lucrative. In terms of foreign exchange, payments and

“�IN�THE�ERA�OF�GLOBALISATION�WE�NEED�TO�FOCUS�PRIMARILY�ON�CASH�MANAGEMENT�OR�TRADE�FINANCE”–Mike�Liang,�Wistron

l $1.3 billion IPOl Deutsche Bank,

Goldman Sachs, HSBC, UBS (global coordinators); CIMB, Investec Capital Asia, Jefferies (bookrunners)

91.7%Tokyo Electron’s

income drop

PARTICIPANTSMike Liang

Treasurer, Wistron

Brian Edmondson

Global head of transaction banking sales, Misys

Jenson Li

Vice president of sales management, Global transaction services, DBS

ModeratorDaniel Flatt

Editor The Corporate Treasurer

BRIDGING THE GAP IN TAIWAN’S SUPPLY CHAIN growth rate of at least 20%. But since

2007, when Apple started to launch its iPhones and iPads, the notebook industry started suffering.

That is why our company has been forced to change. We are now also manu-facturing smartphones, computers, and also televisions. We now provide com-mercial solutions such as servers and data centres. In addition, Wistron is trying to launch non-hardware services – for ex-ample, after-service maintenance and re-cycling of electronic waste.

In order to complete this transforma-tion the entire design of our processes needs to change. Most of our manufactur-ing bases were set up along the coastal re-gions of China but the various costs, in-cluding labour, has pushed us to move inland, for example to Chongqing and Chengdu. We are even establishing man-ufacturing centres in the Czech Republic and Mexico, for example.

As for after-sales service, we actually have offices in more than ten places dot-ted across the globe. This, of course, pro-vides a lot of headache for our treasury.

FinanceAsia: What issues arise for the treasury department?

Mike Liang: In the era of globalisation we need to focus primarily on cash manage-ment or trade finance. With these servic-es, we take into consideration whether we require multi-language support or wheth-er an authorisation system is something we need. Another aspect is credit support. When we establish a branch office in a new place, we typically don’t inject a lot of

cash management, every dollar made in trade finance fees can bring an additional $1.70 in foreign exchange and cross-bor-der payment fees, and another $2.23 in other transactional banking revenue, said Brian Edmondson, global head of trans-action banking sales, at banking software provider Misys.

However, this is easier said than done. The technology required to develop plat-forms that can facilitate supply chain fi-nancing requires serious investment and many global banks are already ahead of the pack in this regard. At the same time customers don’t necessarily have the pa-tience to wait for their usual lenders to ramp up their services.

FinanceAsia: As a notebook and PC OEM [Original Equipment Manufacturer] manufacturer you have faced serious competition from increased smartphones and tablet sales. How has Wistron adapt-ed to it?

Mike Liang: Wistron is the third-largest notebook OEM company. We manufac-ture one out of five notebooks. Between 2001 and 2010 was the golden era of the notebook computer, with an annual


FORUM


capital at the very beginning. So we do re-quire the support of banks to ensure we have enough working capital.

In addition, we also rely on the resourc-es of the headquarters. We therefore have to know, or build connections with inter-national banks that have a relationship with us at this level. They play a very piv-otal role in this aspect.

The third major challenge is currency hedging. Especially when you are de-ployed in a country where there are for-eign exchange controls. In these cases it is difficult to know exactly how to manage these risks. Your partner banks need to be able to provide these answers, have a very thorough understanding of the local regu-lations, and help you step-by-step. From our experiences Taiwanese banks are not really proficient in this regard, [so] most of our assistance comes from international banks.

FinanceAsia: You mentioned the impor-tance of working capital. You have a very interesting receivables financing pro-gramme in place; please share the details.

Mike Liang: For an OEM company we deal with global jumbo brand names and they enjoy huge bargaining power – they basically treat us like banks. If they want us to give them a very long payment term, we have to agree. And if you want to deal with these clients, you are forced to use factoring. It’s a very nice instrument to fa-cilitate our cash flow. And usually these brand companies actually have a higher credit rating than we do, so actually you can use them to help finance [at] a lower cost.

As for supplier finance, which includes inventory finance, it is very difficult to as-sess the value of our suppliers’ inventory, especially in the electronics industry.

The banks don’t know how to price spe-cialist components. And for accountants they consider it a loan.

FinanceAsia: Brian, from a global per-spective, how is technology playing a role in answering your clients’ problems?

Brian Edmondson: Banks such as Bank of America Merrill Lynch, Barclays, ING, and Commerzbank are acutely aware that they want a standard way of offering their services to their clients wherever they do business with them, whether it is

accounts receivables, factoring, or con-ducting a letter of credit. It helps them from a cost perspective.

They have to look at their back office systems, their back office operations, and how they can better configure those to provide real-time services. So, in terms of globalisation, a common platform across all the business areas or countries they operate in enables them to come up with a more efficient operation. In turn, it can provide a common view for their custom-ers wherever they are doing business.

That said, to echo the comments of Mike, system implementation is half the battle. Providing sound advice for cus-tomers is crucial, especially as organisa-tions look to expand into other countries away from their domestic market. Some of the banks we deal with have a wealth of information about their client base and are looking to tap it.

FinanceAsia: Does this technology give large lenders the opportunity to enter into markets where they don’t necessarily have a balance sheet?

Brian Edmondson: It’s to some extent driven by the reduction of investment into investment banking. So, where they had a presence in investment banking, they now want to leverage that into commercial banking. The trend is to move away from capital markets services but [also to] take advantage of a branch they already had in a country that was more devoted to it.

FinanceAsia: Jenson, considering all the banking regulation in place, how easy is it to implement cross-border cash and trade solutions?

Jenson Li: Compliance is a key considera-tion. We had a client that wanted to set up their factory in Indonesia. In order to help we went to our own branches in Indonesia and we prepared something like a Bible, a manual, within one to two days, for clients to learn all the key local regulations needed for setting up a business. We have a lot of our colleagues who can speak Mandarin Chinese. So, because you don’t have any language barriers, our local staff will be able to answer a lot of questions for Taiwanese clients.

FinanceAsia: Mike, you said Taiwanese banks are not well positioned to tackle these issues. Why not?

Mike Liang: Taiwanese banks lack inter-national exposure and because of that they cannot effectively conduct foreign exchange management. If your bank branch is far away from your client’s man-ufacturing facilities, then sometimes it is very difficult for you to do business with this client. And also, as I mentioned, client support is very important for companies such as ours, and, as we know, the paid-in capital of banks in Taiwan is quite limit-ed. So even the biggest bank in Taiwan by international standards is only a mid-sized bank.

As mentioned earlier, banks need to be able to explain to me unique legal require-ments, whether or not there are any re-strictions or foreign exchange controls, or cash management. This is not something Taiwanese banks can do for their clients. In Japan, banks there will actually help their clients to look for a better location [as] to where their clients can set up their office. They can [also] arrange for visits to government agencies.

“�PROVIDING�SOUND�ADVICE�FOR�CUSTOMERS�IS�CRUCIAL,�ESPECIALLY�AS�ORGANISATIONS�LOOK�TO�EXPAND�INTO�OTHER�COUNTRIES”–Brian�Edmondson,�Misys

SHARE OF TRADE SERVICES REVENUEAs a percentage of total, 2011 vs. 2020

19%Payments

2011 2020

60%Traditional�trade�finance

13%Payments

27%Supply�china�finance 45%

Supply�china�finance36%

Traditional�trade�finance

Source: BCG, “The Transaction Banking Advantage: The Path to Profitable Growth”, 2012

Brian�Edmondson,�Misys

Jenson�Li,�DBS


FORUM


capital at the very beginning. So we do re-quire the support of banks to ensure we have enough working capital.

In addition, we also rely on the resourc-es of the headquarters. We therefore have to know, or build connections with inter-national banks that have a relationship with us at this level. They play a very piv-otal role in this aspect.

The third major challenge is currency hedging. Especially when you are de-ployed in a country where there are for-eign exchange controls. In these cases it is difficult to know exactly how to manage these risks. Your partner banks need to be able to provide these answers, have a very thorough understanding of the local regu-lations, and help you step-by-step. From our experiences Taiwanese banks are not really proficient in this regard, [so] most of our assistance comes from international banks.

FinanceAsia: You mentioned the impor-tance of working capital. You have a very interesting receivables financing pro-gramme in place; please share the details.

Mike Liang: For an OEM company we deal with global jumbo brand names and they enjoy huge bargaining power – they basically treat us like banks. If they want us to give them a very long payment term, we have to agree. And if you want to deal with these clients, you are forced to use factoring. It’s a very nice instrument to fa-cilitate our cash flow. And usually these brand companies actually have a higher credit rating than we do, so actually you can use them to help finance [at] a lower cost.

As for supplier finance, which includes inventory finance, it is very difficult to as-sess the value of our suppliers’ inventory, especially in the electronics industry.

The banks don’t know how to price spe-cialist components. And for accountants they consider it a loan.

FinanceAsia: Brian, from a global per-spective, how is technology playing a role in answering your clients’ problems?

Brian Edmondson: Banks such as Bank of America Merrill Lynch, Barclays, ING, and Commerzbank are acutely aware that they want a standard way of offering their services to their clients wherever they do business with them, whether it is

accounts receivables, factoring, or con-ducting a letter of credit. It helps them from a cost perspective.

They have to look at their back office systems, their back office operations, and how they can better configure those to provide real-time services. So, in terms of globalisation, a common platform across all the business areas or countries they operate in enables them to come up with a more efficient operation. In turn, it can provide a common view for their custom-ers wherever they are doing business.

That said, to echo the comments of Mike, system implementation is half the battle. Providing sound advice for cus-tomers is crucial, especially as organisa-tions look to expand into other countries away from their domestic market. Some of the banks we deal with have a wealth of information about their client base and are looking to tap it.

FinanceAsia: Does this technology give large lenders the opportunity to enter into markets where they don’t necessarily have a balance sheet?

Brian Edmondson: It’s to some extent driven by the reduction of investment into investment banking. So, where they had a presence in investment banking, they now want to leverage that into commercial banking. The trend is to move away from capital markets services but [also to] take advantage of a branch they already had in a country that was more devoted to it.

FinanceAsia: Jenson, considering all the banking regulation in place, how easy is it to implement cross-border cash and trade solutions?

Jenson Li: Compliance is a key considera-tion. We had a client that wanted to set up their factory in Indonesia. In order to help we went to our own branches in Indonesia and we prepared something like a Bible, a manual, within one to two days, for clients to learn all the key local regulations needed for setting up a business. We have a lot of our colleagues who can speak Mandarin Chinese. So, because you don’t have any language barriers, our local staff will be able to answer a lot of questions for Taiwanese clients.

FinanceAsia: Mike, you said Taiwanese banks are not well positioned to tackle these issues. Why not?

Mike Liang: Taiwanese banks lack inter-national exposure and because of that they cannot effectively conduct foreign exchange management. If your bank branch is far away from your client’s man-ufacturing facilities, then sometimes it is very difficult for you to do business with this client. And also, as I mentioned, client support is very important for companies such as ours, and, as we know, the paid-in capital of banks in Taiwan is quite limit-ed. So even the biggest bank in Taiwan by international standards is only a mid-sized bank.

As mentioned earlier, banks need to be able to explain to me unique legal require-ments, whether or not there are any re-strictions or foreign exchange controls, or cash management. This is not something Taiwanese banks can do for their clients. In Japan, banks there will actually help their clients to look for a better location [as] to where their clients can set up their office. They can [also] arrange for visits to government agencies.

“�PROVIDING�SOUND�ADVICE�FOR�CUSTOMERS�IS�CRUCIAL,�ESPECIALLY�AS�ORGANISATIONS�LOOK�TO�EXPAND�INTO�OTHER�COUNTRIES”–Brian�Edmondson,�Misys

SHARE OF TRADE SERVICES REVENUEAs a percentage of total, 2011 vs. 2020

19%Payments

2011 2020

60%Traditional�trade�finance

13%Payments

27%Supply�china�finance 45%

Supply�china�finance36%

Traditional�trade�finance

Source: BCG, “The Transaction Banking Advantage: The Path to Profitable Growth”, 2012

Brian�Edmondson,�Misys

Jenson�Li,�DBS


FORUM


FinanceAsia: Jenson, working with oth-er Taiwanese corporates at DBS do you find they have similar issues?

Jenson Li: In recent years DBS has been servicing clients such as HTC, Acer, and Asus – a ll well-known Taiwanese brands. For example, HTC was at one point the world leader in the development of smartphones. In 2013 it launched the HTC One, but it suffered from a few sup-ply chain issues where it ended up not be-ing able to supply large client orders. Why? Because one of the components, which is actually part of the camera, was faulty. The delay impacted the marketing of the HTC One… proving [that] supply chain management is an area it still needs to do a lot of catching up [on], cer-tainly compared with Samsung and Apple.

Take Wistron, for example. In order to be competitive it really needs to deal with the upstream and downstream players of this sector. Some big names actually use companies such as Wistron as a bank. Because they are demanding very quick payment while, at the same time, when they deal with their downstream coun-terparties they normally demand a very long payment term. That’s why compa-nies such as Wistron tend to get squeezed at both ends.

FinanceAsia: How should these compa-nies resolve these issues?

Jenson Li: They need to make sure their capital can be effectively deployed, espe-cially to areas where there is urgent need for it. If they can allocate their capital throughout their global network, then they can cut down on the need to borrow money from the banks. In order to do that their treasury system needs to have full visibility of the company’s cash posi-tions. A capital management system can allow them to effectively deploy capital

for short-term purposes. The last thing a multinational company wants to see is a situation where in one office there is a lot of idle money but in another they need to borrow money from banks.

FinanceAsia: Can I pick up on your com-ments on system integration. How should a bank and a corporate work to-gether on this?

Jenson Li: Companies pursuing interna-tionalisation need to build an electronic-banking system. For example, if they are setting up manufacturing facilities in Indonesia they will need to hire local staff. You’d need to have a good system with which you can manage the security implications of this. If you have a secure way of transmitting and receiving infor-mation then you can proceed with your cash management deployment in a very timely manner. You can authorise the right people that you trust to facilitate those processes.

This is where banks can provide as-sistance by being able to follow and mon-itor very closely the cash positions

throughout the day, so that the company will know how much money they can tap into.

FinanceAsia: It’s easy to talk about sys-tem implementation but it takes time and effort to get right.

Jenson Li: Integration should be done in stages. In order to minimise risks, nor-mally corporate clients prefer to do this in such a way that they can begin with an offshore office. In other words, they use the offshore office as a test bed. So after a period of time, once they are satisfied the system is very reliable, then they will be-gin to implement the same system at their headquarters, or in other major off-shore offices.

Obviously each project is different but in our experience system implementa-tion can be completed within three to six months. However, if we are talking about unique and customised systems, then typically it will require more than one year in order to satisfy the client’s needs.

FinanceAsia: Brian, working with cor-porates isn’t what I consider Misys’s nat-ural space. What has changed?

Brian Edmondson: Some large corpo-rates have been pushing out [Requests for Proposals] to solve what is a very real problem for them: They want to have a single window into their operations with their banks. They’d much rather have one system across their operations that feeds into their enterprise resource planning system (ERP) so they don’t have to worry

about manual transcription and the overhead cost for handling mistakes; they want it automated. They also want the ability to get immediate updates from their bank ref lected in that ERP system.

An example of an update would be to see how much headroom they have across all banks in terms accounts paya-bles. The same applies to a letter of cred-it, for example. There are a series of proc-esses that clients just want ref lected back in the ERP system so they get a real-time position on their working capital.

FinanceAsia: The level of sophistication implies this would be less relevant for a small-to-medium-sized company, no?

Brian Edmondson: Where we are now I think it’s the large corporates that would want to invest in this. But the real chal-lenge is how to get smaller companies in-volved in these programmes. They don’t want to go through a know-your-custom-er routine with every bank that they could potentially get finance from. It’s a big overhead cost for them. So that’s why I’m interested in what Swift (the Society for Worldwide Interbank Financial Telecommunications) is pushing out in terms of creating a common database that might help them [to] improve their chances to get the finance from many banks.

Having that information provided in the central database that banks can ac-cess makes the process a lot easier.

FinanceAsia: You talk about global standards, which may be a nice goal, but in places like Asia I see that being very difficult to achieve.

Brian Edmondson: It is. From the cor-porate perspective, what’s easier for us to provide is the MT798 service from Swift that allows standard corporate-to-bank communications. So there are attempts to have dialogue between corporates and banks using as a standard message title, which is very important.

But, yes, to come back to the regulatory requirements for different countries, we can have different workflows, for exam-ple, at a country level. So if there are ad-ditional compliance steps required they can easily be built into the system. So, yes, I think it is an issue but from a sys-tems perspective it can be handled. FA

“�THE�LAST�THING�A�MULTINATIONAL�COMPANY�WANTS�TO�SEE�IS�A�SITUATION�WHERE�IN�ONE�OFFICE�THERE�IS�A�LOT�OF�IDLE�MONEY”–Jenson�Li,�DBS

OPEN ACCOUNTS LEAVES BANKS OUT OF THE GAMEGrowth in world trade volumes open account vs. LCs from 1978 to 2011

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

(USD $bn)

1978� 1986� 1993� 1999� 2007� 2009� 2011

Source: Misys

Mike�Liang,��Wistron

“open�account”�business

Trade�businessLCs


FORUM


FinanceAsia: Jenson, working with oth-er Taiwanese corporates at DBS do you find they have similar issues?

Jenson Li: In recent years DBS has been servicing clients such as HTC, Acer, and Asus – a ll well-known Taiwanese brands. For example, HTC was at one point the world leader in the development of smartphones. In 2013 it launched the HTC One, but it suffered from a few sup-ply chain issues where it ended up not be-ing able to supply large client orders. Why? Because one of the components, which is actually part of the camera, was faulty. The delay impacted the marketing of the HTC One… proving [that] supply chain management is an area it still needs to do a lot of catching up [on], cer-tainly compared with Samsung and Apple.

Take Wistron, for example. In order to be competitive it really needs to deal with the upstream and downstream players of this sector. Some big names actually use companies such as Wistron as a bank. Because they are demanding very quick payment while, at the same time, when they deal with their downstream coun-terparties they normally demand a very long payment term. That’s why compa-nies such as Wistron tend to get squeezed at both ends.

FinanceAsia: How should these compa-nies resolve these issues?

Jenson Li: They need to make sure their capital can be effectively deployed, espe-cially to areas where there is urgent need for it. If they can allocate their capital throughout their global network, then they can cut down on the need to borrow money from the banks. In order to do that their treasury system needs to have full visibility of the company’s cash posi-tions. A capital management system can allow them to effectively deploy capital

for short-term purposes. The last thing a multinational company wants to see is a situation where in one office there is a lot of idle money but in another they need to borrow money from banks.

FinanceAsia: Can I pick up on your com-ments on system integration. How should a bank and a corporate work to-gether on this?

Jenson Li: Companies pursuing interna-tionalisation need to build an electronic-banking system. For example, if they are setting up manufacturing facilities in Indonesia they will need to hire local staff. You’d need to have a good system with which you can manage the security implications of this. If you have a secure way of transmitting and receiving infor-mation then you can proceed with your cash management deployment in a very timely manner. You can authorise the right people that you trust to facilitate those processes.

This is where banks can provide as-sistance by being able to follow and mon-itor very closely the cash positions

throughout the day, so that the company will know how much money they can tap into.

FinanceAsia: It’s easy to talk about sys-tem implementation but it takes time and effort to get right.

Jenson Li: Integration should be done in stages. In order to minimise risks, nor-mally corporate clients prefer to do this in such a way that they can begin with an offshore office. In other words, they use the offshore office as a test bed. So after a period of time, once they are satisfied the system is very reliable, then they will be-gin to implement the same system at their headquarters, or in other major off-shore offices.

Obviously each project is different but in our experience system implementa-tion can be completed within three to six months. However, if we are talking about unique and customised systems, then typically it will require more than one year in order to satisfy the client’s needs.

FinanceAsia: Brian, working with cor-porates isn’t what I consider Misys’s nat-ural space. What has changed?

Brian Edmondson: Some large corpo-rates have been pushing out [Requests for Proposals] to solve what is a very real problem for them: They want to have a single window into their operations with their banks. They’d much rather have one system across their operations that feeds into their enterprise resource planning system (ERP) so they don’t have to worry

about manual transcription and the overhead cost for handling mistakes; they want it automated. They also want the ability to get immediate updates from their bank ref lected in that ERP system.

An example of an update would be to see how much headroom they have across all banks in terms accounts paya-bles. The same applies to a letter of cred-it, for example. There are a series of proc-esses that clients just want ref lected back in the ERP system so they get a real-time position on their working capital.

FinanceAsia: The level of sophistication implies this would be less relevant for a small-to-medium-sized company, no?

Brian Edmondson: Where we are now I think it’s the large corporates that would want to invest in this. But the real chal-lenge is how to get smaller companies in-volved in these programmes. They don’t want to go through a know-your-custom-er routine with every bank that they could potentially get finance from. It’s a big overhead cost for them. So that’s why I’m interested in what Swift (the Society for Worldwide Interbank Financial Telecommunications) is pushing out in terms of creating a common database that might help them [to] improve their chances to get the finance from many banks.

Having that information provided in the central database that banks can ac-cess makes the process a lot easier.

FinanceAsia: You talk about global standards, which may be a nice goal, but in places like Asia I see that being very difficult to achieve.

Brian Edmondson: It is. From the cor-porate perspective, what’s easier for us to provide is the MT798 service from Swift that allows standard corporate-to-bank communications. So there are attempts to have dialogue between corporates and banks using as a standard message title, which is very important.

But, yes, to come back to the regulatory requirements for different countries, we can have different workflows, for exam-ple, at a country level. So if there are ad-ditional compliance steps required they can easily be built into the system. So, yes, I think it is an issue but from a sys-tems perspective it can be handled. FA

“�THE�LAST�THING�A�MULTINATIONAL�COMPANY�WANTS�TO�SEE�IS�A�SITUATION�WHERE�IN�ONE�OFFICE�THERE�IS�A�LOT�OF�IDLE�MONEY”–Jenson�Li,�DBS

OPEN ACCOUNTS LEAVES BANKS OUT OF THE GAMEGrowth in world trade volumes open account vs. LCs from 1978 to 2011

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

(USD $bn)

1978� 1986� 1993� 1999� 2007� 2009� 2011

Source: Misys

Mike�Liang,��Wistron

“open�account”�business

Trade�businessLCs

Documents

Misys-Sponsored Transaction Banking Executive Briefing