Cash Management: Leapfrogging Paper to Mobile

In his 15 years with global bank Citi, Sandip Patil has worked in multiple markets across Asia, including India and Thailand. As the bank’s Managing Director and Region Head, Asia Pacific, Payables and Receivables, he has been assigned to Citi’s regional headquarters in Hong Kong for the past seven years.

“There is a lot that’s happening in the market, practically every year, and even more so in Asia,” he says. In this final part of a three-part interview session with CFO Innovation’s Cesar Bacani, Patil discussed mobile banking, cloud computing and other issues around technology that promise to change cash and treasury management in Asia. Excerpts:
We have talked about inter-operable platforms like SWIFT and how these are changing the way cash and treasury management is conducted in Asia. Are there other new technologies in the pipeline that may further change the landscape?
Card-based technologies, mobile technologies and new formats like XML are a few good examples.
The whole world is talking about mobile and the technology is readily available for all banks. But the question is how many banks could use mobile technology to deliver value to a customer?  It’s like having a car. If you have money you can go and buy the car. That does not mean you know how to drive the car or the idiosyncrasies of the road or how to take the fastest possible route from Point A to Point B.
The change also needs to blend with the culture of the organization. One person in the organization trying to make a change does not work. If the organisation’s DNA is to make the change successfully, you use the technology which is off the shelf and make that experiment successful, and if it fits the culture in that organisation then things work much faster.
So success doesn’t lie in having the most sophisticated technology. Success lies in implementing and executing that technology to deliver client value.
Let’s talk about mobile technology, which I take to mean the use of mobile phones for banking. What’s the impact on cash management?
I will give you an example in South Korea. A consumer goods company was looking for a new collection mechanism to support their retail distribution. In the past, they sold to the distributor, the wholesaler, and then the retailer, and they were giving away on average a 5% margin each.
So when they sell directly to the retail consumer store, they are no longer dealing with 20 distributors, but with a hundred thousand different retailers. The company may not have the credit appetite for this because they don’t know all these retailers. They can’t take a cheque and wait for three days. They need to take cash on the purchase.
We partnered with a technology provider and implemented a new model wherein both the salesman and the retailers have access to a simple tool. They use their mobile phones to initiate and confirm payment transactions.
By leveraging on both the mobile infrastructure in South Korea and an existing clearing network, we are able to settle that transaction immediately and give a confirmation back to the seller who initiated the transaction. Once the transaction is successful, the seller can deliver the goods. So the exchange happens.
We eliminated cash completely. We have also automated reconciliations, because it’s a transaction which was fulfilled in a fraction of a second end-to-end. You don’t have to worry. You don’t have to reconcile.
What does it mean to a company? The company can think of expanding their distribution. They don’t need to have credit lines. They will be able to grow much faster.
What is the mechanics of it? Do both buyer and seller need to have a Citi account?
Not necessary. In Korea, there is an infrastructure called KFTC, which links a number of banks and a number of accounts together. That’s not a new network. That infrastructure has been existing for many years.
It’s just the wisdom of marrying that clearing house infrastructure with a newer technology [like mobile banking] and making it work in a commercial sense.
Are banking regulators allowing this?
I think regulators will always be involved. Central banks have good guidelines and most are promoting usage of mobile technology. Every market wants to be more sophisticated, so I think every regulator is extremely supportive.
That does not mean they don’t understand risks; they understand risks, and they have reasonably good guidelines on what can be done or cannot be done.
So it seems like mobile is the next step for cash management.
Absolutely. I firmly believe in the potential of mobile, especially when you come to emerging markets like Asia. In the West, cash management has evolved over a period of time, starting with brick-and-mortar, then the Internet. Companies went on to digitisation, which is paper to electronic.
That is the biggest trend seen consistently over the last 10 years. Every CFO, every company, every organisation is talking about the paper-to-electronic journey.
Now in Asia, in many countries, paper-to-electronic was extremely difficult for a number of reasons and the off-take is probably not the best. But now we have an opportunity. In Asia we have an opportunity to go from paper to mobile directly – we don’t have paper to electronic and electronic to mobile.
And if that eco-system evolves in Asia, that will mean a lot of benefits and a lot of competitive advantage to companies in Asia.
Where are we now in this leapfrogging paper to mobile?
If you look at India, that’s a very big market, and paper has always dominated. A few years back, had you gone to India, and if you look at simple banking transactions, the cheque was the most dominant method of payment.
And cheques came in all shapes and forms. There were cheques that can be cleared only in metro locations. There were also cheques that couldn’t be cleared that way and the cheques had to be physically sent from a city where you collected it, say Mumbai, to a remote city where the cheque could be drawn.
The process meant additional cost like postage, transit time and some risk around loss in transit.
That was the infrastructure in India 3-5 years back. Today, the Reserve Bank of India, which is the central bank, has created an infrastructure of cheque-to-electronic. Almost 70,000 bank branches are now on one single platform, which can exchange clearing entries. So by creating that network you are eliminating millions and billions of cheques every year.
It’s changed. You don’t have to have a cheque and you can use an electronic system to exchange value.
That’s paper to electronic. What about mobile in India?
The journey hasn’t stopped. Now the central bank is working on a mobile concept. They have established guidelines around a project called MMID [Mobile Money Identification Number]. It’s like creating a mobile equivalent for every bank account and trying to create an infrastructure wherein mobile wallets will be able to exchange value with each other.
I think India is slated to have another explosion around mobile payments. And I won’t be surprised if India ends up having millions and millions of exchanges through mobile payments as soon as 2012.
What about Korea? Are mobile payments actually widespread there now?
It’s not widespread, change is still coming. I think the traction is reasonably good. But you also have to realise sometimes it’s for the industry as a whole to push that change.
I imagine there are concerns for both the customer and the bank about security, for example.
Security is a topic that always arises whenever a new technology comes up. Look back to the Internet, it was the same story. And over a period of time people came to believe in it; over a period of time the technology also can become perfect.
For mobile, security standards are evolving, but they are working. The issue is not the standard of security. The issue, I think, is the psychological behaviour, of being comfortable with that technology.
That behaviour changes and comes slowly. Clearly, the moment people start seeing value, they will come onboard. It will take a little bit of time, but I think that’s the direction that will add a lot of efficiency in the future.
Wouldn’t a company need state-of-the-art ERP and other back-office systems if they want to do mobile banking?
Your back-office systems must be robust. But just because you don’t have state-of-the-art systems in the back office, it does not mean you cannot use good technology on the front side.
We have a number of examples where we make technology work for clients who may or may not have the most sophisticated systems. We do cash management for so many customers – some with SAP, Oracle and the standard ERP systems.
But many of them don’t have it. Just because they don’t have it doesn’t mean that we cannot deliver to them the sophisticated cash management platforms and technology.
What do they have?
They have home-grown applications, one for inventory management, one for treasury and finance banking management, one for your raw materials. There are a number of home-grown systems that exist in Asia that work beautifully.
Many of these companies grow through mergers and acquisitions and they had inherited systems. They may not immediately focus on changing and bringing in a single ERP system because the existing systems fulfil their needs.
There are businesses which may not necessarily have the most sophisticated [ERP and other] systems, but they are still using the most sophisticated banking and cash management. They are using internet-based cash management, they can benefit from mobile technology . . .
The software vendors would assert, of course, that you would get much more from it if you have state-of-the-art back office.
Absolutely. But it depends on the organization and their priorities. The industry is also coming up with various options. 
A number of ASPs (applications service providers) are coming up with modules that clients can subscribe to. Cloud computing is the one example of this. The concept is the same. If you cannot afford the biggest technology and the biggest fixed cost investment up front, then you look at the subscription route.

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