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Introduction

In the midst of the Fourth Industrial Revolution, gradual but monumental technological changes are enriching our daily lives and the competitive landscape for businesses across industries. Through the Internet of Things (IoT), artificial intelligence (AI), robotics, autonomous vehicles, and 3D printing, among others, digitalisation has shaped the way companies accelerate their business models, automate operations, and focus resources on value-added advantages. Not to mention that it has changed the way society eats, plays, and works. It is still early days in this new evolution of industrial change, but it is rapidly becoming apparent that companies must begin adopting some form of digitalisation or risk becoming obsolete. And Asia is leading the way.
 

Areas where digitalisation is applied

Asian companies are ahead of their peers in Europe and the Americas in adopting digitisation and implementing end-to-end integration of their operations, according to PwC’s survey on Global Digital Operations 2018. The automotive and electronics sectors have the greatest number of companies that have mastered and embraced the integrated digital industrial concept, named Industry 4.0. The concept encompasses end-to-end digitization and data integration of the value chain. Companies making the considerable but critical investment usually have a deep understanding of collaboration, the commitment of top management, and a clear strategy  (Geissbauer, Lübben, Schrauf, & Pillsbury, 2018).   

The Association of Southeast Asian Nations (ASEAN) is expected to contribute as much as USD 627 billion in potential economic impact of IoT applications in factory settings, out of an approximate USD 1.2 to 3.7 trillion per year, by 2025 according to the Mckinsey Global Institute (Manyika, et al., 2015). Adequate infrastructure development, such as digital connectivity, has helped ASEAN countries such as Singapore attract significant investment. For example, Infineon Technologies chose Singapore as a lead site to establish a smart factory and a test centre for automotive microcontroller units. The company has since spent EUR 700 million on the facility over the last ten years (Subhani, 2020). Adoption of Industry 4.0 has helped the company reduce labour costs by 30% and improve capital efficiencies by 15% (Ng, 2020).
 

Treasury Management

From a treasury perspective, companies are increasingly deploying robotics process automation (RPA) in data extraction, updates, and validation, as well as invoice processing and periodic report preparation. In fact, it may be easier to get buy-in from management to invest in RPA technology than to invest in treasury management systems (TMS), since RPA can be deployed almost everywhere within the company due to its scalability.  

In Asia Pacific alone, the RPA market size is projected to grow by 203% by 2021 and is forecasted to be worth USD 2.9 billion (PwC, 2018). RPA can be readily deployed and applied to areas such as bank reconciliation to automate some of the work flows and processes. The bots are able to draw data from external sources (e.g., bank e-statements), and operate among different systems ranging from enterprise resource planning (ERP) to TMS to extract data. The same technology can also move across different systems and match against the company’s financial records, without requiring investment in additional systems to run the RPA. This is possible because RPA can be integrated into the existing IT infrastructure of the company.  

In addition, many RPA systems also have governance structures to ensure there is an audit trail and that everything is properly documented. This enables finance personnel in the company to trace back workflows whenever troubleshooting is needed. The robot would perform the time consuming routine work, enabling the finance personnel to move up the value chain and perform analytical work. The RPA platform is able to perform high-volume, repetitive processes by introducing a virtual workforce with relative consistency.
 

Supply Chain

As data becomes more readily available, how can companies anticipate customer demand, plan shipping logistics efficiently to reduce costs and carbon footprints, link with suppliers to procure raw materials quickly, and schedule production in an agile manner?

AI can be put to use by aggregating datasets from external variables such as weather or consumer behaviour, and can combine with internal datasets from ERP, customer relationship management (CRM), and IoT systems to provide more accurate demand planning forecasts.

The six-day blockage of the Suez Canal by the container ship the Ever Given led to massive disruptions to global supply chains and millions of dollars in losses. The incident demonstrates the need for companies to take a holistic approach in using AI to forecast supply, plan alternative shipment routes if disruptions arise, and mitigate costs if cargo is stuck at ports as a result of such incidents. By embarking on AI and IoT transformation, companies can be more responsive and thereby reduce the potential effect on any downstream supply. This could also result in higher supply chain resilience and increased sales by improving order fill rates.
 

Financial Services Industry

Application Programming Interface
The race towards open banking in Asia is not without obstacles, due to the difference in architecture and stages of maturity in the various financial ecosystems.  

In more advanced Asian economies such as Singapore, Hong Kong, and Australia, there is governmental push towards open banking, with established guidelines and roadmaps for banking data to be made available via an open application programming interface (API). API is an IT solution that allows two applications to communicate and exchange data with one another. It is a powerful tool to overhaul the aging architecture of the banking environment.    

Singapore’s central bank, the Monetary Authority of Singapore (MAS), has been the lead agency driving banks to adopt API since 2016. Local authorities are pushing API to encourage competition and innovation, and to give end consumers access to a wider array of services offered by fintechs and financial institutions.  

Likewise, for financial institutions, it offers the opportunity to attract more clients. API allows financial institutions to offer more value-added services outside of their closed banking environment. Unlike in Europe, where it is mandatory for financial institutions to adopt open banking due to the Payment Service Directive 2 (PSD2), it is currently not mandatory for financial institutions to share information and APIs in Singapore and Hong Kong. It merely creates a framework or catalyst to nudge them to move forward.  

However, given the investment needed to improve their current IT infrastructure, not all financial institutions want to be early adopters of open banking. And there is no immediate requirement by regulators in Asia to force them to do so. Many conservative financial institutions are not prepared to make their APIs available in public domains at this point in time, as such a move could benefit their competitors. However, laggards will eventually have to adopt the technology if this becomes the industry norm.  

The benefits of open banking and APIs often belie the threats of cybersecurity risks and data theft. There is a need for robust data protection, privacy, and cybersecurity laws to be put in place in the respective jurisdictions, whether in-country or cross-border, to address and safeguard issues on portability, transparency, and interpretability of data.  

Blockchain
Blockchain was first unveiled in 2008 during the Global Financial Crisis, when Satoshi Nakamoto, the name used by the presumed pseudonymous person or persons who developed bitcoin, released a whitepaper titled “Bitcoin: a peer-to-peer electronic cash system,” which introduced bitcoin and its underlying technology to the world.

Often described as the Internet of Value, blockchain serves as the glue that combines and integrates all other emerging technologies of Industry 4.0. Although this distributed ledger technology is synonymously linked to cryptocurrencies, blockchain proponents advocate that its ability to record, verify, and transmit transactions in a tamper-proof and transparent manner can improve public oversight and strengthen global financial systems by providing authorities with risk-monitoring data in real-time (Maupin, 2017).  

In Singapore, collaboration with blockchain startup DLTLedgers in a government- and bank-led initiative has resulted in the development of a prototype for trade finance registry that leverages blockchain, known as “TradeDoc Validation”. Currently, more than 25 financial institutions have joined this initiative, which is the world’s first blockchain trade finance registry to mitigate the risk of duplicate financing and enhance fraud detection for a single underlying asset.  

The initiative was started against the backdrop of a series of trade financing fraud scandals from the energy and commodity sector, involving companies such as Hin Leong, ZenRock, and Agritrade. The Code of Best Practices for Commodity Financing unveiled by the Association of Banks in Singapore (ABS), with the support of MAS and other key agencies, was developed by a working group of 28 banks and serves to underpin the trade finance registry initiative mentioned above (ABS, 2020).  

Besides fraud detection and validation of financing using blockchain, another government-led initiative aims to move from paper-based trade documents and processes to digitally-enabled ones. TradeTrust, spearheaded by the Infocomm Media Development Authority of Singapore (IMDA) and other government agencies, is a framework aimed at facilitating inter-operability across different trade platforms and formats in the exchange of digital trade documents on a public blockchain. It also provides proof of authenticity of documents and offers title transfer through open-source software.

On 22 January 2020, the International Chamber of Commerce (ICC), the Singapore government, together with 17 multinational firms including financial institutions such as Mizuho Bank, signed a cooperation agreement to accelerate the digitalisation of trade documents (ICC, 2020). SWIFT, the world’s leading provider of secure financial messaging services, has also signed a memorandum of intent with IMDA, on 5 October 2020, to connect their platform to the TradeTrust framework (IMDA, 2020). This is the second platform (next to ICC Tradeflow) lending weight to the blockchain initiatives to create a seamless, digital trade ecosystem underpinned by international standards and legal harmonisation.

Conclusion: How can banks value-add?

Industry 4.0 is here to stay. Data is everywhere around us. Connectivity, accessibility to the internet, and the increase in use of mobile devices has driven customer expectations for all services, including the financial sector. Technology and higher customer expectations are driving the change, and new needs are evolving. The expectation is to be able to access information on the fly and perform transactions anywhere at any time.  

The chief financial officer of a multinational company could be on a holiday retreat in the French Alps but want visibility on the status of a transaction that has taken place in Hanoi to ensure that the beneficiary has received payment. Financial institutions need to provide the customer with the required data in the required format at the required time and location. There cannot be any information gap that will prevent the customer from completing their end-to-end process.

Business activities have clearly changed with the emergence of Industry 4.0, and financial institutions stand to gain significantly if they leverage the technology. Banks will need to transform themselves from traditional financial service providers to ones that embrace digital innovations to improve customer experiences, increase security, and enable flexibility to remain competitive.

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References

1. Association of Banks in Singapore. (2020, November). Code of Best Practices Commodity Financing. Retrieved from Association of Banks in Singapore: https://abs.org.sg/docs/library/code-of-best-practices-commodity-financing.pdf
2. Geissbauer, R., Lübben, E., Schrauf, S., & Pillsbury, S. (2018). Global Digital Operations Study 2018. Germany: PwC.
3. ICC. (2020, January 22). ICC joins Singapore Government and major industry partners to launch TradeTrust. Retrieved from iccwbo.org: https://iccwbo.org/media-wall/news-speeches/icc-joins-singapore-government-and-major-industry-partners-to-launch-tradetrust/
4. Infocomm Media Development Authority. (2020, October 5). SWIFT and Singapore's IMDA Join Forces to Drive Global Trade Digitalisation. Retrieved from imda.gov.sg: https://www.imda.gov.sg/news-and-events/Media-Room/Media-Releases/2020/SWIFT-and-Singapores-IMDA-Join-Forces-to-Drive-Global-Trade-Digitalisation
5. Manyika, J., Chui, M., Bisson, P., Woetzel, J., Dobbs, R., Bughin, J., & Aharon, D. (2015, June 1). Mckinsey Global Institute. Retrieved from Unlocking the Potential of the Internet of Things: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-internet-of-things-the-value-of-digitizing-the-physical-world
6. Matthews, K. (n.d.). Five Smart Factories – And What You Can Learn From Them. Retrieved from Internet of Business: https://internetofbusiness.com/success-stories-five-companies-smart-factories-can-learn/
7. Maupin, J. (2017). Blockchains and the G20: Building and Inclusive, Transparent and Accountable Digital Economy. Centre for Governance Innovation.
8. Ng, B. B. (2020, September 15). IoT Powers Connections at Infineon Backend Manufacturing Singapore Plant to Drive New Efficiencies. Retrieved from semi.org: https://www.semi.org/en/blogs/technology-trends/iot-powers-connections-at-infineon-backend-manufacturing-singapore-plant
9. PwC. (2018). Adoption of RPA in Asia - Myth or Reality? Retrieved from PwC: https://www.pwccn.com/en/consulting/publications/adoption-of-rpa-in-asia.pdf
10. Subhani, O. (2020, December 20). German Chipmaker Infineon to Make Singapore its First Global Hub to Embed AI in All Job Roles. Retrieved from The Straits Times: https://www.straitstimes.com/business/german-chipmaker-infineon-to-make-singapore-its-first-global-ai-innovation-hub

To find out more about Mizuho’s latest development and news on Digitalization, please access the following information:

• Currency Agnostic Blockchain Debuts for Global Trade (Mizuho Americas)
  https://www.baft.org/press-releases/currency-agnostic-blockchain-debuts-for-global-trade/

• Proof of Concept: Generating Credit Opinion with Semantic Technology and Supervised Learning (Mizuho Singapore)
  https://www.mizuhogroup.com/asia-pacific/singapore/about/achievements

• Digital Corporate Bonds for Individual Investors (Mizuho Japan)
  https://www.mizuhogroup.com/investors/financial-information/annual/web/digitalization