Redefining Treasury: The New Rails for Real-Time Treasury

0:00Welcome to HSBC Global Viewpoint. The podcast series that brings together business leaders and industry experts to explore the latest global insights, trends and opportunities. Make sure you're subscribed to stay up to date with new episodes. Thanks for listening and now on to today's show. Hello and welcome to TMI's Treasury cast. I'm Eleanor Hill, Editorial Consultant at TMI. And today we're looking at all the ways that Treasury is evolving and what that means for you in practical terms. So in this episode we're looking beyond the theory of tokenised deposits to explore how they're being used to solve real corporate Treasury challenges. And I'm delighted to say that joining me for this episode we have three experts in this topic. We have the wonderful Kelvin Lee, who is general manager of platform tech at Ant International.

1:07We also have Lewis Sun, Global Head of Digital Currencies, Corporate and Institutional Banking HSBC. And last but by no means least, Celine Chong, who is Global Head of Digital Assets, also from corporate and institutional banking HSBC. So welcome, the three of you is so good to have you here for this super, super hot topic. And I know we've got loads to get into, but Lewis and Celine, it would be so nice to kick off with you for maybe a bit of a bigger look, a definition of this topic. So for our Treasurers, our listeners out there, who are maybe relatively new to the concept. What exactly is a tokenised deposit? How does it differ from say a stable coin or a CBD sea? And why are we hearing so much about it now? How has it become this viable proposition for day to day corporate Treasury rather than just an experiment as I think it has been there, maybe up until now? Lewis, perhaps you can kick us off. Sure, thank you, Alino. I think that's a good way to start a conversation.

2:11The tokenised deposit is essentially a traditional bank deposit, but represented in digital form on a distributed ladder or blockchain. So, importantly, it remains commercial bank money backed by the strength of the bank and operating within existing regulatory and compliance frameworks. It's a still paid with interest. It is still under deposit insurance protection. Right. So doesn't really lose any of the nature as a bank deposit. As for the difference, I often explain it as three forms of digital money by serving different purposes, right. CBD sea represents central bank money and stable coins are typically privately issued digital money. And therefore, the legislation and the rulemaking processes are just trying to put the control framework around it, right. But tokenised deposit represents commercial bank money, which is already the form of money that corporates use every day for Treasury and transactional banking.

3:11So what has changed is not just the maturity of the technology but the expectation from our clients, right. Money companies, including ends, now operate globally digitally and also around the clock. Yet much of the Treasury infrastructure still reflects a word of business hours batch processing cut off times, right. So tokenised deposit offers a way to bring trusted bank money into a more real time and the programmable environment, enabling essentially Treasury operations to move at a speed of today's digital economy. So in summary, the innovations not just about creating a new form of money is enabling essentially the existing bank money to work in a digital native way. Yeah, exactly. That's what we've been waiting for since all of these infrastructure evolutions have happened towards 24 seven and other things waiting to catch up. So Lewis, thank you so much for that brilliant explanation. Selene, what would you add to that?

4:13I think Lewis has explained really well what tokenised deposits is and how that differ from other digital money products. What I would add to that is your point about why now. So why is this becoming more interesting now beyond an experiment. And what we really see is that we're seeing this becoming sort of more mainstream adoption of the products and what is really driving that is the fact that we now have clear regulatory pathways. And regulators around the globe are engaged into helping drive this adoption in a scalable and a safe manner. And there are also more institutional players coming together to form that infrastructure readiness to connect the rails for the product to move on. And as to Lewis's point, we really see more kind demand from the earlier adopters.

5:14And through this early adoption, you're really seeing how this technology is being applied to solve pain points. And I'm sure some of these pain points will discuss later on this call like cut off times or cash filing up in the wrong places and stuff like that. So that really what I'm trying to say is that the conversation beyond sort of just, oh, this is a cool technology. It's now moving into the value proposition. Yeah, IE, if you're a treasurer, you're not asking, of course, you're not really concerned about doing fancy technology for the sake of it. You're concerned about, you know, can this help me move liquidity around when I need it? And can I find the right trust the partner who can put in place of right controls and the legal certainty and things that I can rely on? So these are the conversations that we're seeing. And we're very excited, of course, to hear from Calvin today as well, you know, it's his first hand experience. But it's really what makes this an exciting part of the journey at the moment as we're now moving the conversations into adoption.

6:21Exactly that and all of the challenges that can potentially be solved. So Calvin, let's not wait any longer. Let's bring you in here. I know you do like to be innovative. But as Selena said, you, you're also looking for these practical solutions that are going to move things forward and you've been the first corporate to adopt HSBCs tokenized deposit service. So tell us a little bit. I'm sure our listeners would love to know. How does the solution actually work in practice, like talk us through and international initiating a transfer through its treasury platform to funds reaching another group entity. How does it all work? Okay, firstly, that's a long story. I would start with the fact that we started looking to blockchain as a technology to drive our treasury infrastructure starting from 2019 with HSBC at that time to build our blockchain based treasury platform well. We call it we're one point now and over the last few years we co-buted a lot about blockchain system tokenized deposit and most recently we're also looking at more broader usage about real time treasury.

7:30So now we have more than 200 legal entities, a ecosystem has been put on the blockchain. We call it we'll treasury blockchain. So we use the blockchain to process a few types of transactions. The biggest group of transaction we put on is the intra group liquidity movement. We basically move money from Aripay, say Hong Kong, Aripay Singapore to London to Luxembourg. So among these entities, we have a lot of money moving to support cross-border payment business. So that's one of the primary acted we do and now we have moved about 50% of this cross-border liquidity money movement out to the blockchain. The second type of transaction we have been processing is FX settlement. So we trade FX with banks like HSBC, but a lot of times we also require fast settlement. So basically via tokenized bank deposit we can do real time FX settlement. Basically real time trade with the bank and then settle it in probably some seconds afterwards.

8:36The third type of transactions which is started is what we call real time investment. Basically we use tokenized deposit as a settlement layer to connect to tokenized money market fund. So that we can actually invest our surplus liquidity into a tokenized money market fund which we can purchase and redeem real time or at least multiple time of a day so that our investment strategy could be much more dynamic. So at least we're also moving into serving our vendors with that. So in our vendor payments we're also connecting a wide list of vendors that we have been agreed with the bank, for example with the bank to actually pay them via tokenized bank deposit so that they can receive our money much more smoothly, similarly and also of course much more efficiently. So for every transaction we initiate them from our treasury management system now it's based on blockchain and there were three key activities we do on that.

9:40It's not very surprising to treasurers it will be minting a token deposit should we want to move the money for example a dollar from HSBC Hong Kong to HSBC London will firstly mint a certain part of the account balance for example 50,000 out of 100,000, 1 million dollar into tokenized bank deposit. We will initiate a transfer of token deposit from Hong Kong to London and then we will burn the token into Fiat into our bank account, US dollar bank account HSBC London. So that money can move from Hong Kong to London 24 seven so that will allow us to move our liquidity 24 seven instantly on HSBC's TDS service. Brilliant stuff Kelvin thank you for that so much to get into I feel like we need an extra hour for this podcast already. I know we'll get into a little bit more of all the benefits that you've seen from this later on but for the listeners tell us a bit more about some of the challenges that you are facing because you had obviously you've explained your operating across markets and times and you were this always on digital business and yet you're coming up against these traditional banking infrastructure.

10:53And there's a lot of friction there so what were the kind of challenges that that was creating for Treasury what was that mismatch resulting in for you. Our business has two nature's one is is cross border or global okay and the other part is that we're digital we're in the digital economy so we're serving the ecosystem and many merchants that is doing cross border payment buyer and ecosystem. So with that background so we are facing the traditional banking system only works five days a week and eight hours a day well our business and our customers and users they are actually operate seven days and 24 hours a day across around the clock. So there is a big gap that we need to provide a service via our banking partners on the traditional rail while our customer need 24 seven so these created a lot of foreign exchange risk liquidity gaps and operational frictions that we need to put in this normally be resolved by payment service providers or corporates by profounding and also actually mark up the effects in the cross border payment.

12:09So that these costs will be able to handle the friction between traditional banking service and digital economy. So this will make cross border much more much more expensive with much more higher effects risk sometimes with the service provider or even transferred to the end user. So these these kind of frictions made us quite painful when we do a global business and also make cross border payment much more expensive. Yeah sure. I'm sure a lot of our listeners will understand that and feel some of that pain as well Kelvin but Lewis let's bring you back in here because when you were having the chats with Kelvin and the team about what's the right solution to these challenges why did tokenize deposits appear to be the correct answer there rather than looking at things like faster conventional payment arrangements just give us a sense of the thinking behind it. Sure I think we have seen a lot of developments in the faster payment systems right so actually, Kevin already responded to your question probably partially right so most of the fast payment systems are still primarily domestic driven and they're hugely valuable and already transformed many markets right essentially domestic.

13:29P2 say P2 and payments are largely digitized in quite a few jurisdictions yeah, but they're primarily domestic right and I think the important thing is a speed is not only factor so the triedry teams probably increasingly need something broader and they need ability to mobilize liquidity across entities. So we have a lot of different ways to address jurisdictions and to adopt a smart enough money right to operate on that 24 seven and a real time basis so tokenize deposit basically create a shared digital environment where liquidity can be moved managed and eventually programmed based on the business event right so when. So like real time investment into potential liquidity fund probably tokenize deposit via the DVP delivery versus payment model will be a better instrument then purely the faster funding movement right and that's probably a quite unique advantage so in many ways this is not in our view right is not either or discussion you have to use one over another actually in reality the tokenize deposit movement.

14:40The triedry highway will be complement by the faster payment system for the last mile pay out to vendors to potentially for and business right hotels airlines in our views basically fast payment system soft the soul factor speed but tokenize deposit probably salt for smarter movement of liquidity and provides agility and the programmability you're right Louise the fast payment system has a limitation not only they don't do cross border. But most and also most of the fast payment system only process retail payments they don't do wholesale payments okay and they don't process foreign currency transfer for example i'm now in Singapore if i want to move from one bank to another bank in us all or in your I cannot actually do it over here right yeah so without the capability to handle wholesale without the capability handle foreign currency and not cross border of course so these actually provide a lot of limits.

15:40If you run a business like us and many of the treasurers in the hubs a global business a business with a lot of ecommerce involvement you will need a new solution um luckily we we partnered with you and actually tapped into the tokenize bank deposit so this seems to be a viable solution for treasurers like me to actually overcome the limitation that the current clearing systems yeah the traditional banking system. Makes sense absolutely and covener wanted to come back to the the real time investment side of things that we've mentioned a couple of times already okay our needs for real time investment actually came after we achieved a certain percentage of real time payment so as I mentioned now we're around 50% on the real time payment our clearing infrastructures we realize that sitting here in Singapore. Or in in other hubs in Asia we actually receive receive a lot of payments from other jurisdictions in the afternoon or even at night for example here we receive a lot of payments from our European partners at seven p.m.

16:51eight p.m. Singapore time and then probably after nine will receive payments from our US payment partners so these money are not actually being able to invest it overnight. So this money is sitting in the bank accounts overnight not generating yield that that that you should be able to so we thought about whether we can actually work with SM managers and banking partners to make our investment also 24 seven years. So now token as money market found has been generated by a few SM managers in the last few years to serve the Web 3 community but we realized that it is also a viable product for traders like me if you manage a global business especially if you sit in Asia Pacific which we are the first time zone after London after New York. We have to do that we need a digital asset custody we need to transfer agent and calculation agent but most importantly we need a liquidity provider which provide 24 seven real time settlement capability to support that that will be token as bank deposit so basically token as bank deposit you can actually link it with token as money market found to achieve real time investment.

18:06Wonderful stuff Kevin thank you for going through that so carefully so lean let's bring you in and talk a little bit about that from the bank side so I'm sure the list of the interested and know from from your point of view what are the key capabilities required to meet this client demand around real time investment how critical is it to have the ability to connect the digital money leg with tokenized assets just give us a sense of what's happening on your side. Yeah I think what Kelvin mentioned just now is the perfect application of digital money meeting tokenized assets essentially what we're saying is when we sleep let's not have the money sleep that's really clever and I think from a bank's perspective how to enable that is to enable that you need to have a tokenized assets that can settle with the tokenized deposit on the blockchain meet each other so they can do the delivery versus payment. And that asset can be a liquid instrument like the example that Kelvin mentioned earlier being the tokenized money market fund but beyond that technology what's needed other than just issuing the assets on the on the blockchain there's actually also the digital custody of the asset the wallet and key management infrastructure which is actually really been mentioned by Kelvin as well and sort of the traditional asset servicing for the asset.

19:34And a little bit deeper into that assets and sticking with the examples of the tokenized money market fund the fund itself ideally should also access on chain investment instruments for the underlying portfolio to unlock the full benefits what I mean by that is a tokenized money market fund at the end of the day is a portfolio of different liquid instruments like US treasuries bonds and other things like that. Ideally, those should also come on to the blockchain because we have seen use cases where these people take in subscriptions to tokenize money market funds out of hours but actually the fund itself cannot access underlying a basic investment instruments on the blockchain to invest them until the standard normal operating hours and then actually impacts the ability for that fund to generate yield for for the user. So these are some of the things that need to be solved ideally in order for the instruments to work perfectly but it's already quite exciting as it is you know how far you know we have got and then the last yeah and the last point I want to mention is of course beyond the technology there's also this trust layer that allow us to scale safely and it's an important point here to mention that that is it's important to choose an experience and trust it security.

21:00Security services provider or when it comes to the digital custody you know solution brilliant stuff. Celine thank you and I love the you know we don't want our money to be sleeping while we're sleeping put your money to work while you sleep and it's a great message I think for the audience are definitely one that will resonate. Calvin quick question for you just to come back to you mentioned whale earlier I think at the start of the podcast so this is your kind of backbone that you've built throughout Treasury but tell us a little bit I'm sure. So I'm sure the listeners would love to know how did the collaboration here progress from all of this early blockchain testing that you've been doing into this whale platform that you now have and how do you see collaboration between corporates and banking partners developing with all of this innovation that's happening in the world at the moment. I would say it is it is a very exciting journey so I think there are two components one is co creation. Co creation so so we start this journey as I said in 2019 so we basically start to share our use cases and then at your species how to share how core banking system works and we jointly learn blockchain technology so over years we will have been joining regulatory project together and doing all the development work actually on the

22:19joint efforts basically we coordinate it and launch token deposit. At the second part after the launch is co-bued so in the starting from 2024 after the pilot in 2014 to 2025 we actually explored new corridors new currencies and new use cases into the blockchain based trade-free platform and in the HSBC version is TDS tokenized deposit services in different markets from Hong Kong to Singapore to London Luxberg New York to buy so the journey has been has been a has been a very pleasant journey of deep cooperation not only between the business department product department and also the technology department. I would like to give my appreciation to the HSBC team in the journey. No, Kevin that's lovely thank you. Do you live with anything you'd like to add off the back of that? I really appreciate the partnership and support from our Calvin right this is truly drawn initiative and we feel like the most successful innovation happen when happens when the bank and clients co create to co build a solution rather than

23:33simply maintain the buyer supplier relationship. Yeah right so one of the things I found really encouraging during this project is it wasn't really a technology experiment looking for a problem. So and brought in a very genuine treasury challenge faced by its unique basis model and from their side is very clear vision of what real time treasury or pretty model could look like. And from our side essentially we have infrastructure we have risk management free more and we have tokenization capabilities but we just need to piece together all of this to provide a front from to back into and solution to and to address their problems right so I like the word of co creation because the result was truly a collaborative journey where we move from proof of concept in the beginning stage into a production great solution embedded into entry into info. And treasury infrastructure and becoming a day to day platform for them right I think looking at a belief innovations in the digital money digital currency space will increasingly be co created I think banks cooperate technology providers and even regulators all have important role to play in shaping the next generation of our financial innovations.

24:49Absolutely and you've mentioned regulators there and Calvin mentioned the regulatory side of things are have to ask a little bit about that Lewis and Selene because obviously this work is expanded across Hong Kong Singapore into the cross border testing Swift ISO 2022 it's a huge project with that what are the technological regulatory and interoperability challenges that have to be addressed. Before tokenized deposits and assets can can move seamlessly across more markets more currencies more banks Lewis what would you say. Sure and I'll greet question right yes I I don't realize basically when mentioned of our regulatory and compliance framework quite a few times so essentially we from attack technological advancement part of you right we were pretty confident. The current technology is capable of supporting new treasury use cases but the bigger challenge is actually scale interoperability and industry adoption right so cross border adoption require several things to really come together first thing regulatory framework needs to continue evolving in a way that provides clarity and also confidence for market participants right.

26:06And second thing is the end of the standards becomes increasingly important especially around messaging data interoperability right that's essentially where the swift standards and ISO standards are particularly valuable right is a common standard widely adopted basically in our conversation with end when we spend very little time. And really agree on the message standard because that message standard well accepted can be easily understood by both teams right and ultimately I think the future is unlikely to be a single network. And if we want to make cross network operations working and to make our solution be network operational model agnostic essentially adoption of the right common standard on the market will be extremely important. Yeah yeah absolutely echo that Lewis thank you so Lane what would you add there yeah I'll um Lewis has covered the data standardization part what I'll add to that is we also need to solve for things like regulatory and legal consistency that supply that is the rails come together and become interoperable so I'm talking about things like the legal recognition when we're moving tokenized money analysis on the blockchain.

27:28Talking about things like settlement finality and things like any money anti money laundering and KYC so these are typically the things that we're working on with our partners and and all the experts to to solve for so really what I want to stress is there's the technology. But the technically successful transfer is not enough if this sort of legal treatment and compliance framework bring uncertainty to the users because we're talking about money right at the end of the day and we the users of the instrument needs to have the highest degree of trust and confidence in when they're moving that money around it gets the right protection and recognition so this is really key. And I would so I would say that you know as we're now heading into adoption and to the next stage of development. We can't just look at it as sort of proof of concept of technology in on his own is very much about standardization like what Lewis talked about and also making sure we have all the right protocols and and and the safe guys so that we can you know uphold this trust of the participants in the whole ecosystem.

28:44Yeah absolutely it's looking to the what the future holds as well and building for that so with that in mind a final quick question to each of you and then I will let you go but as corporates move towards this more instant cross-order liquidity how do you see tokenized deposits fitting into that future that we've talked about and what do you think programmability could unlock beyond the use cases that we've been talking about today. What advice do you have for our list as Kelvin maybe we'll come to you first for a quick comment. Yeah I would say probably financial service would be become like e-commerce which will be around 24-7 instantly so that treasury management may also be able to work around the clock on blockchain with your payments, collections, investment borrow so whatever treasurer activity you can do. My treasury appears may not be agreed with me to work around the clock then it's come to the second question about AI technology.

29:46So in AI era I think agentic treasury also will also kind of start to develop and the programmability of a blockchain based shared larger based treasury management system will have a lot of value. It will allow a lot of change or agentic work to be done with the programmability capabilities. Yeah I would suggest treasurer's peer treasurers to find a real pain points at the corridor that you need faster payment faster settlement or use case that the current treasury service from your banking partners cannot satisfy you look at the possibility of using tokenized deposit or other digital asset to solve it. Secondly find a reliable partner probably like HSBC you will be able to move into new technology with a lot of hustle been settled by them. Brilliant stuff Kelvin thank you yeah absolutely get your 24-7 operations but still have your evenings and weekends to yourself because you've got your agentic workforce doing the rest that's the ideal Lewis what would you say.

30:48I think it's a very exciting journey right and this journey will continue so if you're looking to this right treasury has been decades trying to digitize information and this next phase is basically trying to digitize money and make that embedded into the day to day operations right. So I think looking at it I think treasury will become increasingly real time automated and event driven by saying event driven essentially in the past right the treasury function often react to business events after things have already happened right in the future I think digital money and the programmability could potentially allow treasury activities to happen automatically based down the predefined parameters the business conditions. So I think the value of the value of programmability introduced by blockchain control at value right and the young funding and liquidity management I think the programmability could also support areas such like automatic cash concentration conditional payments working capital optimization or maybe potentially new forms of digital trade and digital commerce right.

32:01And overall I think token as deposit only lays down the foundation they create a trusted digital money later that can eventually connect with token as I said token as trade processes or broader digital ecosystem right and for organizations considering where to start my advice would be very simple right don't start with token as deposit even that's a product I developed right don't start with a technology start with a business product. Starways of business problem yeah folks on the treasury friction you know you're trying to solve then identify whether tokenization is the right way more any other instruments and any other any other solutions can do it right so essentially that that is more like continuous journey we're getting out. Louis thank you for that and a great suggestion there absolutely it's not all about the particular technology it's about what's going to fit your business need best now but also tomorrow so lean final thoughts from you.

33:03Yeah I agree with that point as well as kelvin's point I don't want to work 24 seven either. So yeah so just to add on to I mean Lewis laid out some potential applications of programmability really well I would extend beyond that and I say first of all you know as the technology matures we can think of about how treasure can apply that not only to liquidity management but risk management when you start to do cross border. You know you can think about automating sort of your effects sort of risk management as well maybe even interest rate so this is a longer kind of future but we can see the potential of how programmability you know together with these other foundational building blocks once in place can can drive that and if you combine that with sort of harnessing of AI analyze the data and that would address the point where. Louis mentioned about you know being reactive to market events but treasures can potentially harness you know all AI to help them you know that have the intelligence make decisions you know based on based on that data to to inform the.

34:13The risk management decisions that they take so this is sort of where the technology can can lead us and it's it's important the last point I end on hence to work with that trusted and experience. You know banking partner such as HSBC we have been building reliable systems and market infrastructure not necessarily you know in digital i'm talking about but just in general reliable market infrastructure for over a century right like 160 years of experience of building out market infrastructure that's reliable that's globally connected and and then in the digital asset space we've also been. Showing our proven experience in in developing production grade capabilities at scale so we're applying our centuries of experience with you know our passion and our insights around digital assets and currencies technology to now take us into that that next stage of the journey and we welcome.

35:16You know partners to engage with us and work with us as to glue is this point think about not the technology necessarily as a starting point but how this can be apply to solve diffrictions in your businesses. Wonderful Celine thank you so much and we absolutely feel the passion coming through on the podcast from all three of you and we really appreciate you all coming on because it's very rare that we get the opportunity to have these amazing case studies about things that are so innovative. And thank you all for sharing your best practices with our audience has been an absolute pleasure and it's very clear that tokenized deposits are moving much beyond experimentation giving treasurers so many things to look forward to so thank you very much thank you also to everyone who's been listening to this TMI Treasury cast and for more in this series around redefining treasury more expert insight please do visit treasury high for management.com and don't forget to say. And don't forget to subscribe wherever you get your podcasts thank you.

36:44Thank you for joining us at HSBC Global Viewpoint we hope you enjoyed the discussion make sure you're subscribed to stay up to date with new episodes.