With corporates and governments committing to decarbonisation targets, the need for flexible and innovative financing solutions for green projects is becoming more relevant. 

Clean hydrogen is a potential player in this space. While the market is still in a somewhat embryonic state – particularly in terms of prices and demand – it has potential for decarbonisation, bolstering energy security and job creation. 

Speaking to World Hydrogen Leaders’ Nadim Chaudhry, Santander CIB’s Global Hydrogen Lead, Urbano Troncoso, dives into the challenges of being a financier to such ventures, while looking at the ins and outs of electrolysis platforms, and the regulatory landscape for clean hydrogen projects. 

You can watch the full interview below: 

At Santander we continue to work towards our net zero ambitions, having mobilized EUR 114.6bn of our EUR 120bn target for 2025 and we remain one of the world leaders in renewables financing.

Our award-winning Structured Finance team provides clients with strategic advice and access to a tailored suite of specialised financing solutions. Our expertise spans across a large range of industries, from Renewables and Power to Transport and TMT. Learn more here.  

The world of Working Capital can be a volatile one for corporates of all sizes to navigate, and with ever-more uncertainty on the macroeconomic and geopolitical stage, it’s imperative for these businesses to both stay on top of emerging trends in this space, and perhaps most importantly, find solutions.

The events that have defined the last three years have had a significant impact on global trade. In this blog, we review some of the major trends that are impacting global supply chains and Working Capital requirements. 

After a period of relative stability in 2023, characterised by limited raw materials and core component shortages and minor logistic issues, supply chain disruptions have once again come to the fore, driven by various factors such as extreme weather conditions and geopolitical tensions. 

Geopolitical tensions are expected to be a key factor in global trade in 2024, and there are increasing concerns about the long-term impacts of climate change on global supply chains.
 
Nearshoring has also gained considerable attention as a strategic choice for businesses seeking to optimise their supply chain operations.

Within this article we also look at changes in consumer behaviours, including the rising trend of ‘doing rather than having’ and the shift from traditional ownership-centric models to a subscription-based approach: Everything-as-a-Service. 

Bart Timmermans, European Head of Global Transaction Banking (GTB) at Santander CIB, said: “Despite all global disruptions and the impact on trade flows, Santander CIB continues to create new solutions to support our clients during the business transformations they go through. We have examples in all sectors, from automotives to batteries, or consumer goods to retail, in helping our clients to optimise their supply chains.”

Here are five key trends impacting Working Capital in 2024: 

Supply chain disruption is back 

Supply chain disruptions appeared to be fading in the rear-view mirror last year, as things returned to some form of normality following the pandemic – the cost of shipping, delays, availability of raw materials and other key indicators had returned to pre-pandemic levels. Now, in 2024, supply chain disruption is back to the top of the agenda, for a variety of reasons, including extreme weather events and geopolitical instability. 

The impact of geopolitical instability

Geopolitical instability has emerged as a critical factor significantly impacting the complex network of global supply chains. The Ukraine-Russia war first and the more recent Middle East conflict are having notable impacts on commercial trade.

Aside from the increase in oil & natural gas prices, and war risk insurance premiums, companies have been obliged to face higher costs and time to reroute cargos away from dangerous areas, thus continuing to add significant issues to supply chains.

Carriers have already diverted more than $200bn in trade from the Red Sea, adding about 6,000 miles to a typical journey from Asia to Europe and on average three or four weeks on product delivery times. 

The impact of weather 

Everstream Analytics’ annual risk outlook ranks extreme weather as the biggest threat to global supply chains in 2024. These extreme weather events are becoming increasingly common, placing further pressure on supply chains.

Floods, droughts, and other extreme weather conditions are becoming a recurrent issue both in Europe and the US, hammering ports, highways and factories on a global scale. 

Low water levels hitting shipping capacities – for example at the Panama Canal and Rhine River - violent storms disrupting automotive industries and heatwaves & droughts affecting European agriculture (namely Spanish olive production) are just some of the ways climate change is playing a part in this Working Capital headache. 

It’s true that supply chain disruptions caused by COVID-19 are largely a thing of the past, however, ensuring resilience levels remain high in order to counter the increasing threat of climate change should become a top priority, with options including diversifying source locations and investing in climate-resistant locations.

To ensure a better measurement of GHG emissions across the entire value chain, companies have started embedding sustainability criteria in their Working Capital solutions. Sustainability-Linked Supply Chain Finance, for example, represents one of the best-established WC solutions increasingly requested by companies to combine the typical financial benefits of SCF with scope 3 emissions reduction targets. 

Nearshoring – the trend of shortening supply chains  

After a period of turmoil, many companies are looking to shorten their supply chains to reduce reliance on foreign suppliers, in a bid to increase business resilience. 

In Europe, there has been a 29% increase in demand for industrial space, driven in large part by manufacturing and logistics – an example of this being Mercedes-Benz and BMW both announcing plans to open new production plants in Europe, as part of their long-term electrifying strategy, with lower labour, transportation and energy costs cited. 

While these decisions are often viewed, rightly, as bringing production closer to end-customers, nearshoring may also represent a key priority in a company’s sustainability agenda to reduce carbon emissions related to long-distance material transportation.  

The proximity to local markets, faster delivery times and improved responsiveness to customer demands will only see nearshoring usage increase in the years ahead. 

From a Working Capital Management standpoint, Supply Chain Finance (SCF) represents a core solution to support companies to engage with new suppliers and secure adequate payment terms to avoid increases in Working Capital requirements. Companies can leverage SCF to establish solid relationships with new suppliers, reduce procurement-related risks and potentially embed a sustainability-link, reducing scope 3 emissions.

From just-in-case to just-in-time 

Higher borrowing costs and inflation levels have led to many corporates investing resources in inventory reduction. 

It’s been reported by S&P that, since the end of 2022, global companies have been heavily reducing the quantity of inputs purchased, as well as stocks of raw materials and finished goods. In the S&P report, they noted how finished good purchasing had been on the downturn for 13 consecutive months, while finished good levels were cut for eight of the last nine months.

This has been mirrored on the production side to mitigate risks of maintaining high levels of finished goods.

The impact of this reduced consumer demand – and as a result destocking trend – has been noticeable. 

Within the chemical sector, many global players have reported notable losses, both in Europe and the US. 

The consumer industry has also, unsurprisingly, felt the strain of reduced demand, although this isn’t an all-encompassing problem, with some companies experiencing a share price uptick in the first quarter of their 2023 fiscal year, thanks a notable cut of inventories. 

From a financial perspective, the de-stocking trend is expected to have a notable impact on Days Inventory Outstanding (DIO) and, more broadly, on Working Capital requirements. The return to the just-in-time approach is helping companies to reduce the levels of inventory, both for raw materials and finished goods, and decrease the time of goods on the shelf.

“Doing rather than having” – where do consumers’ priorities lie?

One major shift in consumer behaviour since the pandemic has come in the shape of prioritising experiences over material goods, characterised by high inflation and rising interest rates. 

The events industry, for instance, has seen significant growth over the last few years, and this is forecast to continue over the next few years, becoming a $2.1tn industry by 2032.

Look too at industries selling experiences – travel, leisure, entertainment – who have benefitted from a 25% rise in sales in 1Q2023. From a Working Capital perspective, companies operating in these sectors have experienced a notable increase in sales, with a consequent 10 day reduction of Cash Conversion Cycle over the last two years, mainly driven by a reduction in Days Sales Outstanding (DSO). 

Conversely, several other industries are now reporting a more negative outlook thanks to consumers cutting back on certain types of discretionary spending; the purchase of food and beverages has declined by approximately 5% since 1Q2021, with home cooking giving way to eating out in restaurants. With higher levels of unsold goods on the shelves, companies are increasingly exposed to report again higher inventory levels, increasing the importance of Working Capital management.

A shift from ownership-centric models to a subscription-based approach 

The concept of Everything as a Service (XaaS) has revolutionised the way businesses operate, representing a fundamental shift from traditional ownership-centric models to a more versatile subscription-based approach. 

Software as a Service (SaaS) or Equipment as a Service (EaaS) are established examples, although with more cutting-edge technology destined to emerge, this umbrella will only expand. 

The global XaaS market size was valued at approximately €550bn in 2022, yet is projected to reach a market value of €3tn by 2030.

The possibility of accessing strategic assets without balance sheet implications represents the main driver behind the growing demand for solutions. Moving from a Capex-intensive model to an Opex focused scheme - whereby companies will not be requested to immobilise significant amounts of resources on a single asset - can maintain access to core production facilities without impacting financial and working capital ratios.   

Beyond the financial benefits, XaaS is also helping companies re-adjust their operating models by improving their agility, so they can adapt their business to evolving market dynamics quickly and scale operations seamlessly.  

Going into 2024, the treasury landscape looks set to be etched against a backdrop of challenges once again. Global uncertainty, alongside higher commodity prices, inflation, and interest rates will undoubtedly be top of mind for corporates when considering supply chain impacts and how that may translate onto the balance sheet. 

Almost four years on from the onset of the pandemic, as higher manufacturing and borrowing costs mount, sustained pressure on firms to stay profitable may lead to an increased focus on squeezing costs across the value chain. 

Forward-thinking cashflow forecasting, coupled with a joined-up global liquidity management approach will be key. Overall, a Cash Management strategy that is embedded in simplification and innovation, whilst nimble enough to respond to change at pace, will be vital. 

Below we set out our seven key considerations for effective Cash Management for corporates in 2024:

1. Investing in a solid technology stack as a long-term play

Although focus on costs is likely to be central for firms, prudent investments today in modernising technology across the fundamentals like payments processing, API connectivity or a robust ERP can prove a strategic long-term play.

Additionally, rationalisation of operations across shared service centres and sales and distribution units will be key to prime for sustained growth.

2. Unlocking the value of location strategy 

This can be done by re-examining where trapped cash may be less optimised in countries with legal and regulatory barriers, and reviewing trade and working capital programmes to ensure they continue to be commercially attractive could reap benefits.

3. Considering the breadth and depth of solutioning 

This is of particular importance when thinking about near and medium-term strategic goals, as this is integral in driving efficiencies in Treasury processes. Whether that is in embarking on a transformative project like re-imagining an in-house bank, accelerating adoption of real-time payments, or promoting APIs as central to connectivity, assessing all available options to cater to specific business models will be advantageous.

4. Giving credence to the global-local dichotomy

Opting for homogenised solutions oftentimes makes perfect commercial sense, however taking the time to carefully assess and acknowledge specific country or operational nuances will be critical to building an elastic Treasury strategy to support business ambitions. 

For firms that find themselves with sizeable cash-rich positions, this could be in evaluating cash pooling and virtual account structures to ensure they are meaningful from the bottom-up and equally across global entity structures as well. 

5. Future-proofing investment strategy

Although the themes of ESG and green investing are by no means new to the agenda, there is increased traction in this space to seriously give consideration to this investment category which speaks to corporate values whilst delivering a diversified investment portfolio. 

6. Collaborating with partners that truly value the importance of platform reliability 

In an age where speed and agility are key but very much go hand-in-hand with cyber security, taking the time to choose the right collaborators is crucial. In an overcrowded marketplace, the choice in Cash Management providers has never been greater for corporates.

However, with cyber security increasingly a top priority for the C-suite, carefully assessing to onboard a partner that shares the same ethos and cyber risk management approach will be important. 

7. Getting the basics right consistently

Whether that is in efficiently processing payments and collections or ensuring deposit income is invested to provide the most optimum returns on security, liquidity, and yield, remaining laser focused on executing the basics to a high standard in BAU will continue to come first. 

Santander CIB’s Cash Management expertise 

During these times of unprecedented market change, Santander CIB is committed to helping our clients navigate the intersection of corporate treasury transformation, effective liquidity management, and technology innovation across industry sectors. 

With decades of experience spanning across Europe, Asia and the Americas, Santander’s Cash Management practitioners are trusted partners that truly understand what it means to differentiate. 

Drawing on the strengths of our global franchise and depth of our product propositions, cutting-edge technology capabilities and utilities, we roll-out complex and integrated Cash Management solutions that are centred around a best-in-class client experience: 

• Flexible liquidity management solutions adjusted to your treasury management needs. Our frictionless solutions are designed to inform better business decision making, risk management and reconciliations, ultimately leading to sounder balance sheet management. 
• Scalable end-to-end payments management, including a secure online banking platform powered by a cutting-edge global payments engine, and full-range of connectivities across payments rails from the ERP to the final beneficiary.
• An integrated collections offering enabling you to optimise your sales conversion. Supporting all major international payment methods and schemes, our value proposition is designed to accelerate time to market and expand reach. 
• Access to state-of-the-art technology platforms embedded in innovation, simplicity and flexibility. Our unique operating model affords us the reliability of a bank with the flexibility of a Fintech.
• With strong risk, compliance, and fraud prevention processes, protecting your data and information is paramount to us. We are constantly evolving our technology and controls to bolster cybersecurity defences and operational resilience, putting the safety and security of our clients at the core of our operations.

Eva Bueno (global head of Cash Management), says: “We are fully committed to helping our clients grow their businesses through an advisory approach in the evolving payments ecosystem, spearheading innovation and co-creating solutions together.”

Debt capital markets (DCM) are a key tool in the armoury of businesses looking to raise money through debt securities such as corporate bonds, but as with everything in the world of corporate and investment banking, the landscape is shifting beneath our feet. 

In 2022, the world’s total DCM issuance was $6.3tn, with the record to date being 2020, which was closer to $9.5tn. 

Not insignificant sums of money, but from where did debt capital markets originate, and in what direction do we expect them to go as we approach the second quarter of the 21st century? 

The history of debt capital markets 

You can go all the way back to 2400 BCE for the first recorded bonds – in existence long before stocks – which originated in modern-day Iraq and were written on clay tablets. 

However, it’s the 17th century where the idea of selling debt truly took off, as the Bank of England, one of the world’s oldest central banks, started issuing government bonds. Indeed, this also marks the birth of Gilt markets, courtesy of these particular certificates coming with gilded edges. 

Debt markets gained further traction in the 1700s, as a new covered bond known as the German Pfandbrief – a dual resource, asset-backed security – came into existence with noble landowners raising money against both their own credit and the value of their estates as a security. 

The next major revolution in the world of debt issuance came in July 1963, when the Autostrade issue for the Italian motorway network brought the first ‘Eurobond’ to the market, meaning that a multinational syndicate composed of financial institutions, for the first time, actively underwrote and distributed a transaction in a major currency – at the time, the US dollar. 

Since the 1960s, we have seen the market develop into a truly global animal. The present-day internal debt capital markets are comprised of bond dealer associations, clearinghouses, and exchanges, to name a few, while we’ve also seen the creation of single currencies and a multitude of investment banks, brokers, dealers and investors.  

Indeed, Santander CIB has a strong presence in many markets, acting as a structurer and underwriter of transactions, distributing paper across the globe and making secondary markets in a variety of subsets of asset classes that exist for Corporate, Financial Institution, Sovereign, Supranational and Agency clients. 

While Santander CIB’s place in the DCM ecosystem is a strong one, it’s never been more crucial to ensure fingers remain on the pulse of cutting-edge developments in the world of debt issuance. 

Have DCMs sufficiently modernised? 

Despite many advances in the trading of bonds in the secondary market over the years – such as the increase in the number of venues, as well as progressive automation – there has been surprisingly modest progress in the way new bond issues are executed, despite the significant technological steps made over the period. 

Right until the mid-90s, orderbooks were collated with pen and paper on trade blotters, and while spreadsheets sped matters up, the process overall was still an overwhelmingly manual one. 

Then along came online, shared order book systems, which brings things to the present day. This system allows salespeople, at all banks or institutions involved within the transaction, to enter orders into new issue order books once deals are announced. 

These systems also have the capability to automatically find and clean duplicate orders, while fixing any inconsistencies that arise, all but avoiding the need for long reconciliation calls, enabling more time to be spent on clients’ needs and less on timely administration. 

Conor Hennebry, global head of Corporate Debt at Santander CIB, comments: “our origination platform has grown considerably over recent years, and this is in part down to the investment in technology and our commitment to digital solutions.”

Santander’s place in the DCM ecosystem 

Santander CIB is committed to playing a key role in the in industry’s ongoing electronification, and accelerating the transition towards a more complete and coherent process, where investors can use their own, in-house order management systems to place orders and receive allocations. 

The deal execution world is complex and requires conjoined efforts from many of the key players in the DCM sphere, including Santander, in order to make the operation more efficient, particularly in relation to any pre- and post-launch processes such as pitching, provision of legal documents and settlements. 

Furthermore, Santander has been at the forefront of using blockchain for issuance, where in 2019 it launched the first end-to-end blockchain bond, worth $20 million. 

At the time, José M Linares, SEVP and Global head of Santander CIB said: “our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.”

John Whelan, Managing Director – Crypto & Digital Assets at Santander CIB says: “the entire securities lifecycle has scope for digitization. At some point we can imagine where all securities will be digital and programmable. At Santander we are pleased to be playing our part with our clients in this extraordinarily complex industry transformation."

“It’s been a long time coming, but I truly believe we are about to experience huge advances in the efficiency of the full lifecycle of bond execution with the help of technology” adds Stuart Montgomerie, Managing Director – global head of Syndicate at Santander CIB. 

“We are passionate about playing our part to make this happen, working closely with our issuer and investor clients to ensure Santander is driving these changes for the benefit of all market participants as well as the global economy.”

A paradigm shift has been under way in the Cash Management business for some time now. Where once there was a bilateral relationship between the bank and the client, this is now a multilateral business where third parties participate to improve the overall service experience. In this context, Santander is analysing how to collaborate with new participants.

Before discussing SAP Ready, our solution for navigating this paradigm shift, it is important to describe the baseline situation. As a global bank, it is crucial for us to be at the forefront so as to continue offering a best-in-class service to our customers.

To make this possible and advance on a firm footing on this journey towards ‘invisible banking’, we explored what the market would want to simplify and facilitate their cash business. Here is where SAP Ready was born. SAP is the most widely used ERP among corporate clients, and it is the perfect partner to co-create distinctive solutions and make ‘invisible banking’ tangible.

Our alliance with SAP seeks to accelerate the digitalization of Global Transaction Banking services for our clients while helping them navigate supply chain disruptions and accelerate their decarbonization endeavours. SAP Ready’s ambition is to embed Santander Cash Management solutions, both global and local, within the client’s core system, enabling them to transact directly inside their own SAP ERP. It is important to highlight that SAP Ready is not only about Cash Management — it also covers the full scope of GTB solutions to enhance cash flow and lend efficiency to our clients’ supply chain using the most innovative solutions.

Jose Luis Calderon, head of Global Transaction Banking (GTB) at Santander CIB, said: “This partnership is a step forward in the digitalization of the solutions we provide to our clients, with a strong focus on connectivity, supply chain management and the energy transition. We already have a strong transactional banking solutions portfolio in Europe, America and Asia that helps our clients navigate the complexity of doing business globally. This value proposition comes from the combination of understanding their needs and their daily challenges while leveraging the latest technology that SAP can deliver and the depth and breadth of our product offering.”

In the Cash Management area, our vision is focused on three main pillars:

• Connectivity: As we have announced on previous occasions, we continue working on the SAP Multi-Bank Connectivity (MBC) solution. This service connects banks and financial institutions to corporates across Santander’s footprint in a plug&play mode to resolve many issues that corporate treasurers face in their day-to-day operations by embedding banking services within corporates’ ERP systems.
• Interoperability: We seek to offer cutting-edge technology in order to simplify and accelerate integration with our clients without requiring additional SAP installations. In this regard, Santander has been working on several initiatives to facilitate and accelerate our clients’ go-to-market processes and to boost their customer data extraction and transformation.
• Evolution: This partnership is up and running, and the pace of initiatives to facilitate our clients’ operations will accelerate in the near future.

While the potential upsides of these projects for corporates are clear, the ability to quickly switch the banking provider could be seen as a threat, as it was thought in the past that a cumbersome process created ‘stickiness’, i.e., that customers would remain with their incumbent banking relationship because changing was too problematic.

However, this old-school mindset has changed over the past 18-24 months, fostered by the advent of cloud and application programming interfaces, as well as the rise of platform business models. Corporate banks now want to make it as simple as possible for customers to use their banking services by taking advantage of embedded finance solutions. For that reason, Santander is approaching not just ERPs but also TMSs and Bank Connectivity Providers, as their rise exemplifies corporates’ need for quick and easy-to-use solutions.

Trending topics such as Cryptocurrencies, Stablecoins, DLT, Blockchain or CBDCs are part of many conversations in our daily life. Exciting times in banking may be coming since new shapes of money mean new ways of payments.  

Undoubtedly, banking industry must realize all these technological disruptions which may impact our client business in the upcoming years.

The core of these discussions within the industry lies on whether the new types of Digital Money would be valid means of payments. Santander Global Cash Management is no stranger to this subject.
 
Therefore the starting point is to understand the different sorts of Digital Money, what their attributes and specificities are and whether they could be suitable for transactional purposes. In a previous blog on stablecoins and CBDCs, we presented some of the varieties of digital currencies but there is more to know about these. In general terms, the industry sees it as a five-player game:

• Commercial Bank Money: Nowadays worldwide predominant payment method, is the money that everyone has on their bank accounts. Although challenged and questioned, the industry is moving forward to deliver a much more efficient and seamless payment user experience (ISO20022 migration, instant payment schemes, APIs). 

• E-money: Electronic Money is a type of digital money stored in -Money Institutions (EMIs)/Payment Institions (PIs) electronic wallets. While the industry hype is on Crypto and Stablecoins, e-money is increasing its popularity and user base (Mercado Pago, Mpesa, WeChat, Paypal). If the Closed loop nature of the solution brings instant settlement among parts and outstanding user experience, the reachability is exclusively bounded to the e-money network.

• Central Bank Digital Currency (CBDC): CBDCs are a digital form of central bank money, just as banknotes and coins issued by Central Banks but digital. Most central banks are exploring their potential benefits and risks as well as the value-added for the payment systems. CBDCs might have a major case in developing economies where financial inclusion is still fairly low (e.g. e-yuan, Sand Dollar, or e-Naira). Meanwhile, in developed economies there is no clear answer yet to the question “Are there proven benefits for a CBDC?”. At the same time concerns have been raised on how CBDCs could impact financial stability, new infrastructure costs for the whole industry, anti-money laundering plus privacy implications, and cross-border spillovers.

• Cryptocurrency: Digital asset that uses cryptography to secure transactions exchanged on a P2P network. Programmability, proven DLT network security, and disintermediation are key advantages delivered by cryptos. However, due to the ongoing turbulences in the global economy, the lack of regulation, and the increased volatility, cryptos are currently being seen more as intangible investment asset than a mean of payment. (Bitcoin, Ethereum…)

• Stablecoins: Digital asset that seeks to deliver the benefits of cryptocurrencies while trying to remove their volatility. Some stablecoin (e.g. USDC) look a lot like a programmable form of e-money, combining the benefits of that ecosystem with the open source nature of DLT, leading the relatively new phenomenon of "decentralized finance" aka defi.

However, stablecoins have been making a lot of buzz recently showcasing the inherited risks these assets have.

Both risk and volatility shown by cryptos and stablecoins could be mitigated by regulation. In this regard, MiCA regulation in the EU is being created to provide a uniform legal framework for crypto-assets and similar efforts are under way in the US or UK.

Santander participates in several initiatives towards trying to analyze potential use cases where these new elements might be beneficial:

• Fnality: Santander is a founder of the banking consortium to create a payment solution based on distributed ledger technology (DLT) and blockchain technology. It was created to facilitate peer to peer tokenized transactions backed by money held in a central bank account.

• CBDCs: Santander is actively participating in the ECB consultation process and other initiatives launched by the central banks in those geographies where we are present, exploring potential use cases, benefits or technologies in which the potential CBCD would rely on.

• Agrotoken: is the first global experience, launched in Santander Argentina, collateralizing loans with tokens based on agro-commodities such as soya beans, corn and wheat. The solution allows farmers to access new financing solutions extending credit capacity with tokenized assets.

“The Santander Cash management team is closely monitoring these new trends and initiatives to understand where the transactional processes could be impacted. More and more clients are seeking for comfort advice and solutions that ensure trust, reachability and interoperability and this can only be achieve through “Global Industry initiatives” (Fnality, RLN). Stéphanie Rodriguez Aniorté | Global Head of Payments Santander CIB

Technology disruption is changing the payment´s landscape… but the “final products” are yet to be revealed.