“Chief Financial Officers should ensure that their companies’ growth is sustainable”, says Mohan Ramaswamy, CEO, and Co-Founder, Rubix Data Sciences

In this exclusive interaction with CXOToday, Mohan Ramaswamy, CEO, and Co-Founder of Rubix Data Sciences talks about the need for risk management platforms in India. He further touched upon the various ways Rubix is helping banks, credit insurance companies, Fintechs, SMEs, and corporates with deep insights. He mentioned briefly how Rubix is aiming to be a one-stop shop for issuing (Legal Entity Identifier) LEIs in India. He also adds how Rubix encourages the business community in India to adopt the LEI widely for long-term benefits.

1. Why do CFOs and Finance Managers need risk management platforms?

Finance teams in most companies have realized that they must adopt the technology and tools driving change in modern businesses. Today’s companies need finance leaders who can leverage technology to manage emerging risks.

The main task of modern-day CFOs is to plan for and forecast the future financial performance of their company in a rapidly changing environment. These forecasts cannot be based on traditional tools that primarily rely on past performance as indicators of future growth. A dynamic assessment of the risk environment, such as those associated with geopolitics, global supply chains, climate change, compliance, and technological disruption, is required for future projections of company performance. Day-to-day management of operational risks emanating from processes, personnel, logistics, IT and cybersecurity, and unforeseen disasters is required.

Similarly, credit risks pertaining to large distribution networks, supplier risks associated with complex supply chains, and compliance risks across both distribution and supply chains need to be assessed and monitored on a continuous basis. This poses a significant challenge for traditional, static, risk management tools that rely only on structured data from a few sources.

Fortunately, CFOs have an arsenal of technological tools to handle the complex and dynamic risk management challenges that confront their businesses.  Next-gen intelligent risk management platforms leverage structured and unstructured Data, Artificial Intelligence, Machine Learning, Cloud Computing, and Analytics to identify, model, simulate, report, mitigate and monitor risks and prevent fraud. This enables companies to avoid financial losses and grow sustainably and compliantly.

2. What critical supply chain risks should a company avoid?

Any risk that threatens the financial health of any business, which is a part of a manufacturing supply chain, constitutes a financial risk to the entire supply chain. There are different types of financial risks, and the exposure to these risks needs to be measured, assessed, and controlled at all points.

Some of these risks include:

1. Non-payment of dues by the customer/ distributor/ dealer, i.e., bad debts
2. Non-delivery of the promised goods or delivery of inferior-quality goods by the supplier
3. Delayed deliveries of raw materials, components, etc. cause cascading delays in the manufacture and supply of the finished product; these delays adversely impact the working capital cycle and result in higher interest and financing costs
4. Volatility in commodity prices; if commodity prices are not properly hedged, they can cause huge financial risks to businesses
5. Unhedged foreign exchange exposure
6. Labour shortages in the supply chain result in delays and higher costs; for example, in the US, labour markets are extremely tight, causing wage inflation and worker shortages, leading to knock-on effects on all parts of the supply chain.
7. Shipping delays caused by shortages in the availability of shipping containers, ships, or trucks; this happened during the COVID-19 pandemic, causing freight costs to skyrocket and impacting the viability of various businesses
8. Problems caused by improper legal contracting between buyers and sellers, especially in international transactions; causes delays in goods getting cleared from ports and result in very high demurrage costs
9. Geopolitical issues such as war and conflict can result in trade sanctions; these have a long-term financial impact on supply chains. The Russian invasion of Ukraine is a current example of the havoc that armed conflict can wreak on supply chains.

3. How does Rubix leverage technology and analytics to drive better B2B risk management outcomes for its customers?

Rubix Data Sciences started its operations by providing banks, insurance companies, and corporates with Risk Scores and Credit Limit Setting for their B2B customers in India and overseas. To do so, we leveraged structured and unstructured data from 120+ data sources and predictive analytics. We built a proprietary technology platform called Rubix Automated Risk Management and Monitoring System (Rubix ARMS^TM) Platform. This platform helps Credit, Risk, Supply Chain, and Compliance professionals in banks, credit insurance companies, Fintechs, SMEs, and corporates with deep insights into their counterparty’s credit, supply chain, and compliance risk.

Rubix has now evolved to cater to all 4 stages of the credit transaction cycle, namely—Onboarding Identity Validation, Credit Decisioning & Supplier Risk Assessment, Risk Monitoring, and B2B Collection.

For Onboarding identity validation, we provide Video KYC Solutions, Key Registration Checks, and Promoter ID checks to help you validate the identity of your counterparties before you onboard them.

As India’s first Validation Agent for the Legal Entity Identifier (LEI), we help applicants get their LEI within 24 hours of application. The Legal Entity Identifier (LEI) is a 20-character, alphanumeric code that uniquely identifies a legal entity or structure that is a party to a financial transaction in any jurisdiction. The LEI connects to key reference information that enables a clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’.

In the Credit Decisioning and Supplier Risk Assessment stage, we leverage the Rubix ARMS^TM platform to assess the risk of our clients’ prospective distributors, dealers, franchisees, customers, suppliers, vendors, or service providers. This could be in the form of:

• Credit risk assessment and credit limit setting for distributors/dealers/customers
• Supplier Risk assessment for suppliers and vendors.
• Compliance Risk assessment of all counterparties from statutory, legal, PEP, AML, anti-bribery (FCPA, UK Bribery Act), and sanctions perspectives

We thus help banks, NBFCs, corporates, and Fintechs by providing independent credit risk assessment at the loan or trade credit decisioning stage. Our credit risk assessment also enables credit insurance companies to take risk underwriting decisions about businesses in India and around the world.

An entity’s risk profile changes rapidly and needs to be constantly monitored. Therefore, for the risk monitoring stage, we help customers track changes in their counterparty’s risk and continuously monitor the key developments impacting it. The Rubix Early Warning System (EWS) collates key risk indicators on a near real-time basis from various data sources including statutory compliance and financial filings, news, and media to get a dynamic view of a company’s risk profile. It updates the risk score of a company dynamically based on the most updated information.

In the last stage of the transaction lifecycle, we offer end-to-end B2B debt collection solutions by combining our data, analytics, and technology expertise and the capabilities of leading legal firms and field collection teams to help our customers collect their accounts receivables and reduce their Days Sales Outstanding (DSO).

Our solutions include:

• Accounts Receivable Management: Customers outsource their entire AR Management process to us. They focus on their core business and leave the job of collections to Rubix. Our experienced team and proprietary technology system ensure that customer receivables are collected on time with requisite support provided to the sales and finance teams of customers.
• Amicable Debt Collections: Rubix helps its clients retain and grow positive working relationships with their customers by providing non-contentious, amicable B2B debt collection. We ensure that the debt collection process is non-adversarial in nature and follow up with debtors and bring them to the negotiating table so that settlement options can be reached and agreed to in writing.
• Legal Solutions: For situations in which legal support is required to enforce claims, Rubix has partnered with a prominent legal firm to ensure that customers can take appropriate legal steps against defaulting debtors in a timely and cost-effective manner.  The legal process is digitized with timely reminders; legal notices are automatically sent as per a pre-defined cadence to defaulters.  Our wide network ensures that customers get litigation support in courts throughout India.
• Skip tracing: By leveraging a wide variety of data sources including social media, Rubix helps customers trace or locate defaulters who have absconded or skipped town to avoid paying their debts and are not reachable at their given email ids, phone numbers or physical addresses.  Skip tracing is very useful in credit-intensive sectors with large and dispersed distribution networks where the distributor or dealer can easily change suppliers.

The aim of Rubix B2B Debt Collection Solutions is to expedite and facilitate the recovery of the accounts receivables of customers, even for those accounts that are long overdue.  We help customers improve their recovery rates while enabling them to preserve existing business relationships.

4. What data elements should CFOs examine while monitoring the Credit Risk, Supplier Risk, and Compliance Risk of their B2B counterparties?

• Compliance Indicators: A company with nothing to hide will usually be statutorily compliant. Therefore, it is a good idea to check specific regulatory filings to verify if these are complete and have been done on a timely basis. Specifically for Indian companies, Goods and Services Tax (GST) and Ministry of Corporate Affairs (MCA) filings can help determine whether the company is current with its statutory filings.
• Payment Indicators: Monitors the Employee Provident Fund (EPF) data of your counterparties can also provide an early warning signal. Delays in EPF payments could indicate stress on cash flows. EPF returns can also reveal if the number of employees of a company has suddenly reduced (indicating layoffs), which is a sign of financial difficulty.
• Financial Statements, Working Capital Usage and Ratio Analysis: it is important for companies, banks and financial institutions to analyze the P&L Account, Balance Sheet and Cash Flow statements of their counterparties where available.  Working capital usage must also be checked on a periodic basis and key financial ratios must be monitored for signs of stress.
• External Credit Ratings: Credit Ratings by independent external credit rating agencies are a credible measure of a company’s performance and outlook. Any upgrades or downgrades to credit ratings awarded by accredited external credit rating agencies to the financial instruments (eg, bonds, commercial paper etc), issued by your counterparties are a good alert to the financial health of a counterparty.
• Litigation Data: It is imperative to monitor the litigation in which your counterparties may be involved. An increase in Section 138 (cheque bouncing) cases, NCLT petitions, Section 420 (cheating), labour court, or consumer court cases indicates the presence of a deeper problem in the company.
• News and Social Media: It is crucial to check news and social media for any developments related to your counterparties’ risk to ensure that you are not caught off guard. Early news about a positive development will help you develop a new business opportunity with your counterparty while being forewarned about a negative development will help you cut your losses early.

5. Can you share an example of how Rubix ARMS^TM and the Early Warning Signal (EWS) platforms are helping businesses? 

There are many use cases for Rubix ARMS^TM and Rubix EWS platforms. Here are some examples of how they are solving real challenges in business:

Identity Theft and Fraud Prevention: Over the last few years, there has been a significant increase in fraud arising from fraudulent counterparties, provision of fictitious contact information, falsification of address proof, and identity theft. Only an automated solution for identity validation and fraud can nip this problem in the bud. The Rubix ARMS^TM platform leverages structured and unstructured data from 120+ data sources to validate the identity of counterparties on-the-fly, thus providing accurate KYC information that helps prevent fraud.

Credit Decisioning: Inefficient methods of credit assessment and monitoring by corporates, banks and financial institutions leads to lower credit deployment to businesses (especially MSMEs), credit defaults, and poor underwriting decisions. The Rubix ARMS^TM platform deploys Risk Analytics to generate and assign Risk Scores to counterparties, thus reducing human bias in credit decisioning. Portfolio monitoring on the Rubix EWS platform ensures lower default risk on an ongoing basis and optimum credit deployment for business growth.

Supply Chain Risk Management: Excessive reliance on human judgment and relationships may lead to errors in supplier selection. Inadequate monitoring of supplier risk may cause sudden disruptions in the supply chain. The Rubix ARMS^TM platform allows you to view Supplier Risk at both the individual supplier and portfolio levels. The Rubix EWS platform helps you to identify potentially weak suppliers so that you can strengthen them or quickly find alternate suppliers.

Third-party Compliance: Statutory and regulatory non-compliance by counterparties can have serious financial, regulatory, and reputational repercussions. Companies currently must go to multiple sources to monitor the compliance of their counterparties. This is error-prone, inefficient, and expensive. The Rubix ARMS^TM platform accesses compliance data (AML, PEP, Financial Crime, Court Cases, etc.) from multiple statutory, regulatory, and other data sources, while the Rubix EWS platform provides automated, seamless, and inexpensive compliance monitoring of counterparties on an ongoing basis.

6. What is the importance of the Legal Entity Identifier (LEI) in the present business environment in light of new RBI regulations?

Currently, banks, financial institutions, and companies globally use many different identifiers while onboarding new clients; this process can take a couple of days. It can sometimes lead to inconsistencies that need to be resolved resulting in considerable cost overhead and an adverse impact on customer service. However, all that time, money, effort, and goodwill can be saved by using a simple 20-digit alphanumeric code called the Legal Entity Identifier (LEI) as the key identifier of a business, supporting the KYC process.

The LEI connects to key reference information that enables a clear and unique identification of legal entities participating in financial transactions across the world. Each LEI contains information about an entity’s ownership structure and answers the questions of ‘who is who’ and ‘who owns whom’. Various regulators in India including RBI, SEBI and IRDAI require entities to have the LEI for certain transactions.  The LEI data pool can be regarded as a global directory that greatly enhances transparency in the global marketplace.

The LEI was developed as a collaborative effort by regulators across the world to push transparency in transactions across markets, products, and regions. Businesses and organizations must mandatorily quote their LEI for many types of transactions when doing business abroad. Not only from the regulatory standpoint, obtaining the LEI is very beneficial for businesses, especially those involved in export and import activities.

Rubix Data Sciences strongly encourages the business community in India to adopt the LEI widely for long-term tangible and intangible benefits.

7. How has Rubix partnering with FIEO proved beneficial for SME Exporters?

Rubix has been handholding FIEO-referred Indian exporters and entities through the documentation process and facilitating speedy and cost-effective LEI issuance. Rubix is also working with exporters to ensure the timely renewal of LEIs to keep their LEIs active. This has been beneficial for these exporters in the following ways:

• Being a standardized global identifier, the LEI provides international recognition for Indian exporters among prospective buyers and sellers in overseas markets.
• The LEI serves as an essential identifier in cross-border (international) transactions and helps cut down risks.
• LEI confers global credibility on Indian exporters and helps them stand out amongst their peers in the domestic and global marketplace.
• The LEI makes it easy for banks to identify exporters and importers when they transact internationally.
• On online marketplaces, the LEI in their profile helps potential overseas buyers know that their existence has been validated.
• LEI drastically cuts time in onboarding, helps comply with Anti Money Laundering activities (AML) and Know Your Customer (KYC) regulations, and filters out fake entities.
• Indian companies can also validate the identity of the entities they are dealing with on the GLEIF database to ensure that they are dealing with genuine counterparties.

8. Going forward, what should be the priorities for Chief Risk Officers in Financial Institutions in the VUCA world?

In rapidly changing times such as these, the top priority for Chief Risk Officers is to ensure that their companies’ growth is sustainable. One of the key prerequisites of this is identifying, monitoring and mitigating current and future risks that businesses face. Chief Risk Officers (CROs) are the front and centre in this task.

CROs must take an integrated and enterprise-wide approach to risk and foster a culture that spots and responds to early warning signals before they snowball into losses. This involves identifying, assessing, and monitoring, not just financial risks (forex, commodity pricing, interest rate risk, etc) but also non-financial ones such as operational, cybersecurity, climate change, compliance, regulatory, reputational, and security risks to name a few. Due to the sheer quantum and variety of these risks, it is no longer possible to undertake risk management exercise through traditional tools. Therefore, a key priority for CROs is to become digitally fluent to be able to use and understand modern risk analytics tools. For starters, they should push for use of Artificial Intelligence and Machine Learning in routine but critical Anti-money Laundering (AML) and Know Your Customer (KYC) processes. They should deploy data-driven advanced risk analytics techniques to improve decision-making and prevent fraud.

Once these priorities have been addressed, CROs should enhance their ability to spot future trends in risk exposure by broadening the scope of data collection to include new factors such as ESG risks, geopolitical risks, cyber threats, etc. This is critical to help CROs stay ahead of the curve.