This year has further driven home the reality that the days of exponential growth are in the past. With growth no longer a certainty, cash managers are now focused on achieving maximum efficiency as they manoeuvre through stricter regulations and macro-economic uncertainty.
HSBC, which was handed top honours by voters in all six groups (small, medium and large corporates; small, medium and large FIs), is well positioned to tackle the new normal. In a second quarter during which trade flows slowed down globally, HSBC demonstrated its resilience, as its cash management revenue grew 7% year-on-year.
“If you take a look at Asia on its own, there are opportunities to grow,” said Kee Joo Wong, HSBC’s regional head of global liquidity and cash management.
“Obviously, there are global issues at hand, if you look at the entire macro-environment there is a slowdown so corporate MNC [multi-national corporations] treasurers are looking to squeeze out more efficiency and cost savings on existing treasury processes. This gives us an opportunity to go in with a consultancy approach.”
He singled out the trend of large Chinese state-owned firms investing in assets overseas and the One Belt, One Road agenda as major drivers of growth for those offering transaction banking products in the region. The trade volumes may have suffered as a result of the overhang from low growth but does not necessarily mean fewer cash management opportunities in all markets, said Wong. “The Hong Kong market has grown year-on-year,” he said. “My own view on this [declining volumes and less business to go around] is that we do have other bank players exiting the market, giving us an opportunity to acquire greater market share.”
And it is not just by growing clientele on an absolute basis that banks may bump up revenues. HSBC is also focused on deepening relationships with existing clients to get a greater share of wallet.
It is aided by its reach as a global bank and a customer base, which ranges from Fortune 500 constituents to SMEs. This means it operates across the supply chain, serving the counterparties of its customers.
“Suppose there is a payment from a customer to a supplier and the supplier is also your customer, you have the ability to capture flows and add value.”
Tailored to fit
Different clients face different challenges to overcome. The smallest corporates are aiming to increase their operational efficiency, improve yields and utilise their own cash and working capital.
For bigger, multinational firms, softening the blow of a slowdown in business and assistance in supporting their suppliers and providing solutions on the working capital front, is where cash management services are most needed.
As a result, the ability of banks to provide a more tailored product was highlighted by Mahesh Kini, head of cash management corporates, Asia Pacific, global transaction banking at Deutsche Bank, which came in second place across all three regional corporate categories.
“The other opportunity is the growing number of new and emerging clients, especially in the technology space, who need global solutions with maximum automation,” he said.
“The other aspect is looking inwards at our existing clients who have increasing needs for sophistication and therefore require more value-added solutions to take their efficiency standards to the next level.”
He also flagged up the need to keep one eye firmly on safety and security amid new regulations and fraud threats. Banks need to adapt quickly and in the most compliant fashion to protect their clients, he said.
“There are macro headwinds facing the industry. Interest rates continue to be low and NII [net interest income] is a key part of our revenue profile which continues to be challenged as a result.”
“I think that what’s most important for all institutions in such an environment is to stay nimble and committed to their core business as there will always be market cycles.”
Know your customer’s customer
While efficiency remains a top concern for all clients, financial institutions are also seeking to strengthen know your customer (KYC) processes, said bankers.
“Regulation continues to be a major challenge for the industry,” said Nancy So, head of institutional cash management, Asia Pacific at Deutsche, which was placed second by medium sized FIs.
Increased regulatory requirements on US dollar and euro denominated transactions are squeezing Asian FI clients, especially in Korea and Singapore, she added.
“But challenges also create opportunities,” she said. “Deutsche Bank invested very early in KYC and monitoring systems and remains at the forefront of this area."
Deutsche keeps its FI clients engaged through frequent roadshows and one-on-one meetings to help FIs understand the landscape better. And in today’s world, knowing-your-[FI] customer’s-customer has become even more important. “We all stay in Asia where there seems to be more bad news than good news. Every market is slowing down. The spotlight is on China or India, where trade flows have decreased. For the first time in my career I have seen volumes decline in 2015. We have seen value decline related largely to trade finance. While Asia has registered a higher growth than North America and the eurozone, it has clearly slowed down most notably in trade finance both in value and volume.
“Asia is still growing but profitability is no longer a given so banks are looking to improve processes.”
But it’s certainly not all doom and gloom as So is quick to point out.
“In Asia there are other opportunities, like e-commerce transactions. The most populated countries are in Asia.”
Fintech an enabler
More generally, harnessing financial technology to provide speed and ease in transaction banking remains key to serving clients. Bankers emphasised early adoption and co-opting technologies such as blockchain into the business.
“When we talk about fintech, we look at it as an enabler [as opposed to disruptor] where we have the ability to use fintech to assist our customer in the journey to be more efficient,” said Wong.
For example, global trade is becoming increasingly real-time in nature and efforts are being made to accelerate and widen systems that support this.
So cited Swift’s global payments innovation initiative (GPII), which is aimed at delivering faster payments, and providing end-to-end payment tracking together with full transparency of fees, as especially relevant to cash management.
“The beauty of this technology is extending beyond bank-to-bank, providing benefits both to the corporate remitters and beneficiaries to optimise their liquidity positions,” she said.
“One of strategies we are working on is we have redeployed our resources to global transaction bank wherein GPII is key, so we have rich information of payment whether it is in trade finance or dividend payments or M&A.”
This information across the payment chain will resolve some of the disadvantages that crop up in cross-border transactions and from time zone differences.
The next frontier
HSBC is also investing in technology with ASEAN and its financial hub Singapore high on the bank’s priority list.
“We are putting investments into the ASEAN area. In ASEAN a lot of it circles around Singapore and within Singapore, we have established innovative plans, working with fintech companies, lab accelerators to come up with tech ideas such as how to move money much faster than before.
“This is especially relevant when market infrastructure is changing so rapidly and moving towards real time. How ready are banks to accommodate that real-time environment where payments are made instantaneously?” he said
But while, the economic powerhouses China and India are the usual targets for growth, banks are starting to follow their clients into the underserved frontier markets.
“Our multinational clients are starting to consider investing in these markets, and banks will also do so soon after,” said Deutsche’s Kini.