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With increased
competition, thinning margins and volatile earnings
in other businesses such as investment banking,
transaction banking has made a return to the
spotlight. These bread and butter transaction
services – providing trade finance, managing cash
and facilitating payments – hold promise for a
steadier source of business for the banks with
relatively attractive capital efficiency. Deutsche
Bank, for example, has recently announced its
ambition to increase share of revenue from retail
banking, asset management and transaction banking to
65 percent by 2021. Indeed, revenues from global
transaction banking rose 4 percent year-on-year to
US$13.8 billion in the first half of 2017. Some
large global banks including Standard Chartered even
reported double-digit revenue growth during the same
period.
Asia presents immense opportunities for growth in
transaction banking business, fuelled by the
region’s burgeoning economies, growing maturity of
intra-regional trade and increasing e-commerce
flows. Corporates looking to do business in the
region will need support in managing their complex
liquidity risks involving multiple currencies and
business locations. Close attention will also be
paid to trade financing and conducting safe
transactions in real time without compromising on
convenience and affordability.
A recent study suggests that emerging Asia in
particular holds tremendous potential, leading the
global corporate banking growth with a CAGR of 12
percent from 2009 to 2016, compared with 10 percent
in Latin America and 9 percent in Eastern Europe,
Middle East and Africa as a whole. Recognising this
opportunity for example, Mizuho opened its global
transaction banking headquarters in Singapore in
2016, the first time it has located the head office
of a business line outside Japan and doubled its
headcount in the past few years.
Competition intensifies in Asian transaction banking
market
However, amid concerns over greater restrictions
imposed by regulators and shifting customer
expectations as they become increasingly
sophisticated, not to mention disruption from
fintech innovation especially in the payments space,
transaction banks need to rethink their role in this
business. As a cradle of innovation, the competitive
landscape of the Asian market is rapidly evolving.
Some innovations in the region are primarily driven
by government, such as in the case of the Unified
Payments Interface (UPI) in India and the FinTech
Regulatory Sandbox initiative in Singapore, while
others are propelled by the private sector such as
Alipay in China.
Latest research from East and Partners (East)
reveals that while the big three banks in the region
– Standard Chartered, HSBC and Citigroup – continue
to be Asia’s transaction banking powerhouses holding
over half of all primary relationships between them
with large corporates, financial institutions (FIs)
that have traditionally focused more on investment
banking including Deutsche Bank and JPMorgan are
giving them a run for their money. Aggregate primary
transaction banking market share of these
international banks excluding the big three has
increased by 11 percent from a decade ago to 20.7
percent.
By comparison, cumulative market share for local and
regional banks fell marginally from 27.0 percent in
2008 to 26.5 percent. Importantly, Bank of China is
making steady inroads into the Asian transaction
banking market, recording a CAGR of 4.6 percent in
the last decade, albeit from a low base. The Bank
successfully broke into the top five in the second
half of 2013 and has maintained its position since
then.
Adding value to your customer relationships
Banks that wish to stay ahead of the game must seek
ways to add value to their customer relationships.
Many FIs have focused on delivering a seamless
customer experience across all channels with better
user interfaces. In order to elevate customer
engagement beyond traditional transaction banking,
FIs will also want to provide customised product
offerings and advisory services. In fact, having a
solid understanding of a customer’s business and
industry are key to successful transaction banking
relationships. According to research by East, banks
that are positioned to demonstrate knowledge and
understanding of these critical areas will be
talking to over 45 percent of the large corporates
in Asia.
With respect to engagement touchpoints, corporates
in the region show a clear preference for direct
face-to-face interaction as opposed to indirect
means. Whilst more than half prefer to liaise with
multiple service individuals that are equipped with
specific expertise for their day-to-day servicing,
60 percent want their relationship managers to act
as a single point of contact when it comes to
escalating issues. This further highlights the value
clients place on their relationship bank’s expertise
and tailored solutions, rather than cookie cutter
approaches.
Opportunities with Chinese corporates going global
For FIs looking to seize opportunities from the Belt
and Road Initiative (BRI), the “going out” Chinese
corporate is a particularly attractive segment. In
May 2017, a vice-minister of the National
Development and Reform Commission said the Chinese
outbound investment is projected to reach US$600
billion to US$800 billion in total over the next
five years, and a fairly large proportion of this
flow will go into BRI-related markets. East’s
research shows that more than half of Chinese
corporates plan to seek guidance from banks to
support their BRI projects, much higher than the
global average of 37 percent.
These Chinese corporates, more so than their
counterparts in the rest of the world, want their
banks to share information on new developments
regarding BRI alongside expert advice on managing
the risks as well as opportunities involved. They
want to see real world information on how their
banks can provide product solutions and network
support. The latter demand in particular plays to
the strength of large international banks with broad
global networks. Not surprisingly, the top three
financial solutions requested by outbound Mainland
China corporates are trade finance, foreign
exchange/ hedging solutions, and cross border cash
management solutions. Banks’ success in reaping the
full benefits of BRI will hinge on how they navigate
issues relating to tax, credit analysis, financial
planning and compliance for their corporates.
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