|
As another year draws
to a close, we look forward at what business banking
has in store for us, our clients and the market in
the years ahead.
Supply Chain
Financing Reaches A Tipping Point
Supply chain
financing (SCF) now, especially in Asia, is
characterized by a relatively low adoption rate,
mired with multiple interpretations of what the
terms actually mean, and a lack of understanding of
the products and their benefits among businesses.
Compared with other types of trade financing, SCF
has a somewhat “stickier” relationship and tends to
follow the overall corporate banking relationship.
The tide is turning,
however. With digitisation enabling efficient data
sharing across stakeholders, improving traceability
and visibility of the entire supply chain, it is
easier for all players in the ecosystem to leverage
it. Combined with an increased awareness and
understanding of the various solutions, we see
growing demand for SCF. In fact, recent East &
Partners research suggests winning SCF businesses
could potentially open doors for new banking
relationships.
Evolving Demand for
Cross-Border Payments and FX
Against the more
challenging macro environment driven by increasing
US-China trade tensions, rising risk of global
recession, as well as uncertainties surrounding
Brexit and civil unrest in some markets, businesses
are prioritising FX risk management above other
trade financing initiatives.
While poor visibility
of payment status and a lack of payment timing
predictability remain major cross-border payments
pain points for businesses, compliance requirements
are becoming increasingly difficult. This is
aggravated by the fact that most corporates maintain
local bank accounts in the markets they make
cross-border payments to, where they are also facing
challenges when opening and operating these
accounts. Is your bank ready to cater to these
evolving corporate needs?
Value for Money:
Secret to Winning Corporate Customers’ Hearts
Value for Money has
been consistently highlighted as a core service
metric for businesses deciding on their transaction
banking provider, and it is a trend likely to stick.
Close to one in four (23.7 percent) large corporates
in Asia have nominated Value for Money as the most
important attribute in their bank relationships,
ahead of Understanding of Customer’s Business (19.7
percent), Credit Approval Turnaround Times (16.6
percent), Effectiveness of Problem Resolution (8.9
percent), Quality of Customer Support (8.2 percent)
and Quality of Overall Service Delivery (7.2
percent).
Interestingly, when
asked about the main reasons for corporates to
switch provider, Value for Money is also cited as
the leading driver of attrition. This further
reinforces the importance of banks seeking ways to
add value to their customer relationships if they
wish to stay ahead of the game.
Curiously, though,
banks are not paying enough attention to this
critical service factor. Businesses’ dissatisfaction
with Value for Money is rising across the market in
general, be it with their trade financiers or their
transaction banks.
Value for Money is
undoubtedly a fluid concept. Depending on the
industry sector and business size, it may be seen as
having the lowest cost, offering exceptional
service, advising on best trading strategies to
follow, giving guidance on emerging market
opportunities, offering integration with other
products, making introductions to other relevant
clients, or a combination of some of these.
The trick lies in choosing the right focus for each
target segment. While small and medium-sized
enterprises (SME) tend to associate Value for Money
with competitive pricing, large corporates and
institutions are enticed by exceptional service,
benchmark insights and “something special”.
The Most Important Service
Attribute for A Transaction Bank
Fintech Hype
Falling Short for CFOs
While blockchain is
positioned as a solution to every problem for banks,
practical real-world solutions are fleeting.
‘Blockchain fatigue’ is replacing the hype that
followed the proliferation of distributed ledger
technology (DLT) developments launched by banks and
various consortia in the last five years.
As the buzzwords lose
their fizz, when will corporates finally see the
much-vaunted benefits?
Wide scale adoption
beyond traditional applications remains limited, for
example projects applying blockchain to ID
fraudulent goods down a supply chains have faded
into obscurity with barely a whimper. Successful
supply chain blockchain launches are yet to
eventuate in earnest, evidenced by IBM settling for
blockchain simply forming a component of more
complex systems in a ‘shadow ledger’ style unable to
stand on its own two feet…yet.
Effective financial
technology delivery hinges on truly understanding
the voice of the customer - not producing another
‘solution looking for a problem’. Time is running
out for banks to deliver.
FX Risk Management
Becoming Critical for all Businesses
With financial
markets tested with economic, environmental and
political volatility, it has never been more
imperative for corporates managing large scale
international operations to implement a coherent,
proven currency risk management strategy to minimise
downside risks associated with currency
fluctuations.
There has been a
growing trend in the use of risk management products
such as FX Options and Forward FX as strategic
approaches to mitigating risks. Businesses with
revenues of US$20 million and greater tend to a
higher level of derivatives hedging usage due to a
higher level of trade and supply chain dispersion.
It is important to
note however that there has been significant growth
in the use of risk management products among SMEs in
recent rounds of our research. These trends are set
to continue as global FX markets brace for increased
uncertainty in the wake of Brexit deliberations and
unpredictable US-China Trade war negotiations.
Digitisation Pipe
Dream Becoming a Reality
Trade finance
continues to be a paper dominated process, with
estimates suggesting up to three quarters of all
transactions are processed manually. Despite
automation, artificial intelligence and machine
learning streamlining credit approval and compliance
decision making, trade remains frustratingly
burdened with costly and error prone approval.
While major trade
finance providers such as HSBC, Citigroup, Standard
Chartered and ANZ announce new collaborations
designed to lurch trade finance into the 21st
century, digital transformation remains nascent.
Long overdue advances
in trade finance automation and
straight-through-processing (STP) such as digital
platforms, smart contracts and the Internet of
Things (IoT) could radically reduce administrative
costs, transaction fees and clunky document heavy
processing delays.
Less friction
undoubtedly will result in greater cross border
goods and services flows in an area which has been
criticised for falling behind the pace of digital
innovation taking place in other business banking
product lines such as transaction banking and
payments. Trade transactions are still commonly
assessed over several weeks instead of same day or
instant.
Benefits of
digitisation include faster transaction speed, lower
costs, improved customer wallet share, more
appropriate facility matching, less administrative
error correction and reduced fraud risk.
Difficulties in
linking disparate stakeholders including corporates,
carriers and banks results in issues applying
standardisation to electronic bills of lading
(e-bills) not to mention complex legal implications.
Streamlining these processes is a much-needed step
in the right direction and a clear impediment to
change is industry collaboration, requiring an ‘all
or nothing’ approach to digitisation.
Customer expectations
are quickly running ahead of what banks can reliably
offer, evidenced by declining value for money
perceptions across all segments, sectors, regions
and trade profiles.
Can banks’ trade
product and service offerings keep pace with
customer expectations? Providing practical guidance
on innovation, allocating a knowledgeable trade
account officer and limiting rising customer churn
will be the telling factors for success in trade in
2020 and beyond.
Fintech Hype
Falling Short for CFOs
% of Total
Can Banks Afford
to Become the Advisors CFOs Need...Or Can They
Afford Not To?
Banks may acknowledge
the threat nimble new entrants and Fintech
disrupters pose to their business model yet do they
truly understand what is driving increased customer
churn? What factor is driving the changing
behavioural trends?
As the low interest
rate environment pressures bank profitability, the
solution to sliding wallet share resides in
meaningful customer engagement – not less.
Automation may save costs but at what expense? East
& Partners research reveals incumbent banking majors
are struggling to keep up with a customer base eager
to explore new opportunities.
Customer switching
intentions have surpassed record highs last seen
before the 2008 Global Financial Crisis. Even ‘home
banked’ small businesses traditionally unwilling to
multibank for their transaction banking or lending
needs are sitting up and taking notice of new
offerings.
With businesses more
likely to turn to friends and colleagues than their
relationship manager for complex advice tomorrows
leading banks will be those that recalibrate
business banking relationships to that of
proactivity.
Competition
Contributes to Customer Care
Business FX markets
are experiencing a dramatic increase in competition
as a broad array of ambitious new entrant’s scramble
for growth opportunities. As a result, the market
has become extremely fragmented, evidenced by
declining average wallet share in our long running
Business FX research. This trend has driven
incumbent providers to step up and deliver better
quality service to their clients lest they end up
suffering damaging customer churn.
The number of
providers importers and exporters regularly use for
Spot FX transactions continues to expand in line
with rising churn intentions. This has not only been
evident in Spot FX but also risk management
products, particularly for larger sized middle
market corporates. In order to remain competitive,
major FX providers have been forced into a position
to improve and develop their services to corporate
customers.
Non-Banks Begin to
Win the Minds of Corporates
As banks fail to
differentiate themselves and continue depending on
outdated marketing strategies, legacy systems and
passive customer referrals, non-banks are leveraging
market share opportunities by labelling themselves
as ‘innovative Fintechs’. This approach has been
gradually capturing ‘mind share’ with corporates
eager to align with a fresh ‘look and feel’ to their
business banking services.
Since H1 2018,
unprompted brand recall (mind share) has been
steadily increasing for non-banks in aggregate
across several markets, while international banks
stagnate and domestic banks decline. Mind share is a
vital leading indicator of new relationship share
growth particularly among CFOs and corporate
treasurers expressing rising dissatisfaction with
high street banks. Micro businesses and SMEs tend to
be more susceptible to the noise in the market in
the hope of discovering a better alternative.
At present, banks
still remain as mind share leaders across all
business sizes however the growing trends that have
emerged in the market pose a considerable threat.
Although increased mind share does not directly
translate into increased market share, if the
current market mind shares trends continue, then in
the next five to ten years non-banks will have
certainly won hard fought market share away from
major global banks as well as regional and national
banks.
Part of the impetus
behind this trend is strong customer advocacy.
Active customer advocates of any business banking
brand will undoubtedly boost brand awareness in an
industry saturated with competition. Due to the
increasing number of new entrants competing with
banks even for core transaction banking and lending
services, it is extremely difficult to stand out.
Non-banks are gradually getting their proposition
right among business customers.
Non-banks return
excellent customer advocacy ratings compared to
domestic and international banks, with a greater
number of active brand advocates willing to promote
their brand positively. This trend has been more
evident with secondary customers compared to primary
customers. In the long run can non-banks harness
improving mind share and customer advocacy ratings
as the incumbent big bank majors fight back?
Non-Banks Begin to
Win the Minds of Corporates
|
