The impressive growth in Asia’s corporate segment – an estimated 30% of the world’s 500 largest corporations will be based in the region by 2030 – has fuelled regional transaction banks’ ambitions. They are also aiming to fill the void left by the scaling back of global players’ operations in certain markets and customer segments, a strategy some refer to as “shrinking to greatness”.
Transaction banking, including cash and liquidity management and trade finance, is both a “sticky” – meaning that corporates usually stay with their existing providers for a long time – and highly profitable business. It is the core growth engine for corporate and investment banking (CIB) operations in Asia, according to a recent McKinsey report. Contributing half of CIB revenue and growing at around 6% per year in Asia, it also “serves as a gateway for new clients as well as a platform for deepening existing relationships”.
Eric Li, Head of Banking Research at financial services benchmarking and analytics firm Crisil Coalition Greenwich, highlights the push and pull factors driving their expansion. “The push factor is that regional banks need to invest heavily into their capability to stay relevant in a hyper-competitive environment where the megabanks, such as HSBC, Citi and J.P. Morgan, have been strong in product innovation and digital transformation,” he says.
The pull factor is twofold, according to Li. “In addition to the fact that the transaction banking business is growing fast from a volume standpoint, there are also diverse client needs that the global banks may not be able to cover. Plus, the global banks mainly cater to the largest corporates in each country, whereas regional banks can also support mid-market companies,” he explains.
Gaining an edge
In the context of trade wars and heightened geopolitical instability, supply chain disruption and currency volatility, as well as the ongoing challenges associated with operating in diverse countries with strict regulations, banks that can provide an on-the-ground perspective are being received positively, according to Martin Smith, Head of Markets Analysis at East & Partners, a banking research and advisory firm.
“Instead of a one-size-fits-all approach, treasurers and chief financial officers (CFOs) are expecting a specialised service offering from their banks, with more focus on a local look and feel,” he says. “Corporates are looking to their banks to proactively address their risk management needs, which can give the regional transaction banks an edge, as they have a more focused product and service proposition.”
Regional banks have a deep understanding of local markets, regulations and business culture, which allows them to serve a broader spectrum of clients with customised solutions that align closely with their needs and the local environment. In addition, regional transaction banks’ expansion is supported by their strong networks, according to Arvind Prasad, Managing Director of Transaction Banking and Payments at Maybank, headquartered in Malaysia.
“Regional bank ecosystems are vital for enabling our large corporates to operate seamlessly across markets, while offering mid-market – an often underserved segment – the support they need to expand or trade regionally,” he says.
Echoing Smith’s point, Prasad reports that global clients increasingly value local insights and agility, as they seek alternative markets for growth amid rising geoeconomic fragmentation. For example, he sees a growing international interest within the Association of Southeast Asian Nations (ASEAN), particularly in the context of ASEAN-Gulf-China partnerships.
“This is an emerging trend we are watching closely, as we have a track record of bringing in clients from the Gulf and China into ASEAN,” says Prasad, adding that Maybank has a presence in all ten key ASEAN markets.
Tod Burwell, President and CEO of the Bankers Association for Finance and Trade (BAFT), believes that many clients value the customer centricity that regional banks can provide, which includes better access to decision makers, allowing for deeper relationships and greater solution customisation.
Smith agrees that the level of responsiveness is competitive, with less bureaucracy and a much more structured relationship management model. “This is not to say that the incumbent global banks are poor in this area, but it is where the regional banks position themselves as a key point of difference,” he says. “In requests for proposals, the top selection factors are coverage, capabilities and network, but credit commitments and industry knowledge help regional banks stand out when corporates are looking for a new transaction banking provider.”
He reports that regional banks are having some success, as customer churn figures are notably high currently. “We’ve never seen such high figures indicating clients are intending to switch their primary transaction bank,” says Smith.
Aditi Agarwal, Chief of Staff and Global Treasury Operations Leader at GE HealthCare, agrees that regional players can provide a deeper understanding of specific market and regulations in that market. “They support navigating the nuances of operating in the country/region from a collection, disbursement and tax perspective,” she says. However, in her view, the global players offer a wider range of products, access to global liquidity and investment opportunity, and easier execution of cross-border transactions.
Burwell highlights the consolidation trend in some jurisdictions, which has increased the size of regional banks, providing them with stronger balance sheets and broader product suites.
“Additionally, many regional banks’ focus on digital capabilities has allowed them to not only cement their relationships with corporate clients, but also tailor their offerings to suit the needs of local corporates,” he says.
As Burwell indicates, regional banks are investing in innovation. However, he is quick to point out that often they don’t have the same investment budgets that the larger banks command.
According to the McKinsey report, regional leaders may allocate as much as 35% of their total technology budget to technology transformation. Many have already launched digital tools and capabilities for CIB clients, such as business-to-business ecommerce platforms and faster cross-border payment networks.
Agarwal agrees that regional banks are making significant investment made in innovation, digital transformation and automation. She points to technologies like artificial intelligence/machine learning/robotic process automation, cloud computing, real-time payments and application programming interfaces (APIs), which is enhancing customer experience, helping to reduce manual work and drive automation, and enhancing controls in the process.
One example she highlights relates to the supporting documents which must be attached to many transactions. “This used to be a very manual process, where documents were shared via emails or other unsecured channels. But with the use of advanced automation tools, the data can be automatically shared via secured channels thus enhancing the user experience,” she explains.
“Innovation in areas such as cash flow forecasting and payment processing has been well received, particularly due to the current market uncertainty, pressure on liquidity management and supply chain recalibration,” adds Smith.
While DBS and ANZ Bank are often cited as innovation leaders, other regional banks are also ramping up their digital capabilities.
Maybank, for instance, is strengthening its transaction banking proposition with “a seamless digital, unified onboarding experience to acquire and activate clients on its improved regional cash management platform,” according to Prasad, as part of the bank’s M25+ priorities that include intensifying client-centricity and accelerating digitalisation.
“While Maybank has long been regarded as the go-to bank for the government and large-cap companies, we are also focusing in the mid-market space as a ‘super growth’ area,” he adds.
Maybank’s core strategy has been to strengthen its digital transaction banking capabilities across cash, trade and other solutions, including green supply chain to enable clients to manage their working capital and liquidity better, and comply with environmental, social and governance requirements and targets.
The bank’s strategy also includes strategic partnerships to strengthen its regional trade proposition in the ecosystem. For example, Maybank has partnered Doxa Holdings to provide supply chain financing solutions to building and construction players, as well as with PracBiz to support players in the fast-moving consumer goods retail industry.
“Regional banks seem to be more focused on models built around partnerships, as opposed to homegrown solutions,” reports Burwell, a trend that he saw emerge at BAFT’s recent Global Annual Meeting.
“I think there is a tendency among large global banks to ring-fence technology capabilities in certain businesses because they don’t want to be dependent on a third party provider. However, regional banks tend to be more open to using partner-based solutions, which allows them to buy best in class technology and go to market faster than if they built it themselves,” says Burwell. “But that also entails ensuring that these partner solutions can work together. Plus, innovation will happen at different paces within each one of those technology stacks, so we will see how well those models hold together and whether the banks can effectively manage those partnerships and connectivity,” he adds.
Staying the course
The transaction banking business is one that necessitates a long lead time, often taking five to ten years to build deep and trusting relationships. Additionally, it has been challenging for regional banks to win the entirety of clients’ wallets away from their primary provider. According to Smith, the regionals have had more success as secondary providers for one-off or infrequent cash management or cross-border payments needs.
“It takes a long time to get a foot in the door as a secondary provider and then to become a primary provider. It also requires a lot of resources to get the proposition across and win market share as reflected in ANZ’s performance, which has had a strong focus on its regional offering for years, carving out a small piece of the market at a significant cost,” says Smith.
And the competition is intense among regional banks and global majors. Reflecting the higher level of panel banking taking place for transaction banking in Asia, competitive pitching levels are much higher relative to the global average. According to East & Partners research, CFOs and corporate treasurers in China, Hong Kong and Singapore receive up to seven approaches for their transaction banking business each year compared to the global average of just over five approaches.
However, as Smith mentioned, the high customer churn figures presents an opportunity for regional players and the competition doesn’t come down to just price. Prasad agrees. “Corporate clients have often focused on pricing, but increasingly it is about what value we can offer: support, ease of doing business and advisory services,” he says.
Interestingly, recent research by East & Partners found that the majority of treasury respondents said that a recommendation by a trusted friend/colleague/supplier/trading partner is the main prompt that would encourage them to engage with or respond to a new bank.
“Knowing the experience a close business colleague has had with a bank gives us much more confidence in opening a discussion with a potential new provider,” the treasurer at a Singapore logistics group told East & Partners.
