Managing the cash sloshing around the globe
In a world where corporations are expanding their footprint across the globe, cash is not only king, it is also on the move.
In fact, billions of dollars change hands every day, creating a vast system where players need cash management in order to operate efficiently and profitably. In China, those services are expanding because of deregulation and the technology of the digital age.
That management is often called transaction banking. Simply put, it’s the process of transferring money and includes commercial banking products, domestic and cross-border payments, professional risk mitigation for international trade, and the provision of trust, agency, depository, custody and related services.
About 20 years ago, Citibank first introduced rudimentary cash management services into China.
“Before that, Chinese banks were pretty much just providing some very simple clearing and settlement services,” said Pei Yigen, Citi China’s country head of treasury and trade solutions.
He said that globalization is a major driver in what is now a booming sector and the trend is expected to continue through 2018.
Transaction banking began coming into its own after the 2008 global crisis as more banks repositioned themselves in a daunting market environment, according to the recent annual report by China Transaction Banking 50 Forum.
“When you look back on the crisis, strong transaction banking business really helped us through the crisis,” said Mahesh Kini, managing director and head of global transaction banking in China for Deutsche Bank. “Every client who has working capital running needs cash management. Everyone. It brings a lot of stability to our balance sheet.”
Indeed, transaction banking is one of the major top line and bottom line business contributors for Deutsche Bank China, according to Kini.
Hang Seng Bank (China) Ltd said it registered 70 percent growth in cash management during the first half of 2017.
Gu Wei, head of treasury services for China at JPMorgan Chase, likens cash management to a marriage. Once clients become wedded to our services, she told Shanghai Daily in a joking way, divorce becomes unlikely.
Visibility of cash positions, concentration and profit are the three goals of chief financial officers and corporate treasurers, according to Kong Lingji, a partner of consulting at PricewaterhouseCoopers Management Consulting (Shanghai) Ltd.
As such, banks are constantly striving to meet those demands, he added.
Talking of the recent trends, Deutsche Bank’s Kini cited the Nets Union Clearing Corporation, a new online clearinghouse platform backed by the People's Bank of China.
“It will be fully running next year,” he said. “Our clients will want us to receive money through the clearinghouse for goods they are selling on Taobao or JD.com. That is a huge change that we are discussing with clients now. It’s really about putting your technology capabilities to leverage the infrastructure changes and, at the same time, give clients better service.”
With deregulation, cross-border money flows are holding steady.
“The trend is very obvious,” said JPMorgan’s Gu. “Previously, domestic cash management dominated our business, but now transactions are increasingly done beyond borders.”
As the yuan makes inroads as a global currency, banking giants are having to rethink their strategies.
“We used to focus on serving inbound money flows, but we are now thinking the other way around -- that is, how we can serve the outbound flows of Chinese clients,” Pei said.
In this new world of finance, technology has become the name of the game.
JPMorgan, Gu said, invested US$9.5 billion globally last year on technology across the bank’s operations. About US$3 billion of that went to new initiatives like big data, cloud computing, robotics and machine learning.
“One area with great potential is to apply technology to speed up our interbank information exchanges, one of the trouble spots facing the banking industry,” she said. “Previously, if any transaction was suspected of links to money laundering, we had to halt the transaction and ask our counterparty bank to clarify the underlying assets. That back-and-forth exchange can be very time-consuming.”
Hang Seng Bank (China) launched a new service called Virtual Account this year, which increases the efficiency of collection and payment services.
“Take, for example, tuition payments,” said Kelvin Au, deputy chief executive and head of commercial banking at the bank. “Schools deal with a large number of receivables from thousands of students. Setting up a universal virtual account will help them handle the money in a much easier way.”
Transaction banking is a very competitive business, with financial institutions scrambling to offer the latest and best solutions to attract clients.
Autobahn, initiated by Deutsche Bank China, is an app-based platform where clients can access all products with a simple login.
“It is a very modern, very smart data management system, enabling clients to make better decisions,” said Kini.
This October, DBS Bank launched an online treasury and cash management simulation tool. Users are able to simulate various bank and corporate solutions on its Treasury Prism at no cost, and review potential opportunities that will maximize value for their enterprise, according to the bank.
Talking about the competition in the market, Deutsche Bank doesn’t seem too worried.
“Each one has a position in the market,” said Kini. “If you put Deutsche Bank in a diagram, we are somewhere in the middle, with large global banks on one side and specialist banks on the other. We can move and do both sides from the center. That is one of our advantages: being flexible.”
With China’s “Belt and Road Initiative” expanding the tentacles of trade, cross-border liquidity becomes crucial for companies.
“I think that more investment will come into the country,” said Kini. “It presents new opportunities. And I am very confident on China and on transaction banking in 2018.”