r ese a r c h r e p or t
Managing the great
transaction banking
sea change
A regional survey of global and local
transaction banks by Asian Banker
Research shows banks are putting
more focus on product innovation to
match stiff client requirements
by Cindy Jin
F or the transaction banking industry, 2009 was a
return to harsh reality. Among international banks
in cash management, revenue was mixed, typically in
low single digits, or double digits on the back of severe
cost cutting. For many global banks, cash management
volume growth was negative. Trade finance volumes
were also highly impacted, but with the wider margins
that quickly followed the re-pricing of risk just after the
financial crisis, it meant that for many trade finance
businesses revenue was decent. But as those margins
narrow again as companies return to a more steady
operating environment, the business will face a test of
strength adapting again to low volume and margins.
In a broad survey that covered six global banks,
as well as 20 local banks in 11 markets, Asian Banker
Research saw banks’ rapid ability to push product in-
novation as a main part of their growth in this business
area. As banks rely on innovation to retain clients, and
perhaps to win new business, this IT-investment inten-
sive industry has only become more expensive to be in.
Investment levels will remain a strain on banks commit-
ted to remaining in this sticky but resource-intensive
business, even as smaller players exit.
24 The Asian Banker ISSUE 97
ABJ ISS-97(PG1-60).indd 24
But even a strong IT edge could not prevent the
large global banks that dominate the cross-border
cash and trade businesses from ceding advantage to
local players, who had the liquidity and the support
bases that they lacked in the aftermath of the global
crisis. While local banks have relied on global banks for
technology and network coverage, the line between the
two is beginning to blur as local banks gain expertise
and technology of their own in cash management and
trade finance. With their liquidity and their control of
local corporate and SME relationships, local banks
have incurred greater negotiating power with the
global banks than they ever had before.
Global banks are trying also to break out of their
typical client base of MNCs and home-country clients,
and have begun courting local businesses that are
looking for something beyond the deals that local
players are willing to make. In this way, initiatives on
the global bank side are also blurring the business
environment in the Asia Pacific region.
Thinning margins are driving innovation, as is the
new power struggle between local and global banks.
New initiatives are pushing business differentiation
4/13/10 11:26:40 PM

Local banks’ key reasons for choosing an international bank
in cash management
global support
competitive pricing
local support
credit provided
SWIFT connectivity
technology/processing
centre support
reporting services
white labelled services
levels of STP
0%
Source: Asian Banker Research
ABJ ISS-97(PG1-60).indd 25
as well as cost reduction. For now, the key innovations
are still coming from the global banks, but as we’ve
seen in some of our meetings with key local players
there are good ideas coming from all parts of the
Asian financial services community.
Liquidity management
When lending froze in the wake of the failure of Leh-
man Brothers, the onus for corporates and FIs went
to dedicated global liquidity consultants to analyse
and optimise working capital with comprehensive glo-
bal liquidity management and investment solutions.
Banks saw the need to take a strategic, end-to-end
approach, from funding operational cash needs with
local and regional resident/non-resident account
structures to investing for future growth, based on
daily, short-term, long-term and compliance-related
liquidity requirements and treasury objectives.
Liquidity and investments solutions that have
come to the fore in this environment include:
Cash consolidation solutions, which concentrate
liquidity from accounts and remote locations
worldwide, including third-party local banks,
enabling businesses to make payments, reduce
debt and invest cash more effectively.
Investments, covering deposit and investment
solutions, including automated, self-directed or
managed offerings.
Information management and cash positioning,
which offer a number of solutions that help to
gain visibility over global cash positions, such
as reporting on funds from third-party bank ac-
counts and concentrating.
10% 20% 30% 40% 50% 60% 70% 80% 90%
In this new operating environment, global cash
management providers have been reacting in different
ways. One institution we studied combined advanced
technology, innovative products and industry expertise
to help financial institution clients optimize cash flow,
manage liquidity and mitigate risk while efficiently
reaching their customers, vendors, employees and
investors around the world. Their clients can make
payments worldwide in more than 100 currencies.
Another global bank used the period to roll out a
global cash concentration platform, which it claims
to have fine-tuned to the extent that clients with glo-
bal/multi-region locations can fund operations on a
just-in-time basis, with cash balances concentrated
in the correct currency, in the correct amount, in the
correct place around the globe.
As Asian countries have restrictions on the free
flows/transfer of cash balances between countries,
there has been a focus on using a virtual pooling op-
tion via an interest optimization programme, which
is meant to maximise its returns on balances that are
deemed trapped in some of the countries.
But with cash management volume down, banks
are very focussed on innovatoin to attract the best
mandates. Our survey showed that leading banks in
the cash management business in 2009 won man-
dates in excess of 1,700 corporate and FI clients
combined. It seems like the era of the big deals has
not gone, and in the expensive volume-driven world of
cash management can be a matter of life or death.
Partnering for trade
With confidence in trade heavily impacted by economic
uncertainty and FX volatility, the result has been in-
creased pressure on companies to optimize efficiency
and liquidity from their supply chains. Another key
component to trade finance has been a focus on risk
and liquidity, as banks froze to the prospect of risking
precious capital to trade and long-term volatility.
Technology has remained an important driver
throughout, with crucial accuracy levels needing to be
demonstrated in order to maintain client confidence.
Here we found that the accuracy levels of LC and open
account processing reached 98.7% for the best play-
ers. Banks have also sought to improve their ability
to control their exposure in an environment of uncer-
tainty with various innovations and partnerships.
One of the key trends in trade finance has been
to reach out to third party players. Through ongoing
investments in existing and new products, one of the
banks we looked at developed and enhanced numer-
ous products and solutions for both corporate and
financial institutions, and in the third quarter of 2009
(Continue on pg.28)
ISSUE 97 The Asian Banker 25
4/13/10 11:26:41 PM
 r ese a r c h r e p or t
Local banks’ key reasons for choosing an international bank
in trade finance
local support
global support
competitive pricing
reporting services
technology/processing
centre support
credit provided
letter of credit
reimbursement
products beyond LCs
white labelled partner
0%
Source: Asian Banker Research
28 The Asian Banker
ABJ ISS-97(PG1-60).indd 28
(Continue from pg.25)
launched a global multi-currency and multi-lingual
platform to manage flexible financing solutions that
are fully integrated with payments, reporting and
SWIFT’s Trade Services Utility.
The platform seems to be able to provide much-
needed flexibility and focuses on a strong integra-
tion with third parties. The bank has adopted a
programme of seeking partnerships and alliances
with third parties, including financial institutions and
logistic providers, in order to expand supply chain
reach, augment credit capacity and enhance the flow
of supply chain information.
Relationships with export credit agencies (ECAs) was
also key to maintaining good risk management capabili-
ties, with Citi and Standard Chartered Bank maintaining
strong relationships with key agencies, although some
participants have noted that often lines provided by
global organisations to finance trade have not been
drawn. J.P. Morgan also worked closely with multilateral
agencies and ECAs, including the ADB and the IMF on
their various risk mitigation programmes.
Focusing on risk
With exporters looking for ways to mitigate the risk
of their receivables, accounts receivables financing
became a focus for most of the global banks we met,
who maintain the ability to purchase customers trade
receivables on a limited recourse basis. With the
banks taking the payment risk of the ultimate buyer,
the financing allows exporters to expand into new buy-
ers markets without having to incur high cost of credit
checks on new buyers as the bank undertakes these
checks and provides credit cover where available.
10% 20% 30% 40% 50% 60% 70%
ISSUE 97
Some players have built up a facility to put up
financing against receivables based on an a method of
evaluating underlying risks of the facility by focusing
on the quality of the receivables, underlying goods and
services and the management profile of the client.
Global banks with the right risk appetite are then
carving out businesses and addressing the needs of
clients adversely affected by increased rates of busi-
ness failures that have arisen from faltering importers’
economies. Some of the banks that we looked at are
developing innovative programmes to help clients
access enhanced working capital through financing
on a without recourse basis. To carry out this facility,
they would partner with a network of correspondent
factors and leverage direct collection of payments in
importers’ geographies.
In terms of innovation in risk participation agree-
ments, one player has sought innovation by looking to
the concepts of Islamic finance, developing a Sharia-
compliant master risk participation agreement, which
enables clients of Islamic financial institutions to
participate in its transactions.
Focusing on efficiency
The long march towards straight through processing
and automated transactions has been the ultimate
goal of transaction banking. According to our re-
search, we find here that automation for the best
banks in our survey has been greater than 80%.
Here several banks made key inroads with various
offerings. One of the banks we looked at, for example,
pushed a fully automated trade payables financing so-
lution that focussed on online access to suppliers for
discounting receivables. The service allowed clients
to actively manage cash flows, monitor receivables
and avoid long clearing durations normally associated
with receiving check payments.
Similar moves were made on cross-border trade
on open account payment terms, which still requires
presentation of paper documents in numerous Asia
Pacific markets. Here one bank we studied developed
a system that provided document handling, review,
and payment, while also enabling the conversion of
paper to image and data for clients. Transmitting im-
ages and data electronically from systems to clients’
systems also helped eliminate costly and duplicative
paper and data entry processes for open account
trade clients, and we have observed that more and
more global banks have started implementing this.
The bank has also taken a page from European
payments area by bringing to Asia electronic docu-
ment creation and presentation, which aims to elimi-
nate the interim process of submitting original export
(Continue on pg.30)
4/14/10 4:33:54 PM
 r ese a r c h r e p or t
The race to innovate
Trade finance has not been an innovation-rich space for local banks
until the downturn forced them to wake up
W hile innovation has become part of the survival
instinct for financial services like retail banking
and cash management, the economic downturn has
forced trade finance businesses to acquire it in a
hurry, especially when margins began returning to
their habitual thinness in 2009 after a brief re-pricing
of risk that had normalised them. Here, banks in frag-
mented, highly-competitive export-driven economies
like Taiwan have been showing thought leadership by
focussing on innovative solutions for intensely active,
but relatively small client bases. In our research study
we have seen how one of Taiwan’s largest privately-
owned bank designed a pre-acceptance forfaiting
solution for customers with good credit histories,
large volume of L/C negotiation, and good quality
LC documents preparation.
The bank faced the challenge of managing risk
and the procedure of the transactions; by adopting
a structured pre-acceptance forfaiting, customers
realised the account receivables and received cash
earlier while avoiding bank and country risk. With a
structured pre-acceptance forfaiting, the volume of
LC negotiation increased and the size of the forfaiting
market in Taiwan also grew.
(Continue from pg.28)
documents to its trade operations, while still pushing
along the process of document examination and pay-
ment under export LCs. The bank uses an online IT and
imaging platform coupled with innovative document
delivery process together with a courier service.
Nourishing business with banks
The large global banks have been investing heavily in
developing comprehensive suites of services, often on
a worldwide basis; many banks in Asia are now starting
to see the value in developing a full range of transaction
banking services for their corporate customers.
Banks will be faced with choices in what mix of
services, both outsourced and home grown, to offer
in their particular market. The banks are feeling chal-
lenged in developing their strategies for corporate
banking services.
30 The Asian Banker ISSUE 97
ABJ ISS-97(PG1-60).indd 30
In the product structure, the bank would first
analyse a client’s group or “pool” of buyers, usually
SMEs, after which a lending ratio is calculated based
on the overall combined credit risk of the buyer pool.
In order to further mitigate buyer risk, the bank
would then assign a “first loss” ratio to the client.
This means that in the event there is a buyer default
event, the client will first absorb a certain percent-
age of the default amount before the bank’s credit
protection kicked in.
Once the initial lending and first loss ratios had
been calculated, the bank would seek out a credit
rating agency to rate the overall lending package.
Depending on the rating given, the bank could elect to
adjust the lending and first loss ratios accordingly.
With a unique product, the bank has been able
to provide financing and credit protection solutions
to clients that would be otherwise unavailable.
Under traditional trade finance programmes of-
fered by other banks, a client’s buyer would be
assessed on a standalone basis. As such, many
banks will not approve trade credit or financing
limits on smaller SME buyers, simply because of
their size.
But innovation, despite providing much-needed
functionalities and competitive advantages to banks,
is not a key priority when choosing banks. For over-
arching, day-to-day priorities, banks still focus on
financial incentives, as well as support. According to
Asian Banker Research, local and global support are
still at the top of their list of priorities for choosing
international partners, both in trade finance and cash
management. Technology, in terms of SWIFT connec-
tivity or processing, rank in importance, but are not
as high. White labeling, the bugbear of the industry,
is not valued highly, either among trade finance or
cash management departments.
The key findings of The Asian Banker’s transaction
banking survey will be published in a full report. Contact
ckapfer@theasianbanker.com for more details.
4/13/10 11:27:36 PM