When it comes to effective cash management, strong trade flows provide huge opportunities and correspondingly deep pitfalls for banks and corporates alike.
The most pressing question is how best to monitor rapidly rising sums, be it via hard currency, cheques or online transferrals. But get it wrong and a mountain of money can be lost or simply become redundant.
Consequently, while offering efficient and price competitive cash management services is vital, it is in their ability to add liquidity and to minimise the difficulties of dealing with financial flows within a business that the best banks stand out.
The winners of Asiamoney's 17th Cash Management Poll have proven themselves to be experts in meeting such requirements. The poll was our biggest by some margin, drawing votes from some of the region's smallest domestic businesses to global household names. Overall 1,461 votes were tallied, a significant snapshot of market opinion.
Citi's unparalleled platform
The voters in our poll made one thing clear: for cash management, Citi is a tough house to beat. It boasts an unparalleled regional franchise in terms of breadth, which has served it well in meeting the needs of a swathe of companies and banks. They were suitably impressed to vote it the best global cash management services provider for small, medium and large corporates, as well as the second best global provider of cash management services for financial institutions. Citi beat HSBC into second place across the board on the corporate side, while Deutsche was voted third in each category.
Corporate voters praised Citi for providing "solutions [that are] suitable for our company and excellent after-sales support", and the fact that it "understands our concerns for flexibility and reporting needs and also our sensitivity for pricing".
Citi itself attributes success to its personal touch. "It comes down to the way we sell and talk about our products," says Nigel Dobson, Citi's head of cash management for Asia-Pacific, when asked why the bank was so well regarded. "We have the full product platform, so rather than viewing it as talking to clients about receivables, payables or liquidity, we like discussing an end-to-end solution. That includes operational cash-flow management and liquidity cash flow; we try to think more about what a company treasurer is tasked with managing, rather than discuss product silos."
Dobson's focus is similar to that of Thomas DuCharme, Deutsche Bank's head of global transaction banking for Asia-Pacific. He estimates that improving liquidity management can help to strengthen the average client's cash returns by between 15% and 25%.
"Many companies may not have the complete picture of how much money they have in Asia, or no access to it or policies in how to invest it," he says. "When they can access it on a daily basis and convert it to a base currency they can invest it more aggressively, and then the returns are much better for them. Trading and offering liquidity management is the latest phase of this business. Three or four years ago it was expense management, but now liquidity management is key."
HSBC did not respond to requests for an interview about the poll results, chagrined perhaps to have come second in corporates to its arch rival Citi.
Deutsche's improved model
While Citi has done a thorough job on the corporate side, Deutsche Bank has snatched the spotlight as best overall provider of cash management services for financial institutions. Considering the bank was voted fifth in this category last year, it has clearly taken some major steps forward over the past 12 months.
While Deutsche may not possess the sheer girth of some of its competitors in Asia, it has made great efforts to overhaul its approach, raising its profile with regional companies to garner more clients.
"We have a far more focused approach today than two years ago," says John Ball, Deutsche Bank's head of cash management for financial institutions, Asia Pacific. "Structurally we've a more dedicated coverage model for cash management for financial institutions now; in the past it was a more diluted relationship management structure. We introduced the new model last year and this structure has now firmed up."
Voters appear to agree. "[Deutsche is] a leading provider in solutions and their customer service is excellent," enthused one financial institutional respondent, while another praised its "outstanding customer service, ability to solve problems quickly and its innovative approach".
All clients great and small
The success of these banks is no small feat, given the geographic and cultural diversity of Asia. The disparity between small, medium and large companies is also probably greater in Asia than anywhere else in the world.
For banks like Citi and HSBC, which aim to appeal to all levels of business, in accordance with their retail banking roots, servicing the cash needs of newly formed or growing small- and medium-sized enterprises (SMEs) is especially important.
"SME is an area that as an organisation we are very focused on, and we are growing the SME customer base via organic and inorganic growth," says Dobson of Citi. "If you look at our recent acquisition in Taiwan [of the Bank of Overseas Chinese – which is expected to close in the fourth quarter] and the fact that we're clearly focused on building our services organically in China via our strategic partners [SDPC and Guangdong Development Bank], we want to enlarge the SME client base in growth countries."
Such a strategy does not fit as well with Deutsche. DuCharme admits that Deutsche is not the biggest bank when it comes to cash management in Asia, "but with this award we are creating a new rule that says 'agile is best' with an organisation that is moving forward, evolving and trying to become the best transaction bank of choice." Multinational companies are likely to remain the bank's key focus for the immediate future, although it is quickly gaining business with local firms as well.
Asia-based multinational companies are a prized sector for all the cash management banks, given their more complex cash requirements and rapid growth. "Traditionally these companies have worked with one, two or three domestic providers, but when they get to a certain size and shape they realise that they need more than a domestic set-up," says Dobson. It means that banks like Citi, Deutsche and HSBC are quick to point to their global franchises when marketing themselves.
Asian multinational companies can also make decisions about cash management systems in the region. In this way, service providers don't have to wait for authorisation from a remote headquarters, which may also follow up with irksome questions better answered regionally.
Importance of the internet
But even as companies set up and expand regionally, their interest in securing online business continues to grow.
This year, 83.7% of our respondents said that they were changing to internet-based solutions, evidence of the internet's importance to cash management providers. "The internet is the de facto platform for every client now," says DuCharme.
Naturally, companies vary in terms of size and preferences, and accordingly their online requirements differ too.
"It really is horses for courses," says Dobson of Citi. "Small, medium and large companies tend to have internet platforms now, but it's the large players who tend to want the most advanced technology and seamless integration for ERP [enterprise resource planning], while other companies prefer more standardised offerings."
Sophisticated high-end platforms are quite expensive, and Dobson notes that many clients prefer lighter, less encompassing models. Citi is also exploring opportunities to partner telecommunications firms to offer a good product range at a price that is not prohibitive.
For now, online technology is less important for SMEs, where penetration remains low. Nevertheless, some limited technological offerings are being provided, including mobile payments and interactive voice response (IVR) solutions, according to Dobson.
Teamwork and training
While all banks involved in cash management like to boast about the versatility and responsiveness of their services, in reality it's one area where they can truly be differentiated.
"People are the key," says Ball of Deutsche. "I'd say we've got the best people in this industry – many have been developed within the organisation and others are recent hires in key market positions, most notably in China."
"While most banks offer an internet product, intellectual capital is the differentiator,"?adds DuCharme. "You can offer more movement and support post-implementation through the sales process, keeping a client actively engaged throughout the life cycle of the product, not just at the sale. It's very, very important."
Banks point to the quality of the sales and after-sales support teams as differentiating factors, and this is largely agreed upon by financial institutions, which found customer service quality to be the most important provision from cash management providers, at 20.8% of votes, while operational service quality was second at 18.4%.
But corporate voters in the poll had different priorities: pricing, followed by security, were the most important considerations in their choice of cash management providers, with each accounting for 17.05% and 15.28% of overall voting respectively. Other areas of preference were tailored solutions and accurate and timely online reporting, at 9.75% and 6.55%, respectively, while quality personnel and having one point of contact was the fifth most important reason, with 6.08% of the vote.
In truth, all international banks are expected to offer high quality and customised solutions, including client-friendly online features. So staff training and customer contact becomes critical.
"Our financial institutional clients now expect a more dedicated products coverage and they want a dedicated force taking care of their needs, be it sales people, account managers or customer services people," says Ball. "It's a cornerstone of the business."
The Sino-Indian express
Teamwork may be the single most important element of a successful cash management franchise, but it is closely followed by geographic coverage. And in Asia today, that means doing well in China and India, the two major growth economies of the region.
In China, Bank of China was voted best local cash management provider by financial institutions and top for small and large corporates, while China Merchants Bank was best for medium corporates. Meanwhile HDFC?is the favourite local choice of Indian corporates across the board. Deutsche and Citi split the honours for best foreign cash management bank in each country; the former taking the top position for small and medium corporates and the latter for large in both countries. Both banks take the opportunities in the two countries very seriously.
"We are working with [our] capital markets colleagues on initial public offerings, broker-dealer segments, insurance in China, while in India we've seen mobile payments getting a lot of traction, along with more traditional cash management services," says Dobson at Citi.
Expanding in China has also been a priority for the financial institutions cash management business at Deutsche. Its cash financial institutions team has quadrupled in size in the past year, and Ball believes that growth opportunities continue to exist there, as well as in India and south-east Asia. Overall, his business has grown its headcount by 30% over the same period.
DuCharme adds that a traditional focus of Deutsche has been European companies in Asia, but "in India, for example, the lion's share of customers are local, so we've been diversifying to attract these clients."
At the other end of the scale is Thailand, where the imposition of capital account controls in December 2006 and the effective dislocation of Thai baht valuation on onshore versus offshore markets really tests the cash management platforms of the service providers. Citi was voted top in the country.
"Thailand's broader economy has obviously undergone some problems, and in that sort of environment there's a flight to quality, which we've benefited from," says Dobson. "We're particularly proud of working with the government sector as it moves to electronic means of interacting with clients, through customs payments and excise payments, for example."
Perhaps the other market worth mentioning is that of Japan. It is the world's second largest economy, with multiple links to its neighbours, and yet is largely catered for by its domestic banks. Financial institutions voted Sumitomo Mitsui Banking Corp. as the third best overall cash management bank and the top Japanese yen currency cash management bank, while it was also the No.1 cash management bank by large corporates. Meanwhile Citi was voted best foreign cash management provider by corporates as a whole.
Certainly, Citi feels that it can do better. "We're positioning ourselves with foreign subsidiary clients [of international corporates] as an obvious partner for cash management services," says Dobson. "Plus we've bought [Japanese financial services firm] Nikko Cordial, and that will help us greatly increase the sort of cash management activities we offer in Japan; we'll have a huge and much-improved network to compete with."
Deutsche is a little less optimistic. While the bank believes that there are cash management opportunities there, especially with foreign companies or Japanese businesses with international offices, some within the bank privately suspect that making major headway against local banks will be very tough.
Even Dobson notes that foreign banks like Citi have to work with their local rivals to fully penetrate Japan. "We'll work more in partnership with the local banks too; there are clearly collaborative areas in corporate and financial institutions [for cash management services], and while Japanese clients may work with Japanese banks, they also need our global capabilities."
The challenges ahead
The main challenge for the top cash management banks going forward will be to keep up with Asia's rapid economic expansion. After all, in an industry that places such emphasis on people representing brands, increasing staff risks diluting overall quality.
Dobson, for one, estimates that Citi will raise staff numbers on average by 15% to 20% in the next two years to meet ambitious expansion plans. "We did a scan on clients from Europe, North America and Asia and about 1,500 MNCs [multi-national corporations] are not banked deeply enough. We intend to do business with 500 new MNCs in Asia alone in the coming year," he says. "By the end of 2008 we hope to develop more penetration in the MNC space; with SMEs we want to double our client base in the next two-to-three years." Given that Citi's clients number in the tens of thousands, it would represent a major target for the bank.
While growth is a priority for Deutsche too, it does not intend to become all things to all companies and banks, in competition with Citi and HSBC. Rather, it wants to maintain its focus on large- and medium-sized clients, and broaden the working relationship that it has with them. But DuCharme of Deutsche adds that finding and retaining the right staff will be essential if it is to succeed in these goals. "There's a war for talent in Asia, so the fact that we've had very low turnover in our transaction banking staff across Asia is very encouraging," he says.
With technology improving, and Asia becoming an increasingly important part of the global economy when it comes to goods, services and money flows, banks that provide strong cash management services stand to benefit. The test will be whether they can maintain staff of sufficient quality, and whether their sophisticated cash management systems will be able to handle downturns in the world economy, since all they have had to deal with so far is growth.