A Regional Asian Bank’s Competitive Niche for Transaction Banking

Transaction banking is growing rapidly in the Asia Pacific region and, as competition continues to grow, multinational and regional banks alike are looking at how best to compete effectively. gtnews met with Tom McCabe, head of transaction banking at DBS Bank in Singapore, to find out how regional players are competing effectively with the multinationals.

Population and Consumer Shifts

McCabe started by looking at the big picture. “There are two big shifts going on within Asia,” he said. “The first is the population shift, and a McKinsey study talks about 400m people moving into the middle class and becoming purchasers of goods. The second shift is the ability for mid-size and large Asian companies to meet the needs of those consumers.” The environment in Asia, then, has changed significantly from when the US or European multinationals supplied most customers 10-15 years ago, as Asian companies are growing rapidly. “You see the results,” he said, in “intra-Asia trade increasing over 600% in the last decade while US-Asia trade is up 2-3%.”

Even though trade flows have changed dramatically, McCabe said, “the predominant banking products and needs are the same. What is different is “the way they’re applied.” Emerging Asian companies that “go from doing business in their home country to five or six countries are not as well known yet, so they need more banking services to reduce risk for themselves and also for their counterparties in the countries where they want to grow.” Regional banks with a broad Asian franchise can “support these companies on both ends of the transaction.”

As these Asian companies expand, he said, they are doing what western multinationals did several decades ago. They are “determining, globally, where the best place is to source, to sell, and how to run a very efficient treasury, and to that the chief financial officer’s (CFO’s) office provides the tools for manufacturing and sales to be as competitive as possible.” Regional banks in Asia are then well-positioned to provide the end-to-end services these customers need.

A regional bank like DBS sits in the middle between local banks that may not be able to provide a full suite of services and multinational banks that see many of these customers as “not material to their P&L.” The global banks are “focusing on the top 5,000 to 7,000 companies globally that will do the US$10bn, US$20bn deals.” A regional bank, he said, is more focused on providing these rapidly expanding companies with “operating accounts, trade finance, foreign exchange services, basic revolver services and the end-to-end commercial banking services they need to grow throughout Asia.” What makes these customers especially attractive, he said, is that they are “the ones that are the fastest growing in the global economy.”

What these customers actually need, McCabe said, is “support on the commercial trade transactions, from risk, to operating accounts and liquidity management, to foreign exchange and hedging capabilities.” That level of support is “the difference from having a few people to having a huge proprietary trading desk” and regional banks can help customers gain a competitive advantage with a suite of services on the ground.

As one example, he described a customer that is a pipe manufacturer in China for the energy industry. The company needed a special coating on the pipe, and a Taiwanese company was the only one that had the coating it wanted. The customer’s client was an Italian company that was building a pipeline in Algeria. In this type of transaction, he said, a regional bank can provide many of the services through networks in multiple Asian countries and can also work with partners to meet customers’ needs across the globe.

The Scale of Opportunity

McCabe put the scale of the opportunity in perspective when he described what is needed to support these Asian customers. “If you look at all the customers that need banking services and banking advice and assume that they’ll need about two calls a month,” he said, ”the need in the transaction banking industry is for about 700,000 sales calls a year. The capacity is currently 480,000 calls.” By increasing and intelligently allocating its staff, DBS can grow its business significantly.

Yet success won’t come just from having more staff. McCabe said that “a big part of the game is having well-trained and qualified individuals show up and advise the customer on how to do business across multiple markets.” Staff need to be able to “discuss risk and opportunities across the working capital cycle,” and the bank needs to be able to “deliver on both ends of the transaction.”

McCabe said that DBS has been successful in hiring the experienced staff it wants. Once they are onboard, though, they still need constant skills upgrading since “the complexity of this business requires constant investment and training.” The training, he said, includes imparting “domain knowledge to advise the customer and also skills for a consultative sales process.” It is a constant process, he said, of “developing programs to train people, developing the culture that attracts people, and also making sure the performance environment is nurturing and supports personal growth.”

Even though the macroeconomic environment has changed, McCabe said, the products and services that customers need are largely the same as what they needed before. “The core trade products and services are largely the same. I’m not seeing anything that’s significantly new in the market except for the customer engagement model,” he said, since the same complexities that existed 15 or 20 years ago are still here today. The difference is that, with businesses venturing into more markets overseas, those complexities now “exist in multiples”.

The Advantage of Regional Banks

In some cases, though, the details of the products or services are different from before. For example, he said “DBS played a leadership role in the RMB” since it is strong in China. Next, he said, he expects that Chinese companies that are setting up regional treasury centers in Singapore and Hong Kong are “will likely request for business to be done in Renmnbi. The leverage is always with the large contributor in the buying chain and you’ll see more in Renminbi.” Regional banks can have an advantage, he said, because they have deep knowledge “in China and Asia.”

Another trend McCabe sees is the growth of smaller companies, which then “need more financing to grow their business.” Companies that have as much as US$500m in turnover are sometimes “overlooked by the large global banks, while the services they need are too complex for the large single-country banks.” Regional banks may then end up “getting into end-to-end financing of the commodities, the infrastructure and the plants they need.” In cashews or cocoa, for example, DBS looks across the entire value chain, including “the plantation, the logistics, the trader, the importer, the processor, the packager, the distributor and the small retail store.” It’s not just sales staff who support these customers, he said, but “our credit and risk staff support them” as well.

As these smaller companies grow, McCabe said, they have also increased their technology capabilities and he has “seen a lot more sophistication in terms of technology with the Asian SMEs.” The driver, McCabe said, is the next generation that is taking over the family business. “They’ve gone to school in the US or UK, they’ve worked for 8 or 10 years with global companies, and they’ve come back to run the family business. They bring experience in terms of capital markets, marketing and technology.” These smaller companies then have the capability to do many of the same things as larger companies, and “it’s a determination of how fast they want to move.”

The key for these companies, McCabe said, is determining when “technology gets to a complexity where it’s no longer an enabler.” Both small and large Asian multinationals have “a balanced view of how they’re going to deploy the technology to move their business forward” without stretching to the point where technology is running the business.

McCabe also said that he’s “seeing a lot of interest, more for reporting than for transactions” for mobile technology. While many companies do not allow staff to initiate transactions outside the office, what they really like is “e-advising.” “Customers want to know that payment has come in before they release goods,” for example, and by simply sending payment updates to them via channels like SMS, “the benefits in terms of the convenience gained and reduction in risk, is significant to our customers.” “Keeping simplicity, efficiency and effectiveness at the base of everything we’re doing” is what customers tell him is important.


Talking with McCabe, it’s clear that there’s a tremendous opportunity in transaction banking for regional banks. While it may not garner the headlines of the mega-deals at the large multinationals, it’s a business that’s growing rapidly. And that seems to be just the way regional banks prefer it. A profitable business with under-served customers who are growing rapidly seems to suit the regional banks just fine.


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