Growing interest in transaction banking

Aseem Goyal, Head of Transaction Banking, ANZ (Vietnam and Greater Mekong Region)

Is transaction banking a key business for ANZ?

It has been a critical component of our institutional banking strategy for many years, and fits extremely well with the bank’s overall strategy of facilitating trade and capital flows throughout the region. ANZ has made, and continues to make, significant investments in the business. In order to appreciate why ANZ and other banks are focused on transaction banking, it is important to understand what value transaction banking brings for our customers.

As we all know, institutional clients buy and sell goods and services as their core business. Transaction banking, which consists of Trade Finance and Cash Management products, firstly facilitates these activities for the clients through payments and trade finance, whether the customer business is local or cross-border. Second, it helps customers to better manage their liquidity so that they can have access to funds to pay for these goods or alternatively, invest their surplus cash. Third, it helps customers make their Treasury and Finance operations more efficient through automation, outsourcing of non-core activities, and access to information. In other words, transaction banking supports and facilitates the core day-to-day activities for our institutional customers. This link to the customers’ core business can provide banks with a relatively stable business and revenue.

Having said that, not all bank propositions are similar. There is plenty of room for differentiation. While the products across all banks can be similar, or become similar over time, the differentiation is primarily on how well a bank can understand their clients’ business and propose and deliver a solution to meet their objectives.

Finally, transaction banking requires significant initial and continuing investment in capability build, technology, and delivery. It uses less capital than a normal lending business but requires scale to achieve the desired profitability. These are some of the considerations banks have to think about before they enter the business in any specific market.

How does ANZ measure up in this business?

ANZ is a leading player in transaction banking in Vietnam, has full capabilities to meet the requirements of its target client base, and continues to invest in the business in line with the overall focus on our institutional clients. In addition, we have been leading the market with certain initiatives which have been recognised in the marketplace through various industry awards. I would like to give one example.

We recently won the Global Finance Innovation award for a receivable management solution we implemented for one of our insurance clients. This solution combined our standard bank products as well as unique technology from our home market to automate the reconciliation of client receivables. Now, this product might be available at other banks as well, but the key to success was our ability to understand how our client organises operations in terms of various business lines, how their customers pay, through what channels, how our customers reconcile, and what their challenges are. Through this detailed and thorough understanding of our client, we were able to propose an overall solution and prove to them that they can streamline and automate their existing manual processes, reduce errors, and make the process scalable. These deliverables were directly linked to the customer’s overall objectives of growth and profitability.

As more banks are now realising the value of transaction banking activities and thus shifting their resources to leverage this banking business, is competition heating up? Are there any rivals in the local market that ANZ ought to watch out for? What helps ANZ stay ahead of the game?

The competition is definitely heating up and the Vietnamese market is following the same trends as we have seen in other Asian markets. If you go back, let’s say 2-3 years, a handful of foreign banks were the main players in transaction banking. These were banks who had invested in local product capability, in technology, in having the right expertise to support client discussions, and organised themselves internally in relationship, product specialist, and client service teams. Thereafter, a few Asian banks who were in the business in their home markets started to expand into this area and targeted customers from their home country as initial targets.

However, lately the most serious competitive threat is coming from local banks, who have always had the technology and certain advantages, such as extensive branch networks and local market knowledge, but did not have the internal focus or expertise in this business. As I mentioned, this has started to change and these banks are now coming up with strategic plans to build the business, make internal organisational changes, and most importantly, taking talent and experience from foreign banks. We can expect the competition to continue to intensify.

But transaction banking will be an area where foreign banks such as ANZ will continue to play in and do well. There are a few reasons for this. Firstly, the market for transaction banking should continue to grow in line with the growth of trade and investment flows throughout our region and as local corporates focus on automation and efficiency issues, the potential business opportunity will grow. Secondly, banks such as ANZ have built some inherent advantages in terms of experience and expertise over the years which cannot be replicated or changed overnight. Finally, foreign banks can support FDI clients through multi-country solutions by virtue of their presence in multiple markets, not just through single country solutions. This is an important consideration for MNCs and local corporates as they invest overseas, who expect as much consistency as possible in solutions and pricing across various markets.

How does ANZ’s transaction banking fit into the Vietnamese and the ASEAN economic landscapes? How has the ASEAN and the formation of AEC at the end of 2015 helped ANZ foster the transaction banking business across the area?

As I indicated earlier, ANZ is a leading player in the local market and our transaction banking business continues to grow. Our products and technology are global, which we offer in every market we operate in, but we have combined these capabilities with our understanding of the local market requirements and with our local knowledge and expertise to create an attractive client value proposition. Let me give you one example. As you probably know, simplification of how corporates pay for taxes has been a major objective of the government as it seeks to make it easier to do business in Vietnam.

Three years ago, we were the first foreign bank to establish a direct link with the Customs Department which helped us automatize and simplify the process of how customers pay customs duty and get their goods released. Last year, we were again one of the few foreign banks to extend this capability to other forms of taxes corporates have to pay, thereby further streamlining their internal processes. Earlier, I gave the example of our receivable reconciliation solution which has been recognised through an industry innovation award. As you can see, in both cases, our technology and products are global, but the difference has been our understanding of the local market and customer requirements.

The formation of AEC and other similar economic initiatives should help ensure that the Greater Mekong region continues to be an attractive place for investment. As institutional customers increase their focus on the region, and more Vietnamese corporates start investing in new frontier markets, such as Myanmar, our focus in transaction banking has changed to multi-country solutions. In other words, targeting customers across all five markets, as opposed to doing it country by country. This means internal organisational changes in how we organise ourselves and how we focus more broadly and also provided growth and development opportunities for our teams as they get involved in multiple markets. Corporate customers also prefer this broader focus and consistency since in many cases they are using similar systems and also have their senior management covering multiple markets across the region.

Therefore, we are responding to the market changes and taking steps to stay ahead of the increasing competition.