Cash management banks face the challenge

Earlier this year, John Laurens took over Lawrence Webb’s position as head of global payments and cash management, Asia-Pacific at HSBC. He joined HSBC from Citi in 2001 and spent the next six years as head of product management in the payments and cash management division. Together with Lawrence Webb he has been responsible for establishing HSBC as one of the dominant forces in cash management and growing it into a large and profitable business. Here he discusses HSBC’s cash management business in Asia and looks at future trends.

Six years ago when you joined HSBC, the bank invested heavily in cash management – why was that?

It was clear that future investment should be in net-based product development. So rather than plug legacy products and services into Internet capabilities, it made strategic sense, for the bank and our clients, to undertake product and delivery channel development end-to-end. As a consequence HSBC’s solutions today are truly integrated. When we talk our clients about our “Integrated Payments Solutions”, and “Integrated Receivables Solutions”, the integrated nature of these propositions is a key point of differentiation, as we are not delivering products on piecemeal basis but as true complete solutions. The investment we undertook in 2001/02 as part of the next generation of product and internet channel development was a critical success factor in achieving the market leadership we have today.

What do your clients want from the bank in terms of cash management services?

Our clients require us to understand their industry; the challenges they face, and the key trends in their marketplace. In order for us to engineer tailored solutions for our clients we must be aware of the drivers of our clients’ businesses in order to ensure their operations benefit from enhanced solutions.

Also, there has to be a well-founded strategic alignment and partnership with the client. A cash management bank must not only meet existing needs of the client, but also evidence its ability to deliver solutions that are “future-proofed.” Our continued commitment to invest in our products and services to meet clients’ emerging needs is well recognised in the market and key reason for clients selecting HSBC as their cash management partner.

What about costs aren’t they an issue?

Clearly there is a need for us to put a solution in place that adds value to the client. That is our raison d’être. The sheer size and scale of our franchise enables us to deliver economies of scale to our clients. This means that we can deliver to our transaction unit costs to clients at lower levels than they are able to achieve internally. That said, clients are not solely concerned with the strategic cost management of their treasury and financial management processes.

The roles of those in the finance and treasury operations of our clients are evolving and clients today are also concerned not only about improving their processes but the manner in which process can be used to augment the relationships with their customers and suppliers. For example, we have clients using the rich functionality and data management delivered by our Integrated Receivables Solutions to enhance their service proposition to their customers. Crafting such solutions for our clients goes well beyond cost management and encompasses a broader strategic dialogue that requires a detailed understanding of our clients operations and strategic business objectives. As a team we are passionate about working with clients as a trusted advisor in this manner and believe that this approach will be a very important aspect of the future development of the industry.

How do you see the business changing over the next five years?

Understanding your client’s business and the industry within which they operate is very important. You also need to possess an understanding of the relationships between your clients and their customers and suppliers if you are to add value in the manner I’ve described along clients’ supply chains. Alternatively, rather than considering client needs in a traditional supply chain sense, another way of looking at things is to think about the funds flows that take place between different segments of the market and how best to participate in and add value to those transactions. Approaching the market in such a holistic manner will become an increasing important dynamic in the evolution of the cash management industry in Asia.

Another important area is the significant investment in technology made not only by financial institutions but also by companies. Companies have made significant investments in ERP, accounting and treasury systems infrastructure across their organisations, be it locally, regionally, or globally and are looking to generate as much return as they can from those investments.

A cash management banking partner that has made the required investment in client facing systems and integration technology will play an increasingly important role in this respect, driving evolution of the market from the traditional provision of management information to enabling clients to meet their emerging information systems engineering objectives. Or, put another way, clients are not just looking for information, but for information that is both relevant and usable in terms of addressing the things they specifically focus on. This may be meeting their STP targets or re-engineering exceptions processing. The technology and systems that clients now possess enable them to use information much more effectively.

Making information, such as transaction data, available at the right point in time is essential to clients to enable them to further refine financial and working capital management processes. Let me use a simple example to explain, the more quickly we deliver the right information to our clients to apply value against a credit line they have for one of their customers, the sooner their sales personnel are able to go out and sell more to that customer.

Who are your clients?

We have over 400,000 clients in the Asia-Pacific region using our cash management products and services. That covers a wide spectrum from a large number of SMEs that use our Internet banking and payments capabilities to the largest European, American and Asian multinationals that benefit from the tailored solutions we engineer for them across the region. HSBC is recognised as having a client franchise in the region of unparalleled depth and breadth.

Are there any demands that are particular to Asian-based customers?

The rise of the Asian multinational is a huge phenomenon that is taking place within the cash management industry. The work we have done with emerging Chinese MNCs has been particularly interesting and fulfilling in that we have companies that are very rapidly moving overseas either as a result of organic growth or through acquisition. As a result they have encountered new cash management requirements and are determined to rapidly adopt world-class solutions. They are looking to leapfrog the evolution of cash management practices that western MNCs have typically worked through.

However, while it can be relatively easy for the bank to deliver such solutions to a client, whether the client’s organisation is ready to utilise those solutions is where care and attention needs to be placed. A lot of the work that we have done has been around helping those clients understand what alternatives are available and what are the best practices they should be applying in their operations to utilise world-class solutions.

Adopting the latest technology and applying best practices isn’t restricted to large MNCs, for example we are working with SMEs in Bangalore, businesses of no more than 40-50 people, operating in the IT and service industry that are rapidly adopting state of the art cash management technology. The pace of growth and the adoption of sophisticated solutions that we are seeing across the broad spectrum of our client franchise is quite remarkable.

Presumably Asia Pacific is your fastest growing area?

In absolute dollar terms that is correct and in particular across India, China and Korea.

What sort of growth are you seeing?

Average growth across these three markets is around 70%. But even in developed economies like Australia or Hong Kong we are seeing very positive growth and strong market share acquisition.