New thinking in transaction banking
In the world of transaction banking, innovation is key to stay ahead of the disruption that is coming to this most traditional form of banking.
John Laurens leans back in his chair and looks out across the Singapore skyline. "Everything in the world has changed so much over the last 100 years, but there are fundamental aspects of trade finance that remain stubbornly anchored to the past," he says. "Sure, there are new platforms and technologies but, fundamentally, documentation that is still in use today would be familiar to people in the 19th century." For some banks and their clients, such familiarity might seem a comfort. But it clearly makes DBS’s head of transaction banking uncomfortable. Innovation for DBS is a matter of survival. And in the world of transaction banking the bank is aiming to be one step ahead of its rivals, two steps ahead of its clients and, as far as possible, in front of the disruption that is coming to this most traditional form of banking.
Over the past few years, DBS has been at the forefront of new product developments, client migration from analogue to digital and the embedding of transaction banking services within client operations. The bank’s success is largely attributable to the nuanced way in which it views technology and innovation. Laurens says: "What is distinct about DBS’s approach is that while other banks may access new technologies from, say, a venture capital fund, or via their traditional in-house IT development shops, we bring together a range of factors, from use of human-centred design to active engagement in the fintech community, to fuel customer-centred innovation and exploit the potential of new technologies. Agile development then enables us to move quickly and be responsive in a fast-moving landscape. It’s very different to how banks have traditionally approached development of products and services."
It is a bold approach, which requires agility, investment and a deep understanding of what the market wants. To some extent, the bank is lucky. Its move to the top table of Asian transaction banking has come at a time when global banks are retreating from the region and clients – be they local, regional or multinational – are crying out for a strong, regional banking partner. Crucially, they are also rapidly transitioning to digital themselves, and they want a partner that can help them on their own digital journey. Laurens says: "Increasingly, corporate customers are coming to us and asking us for advice on the emerging digital world and the implications for their commercial and financial operations. Working with customers to marry corporate and bank digital strategies is a new and dynamic dialogue that’s elevated engagement with customers well beyond traditional transaction banking."
This rapid adoption of digital banking by DBS's clients is happening at different speeds. According to Felix Chan, head of channels, global transaction services, DBS Bank, SME clients are very keen to adopt a digital-only approach to their banking relationships. This stems in part from their accounting software systems being entirely in the cloud. It is also because of moves by the regulators – especially in Hong Kong and Singapore – to nudge companies away from a cheque-based culture. But larger clients are moving that way as well. Their journey typically starts with digital remittances, followed by payroll and then bulk payments and the transition from LC-based trade finance to open-account trade. Chan says that, four years ago, the average number of digital products used by the bank’s larger clients was two. Now it is five.
The move to digital is all about fulfilment – enabling clients to do more but with greater simplicity. It is having a remarkable effect. Transaction volumes are increasing by 25% a year. "Customers do not have to come to us anymore," Chan says. "So, we must go to them, and get embedded in their ecosystems."
Recognizing the need for banking to be more accessible, and to give instant fulfilment, can be seen in the roll-out of DBS IDEAL, the bank’s corporate digital banking platform. The DBS IDEAL platform enables treasurers to manage their working capital in one place, make transactions and customize complex workflows to their own requirements. What makes it different from other banks’ digital platforms is the thought that has gone into the design of the product – a result of DBS’s human-centred design processes. Insights from clients are critical in solution development; DBS has recognized that treasurers need to access their digital banking platforms while on the go. As a result, the DBS IDEAL Mobile app was created to complement the online banking platform. Importantly, it also contains a digital token that is integrated into the mobile app, the first time any bank in Asia has offered such a solution. "Clients complained to us that they have boxes full of different banks’ tokens, which are needed to access their accounts while they are on the go," says Chan. "We saw that by integrating the digital token into the mobile banking app, we were going to make their lives much simpler." The DBS IDEAL Mobile platform enables clients to do most of their online banking while they are away from their desktops. Everything else across cash management, trade finance, accounts receivable purchase, supply-chain finance, custody and FX services is offered in one place, and available on mobile. Since its launch, IDEAL has come to serve almost 200,000 customers, in 100 countries and in multiple Asian languages. "Overall, 80% of our transactions are now digital," says Chan. "In cash management, we are aiming for it to be 100%."
For Laurens, the key to DBS’s success in providing a cutting-edge digital bank is not necessarily about the technology. "The secret sauce in all this is customer service; the technology is really just an enabler," he says. As an example, he refers to a large customer operating in the shipping sector. This firm had been using a traditional cheque-based approach for its payments, based on its own unique way of validating and approving payments. The client recognized that the world was moving towards digital, but it also wanted to maintain its own process of validation and approval. DBS was able to come in and offer a digital solution that was configured to meet these needs, especially around the batching of payments. "Gone are the days when we go in and ask our clients to change the way they do business," says Laurens. "Now we develop digital capabilities to provide configurable solutions that align and integrate with our clients’ workflows."
DBS is committed to seamless implementations and sustainable relationships. By putting itself in its clients’ shoes, DBS can design digital products that enable the clients to carry on working in the way they always have, but with the added ease and precision that comes from a digital product. For instance, the bank saw that its SME clients and its MNC clients differed in one fundamental way. When larger customers need to make a payment, they first enter the details into their ERP systems, which then go on to generate a payment request to the bank. For SMEs, they tend to make the payment themselves first, and then go back afterwards and manually enter it into their own accounting software system. With this understanding of SMEs' needs, DBS has launched a new product in partnership with Tally Solutions in India, which connects accounting and banking in such a way that it automatically combines the two processes as one for clients. "It is not the technology per se," says Laurens. "It is understanding the customer needs and seeing how the technology can help. It is not about pushing products, it is about solving problems."
This innovation in the SME segment follows hot on the heels of the launch of DBS digibank in India, which is growing fast and has acquired hundreds of thousands of new customers. DBS expects the "digi-account" solution and its partnership with Tally to bring about similar rates of growth in its SME customer base. It is the only bank to have such a depth of partnership with Tally, whose accounting software is ubiquitous across SMEs in India. As a result clients are flocking to it.
Other partnerships that the bank has undertaken include one with Mastercard and two other financial institutions operating in the Shanghai Free Trade Zone. This partnership has developed e-warrants for bonded warehouses so that commodity customers can protect themselves against fake warrants as well as enhancing the finance process through more efficient trade and clearing information sharing. Another partnership that DBS has entered into is with Singapore government research agency A*Star, and leading data-management fintech Cloudera. They have established a ground-breaking programme that leverages big-data technology to detect abnormal transaction activities in trade finance.
There is a danger when creating cutting-edge products or entering into partnerships that the market might move in a different direction. DBS is acutely aware of this, and in response has made every effort to be involved in the wider industry initiatives that are aimed at creating new standards. These include SWIFT’s Global Payments Initiative, which aims to create the next era of correspondent banking and international payments. Other industry-wide initiatives DBS is engaged with include the National Trade Platform being developed in Singapore, the Unified Payments Interface in India, and the launch of the Faster Payments Systems by the Hong Kong Monetary Authority in 2018. "It is really important for our clients and their future needs that DBS is active in shaping and contributing to these industry-wide initiatives" says Laurens.
Laurens and his team are aware that not all clients want to be at the cutting edge of the financial digital revolution. "For instance, in trade finance, lots of our clients have very different requirements from each other. They are on a spectrum," says Laurens. "Some want to be at the vanguard of change, and others want to carry on doing what they’ve always done. So we need to be both at the forefront of new developments, such as in blockchain, for instance, whilst delivering excellent service and advisory in our core, existing products."
In practice this means being business agile and focusing on better ways to deliver priority pay and batching for accounts payable, data enrichment for accounts receivables and moving to real-time cross-border execution in liquidity management. Although Laurens has one eye firmly on the future, his feet are still firmly on the ground when it comes to existing clients and existing products.
What truly differentiates DBS’s transaction services from its peers is the leadership from the top. DBS CEO Piyush Gupta is a rarity among bank CEOs in having spent a large part of his career in transaction banking. It is a fundamental part of his business DNA. This is equally true of transaction banking within the wider DBS genome. And that is what makes the DBS transaction banking story so compelling. A traditional business operating within what used to be a traditional bank is being turned on its head, with some spectacular results. It is happening at the right time and in the right place and benefiting a group of clients clamouring for a better way of working. "This is the core of what we are doing as a bank," says Laurens. "It is not a periphery activity, or a bandwagon exercise. It is absolutely at the core of who we are."
(This article was first published in Euromoney, Feb 2017)
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