HSBCÆs Andrew Long plugs corporate connectivity

Today's digital world relies on connections, whether T1 in the office or 3G on the phone -- direct and fast communication is critical. Few other places is this as important as in the payments business.

HSBC is highlighting corporate connectivity at Sibos, the annual transaction banking conference organised by The Society for Worldwide Interbank Financial Telecommunication (Swift) that is being held in Hong Kong this week. After launching its latest Guide to Corporate Connectivity yesterday, the bank also announced a mandate from brokerage house Newedge to provide multi-currency clearing and channel connectivity in Asia-Pacific.

"Connectivity is not simply the domain of technology experts; it is the key to effective cash management. Today's treasurers are seeking a new wave of cash management solutions that accommodate cash centralisation, real-time account visibility, automated reconciliation, cheaper and more secure payments and efficient control over collections. These solutions all require effective communication channels between corporates and their banks," said Marcus Treacher, head of e-channels in HSBC's global transaction banking business.

The leading provider of communications infrastructure between banks is Swift, which offers corporates multiple connectivity options, including full Swift membership, which is comparable to a bank, or web-based products like Alliance Lite, which provides low-cost, low-volume access to Swift channels. The organisation currently has 470 corporate members.

Andrew Long, HSBC's London-based head of global transaction banking (GTB), sees connectivity as the next big thing in the business. Taking time out of a busy conference week schedule, he took a few minutes to discuss the bank's GTB business and connectivity with AsianInvestor and FinanceAsia.

Has the importance of global transaction banking (GTB) shifted at all over the past year?
There is enormous volatility on the investment banking and markets side of the business in every large bank. When you look at personal banking, falling consumer income and high personal debt are impacting earnings negatively. And in the commercial world, many banks have problems with commercial property and global trade has yet to recover. Then you look at transaction banking and it has held up remarkably well -- we're pleased with the resiliency of our business in the face of extraordinary economic challenges.

Based on revenue, HSBC has one of the largest transaction banking divisions in the world. How do you plan to grow this?
To grow, you've got to invest in technology, client services and opportunities, and new products. In the securities space we've launched HSBC Prime Services recently, which is a new way of bringing in business from prime brokers. It's product, it's system and it's people -- you've got to keep investing, you can't stop just because times are tough.

It's hard to judge bank size by revenue because of the different treatments of the various business lines. Some institutions include credit card income or treat interest differently in their transaction banking revenues. Size for size's sake has never been HSBC's ambition; we just want to be good at what we do.

HSBC is well known as the world's "local bank". Geographically, is there anywhere in Asia you see as a gap in that local reach?
No. In Asia, we have the business presence and distribution necessary. In China we're the biggest foreign bank in terms of branches and alliances. In Thailand we have one branch, which is what is allowed, then we have alliances that round out our distribution capability. Realistically, no provider is globally consistent. What you try to do is leverage where you are good and then share those best practices into other regions as fast as you can.

Can you give me an example of something you see as a growth opportunity in Asia?
One area that we have identified for growth is securities and the global custody space. We realised some months ago that we could enhance the normal banking relationships we have with fund managers and investors around the region by providing a global custody capability. We decided that we can help them by giving them access and better control over their assets wherever they are, not just intra-Asia. At the beginning of this year we started to press ahead with global custody in Asia as an expansion of our existing capabilities in the UK.

On the trade and supply chain side, in Asia we bank a lot of suppliers and in the west we bank a lot of buyers. Few of our competitors are positioned like this [and are] able to take advantage of the financial supply chain area.

Supply chain finance has been discussed by banks for a number of years. What makes you confident that it's now going to become a reality?
The recent credit problems around the world reinforced to big buyers their reliance on their strategic suppliers. I heard a great story about an auto manufacturer in Japan which had to stop its production line because its sole supplier of one, relatively small part in the car went bust; it had to wait four weeks to find somebody else to make the part. If one supplier -- out of probably thousands -- is strategically important to a manufacturer and that strategic supplier can't get access to working capital finance, that's risk. If you create a financial supply chain that allows you to leverage different aspects of that supply chain, such as the buyer risk and the supplier risk, and link them together to create risk models that allow you to price properly and provide supply chain finance to either the buyer or the supplier, then you've got a winning formula.

What's happened because of the credit crunch is that a lot of companies have found their working capital financing reduced or cancelled. This is an opportunity to ensure that, at least in this aspect of the supply chain, a company has some stability. People have been toying with idea for some time, saying intuitively 'it must be right', but the financial crisis has escalated that thinking in a lot of people's minds.

Are there any big GTB product launches in the pipeline at HSBC?
There are lots of different things. To mention one, we have a payment in-sourcing engine we've developed that has gotten three or four big wins we haven't been able to announce yet. We're waiting to make sure it's robust enough to handle the volumes before we launch it.

Big picture, what is the next big thing for transaction banking?
One of the next big things is corporate connectivity. I remember some years back when Swift talked about letting corporates get access to Swift, the banks were very against the move because they thought it would put their own channel management at risk. Today, there are close to 500 corporates directly connected to Swift. Our philosophy is you can't compete on the access and channel management, but you can compete on the products and services behind that and we've been pretty active in developing this. This is going to progress because corporates don't want to be locked into one bank; they want the ability to quickly move their cash management to multiple banks to reduce risk.