OCBC in sweet spot as SMEs go regional and digital

The bank's Q1 cash management revenue rose 30 per cent from a year ago on building wallet share of operating accounts.


OCBC sees itself sitting in a sweet spot when it comes to cash management and other transaction banking services, with the bank holding a large chunk of primary bank accounts that capture the cashflow of small and medium enterprises (SMEs) with rising regional ambitions, said Melvyn Low, head of global transaction banking at OCBC Bank.

The bank holds about half of SMEs' operating accounts in Singapore, and with the increasing use of PayNow Corporate - the real-time fund transfer rails for corporate payments - more than 40 per cent of all main company registration numbers tied to a PayNow Corporate signup are tagged to an OCBC account, fresh data from the bank showed.

By linking their company registration number - known in Singapore as the unique entity number (UEN) - to their banking accounts, businesses can enable real-time fund transfers to one another without having to record the other party's banking account to send payment, or disclosing their account numbers to receive payment. The equivalent for retail customers is to have real-time fund transfers sent to or from bank accounts tied to mobile numbers or NRIC accounts via the PayNow rails.

Each company may receive offers for cash management services from more than one bank, and can link more than one banking account to PayNow Corporate by adding a suffix to their registration numbers. One way to separate the competition is to see which bank's PayNow Corporate service is tied to the business's main registration number - the one without the suffix.

OCBC's data obtained by BT strips out businesses that have also registered the PayNow Corporate service with the bank but used their UEN tied to a suffix, as one way to determine its wallet share of operating accounts of corporate clients.

Against that backdrop, OCBC's cash management revenue rose 30 per cent in the first quarter from a year ago.

Growing transaction banking is a core part of most banks' strategy in managing their balance sheets, as holding on to the cheap, sticky deposits from corporates via their operating accounts allows for some lift in net interest margin (NIM) - the effective spread banks earn from loans after deducting funding costs.

"A lot of people forget that the NIM comprises of the way you fund that growth, which is driven primarily by deposits," Mr Low told The Business Times in an interview, noting that operating deposits of corporates are "very valuable" to banks.

Banks also layer on payment services for a fee by helping large corporates and SMEs work out their cross-border funding needs, since idle cash sitting in overseas units can be used to make payments back in the domestic market once there is efficient settlement of forex conversion. The bank is observing more moves by SMEs to go regional and will grow alongside these clients, said Mr Low.

On top of riding the regionalisation trend, OCBC has also seen a surge in the use of digital payments from its large corporates and SME clients. As it is, 80 per cent of its trade finance customers who were previously using paper applications have moved onto the OCBC internet banking platform.

This means corporate customers who were previously filling in paper application for letters of credit or invoice financing can now apply for these trade finance services online with OCBC.

The trend is key as trade finance has been an age-old form of financing, but banks have had challenges moving the transactions online. Today, the number of OCBC customers transacting trade online has grown in the last year by four times, said Mr Low.

And as more regional SMEs are adapting to digital payments, banks such as OCBC can then offer data analytics to SMEs, so banks can work with SMEs on inventory management and ensuring that these corporates' account receivables are collected in good time to prevent a painful cash crunch.

The bank sees its power play here in holding the operating accounts of a large bulk of SMEs, which gives them a clear view of the SMEs' liquidity and cash collection needs across its regional operations.

Pulling all the data onto a single dashboard for these SMEs is where OCBC hopes to gain an edge. "That is a platform play," said Mr Low.

And there are also hopes that as large foreign banks are still restructuring and scaling back their global network due to escalating costs, Asia-focused banks such as OCBC can plug into global networks by connecting with international counterparts who are eager to tap the rising growth of the region in an optimal way.

The bank will look as well to grow its PayNow transactions further, with data showing that the value of transactions via its PayNow application programming interface (API) - first launched in March 2018 - has surged to close to S$700 million.

APIs enable government agencies, corporates, and other fintechs to "talk" to the bank to access a breadth of services, including funds transfers.

March 2018 was the first time that OCBC used the PayNow API by working with the CPF Board, with eligible CPF members now able to withdraw their CPF savings via PayNow.