StanChart driving the future of transaction banking

HARARE - In the wake of Zimbabwe’s decade-long economic crisis, transaction banking has made a return to the spotlight thanks to a renewed appreciation of its “back-to-basics” mind-set and the factors that form its core pillars: stability, transparency, and its role as facilitator of “real” economic activity.

But while these underlying principles are the same as they have always been — and show no sign of changing — the industry is far from standing still.

Our Business Editor, John Kachembere speaks with Standard Chartered Bank Zimbabwe head of transaction banking, Michael Dingwane about the future of transaction banking in the country.

Below are excerpts of the interview.

Q: What is transaction banking?

A: Transaction banking looks at the transactional business of an organisation now when we are talking from a banking point of view, transactional banking looks at the specific transactions that a customer does in the ordinary course of business.

We are looking at payments, collections, we are looking at the platform that they use to collect the money.

In our case at Standard Chartered bank we have a superior platform called straight-to-bank — that allows customers to have visibility of both their payment and their collections of their balances.

It’s also about trade. When you are paying for your raw materials, paying for work in progress, paying for stocks and for your receivables. That is the full gamut of transactional banking.

We can go further and look at trade business, we are talking about invoice financing, letters of credit, guarantees and warehouse financing. These are products that all fall under transaction banking.

Q: From what you are saying, it seems like transaction business is limited to corporates only, does it also apply to individuals?

A: Yes it also applies to individuals, because we are talking about online payments, RTGS, telegraphic transfers and payroll among other things.

Transaction banking runs through the gamut of corporate clients, small-to-medium enterprises and to retail clients which are individuals.

You may even want to import your own car, we also facilitate that.

That is part of the transacting business.

Q: How can corporates leverage on transaction banking?

A: Corporates can leverage on transaction banking to properly structure their borrowings. It’s always not the best case when a company is borrowing on overdraft to finance a tenured or a long-dated transaction.

An overdraft by its nature has a tenor of one day. So basically, your money is coming in and out but you then cannot use an overdraft to finance a transaction or procurement which will convert into cash after say 90 days.

You want to match your conversion cycle to the borrowing that you have taken.

For instance, if your conversion cycle is 120 days or 90 days as the case might be you want to borrow for a period of time that more or less matches that.

Because to borrow for a period less than the conversion cycle then you are setting your company to fail or to default.

Importing companies can use a letter of credit to secure raw materials from global suppliers without running out of cash and if you repetitively import from the same supplier you can do standby letter of credit as opposed to overdrafts and short-term loans, which attract high interest rates.

Q: How is Standard Chartered Bank Zimbabwe using transaction banking to benefit local companies?

A: Standard Chartered is the pioneering bank of transaction banking globally.  And normally we mirror the conversion cycle of our customers so that they don’t abuse the facility.
Transaction banking is a very good tool for cash management for any company.

At the moment liquidity management is very key. A company can go bust not because it is not profitable but because it is poorly managing its cash-flow position.

Our objective is to try and shorten the working capital cycle to be as short as possible for our clients.

We would rather have our customers sitting on money than on debts or payables.  

Comments (1)

Good article with excellent idea! I appreciate your post.RegardsSarkari Result

Navatha - 7 January 2016

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