The payment industry has had to evolve amid the coronavirus outbreak as consumers are forced to turn to cashless, remote and online transactions with the increased adoption of e-commerce.
In this virtual roundtable discussion, guests discussed how payment-as a-service is redefining customer experience.
Atul Bhuchar of GTS of DBS Bank, Carlo Nazareno of BDO, Colin Dinn of Security Bank, Devashis Das of Mizuho Bank, Henry Aguda of UnionBank, John Howard Medina of PBCOM, Kaiwan Turel of HSBC Hong Kong, Kanv Pandit and Mahesh Ramamoorthy of FIS, Millie Gillon of Standard Chartered Bank, Noel Santiago of BPI, Venkat ES of Bank of America, Lito Villanueva of RCBC and Vijay Nayudu of UOB talked about the latest trends and the challenges in payment transformation.
Aguda started the conversation by noting that countries such as the Philippines is currently experiencing a renaissance in payment services accelerated by the launch of the National Payment Retail System. Santiago added that the emergence of “homepreneurs” during the pandemic has created a new form of commerce, resulting in digital transactions becoming a norm.
Significantly, Dinn pointed out that in preparing for the next wave of payment capabilities, the key is reduced time, costs and to innovate very quickly. Turel also shared his insights about real-time payments, APIs and noted that a lot of customers are going through their own digital transformation as well.
The other speakers also delved into topics like monetising data effectively to build a more profitable payment franchise, outsourcing technology, and how banks are innovating and utilising emerging technologies like API to support innovative payment products.
The following key points were discussed:
The following is the edited transcript of the interview:
Mobasher Zein Kazmi (MZK): Good afternoon from Singapore and welcome to our RadioFinance virtual roundtable. We've assembled a distinguished group of senior executives from the business and technology sectors from leading institutions across Asia to debate the evolving role of payment as a service and how it is redefining customer experience in the payments industry today. I'm Mobasher Zein Kazmi, head of research at The Asian Banker.
Neeti Aggarwal (NA): I’m Neeti Aggarwal, senior research manager at The Asian Banker and we will be your host for the next 60 minutes. I'm happy that we have a multifaceted roundtable that will look at topics from a business, product, and technology perspective.
MZK: The payment industry has had to adapt amid the coronavirus outbreak, as consumers are forced to turn to cashless, remote and online transactions with the increased adoption of e-commerce. For most players. The fierce competition and the absence of scale has turned payments into a commoditised business with unsustainable margins. In response, financial institutions are increasing their pace of digitalisation and introducing new payment capabilities, such as e-wallets, mobile and real-time payments. They're also supporting e-commerce transactions in collaborating with fintech players and merchants that are operating at a rapidly changing digital ecosystem building solutions designed around customer needs and preferences.
NA: So in today's session, we will discuss the latest trends in payment transformation and delve into different opportunities to create a more sustainable, customer-centric and profitable business. Some of the topics that we'll be discussing today include payment-as-a-service, reinforcing the need for an innovative and sustainable digital payment platform, the rise of buy now pay later (BNPL), utilising application programming interface (API), artificial intelligence, and machine learning to build a sustainable and successful lending business, optimising merchant payments opportunities by outsourcing with lower cost and secure data, migrating payment services and systems into the cloud, making cross border payment and remittance faster, seamless, and cost effective.
MZK: We'd now like to take this opportunity to introduce our guests. We have Noel Santiago, chief digital officer, the Bank of the Philippine Islands. There's Atul Bhuchar who is group payments head, Global Transaction Services at DBS Bank. Also with us is Vijay Nayudu, executive director for fintech, ecosystem and innovation in Group Channels and Digitalisation at United Overseas Bank, and Henry Aguda, senior executive vice president, chief operations officer and chief transformation officer at Union Bank of the Philippines. Also with us is Millie Gillon, global head of Client Experience, managing director of Retail Banking at Standard Chartered and with her is Carlo Nazareno, senior vice president for Transaction Banking Group at Banco de Oro.
NA: And we have with us Colin Dinn. He's executive vice president and head of Enterprise Technology and Operations, Security Bank. We have Devashis Das, he's managing director, head of planning, marketing and advisory, deputy head of Global Transaction Banking, Asia Mizuho Bank. We have Kaiwan Turel. He's head of payment advisory, global liquidity and cash management, Asia Pacific, HSBC Hong Kong. And we have Venkat ES, he is managing director, head of Asia treasury products, global transaction services, Bank of America. Along with that, we have John Howard Medina. He is chief operating officer, Philippine Bank of Communications, and Lito Villanueva, he's executive vice president and chief innovation inclusion officer, Rizal Commercial Banking Corporation. And we have with us Kanv Pandit, senior vice president, banking and payments, Asia Pacific, FIS and Mahesh Ramamoorthy, he is senior vice president for payments, Europe, Asia Pacific and MEA at FIS.
MZK: To give a bit of background and context for the global payments sector, the events of 2020-2021 has really reset expectations and significantly accelerated several existing trends. Government measures to protect citizens and the rapid changes in consumer behaviour have changed the operating environment for market players both large and small worldwide. With that said, a new generation of technology solutions has now emerged allowing banks to modernise their payments product portfolio. That's Payments-as-a-Service (PaaS), which enables players to operate cloud-based platforms and provide specialised services such as card issuing, payments clearing, cross border payments, disbursements, and e-commerce gateways. Banks wishing to offer these services can integrate these platforms via application programming interfaces or APIs, which allow the institutions to link these products into their core banking platforms, in effect building a cloud-based payment services stack of their own. Banks can also offer these services to end customers and can update and swap out services more readily. This ability to add or replace specific solutions will be truly game changing for their customers in terms of developing an innovative and sustainable digital payments platform.
I believe that there are two key developments that we need to look out for. One is the expedited time to market for new payment products. The other is the reduced capital investment with payment products being continuously updated and upgraded with a proportionately reduced technology spend. Given that context, I'd like to now invite Henry Aguda if he can give us an update in terms of the experience he's having at his bank, particularly in terms of the impact he's seen on new payment products.
The growth of digital payments
Henry Aguda (HA): The Philippines has actually seen a renaissance in payment services, especially during the pandemic and largely because of the national payment retail system that our regulator has launched. So InstaPay and PESONet has become a verb in our country to signal fund transfer. Basically, if they need to transfer money, they either do it by InstaPay for small value amounts, and PESONet for larger value amounts. By end of this year, we would have reached close about 40% of payment transactions in the Philippines as being digital. Because of that, we've implemented systems that are API-rich and highly scalable. We're glad that has taken flight because it consumes a lot of the APIs that the bank already has, even prior to the pandemic. It's a renaissance of payment services and we're seeing not just the volume, but the variety of ways people can pay digitally at this point.
MZK: The same question for Noel Santiago as well, from BPI’S perspective, if you can give us an input or update in terms of what BPI is working on in terms of building a sustainable digital payments platform?
Home-based entrepreneurs on the rise
Noel Santiago (NS): As mentioned by my colleague, this pandemic created a new demand for payment primarily because of a new form of commerce, both formal and informal commerce. The emergence of homepreneurs created the new commerce that is beyond the traditional mainstream commerce. Therefore, the ability to participate and be able to buy and sell goods in the digital world became a norm, it’s no longer just a sideline business. Now with BPI having one of the largest customer base, we were ready for that by equipping our clients the ability to do that kind of transaction. Right now, what are we doing in that space? We are one of the biggest contributors to the InstaPay network. We are creating API-based integration capabilities and we're already moving into an ISO 922 standard, as early as now. So we are preparing ourselves for the next wave of payment capabilities.
MKZ: I’d also like to bring Colin Dinn into the conversation as well. Colin, how are you preparing for this next wave?
Colin Dinn (CD): I'd like to answer the question in a slightly different way. We talk about the payment infrastructures and that's very important. In fact, the move in regulation and move in government, the rails are all really critical. But I'd like to internalise the question a bit differently. I look at it from a point of view of what you need to do in a bank to actually look at payments and be ready for speed to market, reduced costs. And the problem is that payments have been built into our overall legacy and it's not a system per se, it's a built-in part of our legacy. What we've got to do in that modernisation program is look at how we can externalise that from products, from channels, how we can actually create that through the series of standards, can we actually build micro service capability? We're looking at it so that we can actually use standard structures of payments and then augment it with micro services for those odd occasions when you need to actually adjust for specific customer groups. And that's the hardest part. It’s a longer journey than people think. It's not APIs.
Strategies to payment modernisation
CD: It is about having that and building something, in relation to what we're doing here is building something and not only that, is that you can use internally. But I want to be using payment aggregators. That means you've got to have a whole infrastructure of capability. It's not just an API. It's an understanding because you've got the interoperability of the payment with your internal product system and your external payment aggregator. That's the way we're looking at preparing for the modernisation. The key is reduce time, reduce costs, innovate very quickly. I've done this on other banks. We will be doing the same in this bank.
NA: It's nice to get a perspective both from the business side as well as from the technology challenges that banks are facing. But looking at it more from a strategy point of view, so the margins in payment processing are declining, while digital and real time payment volumes continue to climb. Now, with the growing digital ecosystem, there are possibilities to grow scale, improve customer relationships, and also access to customer data. Now what is the strategy towards building a more sustainable payment model? And how do you monetise data effectively for building a more profitable and payment franchise? I would like to invite Atul Bhuchar first to get a perspective on how DBS Bank is approaching this from a strategy point of view.
Atul Bhuchar (AB): It’s an important point. At the end of the day payments is an outcome. We know it's not really something which customers jump out of bed wanting to make a payment. So what's the problem that we’re collectively solving and it's very important to understand the customer job to be done. So that's something that DBS did. One of the North Stars we identified was making banking invisible. From a payments perspective, we leverage on what is called the 3i or the intelligent integrated instant payment strategy to make this real. As you mentioned, clearly, we know with the COVID-19 pandemic, this has become really a must have. It is no longer nice to have in terms of digital payment solutions.
Digital payment solutions
AB: The three big trends which we see and which we align with at this moment, the first is the whole real time 24/7 payments becoming real across markets, such as Singapore, Hong Kong, India, Thailand, Vietnam, and Malaysia. This is something which has become a hygiene fact in the Philippines, leveraging on QR codes, proxy addresses, and as my co-panelists mentioned, it's really about them leveraging on APIs, to make it then a building block for platforms and ecosystems. And that's really about embedding ourselves into these platforms and ecosystems, and making payments invisible. The next is in terms of the customer experience. So the laser focus on making it simple, intuitive and predictive. That's key, but it could be as simple as just sending a text message. And that's where, on the corporate side to integrate it with the enterprise resource planning (ERP) or the treasury management system (TMS) be able to understand customer’s business rules. And the third trend I would highlight is in terms of moving away from transactional payments to intelligent payments, by leveraging on advisory.
NA: So that gives me a good perspective on the various areas that DBS is looking at. Kaiwan Turel, if I could invite you now to give a perspective of how HSBC is looking at a more sustainable and a profitable payment franchise?
Kaiwan Turel (KT): The point is, we are aligned in the way the digital transformation is happening. Real time payments, APIs, they're now becoming hygiene. And so what we look at within HSBC is how do we keep the customer at the centre of the product development? Who do we need to speak to? Whether it's treasury, whether it is tech, whether it is business development, to understand what it is that they need? It is a well-known fact that with 24/7 and real-time payments, margins are getting impacted. But at the same time, a lot of these customers are also going through their own digital transformation. Therefore, what we’re seeing is what they value is not just data, but insights.
We are, I would say, not just as a bank, but banking as a whole, we’re at the start of the data journey and given HSBC’s scale and competitive advantage, there are some areas where we are trying to see on how we can look at data more intelligently. Just look at the customers we cover, how can we better provide customers their own data, which therefore lowers their cost of interaction with the bank? How can we connect buyers and sellers who are within our own ecosystem? So how are we helping our customers do their business better? We're also saying that all of this is good. But how can we then look at some of the other external data sets that we could connect, which can help our clients do things better? A lot of these initiatives are there. We spoke about real time payments. We are there in 12 markets in Asia, almost 40 markets globally. We have API capabilities. Asia leads the way in terms of the API users that we've seen. So clearly, it’s a region for growth. We've also built other capabilities, such as the liquidity management dashboard that allows clients, especially those who are regional clients, to get visibility of the balances, not just with HSBC but with other institutions across the region. We’ve seen that as long as we add value through insights, those are the drivers where we've seen customers willing to actually have a fair value, which can then help us monetise, either through stickiness or through just other means.
NA: So to understand how you are building customer insights and the kind of value you're providing through that. Venkat ES, I would like to get you into this discussion at this point of time and give us also a strategic perspective from Bank of America.
Venkat ES (VE): Typically, from a payments perspective, it's fast evolving, the market dynamics are changing by the day, real-time payments, API, a lot of new technologies coming in. All that is great, but purely from a bank or a payment service provider, what is the most important strategy that we as a bank is pursuing is like what Kaiwan said, how could we add value to the client? What is the value proposition? And when you talk about payment, you only talk about generally payment being sent by a corporate or an individual. Here, we are looking at how could we integrate that into the financial supply chain.
Addressing customer needs
VE: Banks need to find ways and means to come out with the value proposition depending upon the industry, the segment, the specific climate, whether it's a large corporate or a midsize corporate or even across the individual wealth management segments. How we could leverage all of these emerging developments on the payment side to bring and make it as a value proposition to address that particular need is what is going to get us client experience opportunities, client delight opportunities, and also client loyalty opportunities. They have been making revenue stream for the banks, that's how I look at it and that's exactly what we are pursuing.
NA: So I would like to now invite Vijay Nayudu from UOB bank if you can also briefly give us if there is anything unique or different from a strategic point of view that you are pursuing at UOB.
Vijay Nayudu (VN): We are all from the Association of Southeast Asian Nations (ASEAN). And we all know ASEAN is kind of the third largest country in the world, if you so call it. It's a fragmented market as well. But the opportunity is huge. In terms of banking, about 1/4 is banked, 1/4 of ASEAN is underbanked and half of it is unbanked. So, that's kind of the rough statistics. And if you look at the Google Temasek report, they talk about the growth in digital financial services for 11 billion in 2019, about 40 billion in 2025, and accelerated even more so by COVID-19. So we saw that opportunity and that's where, at least for us at UOB, we’ve set up what we call TMRW digital bank. That's our mobile-only offering, which is live today in Indonesia and Thailand. The perspective really there is to be able to ensure that we provide a great customer experience and be able to scale up, be able to look at the customer lifetime value. You talked about monetisation. It's not just payments. Payments is of course the start of it. You ensure the customer starts using your bank or your app and from there, how do you take the customer on a journey? By ensuring they're engaged with you by being able to use that data whether it is on us or off us, or with our ecosystem partners.
MKZ: On that note, looking at the broader adoption of the past framework, I would like to also get a sense from our guests in terms of how that's impacting the rollout of their own payment products and solutions, within the past framework. And also have an assessment of the gaps. We can start with at least looking and examining things from a retail banking perspective. I'd like Millie Gillon to give her insights on this as well from a strategy perspective.
Millie Gillon (MG): So one other thing that we do with data is looking at future trends. What I mean by that is outside of just the norm of what unstructured data is what structured data is, but really looking at the abstract data, what will be there in the future so that we know directionally where should we be pivoting, not just from a customer experience perspective, but also our solutions that we offer to consumers? What I mean by that is, for example, one of the trends that has been really popular both before the pandemic as well as during the pandemic, and I'm pretty sure even after the pandemic is over, is betterment. So customers are more drawn to and create more, have more trusts, have more loyalty towards brands that try to make them better, as in educating them, as in really tying to the fact that they know what are the specific preferences as well as interests and hobbies that these consumers have? So mining the data that we currently get, but then also looking at abstract data. Otherwise, how am I going to be different from any of the other banks that are on this call?
What these future trends and those data points do is help me to differentiate in the short term, but then also to continue to disrupt and iterate in the longer term in this industry, especially leading towards the next question, in terms of how there's a lot of implications that are starting to develop with these new players, as well as these new products that are iterating within the buy now pay later space. That is definitely true. But I don't necessarily see that there's a longer-term issue for this in the sense that eventually these customer bases that are much younger, as they mature and as they grow, and as they move on the whole life stage cycle and different journeys, they will eventually have different needs. Those needs will eventually evolve to the core solutions that traditional banks actually offer. The differentiator here is really the experience, the channel that we provide that we should always try to iterate on and evolve, but not necessarily always looking at the core value proposition. So strategically, yes, it is something to definitely focus on. But then at the end of the day, understanding what are the human behaviours? How are they similar to the past? How are they different from the past? Focusing on the differences? And how do we iterate those into our existing business?
MKZ: I'd also like to ask John Howard Medina from the Philippine Bank of Communications. From your perspective in terms of the rollout of the past framework, what that means for retail banks and where the gaps are, presently.
Transforming into an ecosystem bank
John Howard Medina (JHM): Philippine Bank of Communications (PBCOM) is starting to become both a consumer and a provider of payments and service. How that's happened is, given our history and our customer base, we've been forced to transform into an ecosystem bank. The primary ecosystems we service are really built on B2B payments. And Payments-as-a-Service helps us for cross-border payments, to maintain an acceptable level of compliance for continuous changes in standards and regulations on the downstream side, because when you service an ecosystem, it has to expand from B2B to B2C to C2C. So we are now tasked to become a PaaS provider for the B2C to C2C leg of ecosystem, because you need an intermediary, like a bank, to connect to both their proprietary and their internal payment systems like rewards or loyalty, and to monetise them and to connect them with the payment networks. Because the payments are a linchpin for servicing an ecosystem but the value-added overlay is really the data that goes with the payments. The gap, I think, is really more on the interconnection with proprietary payment systems with the standard rails.
MKZ: Lito Villanueva, the same question for you, but from RCBC perspective as well.
Going beyond payments
Lito Villanueva (LV): The proposition here is not just about transactional, but more transformational. We’re not just talking about Payment-as-a-service, or banking as a service but the holistic approach towards digital transformation is providing lifestyle as a service, or LSaaS. The thinking here is more on how you cannot just provide your consumers with digital payments, because digital transformation, as I said, goes beyond payments. It has to be bundled with all the financial services that you can offer your customers because loyalty and having to learn from their behaviour, especially during the pandemic, will provide that spectrum of how you will be able to deal with the requirements.
Digital transformation is the way forward
LV: So, regarding your question, the experience that we have for RCBC, specially when we launched diskarTech at the height of the pandemic – I think we are the only entity that was able to launch something in the middle of a crisis – some people said that it was a bad decision for us to do it. But lo and behold, it provided us with a positive outcomes. It gave us the awakening that digital transformation is the way forward. Maybe for other organisations, while digital used to be just a project in some of the organisations, now during the pandemic, it has become mainstream in all the discussions in boardrooms and senior management. It practically became the culture inside any organisation.
MKZ: I'd like to also invite Devashis Das if you can give us some insight also from a transaction finance standpoint.
Devashis Das (DD): So the problem is that the consumers are flushed with choices. The corporates are struggling with these policies and processes. Having said that, we have seen the corporate with e-commerce footprint, or those who are in the B2C space, they have an opportunity to take advantage of those new innovations, including whether it's mobile commerce, e-commerce, we have seen and we have enabled a lot of C2B, which brings the natural speed into the transaction, which makes the AR recon much more efficient, which used to be a problem in the bad days. Some of these changes are dependent on the willingness of the regulators and how perceptive and how progressive they are. Now, the big providers, we also see that on the forefront, or the smaller providers who are taking advantage of this innovation to bring payment-as-a-service. But you're right, it is evolving and what we see is that transaction banking is not the same and the future is brighter.
MKZ: On that note, as Devashis mentioned, it is a period of evolution. Given that the deployment of PaaS is still in a state of flux, I'd like to ask Mahesh Ramamoorthy in terms of how he views the value that PaaS is currently providing to financial institutions.
Mahesh Ramamoorthy (MR): So clearly, a couple of key points that are emerging are in terms of you have to innovate, you have to build for scale, you have to be compliant, you have to manage a lot of risks, you have to ensure that you are at the same time giving the client experiences that you need to bring to the fore always and keep it current. Given that this was a past model, or payment as a service model by large operators like us. We really bring to the table because being one of the largest fintechs and playing hard in the payment space, we recognise a few things that banking as a service, as banks require for payments as a service.
Creating a layer of services
MR: So what we really address beyond just the pricing part of the structure is ensuring technology obsolescence is managed. Managing the risks arising in terms of transactions in terms of information security, in terms of steady compliances that are required, regulatory challenges, ensuring that there is a steady plan from a regulatory point of view, and more importantly, a continuous stream of innovations that really keep you abreast with what's happening. Now, what's going to enable this is also a layer of services. It is about creating a frontend layer of business processes and services, where most of the PaaS players will provide it as a B2B or a B2C, or a C company to be able to consume it and create their experiences. That's where you’re going to see the entire thing. If there's a payment, how the payment transitions itself to completion is what the rails will bring to the table and the efficiencies and the continuous keys of security.
In terms of SLaaS that you bring to the table, there are some that there's not just a financial angle to it. There's a hidden intangibility, which eventually drives itself to a financial point of view because every bank cannot create its own siloed structure, but essentially starts to look for aggregators like us who will be able to provide that as a service and the frontend enables banks innovation: managing risk, delivering key service capability, delivering the regulatory compliance, and more importantly, enabling cross border. Because today, any company has to have a cross border footprint and we have it across the world. Today we operate major networks over a hundred plus countries. The value that we bring to the table has to be looked from a perspective of not just beyond the financials but in terms of how it enables you to get to the market first and sustain your growth.
NA: We're also looking at a payment practice within the organisation. So these are some of the breakthroughs we're also seeing today in embedded finance, financial supply chain, buy now pay later offerings. These are gaining traction among consumers across APAC and beyond. So what implications does this have on your lending business? And how are you enabling this in conjunction with your payment services? I'd like to invite Millie first. Perhaps you can comment on this and give us a perspective on how StanChart is partnering with e-commerce in Indonesia. You're also offering embedded finance and BNPL services in some markets. So give us a perspective on this topic.
MG: So I truly believe that the future of banking is in ecosystems and in platforms. That is where our focus is on in terms of looking at the data, in terms of accumulating data and building out those right experiences. We're also constantly looking at how can we iterate our client journey so that it can accommodate for each of these new types of platforms or ecosystems? Then in terms of the longer term, some of the challenges and the obstacles that we're facing, it's always around how can we get to market faster? How can we make sure that in our internal risk and controls, we are abiding by that, we're not trying to violate it or set it aside, but at the same time not be slowed down by that?
NA: Carlo Nazareno, I’d like to get you into this discussion now. We've seen several banks in the Philippines they're offering BNPL to their customers. Could we have a comment from you as to how you are seeing towards building a sustainable lending business around payment services?
Carlo Nazareno (CN): Like most of my colleagues on the phone, we're looking at the entire ecosystem. The Philippines being a big remittance country, we do have ecosystems that go beyond the country, where we do have customers abroad, that are of course, supporting people back home. In that scenario – especially driven by the pandemic – the challenges that we've seen where people as well as corporates are having financial challenges, extending our payment capabilities to lending products has helped a lot, not only with the people who are here, but as well as the companies that had to look for other sources of cash flow, which in the past, they may not have had initially.
We in BDO have looked at the entire end to end and have looked at client need. Based on the client need, we not only looked at digital solutions but even the traditional ones, primarily because not everybody's digital ready, which was mentioned earlier. So when we look at extending credit, either breaking down payments over 12 months at zero interest or extending payroll loans to clients who need to get through till the next payroll, we look at point of sale systems as well as client loans, as well as digital solutions. It's important to always keep the client ahead and in the centre of everything we do. We've always made it a point that the solutions have to be encompassing and not just limited to certain channels.
NA: Lito anything specific that you would like to add to this about any initiative that you are looking at RCBC?
LV: To that point, we were able to launch the country's first loans marketplace provided by a bank in the Philippines and BNPL is one of them. It's true that the bottom line of all of these things that we are doing right now is really comprehensive ecosystem development. We really need partners, we need this collaboration, synergy and cooperation across all players in the digital space to be able to service our people. With the BNPL being the emerging trend right now in terms of popularity among consumers, we are looking forward to big volumes across the industry.
NA: We'd also like to get a perspective on how banks are innovating and utilising emerging technologies like AI, machine learning, API to support innovative payment products. At this point, I’d like to invite Vijay from UOB on how you are approaching this.
VN: We’re looking at three things in our own setup to look at how do we use more data and analytics. The first one is analytics. Far too often in the past, people have been looking at look-alike models. So if customer A looks like customer B, behaves like customer B, then offer this. So we're turning that around to say, let's look at the segment of one. Let’s look at personalised marketing, look at all the data we have about one customer and try to go up from there. So that's one perspective. The second is looking at alternate data. If you're going to leverage the traditional means and ways of assessing customers for different products, the approval rates will tend to be where they are today in ASEAN. That's why the underbanked and unbanked it’s such a big number. It's really about leveraging all the other data in the ecosystem where a customer is interacting, whether it's a telco, e-commerce, ride hailing, and then to be able to make meaning out of that, then assess the customer in the right manner. The third one is customer journey, like Millie said. How do you ensure a great experience for the customer? And ensure that without having them go through the entire application form and then wait for five days to know what happened? Can you be more upfront with them? Show them what's possible first and then ask them to do the documentation to verify. Those are the three things we do.
NA: Great. Henry, I would like to take your comments also. You talked earlier about insights and also about APIs. So give us a perspective on how you are doing it.
Making PaaS sustainable
HA: So Colin was 100% right. It's not all about API. There's a lot that goes into payment services. But Kaiwan also mentioned that it's hygiene. If you don't get the API strategy right, you won't make it sustainable. In Union Bank, we've never charged for any fund transfer fees. From the day we started until today that we're scaling. Where it becomes sustainable is the cost structure of our platform. If you do the platform correctly, especially now that there are 222 standards for ISO, where all the APIs will be standardised and efficient, your cost becomes zero marginal cost. You don't have to pay an arm and a leg to provide the service, it becomes sustainable when we embed it in our financial supply chain. And paired with the loans, of course, we're now able to do payments paired with the supplier financing or invoice factoring. So payment-as-a-service is sustainable if the cost structure of the platform that services it is near marginal costs and if you can embed it in the other services that you have.
NA: That gives a good perspective there. John Howard, some perspective from you on this as well.
JHM: The two major use cases, the non-sexy one is the one that's going to be impactful first, which is really the use of machine learning to do risk management for fraud on payments. Because the data is there. But the sexy version, which is the use of machine learning to analyse customer behaviour and be proactive and offer advice, that's a little bit of a challenge because of data privacy. We have the payment data but if we can have access to the underlying commercial transactions? How many bars of soap you bought? Or what brand of toothpaste you bought? The challenge is getting the data because of the data privacy consent. But when you serve as an ecosystem, there's so much rich data there to really ramp up consumer behaviour analysis. It’s easier on the corporate side because when we do invoice per segment and we manage the data flows, we see all the data, but there's nothing sexy to analyse there.
MKZ: We'll segue this to our next topic in terms of the past frameworks in place. You have a decision to make in terms of whether to invest or not and how much in terms of whether to move towards that full payment technology stack? What's the strategy in place? How can you achieve that level of scalability, speed and security? Essentially, what I'm getting at is looking at what's driving this this decision, in terms of whether you believe you should be outsourcing your entire payments processing capability. I'd like Noel to have a stab at this first, before reaching out to some of the other guests.
NS: The fees that you collect from payment came about because of the inefficiency of the system. You need an intermediary to be able to drive the payment process. That's where banks were good at. But as we begin to improve this payment process with our efficiency, the more and more that margin that you're able to charge gets eroded. So in the next few years, we believe the payment, the money that you can make out of the payment transaction, will really go away. The business here is not about the payment transaction itself. It is the ability to recognise what are those things that you can create out of that payment service? That's the reason why I'm going to answer your question now. Do I now outsource that? Do I now look for technology stack that they need? The most important here is not owning the technology. The most important is what do you want to do? The outcome of that is with the rich data that's going to pass through this payment rails is what is important to the bank. It is not how to run it or who's running it. So how do you view it? It will be via partnerships, via outsourcing. You can call it as a service model. That's why we think it will go to the future.
MKZ: Millie, I'd like you to also share your thoughts on this as well, in terms of whether to outsource or not.
MG: I can't just say outsource; not outsource. The way I would answer this is a combination between this question and then ones that were asked earlier: how do we innovate, how do we incorporate emerging technologies? Because that is actually what helps me to answer what do I outsource? What do I build on my own?
Understanding customer psychographics
MG: So I want to take a step back here. From a customer experience perspective, what we do is we look at trends, we try to figure out what is going on, we also try to look into very deep insights into the client’s perspective. This is more than just what do they think about our bank or about a specific solution, instead understanding their psychographics and really understanding how can we get their life share so that we can get their mind share, in order to get their wallet share? From there, take all of those insights, turn that into a design thinking sprint, where we can carve out and design what is that end solution that will directly tie back to the jobs to be done, the needs, the wants of the client. From there, we can start to look out into the future in terms of this is what our North Star is in five years out, maybe even 20 years out. Very blurry future though, but then work backwards to dice it up into pieces of how can we get started today? What do we need in place today? So basically looking at what do we need to buy, borrow, build from a technology perspective? That's how we would figure out what do we outsource? What do we build? And if we're going to outsource something, are we going to partner with a startup? Are we going to buy it? What are we going to do? But in the end, those three Bs, the purpose of the “buy, borrow, build” piece is around how can we buy ourselves more time if we're going to go and build it? If we're going to go and iterate on us. If we're going to figure out if this business viable enough for us to continue to evolve, iterate and invest in?
MKZ: Carlo, your thoughts on this on the key decision whether to proceed or not.
Choosing the right partner
CN: It boils down to service. For us, client service is very important. The quality of the service that we offer is important. So choosing a partner, outsourcing or insourcing will really be dependent on whether we can keep the quality at the level we want to keep it. There is so much technology out there, so many third-party providers that can offer top-class technology. But if they do not adhere to the same values of the company that you work for, like in BDO, and they cannot adhere to the quality that we expect, then it's going to be very difficult to partner and outsource if they cannot keep the quality up. We in the Philippines are in a great position because there's so much to learn from the West, especially with open finance, open banking, and the mistakes they've taken and the good things they've done. And with the focus on the client and client service, again, everything boils down to the client and what benefits them, we should look for the right solutions and right balance. That's what BDO is trying to do and we continue to aim to do.
MKZ: Absolutely. I'd like to get Kanv’s perspective as well. Kanv, if you can also share your thoughts on this.
Kanv Pandit (KP): There's been so many interesting viewpoints presented and I would say that all of them are speaking about the immense options available to financial institutions and banks today in how they get a product or service out to market. So it's taking the black swan event of the pandemic to accelerate and bring to the fore the ability of banks today to leverage large providers like FIS, to almost outsource the entire group of market strategy for either a product or a set of products, with only the regulatory aspect and the customer service, customer experience aspects still being old.
At FIS, we move enormous amounts of money every day, we’re crossing billions of transactions every day. So we have that scale and that allows us to have that very focused conversation with financial institutions today and say, we could deliver the entree, we could deliver the dessert, or we could deliver the entire seven-course meal to you. It depends on what your appetite is. We're operating in a part of the world where there's immense complexity because we’re operating the smallest board of markets. For a bank that's operating on a regional basis, the complexity that's involved with just taking a single product or a service out, it's immense. For a provider like FIS, we've got the scale and the investments, whether it's on cloud consumption, whether it's a collaboration with multiple cloud partners, whether it's, understanding the regulatory frameworks and landscape across multiple markets, whether it's having the hooks into the market and the economy and the newer emerging players, all of that are available today. For instance, we’ve recently launched the first mobile real time network, what we call RealNet. So an ability to move money instantly from anywhere to anywhere and that provides our bank partners the opportunity to piggyback on a service that's been built for them already. But they own the customer experience, they own the brand, they own the extent to which they would like to leverage the service that's been created. The opportunity exists today that Colin pointed out, regardless of how much payments you've built into your legacy, you have the ability to completely disregard, look at a new service or a product that you have to take out to market. It's on the retail side where it's commercial B2B to C2C and say that I would like to consume this in its entirety from a provider and that's available. That's certainly doable in the context of marketplace.
MKZ: Devashis, your thoughts in terms of whether to stay in house or outsource?
DD: I would add that technology is developing so much. What we look at is how do we make it more scalable, flexible and agile? That's the important point. The other point which has not been mentioned by others, which I would like to highlight is that in the corporate space, we have an opportunity to customise. There are customers where you may want to look at their ecosystem and try to develop something new for them. We want to look at what is the bank's appetite for customisation and is it served better by an inhouse system? Or is it better to be outsourced? So those are crucial decision points to me.
MKZ: Two quick questions for Colin in terms of what steps your institutions are taking for outsourcing, your technology stack. What's your cloud strategy or migration to cloud? Are there any obstacles, challenges that you're facing on that front?
Cloud migration options
CD: In relation to moving into the cloud, obviously, there's a lot of mindset change within an organisation. Moving to cloud means that you are not to tweaking every single line of code, you're using the standard model, you're using the standard capability. You've got to look at how you actually use that and leverage that, rather than how you customise every finite piece, which is what we've been used to. In the past, payments has been endemic with customisation. So when you're looking at going to a cloud-based service, we've got to look at can I get to a standardisation? Can I find a provider that can give me the flexibility? But more importantly, can I find a business that is really going to think about how do I use this tool, rather than how do I reinvent my own tool? That is the biggest challenge that you're going to find. In the other aspect, you've got to look at ensuring the transaction reliability. Noel mentioned it earlier on.
In transaction integrity, transaction reliability, there are always concerns because obviously we're in the Philippines where there’s a third degree of distance away from other places. And we've got to look at those linkages in those transaction integrity so that they can operate 24/7. Those are the concerns. But it's a lot more about the mindset of people, about ‘I'm not building, I'm not buying something that I bought, I'm not customising. I am actually using tools, and how can I learn to use those tools effectively, to support my business and never innovate my business?’
NA: So what are the perspectives around payments that we mentioned earlier? And a lot of our panelists have talked about what is cross-border payment and remittance. So PaaS was expensive and subject to delays, but the industry led developments such as SWIFT gpi, ISO 2002, and then blockchain-based payments. We're also seeing bilateral arrangements between countries. This also requires a lot of technology integration and modernisation of multiple real time cross-border payments. So where is your institution in this journey of facilitating real-time, cross-border payments? And what are some of the biggest challenges in these processes and how they are being addressed? So if I could invite Atul to give a perspective on this first.
AB: Devashis mentioned how the retail customers are flushed with choices on the corporate side. That's an experience which is not yet there. That's key, really. Speed is vital. But the other aspect is efficiency. I'll just focus on these two. In terms of speed, it's multi-layered. One aspect is intra-institution. You have for instance, in domestic, PriorityPay, which is across eight markets in DBS. Any movement of funds across accounts in any of these eight markets happens instantly. The next layer is the cross-border payments with SWIFT gpi, it's brought in transparency, efficiency and speed so today 50% of gpi payments get created to the venue within 30 minutes. The third element would be in terms of interoperability of these SWIFT cross-border payments in domestic, instant 24/7. It's already happening in UK and India while in other places like Singapore and Hong Kong, it's still a work in progress. The next layer would be the interoperability between instant 24/7 schemes in different markets. The final layer would be the blockchain payments that you talked about and from a DBS perspective, we’ve announced the setup of a company, partnering with Temasek and JP Morgan. That's the building blocks of the next generation of digital economy, because it’s not just instant, with certain transparency and traceability, it’s also programmability of payments and programmability of money.
NA: At this point, Kaiwan, can you give us a perspective of HSBC and in terms of transaction banking sites? How is that playing out and what are the initiatives?
KT: So when we talk about cross-border payments, especially when looking at cross-border real time, the question is, is technology today available to do that? And yes, we seen SWIFT gpi giving visibility transactions getting credited within a day. The more important facet that we need to cover is the actual problems around it. It's not necessarily just technology. But what are the problems that we're trying to solve? When I'm doing cross-border real time, what is it that I'm covering? Am I covering just transferring money 24/7? Am I doing 24/7 plus data, or am I actually driving digital financial inclusion, as was mentioned earlier, whether it is almost 75% of this population in the ASEAN region is either underbanked or not banked and regulators are moving away from cash. So what are the problems that we're trying to solve? Because that's what will then drive the friction. You have interoperability. Are the schemes actually talking? Because a lot of the domestic RTP scenes are domestic use case-based. Or when you go into a cross border, is that something that actually validates? And how does that break off? We then look at regulatory and compliance. That's a very big thing.
A lot of the domestic real-time payment schemes do not require sanction screening because they assume that's taken care of, but once it gets into cross-border, those things then become very important. So if you want to do that real time, how are we going to do that? What are the implications? That's where we see a couple of these corridors that come in. With HSBC, we're investing in a lot of these things. We are one of the largest users of SWIFT gpi globally and we're using that to provide transparency to our customers. We are working through regulators with all of these use cases to see how best we can drive some of these things in. We're also building out a whole lot of capabilities to allow customers from just the regulatory aspect. So again, how are we bringing that in digitising those things to remove the friction that our customers are trying to face?
MKZ: Absolutely Kaiwan. You’ve hit the nail on the head in terms of removing all that friction for customers. What does this mean in terms of what PaaS can offer as a new generation of technology solutions that's allowing banks to modernise their payments, product portfolio and resetting the standards for customer experience. PaaS is providing that opportunity
for banks to deliver to end users, operating through cloud-based platforms, but in addition, providing those specialised services that ultimately are of benefit and value to your customers. So with that said, I'd like to thank everyone who's joined us today, especially our esteemed guests.