“Payment is no longer a revenue game, real value is in customer ecosystems and data”

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Interviewed By Foo Boon Ping

In this RadioFinance virtual roundtable on payments transformation, practitioners discussed how pressures from low rates and thinning margins are forcing banks to streamline operations, lower cost, plug into customer ecosystems and explore new revenue opportunities.

Meanwhile, payment innovations such as QR codes and mobile wallet-to-wallet transfers have increased micropayment volumes and created new income streams for banks. Amid the increasingly competitive and difficult environment, banks continue to face challenges in securing investment for critical payment transformation initiatives.

The following are the key points discussed and debated during the session:

  • The entry of new fintechs and big tech players has disintermediated banks in the payment space and triggered a change in the traditional business model.
  • New payment infrastructures have effectively enabled greater platform adaptability, flexibility and operational efficiency with faster processing and clearing backed by a more streamlined data movement that is aligned with key industry standardisation.
  • COVID-19 has been a key driver in accelerating digital transactions and encouraging rapid adoption creating opportunities for banks to collaborate with fintech companies forging new customer journeys.
  • Banks consider it critical to invest in new payment systems to overcome the high costs attributed to legacy technologies and exacerbated by depressed margins.
  • Banks are exploring new opportunities in the payments dynamics by lowering costs and capturing new revenue streams.
  • Financial institutions (FIs) in Asia are better prepared now to meet evolving regulatory, IT and market-driven sector changes within the payments ecosystem.


Here is the edited full transcript of the discussion:

Foo Boon Ping (FBP): The confluence of regulatory market and competitive forces propelled by the introduction of new payment infrastructure capabilities, the migration to new payments standards such as XML ISO 20022, a bit delayed by the current pandemic, and the pressure to effectively compete amid growing market disruptions present financial institutions, significant opportunities and challenges to transform your core payment infrastructure and introduce new capabilities. 

In this session, we will debate the key issues impacting the ongoing transformation of the payment business and share your varied experiences and different approaches to prepare for the future. To get us started, we have our TAB research head, Mobasher, who will share a short presentation of certain key trends driving transformation in the payments landscape today.

Mobasher Zein Kazmi (MZK): As you mentioned from a payments landscape perspective here in Asia Pacific. Certainly about a decade ago, the landscape here was dominated by simple cash cheques, bank cards, and different preferred payment types. But that payment landscape has dramatically transformed in recent years. 

It would be hard to imagine that a few years ago cash has become really almost obsolete in countries such as China with mobile wallets becoming ubiquitous. You've got payments that are increasingly smaller and essentially coming from end consumers and really looking at retail consumers that are driving those retail and real-time payments. We're also seeing the introduction of distribution ledger technology, which is enabling payment systems and it's contributing really from a transformation perspective. 

To give you an example of the rise of central bank digital currencies, which is really shaping the cross border payments scene. And as more countries in Asia are focused on building up that “anytime, anywhere, anyone” real-time payment systems, the potential of save using QR codes, breeding apps that are backed by those real-time payment rails, that is facilitating payments for corporates, has provided a very strong use case for moving batch and daily processing to real-time systems. Effectively, this has also enabled governments that have created national payment infrastructures that are now supporting mobile instant payments, and really allowing them to harness the widespread use of smartphones and technologies such as digital IDs, increased tokenisation and QR codes to be able to make and receive low cost real-time payments, between bank accounts and or to digitally top up mobile wallets. And as Boon Ping mentioned, from a regulation perspective, as well, we're seeing the global adoption of ISO 20022 standards, which will be driving payment efficiency, interoperability and streamlining of inter-FI communication. We are also likely to see a continued reduction in costs of cross border payments as flows become apparent. 

New payment infrastructures enabled platform adaptability, flexibility and operational efficiency

So payments remain an important and a very substantial factor in the banks’ operating cost base and sometimes representing about a third of total operating costs. And that's partly driven due to the high technology spend associated with providing payment services. But having said that, a disproportionate share of effort and resources is required to maintain and improve infrastructure to manage those upgrades to implement the rule changes and to rationalise the use of legacy technology. While this does leave insufficient resources for sorely needed digitisation efforts, we are seeing that the investment in new customer services and applications does pay off. So despite this challenge, most FIs across the region have undertaken that journey towards upgrading their existing legacy payment infrastructures that are presently saddled with fragmentation and the lack of scalability. We're also seeing payment infrastructures that are enabling greater platform adaptability, flexibility and operational efficiency with faster processing and clearing backed by more streamlined data movement, which is aligned with key industry standardisation. More importantly, these new payment infrastructures are enabling FIs to be better prepared for the ongoing and evolving regulatory IT and market-driven sector changes such as instant payments, open banking adoption, PSD2 and perhaps from the liberation of alternative payment methods. So ensuring the compliance and shielding the customer experience really from this type of disruption will allow banks to free up the capacity they need to develop new products and to enable new customer experiences. 

Interestingly, we're also seeing these new payment systems that are being rolled out across Asia, and I'll just probably share a couple of examples. So the HKMA in Hong Kong, it launched the Faster Payment System (FPS) to address the increasing market needs for more efficient retail payment services. So we have all banks and e-wallet operators in Hong Kong that are participating here. And it enabled customers to make those cross-bank or e-wallet payments easily, simply by entering their mobile phone number or the email address of the recipient. 

In India, you have the Unified Payments Interface (UPI), which is a system that powers multiple bank accounts into a single mobile application of any one of those participating banks. And they've merged several banking features seamless fund routing and merchant payments under one umbrella and also catering to peer to peer collection requests which can be scheduled and paid as per convenience. Similarly, in Indonesia, you have Bank Indonesia, which is preparing other initiatives based on its 2025 payment system roadmap, which includes a data hub and a real-time payment system called BI-Fast. In Thailand you have PromptPay, which is a rather modern, convenient and low cost payment infrastructure. It's also enabling the public and business sectors to transfer funds using a mobile phone number and national identification number or corporate registration number. But interestingly the competition within the banking sector is also playing an important role in terms of propelling the widespread use of PromptPay and that is also contributing to reduced or lowering of fees for cross-bank fund transfers via these electronic channels. 

A review of some of the new players that we're seeing that are disintermediating banks in the payment space is quite interesting to watch as various providers are scrambling now for market share. We're seeing a consolidation in this sector that is driving new volumes. You have the card schemes such as Visa and MasterCard that have made moves into fintech with their recent acquisition of bank account data aggregators, whether it's Visa’s acquisition of Plaid and Mastercard’s acquisition of Fincity. And so this shows us a trend of expansion to a global diversified business strategy in financial services. On the other hand, you have domestic players and real-time bank, interbank transfers such as RuPay, Shazam, WeChat Pay, and M-Pesa, which is reducing dependence in on global card networks. Last year Japan-based Soramitsu also rolled out a next-generation payment network. And that's enabling real-time payments online and via smartphones. In Cambodia, interestingly, where you have 78% of the population that is over the age of 15, that does not have access to banking services and we're seeing that, with the rollout of the Bakong platform that has enabled the enrolment of thousands of users. And more recently with Apple's release of the Apple Card and with a number of companies following suit such as Venmo, Razor, as well as Samsung Pay and Shopify. So there's quite an interesting mix of big tech fintechs that are now operating in this payments space.

Speaking of these big techs, say Alibaba has Alipay and Tencent’s WeChat pay, that have really created their own payment services with many other companies following suit, and they're creating their own “pay” businesses. And so when it's GoPay by GoJek or GrabPay by Grab, BigPay by AirAsia and LINE Pay, just to name a few, governments and regulators are really playing a significant role in encouraging digital payments and directing new pathways for innovation. So with instant and real-time payment schemes that are live in 15 Asian markets, using real-time account to account payments, which is becoming the industry norm. The use of real-time payments is also expanding not just from consumer to consumer use cases enabled by third party apps, but also the consumer to business, both for online and offline payments.

So given this emerging threat, the banking industry is responding to this fast changing payments landscape and there are range of payment initiatives launched by the various banks and payment service providers. Just to call out a few we have, for instance, Siam Commercial Bank that is seeking to capitalise on new opportunities and growth in the cross border payment corridors powered by RippleNet, especially for markets outside Southeast Asia. Similarly, Krungsri (Bank of Ayudhya) has teamed up with the Japanese tech giant NTT DATA to launch MyPromptQR, a cross border QR code payment platform for Thai users in Japan. 

In the Philippines, there's Union Bank's digital transformation to drive inclusive banking which led to the bank's fintech subsidiary UBX to launch three platform startups that includes the i2i, which is linking rural banks to the country's main financial network that cuts across digital payments and logistics platform. UBX and that supports e-commerce merchants. So while you do have some of the older tech firms that are settling in on seamless integration and into the lucrative financial sphere, I believe the path for Asian tech firms and institutions in the financial service space appears more straightforward. Certainly there are limited opportunities, but if we keep in mind the Chinese market, which is still being explored. But from a regulatory regime perspective, we're unlikely to see any new surprises in terms of new operators being able to enter and to support the growth of real-time payments. Certainly it will be an interesting landscape to see as the shift from the application of legacy systems to new real-time scalable, adaptable payment infrastructures are implemented and rolled out which will drive those operational efficiencies and then lead to observable benefits for the banking industry and the payment service providers as well. 

FBP: There are new infrastructures being set up, there are also new payments providers today. With the introduction of open banking and a new financial services licence, for example, the payment area is now open to the non-banks as well. And today payments margins are very low. With historical low interest rates as well, you need to develop new business models in order to compete. I’d like to get our panellists to talk about some of these trends, and how is that impacting your respective institutions, and more from our regional cross border perspective. If we can get Chintan to share your comments and your response to the trends that you see? We know that Deutsche Bank has a very effective multi-currency payment engines and how are you looking at regional payment, cross border payments opportunities, as long as this moves towards a new payment infrastructure?

Chintan Shah (CS): So one, we have seen clearly the emergence of new age payment methods. We've seen significant improvement on payment transparency throughout especially on cross border payments with the introduction of SWIFT GPI and adoption of that by banks and corporates. Third, we have seen significant interest of clients to adopt these payment solutions to improve their end consumer experience. So clients are now no more looking at payments as just treasury payments or the vendor payments, but they're looking at payments as an enabler of improving their consumer experience and getting more digital in the way they drive their business. We've been working very closely with our clients on helping them transform their business model, not just treasury payment practices. Fourth, that has enabled us to also look at our backend infrastructure around the new age payment methods. We had to work on building our payments infrastructure to get into large volumes of low value payments as compared to simpler forms of vendor payments earlier. Second, we needed to adapt to a much greater 24/7 infrastructure across the region. While it is easier said it's much more difficult in terms of implementing it when it comes to solving that for our corporate clients, that 24 by seven infrastructure credit card. We also looked at our entire payment lifecycle management in terms of simplifying it, such that the orchestration layer for the payment lifecycle sits in this engine rather than in multiple electronic channels, which was also the legacy setup that we had. So we migrated the entire routing logic from channels into our payment lifecycle management layer, as we call, that has been the development. Particularly on the cross border payments, we have continued to look at investments on our fixed cash engine, that is, again our way to complement all of the digital solutions. And on payments and integrating payments, FX and liquidity solutions on this single front to back solution for our clients, which digitises payments, executes FX on an automated basis based on rules pre-agreed to clients whether the rules are in terms of margins or in terms of picking up hedges. I see this space constantly evolving. It's never static and to adapt to the new payment methods to meet the clients’ needs as they come up to dedicate to client needs. And to adapt to the regulatory changes have been the kind of dynamic play and hence the entire payment infrastructure. 

FBP: We also want to get in domestic maybe from a more retail payment perspective as well. Siam Commercial Bank (SCB) has gone through a retail payment implementation. Tell us the process that you went through. What drove that new project, as well as some of the capabilities and the challenges that you went through in the implementation? 

Trirat Suwanprateeb (TS): As the presentation earlier from TAB mentioned that Thailand have set up the project called PromptPay. PromptPay has turned the nation into different schemes. All the payments have become silo-free, and we start to have a lot of micro-payment happen. So the challenge right now is more on the scalability. We start to see a lot of new innovation. For example, all those QR payment and some of the new capital regarding the payment in the system as well. At the moment, we try to create the banking as a platform and try to boom in new fintech and some of our party partners to be able to use our payment infrastructure inside the bank to leverage the platform that we have to enable the payments. The usefulness of payment is more on the data. So we now try to enable the event streaming in real-time. And in the background, try to make sure that all the events that have been through our payment we can create the moment of truth for our customer.

FBP: SWIFT has been working on GPI and lately also GPI instant, and you've been also more involved on the retail payment front. Tell us more. 

Michael Moon (MM): We have just finalised our new strategy that we introduced publicly into the market, which was a result of working with our customers around the world. We have 12,000 customers connected to SWIFT, and consulting with them for the best part of 12 months. And the industry needs to change clearly. It's not evenly applied set of disintermediation. So you have these different segments of the industry, then all affecting industry incumbents in the same way. One theme, I think is the customer experience, new entrants are putting themselves between a traditional financial institution and the customers of that financial institution. They're improving the experience that the customer has when they want to make a payment. So they're able to track that payment. And when they might be getting things cluttered up front, they have choices as an enhanced experience. So, that is a particular opportunity for financial institutions to work with. If you're a bank, your operating cost base is increasingly high. And there are drivers that you need to source liquidity and funding to support payments. Financial climate compliance is a really heavy bid and that just increases all the time, it seems right. And in the role of new technology. So pivoting to API- oriented technology and cloud, these are just some of the major ones, not all of them, but the things that our customers are responding to. So what we've done is we've published a new strategy designed to support our customers to work with our strength such that they can continue to play a very strong role in cross border and also domestic payments as well. So what we're saying there is that all of our transactions, where possible, will be done on an instant basis. They'll be friction-free, meaning that what we're worried about is really to identify these problems and restrictions that exist at the scale in the industry. So that financial crime and compliance problem I mentioned, can you help the industry by neutralising or centralising services such that the cost burden is not duplicated across individual banks, and it can be shared. We can do that through a centralised platform service for that, as well. So they're about helping our customers with their instant friction-free account to account experience. And then the last thing, just very quickly, you mentioned 20022, the ISO standard. We're introducing that across the globe on our network, by the end of the year 2022. So you'll have all this additional data that can be used in a consistent way by our customers to do compliance and financial crime, check screening, that kind of thing. And you'll also have additional data back to that user and customer experience. You can apply that data into that intelligence the way that financial institutions serve their customers. We will soon be rolling out a new transaction management service, which is a centralised platform that allows banks to actually consume some of these things on a shared basis. And all these things don't have to be done on an individual basis fully API on third cloud interfaces. 

FBP: One of the things we discuss a lot is the processes. There are different systems that require different processes and not all automated. What is driving transformation of payments at Bank Mandiri?

Adinata Widia (AW): A lot of fintechs are trying to take some of the portion of what banks are used to have on the revenue. And then recently some fintech are also playing on the local scheme, like the one fintech called OY! and Flip, they are offering domestic transfer on a free basis. But of course, they cannot go big scale as they need. Basically, they're using the concept of correspondent banking. So what they do is that they open multiple accounts in many banks. But of course, they need to have some kind of capital to execute the payments. So what we did in Mandiri, for the wholesale part, we improved our API. We already have an API portal that can be used by our corporate customers. So we see more of the corporate customers use to host those connections, rather than internet banking. And on the SME, or the retail space, we basically collaborate with fintech. Rather than competing with them, we collaborate with them in providing some payments using QR. We embed our QR payments into their system so their customers can make payments using the QR payments. And then we also have branchless banking agents. Basically, we try to expand our network rather than opening new branches. So we see quite a lot of attraction there, especially in the areas where we don't have branches. And surprisingly, the customers are depositing quite a lot of cash there. So more and more initiative towards cashless happening here in Indonesia right now.

The regulator is also a provider and supporting us in this as they issue a standardised QR payment standard for all banks. In the past, there was no standard. Government try to standardise that, so at least everybody is in the same position right now rather than before. 

FBP: We also want to hear from Kanags at CIMB. He's also in charge of the transformation function at CIMB. Tell us in terms of how you see payment transformation. 

Kanags Sunendran (KS): The customers don't wake up thinking in the morning what payment materials they're going to use at our bank. Payment is an activity that comes in your daily life when you're buying things or when you're paying for goods or services. So, from that perspective, the simple thing that we want to do is to make sure wherever the customer is, he wants to pay for his goods or services, we are there as a choice. Number two is, from a technology and commercial perspective, payments is no longer a revenue game for banks. So the real value is in trying to ensure the technology and operations are so streamlined that your cost of providing that payments at scale is as minimum as possible and is within that cost. There's a huge cost of fraud and cyber security aspects and how do we ensure that those payments and the fraud losses are kept minimum as much as possible? So that's where the real game is, in terms of where we’re going. The last point is we talked about disintermediation, but I would argue that there is a mix of disintermediation and a long tail of transactions coming into financial institutions which never existed before, because of stuff like QR, waving credit cards and because of transactions or government initiatives, like DuitNow or PayNow etc. So you have a large number of minute micro transactions coming into the ecosystem, which means that the volumes are definitely going up. Now, the game over there is data game. And the real disintermediation is the customer getting lost to these wallets and other providers and the fintech players up front. So your customer relationship is what is going to be ending up disintermediated, payments are not getting disintermediated. So the real game that we are trying to play is how do we keep ourselves plugged into the ecosystem. So that payment is done, but we get to understand and be part of the customer relationship. If you have a customer relationship, and we do cross border payments, and if the relationship is good, the customer is not going to move to somebody else to do cross border remittance. He’s going to be sticking with you. So as long as you stick to that, then you get the moment. 

FBP: I also want to hear from our colleagues in the Philippines. First, Dennis, who is the chief information officer at Union Bank, which is doing interesting things on the digitisation front. Tell us in terms of the transformation on the payment side that Union Bank is going through. 

Dennis Omila (DO): We actually started working on a blockchain centre of excellence. And one of the things that we did was to create a network for the various rural banks in the Philippines. The number of rural banks in the Philippines are dwindling. It's really going down but the number of rural bank clients are actually increasing. So what's the reason for that? It's because the rural banks are not able to keep up with the costs of having sophisticated analysis. Our belief in the financial inclusion or actually we call it a prosperity include, is to work with the rural banks, because the rural banks are very much embedded in the communities that they are into. So we have rural banks that focus on teachers. We have those for farmers or drivers. And what we do is that we visit them and they’re really just not interconnected at all. So we created a blockchain-based switch and now there's like close to 100 rural banks into the platform that allows them to avail all of the services. Like in the Philippines, we have what we call InstaPay, which is the replacement of ATM. And by the way, as a statistics in the last three months, the InstaPay transactions are more than the ATM transactions. This has never happened before. This is the first time and in the last three months it's happened. And then we have PESONet, which is like the equivalent or the replacement for cheques, or alternative for issuing cheques. So those things have really been growing tremendously, especially during the COVID-19. And part of what we did also maybe just three things. We had the digital account opening. So that means they can open an account anywhere. We had the mobile check deposits, if they can just take a picture of the cheque and deposit it so they can load. And then we did the cash out services. They can remit to all parts of the country and they can do all of these things at the comfort of their home. And then during lockdown, we did what we call, banking on wheels. So we had like the entire bank. So those that are quarantined and they cannot go out, we bring the bank to them. The Bangko Sentral ng Pilipinas has really been very progressive in supporting electronic payments.  

FBP: Yes, and I'm calling on your counterpart, your colleague in the Philippines, Lito from RCBC. Lito was working in the telco and on payments, and now you're working for RCBC and also working for it to become a one of its first, the best digital-only bank. Tell us more in terms of the payments transformation. 

Lito Villanueva (LV): I shall first start with contextualising the payments transformation in the country, the Philippines. So amid this pandemic, we have seen the exponential growth of digital transactions. Because of the limited mobility of the Filipinos given the quarantine, based on different levels of restrictions, we have seen that a number of them have really shifted their transactions to digital. And that's why we have seen those numbers are really skyrocketing. For example, for RCBC we've seen three digit or up to four digit growth when it comes to digital transactions. I think one of the basic metrics of success would definitely be consumer adoption. We are now adhering or trying to embrace the concept of PSD2 because right now the BSP has come up with a draft guidelines on what we call the open finance framework, which is practically open banking. And of course, the proliferation or the introduction of the standard QR code in the country, where practically it now promotes interoperability across all players in the industry. In the case of the Philippines, there is harmony and there is ‘coopetition’ amongst fintech and bank players in the country, because again, of interoperability, because of us being able to provide that synergy across all players in the industry. These are the things that we've been trying to do. RCBC has been one of the traditional banks for the past 60 years. And I think the digital transformation agenda has been its number one priority. We have invested a lot in digitalisation. And one of which is when we launched the Diskartech mobile app. This is actually the first Taglish (combination of Tagalog and English) inclusion super app in the Philippines. When we launched that, in the middle of the lockdown, we were thinking that it might not actually be noticed at all by the public, because the public has been very concerned about their safety, their security. We hit our highest unemployment rate at 25%. So when we launched our Diskartech super app, we were supposed to launch it on March 18. But government declared the hard lockdown on March 16. So in July, that gave us opportunity to launch it. And again, we were not expecting any acceptance from the public because again, given the pandemic, but it was a pleasant surprise to all of us, that it was embraced by the public. The number of mobile app downloads has reached close to four million in a matter of four months. So practically, on the average of one million per month, in terms of downloads. We reached one million after 30 days from the time that we launched it. Because of the timing, and even the proposition that it offers to the public with consumers, would be practically unique. That's why even our monthly active user rate is as high as 72%. The positive social sentiment is as high as 98%. This would be some of the metrics that we don't really see in most of the mobile apps in the country right now. Because in the Philippines, you have almost 200 mobile apps operating currently, on top of having about four million mobile apps operating globally. So imagine your proposition here is how you can be noticed by the consumer.

FBP: Now that we want to look at digital transformation of our payment, how are different institutions approaching it from a technology and from an infrastructure perspective? Can I call Stephen from FIS to give us some insight on the different approaches of different institutions? And what are some of the challenges that are involved in a holistic payment transformation?

Stephen Peters (SP): I'm just going to go through a couple of transformation drivers. We have, of course, legacy systems and payment  legacy operating models, which dominate a lot of the banking landscape, ranging from the core banking system, which are 24/7, also to some of the peripheral systems, channels reporting, warehousing, etc, which are in different state of borderness and openness and ready for a true transformative offering. On the back of that, you have an unprecedented number of compliance changes in the region. In all of my global experience, I've never seen the amount of compliance which is being put onto the banks across the region, whether that's real-time payments, bulk payments, RTGS, and SWIFT cross border payments, all happening, and overlapping a lot of the time. So it's really a perfect storm of compliance, drivers as well as new payments competition. 

And even just this week, we heard some big news out of Google, with their launch of Plex; obviously the app by the Apple, Apple card is quite interesting to see how that goes. But more regionally, you have tremendous competition in the fintechs, from the likes of Grab, GoJeck and Alipay and so on. 

So it's really a difficult space for banks to become differentiated with their offerings and to remain relevant in terms of their offerings to the market, and taking that piece of the payments business. And so one of the things that we see across the region, as I said, is legacy payment architectures. And that really makes it transformation slow and expensive for a lot of banks. 

Often there's a lot of payment logic embedded in those channels. That's logic, which is required to know how that payment should be processed, and where the payment needs to be routed to. Is it a bulk payment or is it an RTGS? Is it a cross border real-time? Also about how that payment should be processed using the sanction system or core banking or GL, treasury, etc. A lot of logic, which probably doesn't really belong in the channels. The integration becomes a bit of a spaghetti because for every payment type that a channel wants to implement, it needs a separate connection towards different silos that makes it rigid and flexible for payment processing. And I see all of these payment types actually blurring together. And probably in the future, maybe in a decade or so there will only be one real-time payment type, which dominates both domestic and international payments, I believe. And you'll have all of these different payment types disappear. And then you have a very complicated enterprise integration architecture at the back end. So every payment scheme, or silo is typically connected to every kind of legacy system in a bank, whether its core, GL, FX, risk, warehousing, etc, very complicated set of infrastructures and challenges for banks to maintain as a key cost to keeping it all running. So payment hubs have evolved as a response to managing those four challenges.

So what we recommend to our customers, is that not only do they need to meet those four challenges, but they also need to deliver a platform that can really unlock innovation in the payments base. Help banks to remain relevant, and also still deliver differentiated services. So simplifying your channel integration is the first step in that journey. And you will have lots of different channels. And you want to simplify it down to a single point of entry, as far as possible. 

The second is to have a standardised enterprise integration architecture. So instead of having all the payment silos connected into your legacy systems, you want to keep that centralised and standardised through one or two touch points per system. You want to move all of your payments, logic from your channels into what we call the payment order management layer. And what that is going to do is allow you to do some very intelligent payment processing, and routing scenarios. And so for example, you'll be able to have a choice in real time about how the payment, which might have been initiated on a mobile phone, should it go through the bulk channel or go through the RTGS, cross border, real-time or some other new payment type which might arise. So there's no fixed kind of routing or distribution, which determinant channels, it's all worked out in real-time. And you can set the criteria to be price-driven to be SLA-driven, or whatsoever. And also, there's a lot of innovation happening with SWIFT, both in cross border and the RTGS space. But there's actually a lot of competition driving, arriving in the cross border payments market as well. So we have Visa with Earthport, and Visa payments limited have MasterCard Send, and they're building out that capability with Vocalink, quite extensively. You have a lot of other networks, which are appearing with Ripple and Chord. So you will have choices as well in the different cross border markets, and you want to be able to take advantage of that. Because each of those will offer different advantages and different price points and service levels for your customers. So these are the four things that we call out as major characteristics of a successful payments transformation. 

FBP: But what are some of the more common challenges that banks face in different channels that have different systems, and many of them critical to their operations? How do they prioritise in terms of putting everything on to a new platform?

Investing in new payment systems to overcome high costs attributed to legacy technologies  

SP: I think, historically, in Asia, as a general statement, there hasn't been a lot of investment in payments infrastructure for the last 10, even maybe 20 years. Some countries have launched real-time payment scheme initiatives, Singapore, Malaysia, Thailand, Hong Kong, etc. but that wasn't quite enough to trigger a complete modernisation initiative in banks. So typically, they had point solutions, which they would stand up, and they would be on new infrastructure, or more likely than not, they would leverage the existing infrastructure. What we're seeing now with that perfect storm of compliance is the catalyst for change is really too much than existing banking systems and architectures can handle. The databases or the payments databases are not ISO 20022. So they have a major challenge in managing the data in and out and maintaining compliance. And depending on the kind of bank you are, whether you're doing intermediary banking, the challenge may be multiplied. With the arrival of real-time payments, you may have core banking servicing issues running 24/7. You may have liquidity issues. And if you're a bank, which has a regional footprint, those challenges are multiplied if you want to maintain liquidity across your operational sphere. So they're the kind of things that we see but you know, we have impact into sanctions and screening. It's now a requirement of many regulators that you have to screen every single payment and whether you need to do that in the full beauty, the full terror of ISO 20022, or a truncated form of that varies from market to market. So banks also starting to address or implement data lakes as a step in collecting that data. And then using that as a competitive advantage because I like to say that banks are not banks anymore; banks are software companies or technology companies because you're defined by your competition. Your competition more often than not now, a highly leveraging data for real-time insights. And that's really going to drive a change in operating principles and models for banks on top of having a more agile infrastructure.

FBP: AmBank is also going to this digital transformation journey of your own. How are you prioritising that payment integration? Today, payment being siloed in different systems, what is the imperative, if any, of integrating that into a common hub of your platform and leveraging the ability to have some of this capability, ISO 20022, to the ability to have data lake? 

Vrindalakshmi Sunendran (VS): Yes it is something which AmBank is doing as well. Considering how we should streamline, it looks a lot like the architecture which you put up, we have the payments orchestration. We're trying to move down all of our logic away from channels into a common layer. But a lot of this transformation comes with the promise of more of justifying the business case for this is really difficult. So putting in the new payments innovation, or the new payment services into this, and then slowly working on your legacy, it's a painful process. But it's something which we must do in order to be able to streamline and in a way try to see how we can rationalise costs by getting this done. There's an upfront cash asked, which is difficult. One of the ways by which we're trying to justify this, and also create a new revenue, is sponsor banking. So when we look at our own payments infrastructure, which our customers use, one way to create more revenue, or create more scale, is to be a utility provider for some of the fintechs. So one of the things we do, for instance, is for all of the small TPS, third party settlers, who try to provide settlement for the smaller merchants on the payment infrastructure, we help them with their settlement. We also provide access to the national payment settlement through our infrastructure to some of the wallet providers. So all of these increases the revenue that is coming through our payments systems and allow us to make these investments in a way. 

The next part of what you said, which is the data lake is more interesting, that's easier to justify. For instance, when we ran a data model, I think this is not a surprise, one of the things which we did in our data modelling is we try to look at what is the predicator for primary operating banking. What makes someone a primary operating customer of the bank? And what's the incremental revenue that you make from someone who's really into you? And this is, again, going back to the challenges which you said, which is how do you monetise payments? Correct, because the fee revenue is down to nothing. So you're running all of this and you're not making money on the payments, per se. So some time ago, we were making the payments of the float. Now the NIMS are compressing there as well. So it's really about how you can bank the customer end-to-end for which you need the data. So here you try to analyse the payments that go through to understand why is money moving out of the bank? Why is money moving into the bank into customers’ accounts? And what does that tell us about the life stage and the opportunity to grab business away is something which is more interesting. And with tiny, little experiments with data, something that we're doing is well, I think it's the secret. The big challenge here is that really payments for banks has been ceded to a lot of the non-bank entrance. And we're really in the second cycle of disruption where the disruptors themselves are getting disrupted. So it's a very interesting landscape. It's one where we found that being a backbone to some of these newcomers is also something which allows us to participate even if indirectly. And if we keep the data and the data lake, how can we help understand, transform it and derive value from it? 

FBP: That's very insightful. Now in terms of where you are in that transformation, justifying making a business case for it is very important. Does it make it easier for a bank like AmBank in terms of ranking? Do you position yourself as a disrupter or challenger to the bigger banks? Does that make it more of a stronger business case? And how are you doing? Are you doing big bang or are you doing in phases?

VS: Definitely doing it in phases. Yes, there is also an advantage being midsized where you have less to lose, and you can afford to take a few chances. Yes, so you can present yourself as more easily being able to take a leaf out of the disruptor’s book, in terms of the strategies we can adopt. But to be honest, it's also a challenge in terms of the way we can build scale as a midsize player to be able to justify what we're trying to do to transform. Therefore, we necessarily have to be agile. We necessarily have to take it up in small chunks. So almost every transformation that we're doing on the whole digital landscape in the data area and the payments landscape is bite sized. It is agile, it's in small pieces based on a hypothesis, prove it and then take the next chunk.

FBP: I want to get back to Trirat of Siam Commercial Bank. You are one of the big four banks in terms of your dominance of the market as well as in payments itself. Do you have a different situation when it comes to building a business case for your retail payment new system implementation? Do you face similar issues and challenges and how do you go about the phasing of your payment transformation project?

TS: I think we are fortunate that during the PromptPay project the protocol has been changed into ISO 20022. So we use that requirement to revamp the whole payment infrastructure and we take that time to re-evaluate all the pain points that we have in our payment infrastructure. We didn't have that much challenge to get the budget required and get the sponsorship from all the senior executives and the board.

FBP: May we have a comment from Suriady of CTBC Indonesia in terms of how you’re approaching your payments transformation and innovation?

Suriady Wutan (SW): I would say that the Indonesian market is growing at the moment. But because of the pandemic we are moving to a touchless condition, meaning that we are avoiding to go to the bank and like that. So the payment application is much more needed at the moment here in Indonesia. But for each bank, it's a different case, their clients are different. Because they have maybe a big bank or a small bank, or a very captive bank like CTBC. At the moment, we are not only serving the Taiwanese client here in Indonesia, but also we are serving some of the local and SOE clients here in Indonesia. So our payment application at the moment is matching with the requirement of our client and also the market here. So I would say that maybe because of the case of each bank is different. And then we need to adjust with this kind of condition. But we have to follow the needs of each client here, because we see this is not only to support our third party funds, because they want to put the money with us, but also to show that our bank has the capability to meet  its clients’ needs for its funds. Again, you see the technology is number one needed for this one. Looking at the future where all the fintech company is already doing with the technology, so the bank must also follow this condition. So I would say that here in Indonesia, we are following the payment technology needed for this bank.

FBP: Now, Nathan, may I also call on you to comment? 

Nathan: We are at the corporate banking side and how we were able to tide over our customers’ requirements when it came to the recent lockdown that we had about mid of March. In RCBC, about six months before the pandemic happened, we had already digitised our corporate online banking enrolment forms, simply because we wanted our ability to enrol our customers in a nimble way. So that worked well for us. The time that the lockdown was initiated in the Philippines, there lot of our corporate customers who started inquiring on how they can shift from their cheque-based payments to electronic funds transfer. So we do have recent domestic transfer, PESONet and InstaPay, that's working wonders for our corporate clients. So we were able to help our customers get enrolled in no time. The influx of these queries, we were able to catch and we were able to fulfil our promise to digitise our customers. It's a combination of old and new customers. When I say old customers, they have been already poised to do domestic EFT (electronic fund transfer) transactions, but they never tried it simply because there wasn't any compelling reason to do so. So they just remained stuck to analog payments like cheques. But the big multinational companies were trying to cope with the situation on how to pay their vendors knowing that these multinational or conglomerate clients of ours are part of the essential industries to move about essentials that are necessary, like food, logistics companies and the like. So our experience in terms of coping and helping our customers get by and be comfortable using our online banking system work well. If I thought there's a success story to RCBC statistically in the first four months of the pandemic we're able to enrol about 500 to 600 of our corporate clients already. These are actually new clients. So we're very happy that we were able to catch the initial, second wave, third wave and it continued to sell on its own actually. Even the customers of ours who have been hesitant to go online, those conservative clients, we tell them, are you comfortable buying online or shopping online? And when they say yes, it's essentially the same thing when you enrol to our EFT.

FBP: The payment business is also becoming harder to make money from the float because of low margins. We have discussed how do players become challengers themselves, become disruptive, come up with new business model, come up with micro payments services, that you can earn a fee, introduce value added services through data that your payment infrastructure can provide you in order to make that business case to move on to a new payment system? How are you making that decision today in the payment space? How do you move on to a new system that can integrate some of the requirements across your different system?

AW: We tried to simplify the different types of the legacy payment system that we have into a simpler architecture here in Bank Mandiri. We see the increasing trends in e-commerce payment. And then we collaborate with those e-commerce players whereby we provide them with a facility. Mandiri customers, when transacting on those e-commerce platforms can use a facility, auto debit facility, embed in that e-commerce platform. That’s the user experience is easier for them. And then the other thing that gives us is more loyalty in terms of customer experience, not on the fee base income but rather more on the loyalty of the customers. But on the fee base from the payment side, we try to increase the number of our branchless banking agents, whereby we provide a system for these agents for them to be able to accept multi-payments for those unbanked customers, like payment for electricity, telcos, or even other stuff like multi finance loan payments. Whereby the fee, we split between us and the agents. So those agents in return, they were also happy because they get the additional fee for themselves. And other than we cannot tap those unbankable people, we leverage our branches agent to help us in tapping these markets. We already see quite a significant fraction of fee base coming from that. I think the challenge here is that this system that we have, require a good internet or telco common networks. While in Indonesia, we know the penetration of the internet is not one hundred percent yet. So especially on the rural side, there are still some areas that have no internet connections. But in those areas that we have internet connections, we try to penetrate the market using that. 

FBP: And, Dennis, how are you looking at your payment transformation, just making the business case for it? And also, how are you leveraging that to lower unit costs, making more of a profitable payment business out of it?

COVID-19 accelerated digital journey and collaboration between banks and fintechs  

DO: On our end from a transactional fee out of all those, naturally there’s not much margin, so actually even up to today Union Bank offers it for free, the InstaPay and PesoNet transactions. But with the volume you get a lot of the data, but where the money release is in the loans. What we were seeing is a lot of the fintechs actually try to generate a lot of transactions and get some transaction fee. It is proving not to be too sustainable because there's a lot of costs that have to be incurred with the increase in transactions, etc. But those that can mine the data, make use of the data and really, provide different types of appropriate loans for them, I think is the way to go. There are lots of new improvements that’s going come out, for example, for InstaPay. So there is now what they call InstaPay 2.0. We are one of the pilot banks doing it. So InstaPay was really more of fund transfer from one bank to another, and its zero costs. So that made it a bit difficult for the other fintechs actually, because they used to generate a transaction fee out of that. But when the bank says, bank to bank transfer is zero costs. So a lot of the fintechs had to like, where do we get the revenues, right? But now we're looking at InstaPay, not just for fund transfer but to do direct bills payment. During COVID-19 and because of the unemployment, a lot of people are going to online selling. Now how do they get payments? With this electronic payments coming in, like InstaPay 2.0, that's helping a lot. And what we're trying to do now is really help a lot of the online merchants through a very simplified process, allow them to accept payments, whether it's InstaPay, PesoNet, Visa, MasterCard, or even EFIs. We're getting a lot of traction there. With our technology company, UBX, we introduce what we call ‘Box’, that allows a lot of the online merchants to be onboarded, and we have lots of them in our ecosystem right now. 

FBP: This whole move towards greater digital payments, and also the BSP is moving the legislation for more digital only banks, now converting some of the rural banking licences to digital only banks licences. Now, going forward, how do you see that interplay between commercial banks and digital only banks? 

DO: So some of the big banks, they look at what the fintechs do, and their mentality is, I learned more about it, and I'll do it myself as I'm bigger and I have better resources, etc. Now UBP’s mentality is very different. And this is why we expose our API's. So all our capabilities, anything takes if you want to embed in your app, that is, capability to do bills, payment, fund, transfer, buy load, etc., it's there. Use it. Our belief is that the bank has a unique value. It's been there for many years. But we think the fintechs have a unique value as well. They're much focused, they focus on one thing, they act quickly and they can develop more quickly because of that. Our belief is to embrace that. And in our DNA, we call it Ubuntu we are cooperating, working together. So, when we work with fintechs, the statistics is that 85% of them will fail, only 15% will survive. Our mentality is we want to help them. We don't just give them the fish for the loan and expect them to pay, but teach them how to fish. Teach them how to survive, how to become competitive, how to become better. So we've created a platform for SMEs called Global linker it’s about 70,000. It's like the LinkedIn of the SMEs. And we're shouldering the cost, but they can sell their products to other SMEs. So were creating those ecosystems and platforms for them. Also we did a programme called Eureka. So there were lots of SMEs, they go to ask for loans, etc. And then we said, but you don't have internet presence, how can you even survive? So we created an online presence for them for free. So again, what I think what's more important is really the mentality. You really want prosperity inclusion, you want to really strengthen the middle economy, provide the financial services to the mass market. And the only way to do that is through technology. Bring down your cost to very minimal levels so that you can offer those services for them. 

FBP: How they are facing this whole move towards more digital payments, onboarding more customers, facing competition, and also opportunities are coming from e-commerce and fintech players. How do you see those developments?

MM: It's important to sort of understand how you can work with some of the more original fintechs. It's a matter of the role that we can play in the industry, and the 10,000 banks that are connected to the SWIFT network, is scale. We operate as a cooperative, many of the banks on this call actually own SWIFT. So there have been multiple investments over many years to provide this safe, reliable, highly trusted and scaled infrastructure across the globe. There's a lot of commentary on low value retail transaction, so we didn't quite get to the kind of cross border context of kind of linking up cross border payments into these instances. So that's something we're very focused on at the moment and helping the industry solve for standards, which are a real challenge for real-time screening as well. And then the last thing I would say is that we're quite pleased as we’re building out a new service, which is focused on low value payments. So here, we're talking about cross border payments that is less than $10,000 a transaction. And essentially, what we're trying to solve there is the upfront transparency and predictability of the experience that the customer can expect with the payment, and then also the fees that a customer will see as well. So we piloted this a couple of months ago, and we had banks joining all over the world to provide this more consistent, low value payment experience and what a customer of your financial institution will experience is that upfront presentation of the fees. Over time, you'll have a lot more understanding of how long payments paid before runtime foundationally on the SWIFT GPI service, that 70% of our SWIFT cross border payments around the world now running on SWIFT GPI, so they track end-to-end. So it uses all of that, to build out that low value payment service as well. 

FBP: Stephen, may we have some comments in terms of what you hear from some of the banks? Can you share your thoughts on some of the challenges in terms of getting to the starting low or some of this payment infrastructure transformation, justifying the cost and not finding viability and that or sustainable revenue for payment services?

SP: What I would advise banks is to make sure that they look at it as not just a cost component, not just fixing something that's broken or not just doing a compliance for compliance’s sake, but look at it strategically. What is the value of the payments to the business, and make sure that the investments in the payments transformation programme are lined in such a way that you're able to deliver revenues into the bank. And that be exposed by APIs and other capabilities, but make sure that you can build those additional revenues to support the business case. It's just about cost, it's not going get anywhere. But it also needs to be open and needs to be data and have all of those things really, because you just don't know that was coming in payments. What we've learned over the last 15 years is that the space transforms itself dramatically, and very quickly. So you need to be anticipating the unknown, let's say, and making sure that your architecture is able to support that.

FBP: I think we hear the same story everywhere. So we are no different. We face the same challenge. I think it's the matter of execution. 

CS: The payment landscape continues to evolve. I think COVID-19 has been a catalyst for a lot more digital transaction. Remote transactions also created a platform for greater collaboration. We see an example when Dennis mentioned that the number of digital transactions, for the first time in the Philippines, exceeded that of ATM transaction, this whole movement towards digital is clear to see. And it creates a new business model to work with a whole host of service provider, deliver a new customer experience. And traditionally, payment has always with a lot from the interest float part of the balance sheet. And with that growing margin, there is a need to look at more creative areas to identify revenue opportunities. And as Verinda shared with us developing the business case, for payments. Our transformation is also a case or identifying areas where they can identify and achieve incremental revenue. And that's what they have achieved. And also to look at payment as a competitive advantage to disrupt the incumbents to be challengers themselves. So as payments evolve. This quicker part of the business can be enabled by new infrastructure, new capabilities. As Michael from SWIFT mentioned that there are some of these capabilities that can be used as shared utilities that individual institutions do not need to reinvent and individually invest. How a lot of that service or capability in sanctions in AML can be shared across the industry. That are some of the opportunities available. It's also time that the industry look at opportunities to leverage beyond just cost for payments. This is a continuing conversation which we will have with the industry as we cover this. So, right now let me just thank Trirat, Chintan, Steven and Michael for your insights and for our guests who have given us your views for joining us today. And we hope that you have benefited from each other through sharing of experiences. 

I was quite happy to hear the views of all the participants today and clearly validates that we are all on the same page. All of us clearly see the opportunity, there is an opportunity in terms of the entire new age payment methods, whether it's domestic or cross border, and how we can timeline the value for our clients. So cutting normally is lost on the business case, everybody appreciates that and fully seize that opportunity, whether it's on the retail side, or on the corporate side of the business. Second, about business case validation. In my view, it's not about business case validation, because we all believe sooner or later, we need to be in it. You can't be out of an instant payment, or a cross border payment efficiency for low. The challenge is the prioritisation of the payment use case or whatever you will be covering from that point, as compared to other conflicting priorities at that point. We all have finite tech resources and we all have various regulatory and non-regulatory work. And within all of that, how do you prioritise and take some strategic developments is where the challenge for all of us is. I clearly see this to be a kind of medium term challenge. It's not short term, it's not 21. It's not 22, perhaps 21 to 45. But that's where the fun is. So quite excited to be in this space. 

FBP: Thank you, everyone for your insights. 

Keywords: Payment, Bank, Customers, Infrastructure, Cross Border Payments, Terms, Challenges, Real, Business, Services, Digital, Banking, System, Industry, Philippines, Clients, Market, Data, Indonesia, Malaysia


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