Wednesday 02 October 2019

As corporate treasurers embark on digitisation, banks are playing a key role in creating secure and well-regulated real-time payments ecosystems.


From China to India, real-time digital payments are rapidly replacing cash- and paper-based transactions across Asia Pacific. Cashless transactions in the region are expected to grow at an annual average rate of 28.8% from 2016 to 2021, more than double the projected global increase of 12.7%. This requires corporate treasury and finance teams to become more agile, manage their operations on a near real-time basis and navigate through the changing payments landscape with banks as their key partners. Banks can also play a major role – which BNP Paribas has done with its partnership with China's LianLian Pay in April 2019.
 
What is driving the change and how are e-payments affecting businesses? How can corporate treasurers adapt to the new ecosystem and harness the potential of digitisation to support business growth? And how can banks support corporates in this journey?

Key factors revolutionising payments

The changes sweeping across Asia Pacific are primarily driven by proactive regulators, the rise of payment companies, technological advancements in finance and consumer behaviour at large.

Real-time clearing systems implemented by Asian central banks and clearing houses have facilitated aggressive developments. Reliable payment systems such as Immediate Payment Service (IMPS) and Unified Payments Interface (UPI) in India, Real-time Retail Payments Platform (RPP) in Malaysia, PromptPay in Thailand, Fast And Secure Transfers (FAST) in Singapore and Faster Payment System (FPS) in Hong Kong are some examples of payment systems that developed under the supervision of the respective monetary authorities. Singapore counts among countries taking the lead in supporting the development of digital ecosystems and digital-only banks.

" Real-time digital payments are rapidly replacing cash and paper-based transactions across Asia Pacific. Cashless transactions in the region are expected to grow at an annual average of 28.8% from 2016 to 2021"
Alternative payment methods such as e-wallets have created a cashless society in China, with Alipay and WeChat Pay being the dominant players. These payment companies are now expanding into Southeast Asia and India and competing with a host of local and international players. Global firms like TransferWise and Earthport are also entering the region with an eye on developing cross-border payments.

Technology has had a big impact on finance and businesses, with new applications continuing to emerge. For example, while Application Program Interface (API) is not a new technology, its use in treasury and finance functions is starting to pick up. Its use by companies like Google and Apple in improving the consumer experience has paved the way for its use in building ecosystems linking Treasury Management Systems (TMS) with Enterprise Resource Planning (ERP) platforms, banks, payment companies and supply chain management systems.
 

How technology is influencing consumers and businesses

Dramatic changes in technology and emergence of e-commerce have influenced consumer behaviour and set off a chain reaction in how businesses engage and serve clients. The ease of finding and paying for products online has drawn consumers to e-commerce and away from physical stores, prompting companies like Alibaba and JD.com to develop supporting supply-chain and logistics networks and become market leaders in China. We see the same phenomenon with global companies like Amazon, which is increasing its footprint beyond the US into Europe, India, Japan, Australia and Southeast Asia.

Even more exciting developments are underway in India where corporates are looking to build ecosystems to facilitate e-commerce independent of large online marketplaces like Amazon and home-grown Flipkart. In doing so, they seek to go beyond first-generation e-commerce by enabling a business-to-business (B2B), B2smallB and business-to-consumer (B2C) ecosystems to facilitate direct dealing for after sales support, like spare part supplies. Such a development has several advantages: it helps the manufacturer of the product maintain less inventory of spare parts, it allows better and transparent pricing mechanism for after sales service, while at the same time it allows the manufacturer to control the quality of interaction between its customers and suppliers, thus preserving the client experience.
 

How can corporate treasurers best adapt?

Corporate treasurers recognise the need to adapt to the continually evolving payments ecosystem and its impact on the business operations they support. However, seizing the opportunities presented by new technologies isn't straightforward as treasurers must not only minimise time and cost to market, but also overcome a host of challenges such as managing operational risks, fraud prevention and liquidity management in the face of various limitations imposed on these functions by the new payment channels.

A FOUR-PRONGED APPROACH
A four-pronged approach could be the most effective way to engineer change while staying focused on managing day-to-day treasury operations and business needs:
  1. Prioritise: Focus on big wins where the company can deliver maximum value for its business and clients. This would be typically in the corporate's larger markets. Tackling a bigger opportunity will produce better value and provide confidence to expand. Also consider prioritising markets that are ready to accept new concepts.
  2. Co-create: Partner with next generation technology companies to build an ecosystem where legacy and modern platforms can coexist, and to speed up commercialisation and time to market.
  3. Governance: Emphasise governance and risk management of new ecosystems
  4. Security: Make fraud management and internet security a key consideration. Use data intelligence to minimise fraud

How can banks support corporates in digital transformation?

Our recent conversations with treasurers at leading corporates operating in Asia Pacific revealed that despite the proliferation of e-payments, they still consider banks more trustworthy than financial technology (fintech) firms and payment providers. In fact, "corporates are looking to banks to help create and co-create effective solutions and work with them through their digital transformation process," said Mahesh Kini, Head of Cash Management, Asia Pacific, BNP Paribas.
 
Banks have an important role in ensuring regulatory compliance, providing clearing infrastructure and forging partnerships with technology companies to develop a safe and secure payments environment that provides the convenience demanded by consumers. Here are four important ways in which banks with a digital mindset can help corporates:

  • Investing in new generation payment solutions will enable banks to directly integrate with real-time payment systems and bring value to corporates.
  • Partnering nimble fintech firms as well as Big Techs such as Google, Apple, Amazon and Facebook will equip banks to co-create solutions tailored to changing business models. Banks' experience in conducting due diligence will be crucial in determining the scalability and sustainability of fintechs as new partners.
  • Facilitating the e-payments ecosystem by providing platforms that fulfil country and market-specific financial obligations arising from e-commerce transactions.
  • Establishing governance and control mechanisms. Being highly regulated entities, banks offer rich experience in building mechanisms to enforce stringent security and risk-management standards required to fulfil regulatory requirements around the world.

And BNP Paribas?

With this in mind, BNP Paribas' Cash Management Fintech Lab has surveyed more than 250 fintech firms that offer solutions for corporate treasurers across their operational spectrum with the aim of identifying the right partners to collaborate with, to co-create with, and to invest in.

Corporates are looking to banks to help create and co-create effective solutions and work with them through their digital transformation process
From this extensive analysis BNP Paribas entered into an agreement with LianLian Pay in April 2019 to provide an integrated collections solution for e-commerce businesses in China. The solution streamlines the collections process by consolidating online sales and offline mobile collections onto a single platform. With China's cashless payments expected to reach $45 trillion by 2021 and continuing to grow, consumers, sellers and suppliers are increasingly asking for safer, faster and more reliable platform technology which can also connect them to a global financial network.



Mahesh Kini
Head of Cash Management, Asia Pacific at BNP Paribas
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