A panacea for Asia’s payment challenge?

Maybank’s Kalyani Nair and Eli Shoshani, from technology provider Bottomline, reveal how Asia’s approach to standardisation and interoperability is turning the tide for customer payments experience in the region

As multiple deadlines to comply approach, many minds are now becoming focussed on migrating to a protocol designed to make all types of transaction – domestic and cross-border – more open, efficient, faster, safer and ‘always on‘.

The use of ISO 20022, characterised by a data-rich messaging format, is also a key piece in the puzzle of ensuring international interoperability in a fast-moving world, where demands and expectations grow ever greater. Nowhere is that more so than in Asia, a region with a huge cross-border payment flow, many regulatory frameworks, and around 50 currencies in regular use.

So, what will these changes mean on the ground, for both payment service providers (PSPs) and their customers there?

Kalyani Nair, who is head of virtual banking and payments at Malaysia’s largest bank, Maybank, and Eli Shoshani, who heads up operations in Asia-Pacific for payments provider Bottomline, are both very familiar with a region that makes the largest global contribution to payments. Standing at US$900billion in 2019, it equates to nearly half of the world’s total global first by linking two national real-time retail payment schemes: Singapore’s PayNow and Thailand’s PromptPay (see page 68). Meanwhile, in Malaysia, a Real-time Retail Payment platform (RPP) has been developed to modernise the country’s payments infrastructure, creating an integrated ecosystem to drive digital adoption. DuitNow, an instant credit transfer service allowing users to transfer funds based on a mobile number or national ID, was the first RPP payment service to go live on the platform, in early 2019. Adoption of ISO 20022, from the outset, has been credited as pivotal in driving innovation and transaction volumes over the platform, including credit transfer, DuitNow’s QR code payments, and a range of digital overlay services. RPP, which is operated by PayNet, also benefits from standard connectivity between participants and the central hub, aiding seamless integration and onboarding as well as ongoing compliance.

“Things have changed dramatically,” Nair remarks. “If you look at the ASEAN market, about 38 per cent of the population is very young; the mobile/smartphone penetration is very high; and governments are pushing digital – you have different agencies in each country that are actively encouraging people to go cashless. “In Malaysia, the government was actually putting money into consumers’ mobile

payments, according to McKinsey’s November 2020 report The Future Of Payments In Asia. It highlights the efforts being made in the region to create a seamless, borderless payments ecosystem driven by digital innovation. Indeed, Nair notes that some ASEAN (Association of South East Asian Nations) countries, like Cambodia and the Philippines, ‘leapfrogged’ into mobile phone banking, bypassing the normal forerunner phase of using personal computers for internet banking.

As such, mobile technology remains hugely important as a means of payment, with increasing use of mobile wallets and a dramatic acceleration in the use of QR code payments, which, for Maybank alone, have grown more than 100 per cent year-on-year. All in all, it marks a significant shift for a region where, historically, cash has been king.

Meanwhile, Southeast Asia (SEA) is fast emerging as the centre of real-time, cross-border payments growth, with the use of ISO 20022 and QR codes critical components of that. As a backdrop to that, SEA’s internet economy is forecast to triple in size by 2025, to reach US$300billion, making it one of the fastest-growing digital economies globally.

Public and private organisations here drive innovation. For instance, the Monetary Authority of Singapore (MAS) and the Bank of Thailand (BOT) have just announced a

wallets to encourage them to use those, instead of physical cash.

“So, we have lots of incentive programmes designed to help, and I think that’s what really differentiates the ASEAN market from, say, the European market.”

Another key differentiator is that there is increasing demand in Asia for a borderless payments ecosystem.

Shoshani points to the fact that many people travel from one country to another for work, which forces banks to take action.

“For example, a lot of Filipinos are working in Singapore, a lot of Bangladeshis are working in Asian countries, so banks need to give them a vehicle for transferring money home in a very fast way,” he says. “They are not transferring millions of dollars – it’s often small amounts of $100 or less. That's why some operators like

Western Union and MoneyGram have been able to play a very strong game. However, banks that are looking to create new revenue need to realise that they too can use these rails themselves to facilitate cross-border transactions of low values, but high volume to all of the countries in Asia.”

Nair and Shoshani wholeheartedly agree with McKinsey’s analysis of Asia, which identified the ‘five Cs’ necessary to create a successful borderless payments ecosystem. They are: cross-border payment links, including more bi-lateral payment systems and possibly the emergence of a single pan-regional one; consolidation among payment providers; contactless payments, with an increasing customer focus on wallets and QR codes; connected commerce, including ways for providers to monetise payments beyond transaction fees; and cashless economies.

But both would add the need for standardisation across the region.

Nair says: “Even today, because we have banking relationships with key providers there, a Maybank customer from Malaysia can use his/her QR code in Singapore, because we tie up with some of the providers there. They understand the need to create such an interoperable mechanism for payments.

“To give another example, Maybank launched a virtual wallet, called MAE and what’s interesting about that is, if you were to take your wallet to a different country, you’d automatically see the wallet balance and the foreign exchange (FX) conversion rates available on your app in that country.

“Long gone are the days when banks hid behind FX rates. You have to be extremely transparent and the payment must be immediate, and it must be real-time, cheap and fast. To do these things, we have to make sure interconnectivity is friction-free for the consumer.”

Transparency is, of course, a fundamental element of the data-rich messaging provided by ISO 20022, and Shoshani stresses the need for banks and other financial institutions to be ready for what he calls a ‘generational change’, or run the very real risk of limiting their ability to do business.

“Local regulators and scheme operators – the Monetary Authority of Singapore (MAS), Malaysia’s only large value payment system (RENTAS), the central bank in Thailand (BOT), and the Hong Kong Monetary Authority (HKMA), for example – are driving standardisation across Asia, so money can be transferred in one format, whether you’re sending or receiving local payments, or cross-border payments.

“We believe it will be two to three years before everybody is ISO 20022 compliant. In the meantime, you need transformation layers to support your business. Without this, your ability to send information, and to enrich messages, becomes very limited.”

It helps that several market infrastructures have published translation tables to understand the difference between ISO 20022 and the messaging formats it’s replacing where organisations move through a like-for-like translation period, as will happen in Singapore. The risks and challenges involved in managing translation is something Bottomline is focussed on helping businesses meet, drawing from its previous experience in having helped corporates and banks transition smoothly to ISO 20022 elsewhere.

There are, of course, some major economies in the region already operating to the standard: both China and Japan’s real-time gross settlement systems already run on ISO 20022.

Nair sees the migration to ISO 20022 as a way of expanding markets and creating more value; using the advantages brought by the standard to work up new propositions for customers. She also suggests that what is developed on top of the payments rails for messages and transactions to travel over is of equal importance, and that is all about giving the customers more information and choice.

“I’ll give you an example,” she says. “A customer wants to send money to, say, the US or India. Today, at Maybank, we have SWIFT, Western Union and Visa Direct, and very soon one or two other payment options will come in. So, the payment rails are available, but how do you add value for the customer?”

Maybank’s answer to that is to provide a menu of choice for intelligent routing, much like selecting a postal service in the UK. Instead of options based on the size and weight of a package, how fast a customer wants it to get there and at what cost, Maybank customers can choose their

payment handlers, based on criteria such as execution time, cost and exchange rate. The underlying provider of those services is irrelevant to them; it is, in fact, a neat reversal of the disintermediation that alternative financial services providers are often said to threaten banks with.

“The customer does not understand SWIFT, Western Union, or Visa Direct,” says Nair. “These are all products that as banks we tend to put a lot of effort into promoting, but at Maybank we have removed that layer. On the internet banking channel, or mobile channel, we simply ask ‘where do you want to send the money and how much do you want to send?’ The moment we know the country and the amount, we are able to give them a comparison table. The customer sees for themselves how fast each option is, for what cost, and at what FX rate. Then they can make an informed decision.

“This brings a lot of transparency to that basic payment infrastructure layer.”

Looking into his crystal ball, Shoshani predicts that competition in the payments sector within the ASEAN region will only intensify, and has this advice for banks: “You will need to use the best technology, but let the experts provide you with it, rather than running it yourselves.

“You need to be focussed on what you can do to provide your clients with the best customer service, and where you can innovate (for example, on top of ISO 20022), because you’ll face competition in doing that from all of your peers.

“For example, Maybank is currently a leader in Malaysia, but I am sure that CIMB (Commerce International Merchant Bankers) and RHB Bank are pushing on its back, to make sure that they are not missing anything on the way.”

For her part, Nair forecasts an unquenchable thirst for innovation and interoperability between different countries in Asia to meet customer needs.

“We will also see better fraud management as the interoperability between countries increases, because that’s extremely important,” she adds. “As we create more friction-free, embedded financing, how we secure these transactions becomes even more of a challenge. It has to be transparent, it has to be fast, it has to be hassle-free, and yet it has to be safe.”

Or, put another way, the very essence of what ISO 20022 is aiming to achieve.

It allows customers of participating banks in Singapore and Thailand to be able to transfer funds of up to S$1,000 or THB25,000 daily across the two countries, simply by using a mobile phone number. The system alleviates the need for users to fill in information fields such as the recipient’s full name and bank account details, as is the norm in traditional remittance procedures.

Importantly, the link-up also enables funds to flow seamlessly and securely between customers’ accounts in Singapore and Thailand, mirroring how domestic PayNow and PromptPay transfers are made, with senders using their mobile banking or payment applications to initiate fund transfers at any time of the day.

The transactions are completed within a matter of minutes, a dramatic improvement on the average of one-to-two working days needed by most cross-border remittance solutions. And, in another move to meet the growing expectations of customers, the participating banks have committed to set their fees against the market so that they are affordably priced and transparently displayed, prior to the confirmation of any transfers. Users will also be able to view the applicable foreign exchange charges prior to sending their funds, with these rates benchmarked closely to prevailing market rates.

The PayNow-PromptPay linkage is a key collaboration under the ASEAN Payment Connectivity initiative that started in 2019, and closely aligns with efforts by the G20, the Financial Stability Board and other international standard-setting bodies to facilitate faster, cheaper, more inclusive and more transparent cross-border payment arrangements. MAS and BOT will progressively scale the PayNow-PromptPay linkage to include more participants, and extend the transfer limits in order to facilitate business transactions.

Announcing the partnership, Ravi Menon, MD of MAS, described the PayNow-PromptPay linkage as a pioneering effort.

“It shows that the existing payments infrastructure and the banking system have the potential to provide seamless cross-border payment options to retail customers. This is only the beginning. MAS’ shared objective with BOT is to work with our ASEAN counterparts to expand this bilateral linkage into a network of linked retail payment systems across ASEAN. With the rise of the digital economy, we want to empower individuals and businesses in the region with simple, swift and secure cross-border payments through just a few clicks on their mobile phones.”

Dr Sethaput Suthiwartnarueput, governor of BOT, promised further evolution in the ASEAN payments infrastructure, saying: “With the success of PromptPay, our domestic payment system, we have sought to enhance cross-border linkages with ASEAN and other countries and have launched our QR cross-border payment connectivity with Japan, Lao PDR, Cambodia and Vietnam.

“The PayNow-PromptPay linkage represents another key milestone in our digital payments journey. This service by the MAS and the BOT will effectively address customers’ longstanding pain points in the area of cross-border transfers and remittances, including long transaction times and high costs.

“Looking forward, the BOT will continue to promote innovation in cross-border payments and infrastructure, to strengthen financial integration for the sustained wellbeing of the country and the ASEAN region.”