Exclusive: ‘Joining the dots’ – Medhy Souidi, DBS and Eli Shoshani, Bottomline in “The Paytech Magazine”
South East Asia is a diverse region in every respect: economically, politically, socially… and digitally. What it really needs is a pan-regional payment system, but what are the chances of that? Well, quite good, according to Eli Shoshani, Head of APAC at Bottomline, and Medhy Souidi, Head of FinTech, StartupXchange and Customer Development at DBS
With innovation hubs, most notably the rival fintech cities of Singapore and Hong Kong, already firmly established, South East Asia is fertile ground for banking 2.0. The market here is a rapidly evolving, if still fragmented, one. And the financial power centres are coming under increased pressure from third parties such as Thailand and Malaysia, desirous of a more active role in a region where local, regional and global banks already rub shoulders with fintech and blend status readily.
Where many of them meet is in the payments space – highlighted in McKinsey’s November 2020 report The Future Of Payments In Asia. It noted that the region already has the largest contribution to global payments revenue, generating more than $900billion in 2019 alone – or nearly half the global total. While the COVID-19 pandemic may have caused a temporary reset – McKinsey forecast a one to eight per cent payment revenues hit in 2020 – longer term fundamentals for the region bode well, with expectations of a ‘fairly rapid’ return to mid-to-high single digit annual growth and forecast annual revenues of $1trillion-plus by 2022/2023, the report said.
However, the post-COVID payments landscape will likely look very different – McKinsey identifying ‘five Cs’ indicative of change. Firstly, crossborder links, including more bilateral payment systems and possibly the emergence of a pan regional one – the million-dollar question being who will provide it. Then, consolidation, given there probably isn’t room for the sheer number of digital payment providers that have emerged. Contactless consumers are demanding an increasing focus on wallets and QR codes. Connected commerce – as competition drives down the cost of payments, providers, especially banks, need to find a way to monetise them, which goes beyond transaction fees. And, finally, cashless economies, as Asia leads the world league table in transactions that don’t rely on paper and coins.
For all these to progress, requires both an enabling payments infrastructure and forward-thinking regulatory environment – both of which Hong Kong and Singapore have worked hard to put in place, says Medhy Souidi, head of fintech, the StartupXchange and customer development at Singapore bank DBS, based in Hong Kong. He observes: “In Hong Kong and Singapore, we have highly efficient, diversified, and inclusive payment ecosystems right now, with fast payment solutions. So in Hong Kong, (under the Faster Payments System), you can pay in the blink of an eye, anytime, anywhere.”
As in Singapore, the aim is to drive the ecosystem to ‘something more digital, seamless, and also without friction ’for companies and customers’. In February this year, the Monetary Authority of Singapore gave major licensed non-bank financial institutions direct access to its domestic real-time payment system FAST (Fast and Secure Transfers) for the first time, as well as the overlaid PayNow central addressing service. That means consumers will be able to make real-time funds transfers between their bank accounts and e-wallets, instead of using cards for top up, and to push cash between e-wallets, which was not previously possible.
Staying competitive means pursuing innovation and collaboration like this, says Souidi. “So, for example, the HKMA (Hong Kong Monetary Authority) has pushed many banks to collaborate through different, interesting processes, such as data exchange between banks and the local market. We have also a blockchain platform named eTradeConnect, connecting banks with the People’s Bank of China, more specifically on the trade finance side.
“HKMA is very proactive in terms of supporting those companies with access to multi-currency and multi-dimensional platforms, to link the payment system to other countries,” he adds. “Unlike Europe, Asia is really fragmented; we have a lot of currencies, a lot of c entral banks and a lot of regulations, but all countries are pushing for a more collaborative approach.”
Previous efforts to develop a SEPA-style payments network, emulating the Single European Payments Area’s successful collaboration between multiple states, stalled for all the reasons Souidi lists. So what’s different today?
According to one report, Envisioning A Pan-Regional Real-Time Payments Ecosystem In South East Asia, emerging payment standards and new technologies now make such a network feasible. The global payments messaging standard ISO 20022, which will be adopted by SWIFT bank members – as well as local schemes including Singapore’s MEPS+, Hong Kong’s CHATS, and Australia’s RITS – in 2022, will be crucial in ensuring the interoperability of a South East Asia real-time, crossborder payments platform, as well as driving usage and participation, it says. ISO 20022 is important because it will allow more data to be attached tothe payment message itself, ensuring greater transparency in crossborder transactions.
“We believe, by 2025, most of the Asian markets will be ISO 20022 compliant,” agrees Eli Shoshani, head of APAC at Bottomline, which aims to makes complex business payments simple, smart and secure through a variety of software services, including secure financial messaging, to banking and other industries.
“Due to the fact that it’s a multi-cultural, multi-currency region, you must enrich the message in a much better way than when the old SWIFT messaging system, which was designed in the 70s, allowed us to do. The new XML format allows us, as a payments technology provider, to give more information to the client,” adds Shoshani.
Yet he is frustrated that, given the multiple players to have entered the payments market with some of the most advanced crossborder tech, including Visa B2B and Ripple, many customers should still have to put up with T+1 and T+2 payments. As Shoshani puts it: “Amazon Prime gives you same-day delivery and Amazon next-day delivery. So why can’t we deliver a payment instantly?”
Part of the answer lies in risk mitigation – a critical aspect of the payment process. “You need to secure the payment before it heads into a real-time network, because it’s irrevocable,” says Shoshani.
“At Bottomline, we provide tools to the banks, in order for them to secure it in a very simple, smart way, using AI.” To achieve real time in domestic payments is one thing, but in crossborder is another. Completing a transfer between Hong Kong and Singapore inside the same group, such as DBS, isn’t that tricky. “The difficulty is when your customer wants to do a crossborder payment, in different countries and with different regulatory entities,” says Souidi. That calls for greater collaboration.
“We have had meetings with the regulators in Hong Kong to discuss their new initiatives and how we can collaborate more, by bringing our expertise from other countries,” Souidi says. “For example, corporate identity or digital passes for customers that you have in Singapore, but not yet in Hong Kong.”
In this hugely diverse region, albeit one with valuable and well-established trading links (Asia accounts for more than a third of global trade in goods), politics is as influential as any technology. That’s particularly true when it comes to the presence of China, which prefers not to rely on SWIFT and runs its own payment systems on proprietary networks used for settling in renminbi and major foreign currencies. The country’s payment super apps, including the mighty Alipay, handle more transactions in a month than PayPal does in an entire year, and are now becoming active in Hong Kong. And the country has a keen interest in the development of central bank digital currencies (CBDCs).
Singapore has indicated it would collaborate with China over its multi-year multi-phase Project Ubin CBDC programme, which has involved JP Morgan in its most recent iteration. The aim is to explore the use of dist
ributed ledger technology (DLT) for the clearing and settlement of payments and securities. Hong Kong and Thailand’s central banks, meanwhile, have jointly developed a distributed ledger technology-based proof-of-concept prototype that will eventually enable the use of CBDCs to make payments between the two countries more efficient. American blockchain technology company ConsenSys, has been tasked with working on the second implementation phase of the project, along with PwC and Forms HK.
“How you can create an e-yuan, how you can create an e-Hong Kong dollar, or e-Singapore dollar in the future – these are really hot topics for banks right how,” says Souidi. “And we are looking at those specific new payment methods as something that is not only really challenging, but also really exciting.”
He and Shoshani need to be across all of the above trends, aware of the burgeoning technologies and shifting politics of Asia and trying to second guess the next move. “I see a very bright future for payment innovation in Asia, and the reason is that it’s moving very, very fast,” says Shoshani. “In the near future, we are no longer going to be talking only about physical currency, but digital currencies, and virtual currency.
“Even with a DLT platform, though, ISO 20022 will be the backbone. The right format will enable everybody to use a common language. Because if we’re not talking the same language, we won’t be able to communicate with each other. We need to build collective harmony between players – fortunately, that is what Bottomline does best.”