A New Era in Payment Innovations

Eleanor Hill, Editor, TMI (EH): In what ways has Covid-19 impacted payments and how have corporate treasurers adapted? 

Atul Bhuchar (AB): The world is facing a health crisis and an economic one, resulting in a threat to both lives and livelihoods. At the same time, the pandemic has been an important catalyst for change, especially in the payments space. There has been a structural shift from the ‘before Covid’ [BC] world to the ‘after Covid’ [AC] era as consumers and businesses have embraced digital payments and e-commerce.

 Indeed, digital solutions have proven themselves vital for businesses’ fitness in the AC world. Bricks-and-mortar businesses have pivoted to e-channels to reach their customers. Meanwhile, sectors such as hospitality are rethinking their customer contact strategies in order to support business growth in a socially-distanced world. 

The key question is whether this change in behaviour is irreversible. Once clients experience the convenience of carrying out transactions digitally, they are unlikely to go back to manual processes. A recent McKinsey study revealed that 75% of people using digital channels for the first time said they will continue to do so when things return to normal.

All of this means that corporate treasurers are reassessing their payment and collection methods in order to adapt to digital business models. DBS has launched several plug-and-play digital solutions to help our corporate clients overcome the challenges of Covid-19. For small and medium-sized enterprises in the food and beverage industry in Singapore, these solutions include a branded e-menu with integrated shopping cart, order management, building digital presence, social media marketing from partners, and integration with our merchant collection solution, DBS Max. 

EH: How does this shift towards digital payments tie in to broader developments in payments in Asia and globally? 

AB: Even in the BC world, a lot of innovation was happening in the payments sphere. We have focused on making payments invisible by leveraging the 3i strategy – intelligent, integrated and instant payments. Here, I would highlight three important developments: real-time payments; the focus on customer experience; and the move from transactional to intelligent payments. 

Taking these in turn, let’s look at the impact of 24/7 instant payments becoming reality across markets globally. Treasurers no longer have to worry about cut-off times or bank holidays. Asia leads the world in adopting instant payments and we now have 24/7 domestic payments networks across Singapore, India, Thailand, Hong Kong, Vietnam, Malaysia, Australia and many more countries in the region. 

Business-to-consumer [B2C] flows have been the first to switch to instant payments, with government-to-consumer [G2C] and government-to-business [G2B] transactions following suit. Business-to-business [B2B] payments have taken longer to make the transition to real time, in part due to restrictive value limits in certain geographies, but momentum is now growing. 

The important point for treasurers is that instant payments can be a differentiator, especially with trends such as the rise of e-commerce, the gig economy, and the increasingly competitive labour market. Flexibility as to when gig economy workers are paid, and how quickly, is a competitive differentiator in this digital age. Instant payments also enable instant collections and at lower costs than traditional cards-based solutions, the benefits of which should not be overlooked – especially at a time when so many businesses require liquidity and cost savings. 

EH: Tell me more about the second trend you mentioned – the growing focus on customer experience. What’s happening and why is it relevant for treasury professionals? 

AB: It’s about ensuring the payments experience is simple, intuitive, and predictive. The end goal is to make payments invisible, by embedding them into clients’ ERP, TMS, and/or accounting platforms. As our clients expand across Asia and other regions, consistent experience and standardised solutions across markets remain vital. 

While the infrastructure catches up, banks like DBS have focused on enabling businesses to create ‘wow’ experiences by leveraging 24/7/365 payments powered by data and APIs [application progrmame interface.]. Take the example of a travel insurance firm. It could use flight delay data to automatically generate a reimbursement to impacted policy holders, without a claim even needing to be made. This results in a ‘wow’ experience for the policy holder, and an automated workflow for the insurer – all thanks to instant payments, coupled with data. 

EH: The third trend you identified is the evolution from transactional to intelligent payments. What exactly does this involve? 

AB: This is where the advisory piece fits in – which means leveraging the bank’s expertise to help clients find smarter ways of making payments. Take DBS Treasury Prism, for example, which is my personal favourite – I was part of the agile squad that built this solution. This is the first platform in the world offering online simulation and advisory for cash management and treasury. Through Treasury Prism we can look at a client’s current practices for payments and cash management and provide scores. Treasury Prism then recommends cheaper, faster and intelligent solutions to our clients, with different optimisation scores for each solution, and overlays this with regulatory and tax information for each market. Example recommendations might be to consolidate payments; switch to more efficient payment-types – faster and low-cost ones; establish a payments factory or shared service centre; embrace on-behalf-of structures; or commence netting etc. We are aiming to auto-execute across different payment-rails in line with parameters defined by the corporate. Clients now need ‘anytime, anywhere’ payments – they want the bank to understand their business rules and then leave it to the bank to determine the optimal payments rail. 

EH: You mentioned the fact that Asia is leading the way in instant payments. What do you see as the unique payments challenges for the region and how might these be addressed? 

AB: Asia is emerging as the epicentre of economic growth, innovation and digital payments. But its geographic size and diversity create some challenges. The first is friction in cross-border payments in most Asian markets due to exchange controls – not just for outgoing payments, but for incoming payments too. 

To assist in overcoming this challenge, we launched DBS DigiDocs for businesses in China, India, Vietnam, Indonesia and Taiwan. This end-to-end digital solution enables clients to transmit payments along with regulatory information to the bank, powered by automated back-office processing leveraging on intelligent process automation [IPA] and downstream interfaces with customs and other authorities. This results in higher velocity of payments and improved cash flows with faster receipt of incoming funds. 

Interoperability between cross-border and domestic instant payments is also a challenge. Only a handful of markets globally allow cross-border payments to be routed into instant payments schemes. DBS is driving this change with regulators, which have largely been supportive, as well as with SWIFT, a key catalyst. In Singapore, DBS leads the Standards working group of banks for cross-border payments interoperability with FAST [Fast And Secure Transfers]. The Singapore trial was conducted last year and the final regulatory framework is nearing completion. DBS participated in similar SWIFT trials with instant payments in Australia and UK. 

Another key challenge in the Asian payments market is making the switch from physical cash and cheques to digital payments. There are obvious benefits to making this shift – such as sustainability benefits, reduced fraud risk, lower costs and improved reconciliation. In 2019, 84.6 million cheques cleared in Hong Kong and 46.5 million cheques in Singapore, translating to a carbon footprint of 2.2 million kg of CO2. The ‘Go Digital’ opportunity in these two markets alone will save 22,000 trees per annum. This opportunity is even greater in high cheque-volume markets such as India, Malaysia and the Philippines. A Monetary Authority of Singapore [MAS] study has estimated that the social costs of cash and cheques is around 0.5% of GDP. 

EH: Speaking of shifts in the market, in what ways is blockchain impacting payments? Or is it too early, from a treasury perspective, to make much noise? 

AB: Blockchain is being viewed as being a disruptor for payments similar to SpaceX for interstellar travel. On the other hand, sceptics view it as a solution looking for a problem. My view is that this potential game-changer is a work in progress. It’s a classic example of Amara’s law: we tend to overestimate the effect of technology in the short run and underestimate the effect in the long run. 

There are a number of interesting developments in the payments sphere that leverage blockchain or distributed ledger technology [DLT]. Digital currencies, stablecoins, central bank digital currencies [CBDCs], digital tokens etc are no longer buzzwords. Central banks have been catalysts for global developments in this space. These include China’s Digital Currency Electronic Payments, Project Ubin in Singapore, Project Stella between the Bank of Japan and the European Central Bank, and Project Bakong in Cambodia. There are many other initiatives underway worldwide, including those from banks and private players. 

To give an idea of the level of innovation happening, let’s focus on Project Ubin for a moment. This is an industry collaboration, led by the MAS, focused on wholesale payments and securities. It began back in 2016 and the fifth phase was recently completed –DBS has been closely involved since inception. 

Phase one focused on Proof of Concept [PoC] for tokenisation of Singapore dollar [SGD] to create a digital SGD. Phase two concentrated on domestic RTGS [real-time gross settlement] payments across three blockchain platforms, while the following phase worked on payments interoperability with securities. Cross-border payments were the focus of phase four, and the MAS worked with Bank of Canada and Bank of England. Phase five involved multi-currency offshore clearing with digital currencies. In Phase five, Project Ubin moved from PoC to PoV [Proof of Value], with more than 40 banks and non-banks engaged and 16 use cases covered. 

Some customer value propositions of digital currencies are programmability, instant turnaround, certainty, traceability, transparency, lower cost, and decentralisation. These translate into two categories of use cases: those focused on industry infrastructure, for example delivery versus payment (DvP) for securities settlement, bond issuances and servicing, syndicated loans and cross-border payments; and those focused on businesses, for example conditional payments, escrows, and many more. 

In the broader payments ecosystem, blockchain-based payments will require interoperability between DLT platforms and with traditional payment-rails. 

EH: Are there other technologies to watch in the payments space, alongside blockchain? 

AB: There are a host of new technologies at different stages of adoption for payments. The internet of things [IoT] is an important one, especially with the advent of 5G. DBS is piloting a radio-based communication network on an experimental basis, using 5G connectivity in Singapore. We believe that IoT will drive next-generation use cases for payments. These include connected cars, smart fridges, temperature-sensors based pricing of goods, medical devices, inventory-based financing –across goods in the warehouse, tracing of goods, data of logistics providers and warehouse managers. Actually, this is the internet of payments. 

EH: How else is DBS innovating in the payments space? 

AB: Our clients demand solutions that create a competitive advantage for their business. Speed and time-to-market is the currency of success. So we strive to pioneer digital solutions focused on the customer’s job-to-be-done and to be the first to provide these differentiators to our clients. 

An example is Priority Pay, which enables instant cross-border payments between DBS accounts across eight markets. DBS clients take this for granted as we launched this a few years back. But when they ask their other banks – they are surprised that only a handful of banks globally can do this. 

There are many other examples I could give you. Our no-deduct, borderless payments solution, which works across 120-plus currencies, has proven very popular with clients wanting a low-cost way to make a payment for an exact amount to beneficiaries. This is live for DBS clients in Singapore, Hong Kong and China and is powered by APIs [application programming interfaces]. 

We are focused on leading the instant payments revolution in Asia. DBS was the first bank to launch instant 24/7 API-powered payments and collections in Singapore and Hong Kong, and host-to-host and internet-banking from the start; and the first foreign bank in Taiwan to launch instant 24/7 eACH payments. 

A key launch that our clients are really excited about is online tracking of cross-border collections. When we launched online tracking for cross-border payments two and a half years ago, we were the first bank to do so in Asia. Our clients liked this as it reduced servicing effort in the case of non-receipt of payments by beneficiaries. But what they really wanted was for this to be available for cross-border collections. Since then, we have worked closely with SWIFT teams on this key capability and DBS corporate clients will track incoming payments on a real-time basis, on our e-banking platform IDEAL, from the moment the remitting bank initiates the payment. Once again, we will be the first bank in Asia to launch this online capability, and we will make it available across our core markets. 

The payments innovations’ track-record resulted in 3.8% year-over-year [Jan-Jul 2020 vs Jan-Jul 2019] growth in DBS market share of SWIFT cross-border payment volumes across six of our core markets. 

EH: Finally, what is your best advice for treasurers wanting to stay on top of payments innovation? 

AB: As the saying goes in ice hockey, ‘skate to where the puck is going, not where it has been’. This is applicable to businesses too. The payments landscape is transforming rapidly, with unprecedented changes driven by new technologies, regulations/deregulations, customers and banks. 

As such, it is important to focus on the battleground of tomorrow, not just of today. Treasurers can do this by keeping abreast of both what’s new and what’s coming and working with their banks to leverage these trends to build differentiators, create efficiencies and reduce costs. 

The payments space is no longer just the ‘plumbing’ of the financial world. It has become a catalyst for disruption and the creator of competitive advantage for businesses.  

This article was first published by TMI in Sep 2020. 

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