Asian Payments Landscape Seeks Harmonisation
In contrast to the European banking sector that has recently seen the introduction of a harmonised payments market, Asia is a far more diverse region with close to 50 individual payments systems operating in more than 20 markets. However, as the main Asian economies continue to grow and payment transaction volumes rise, the region’s banks are looking at how they can both take advantage of this growth and become more efficient.
In order to support the region’s rapidly expanding economies and rising transaction volumes, there is a general consensus that Asia-Pacific needs to address its individual in-country inefficiencies that continue to persist in the payments infrastructure. In particular, there is a growing need to rationalise payments infrastructures and seek out cost-effective payments solutions. At present, however, many banks in the region are dealing with multiple, disparate systems, a host of different technologies, complex integration and interfacing and manual processes that make banks’ operational systems difficult to maintain and support.
While levels of maturity between countries differ there is, generally speaking, still an over reliance on paper-based instruments across the Asia-Pacific region. For example, while European counterparts are discussing the elimination of cheques, they are still a widely used method of payment for banks across Asia-Pacific, resulting in inefficiencies and delays in processing and payment authorisations between the bank branches or subsidiaries and head office.
While banks that focus on single or their domestic markets still rely on hardcopy-based payment initiation, it is those expanding into new markets that have begun to shift away from these old processes to more modern systems. As a result, certain banks in the Asia-Pacific region are looking for platforms that enable them to enhance information streams – as banking infrastructures change in the region, so too must payment platforms.
In order to ensure operational efficiencies, modern payments processes and platform infrastructures are key. First of all, from a bank’s point of view, these should be centred around standardisation, aligning payment services on a common services landscape and semantic standards. This is already promoted by likes of the Banking Industry Architecture Network (BIAN) through a service-oriented architecture (SOA) that facilitates a variety of deployment and data access options, enabling a seamless integration of new payment infrastructures and channels in the future.
Furthermore, as the global banking landscape changes, new regulatory developments evolve, and flexibility in payment systems and infrastructure is key for Asia-Pacific banks to comply with the latest regulations and create operational efficiencies in the coming years.
One example of a forward thinking payments system in the region comes from Malaysia where the system is based around the software-as-a-service (SaaS) model. Long a buzz word in the global IT industry, and with a growing awareness of the advantages of an on-demand, subscription-based software provisioning model building, IDC estimates that deployment of the SaaS model in the Asia-Pacific region expanded 18% to hit US$298m in 2009, growing six times faster than the overall software market. Driven by a desire to reduce paper-based payments and promote efficiency through e-processing, a Malaysian e-payments company has introduced a multi-bank, multi-corporate agency system, based on the SaaS model, for the efficient processing of payroll.
As a result, efficiencies were realised through the standardisation of workflows and file formats and by cutting the amount of links in the chain. The implementation enabled payments to be processed directly from the corporate to facilitate salary and government mandated Employee Provident Fund (EPF) payments. Previously, two separate payments had to be set up, one to the government agency for EPFs and one to the corporate to process its staff payments. Since its inception in 2004, the model has gained significant traction in the country, with six banks having adopted the model to date. With a SaaS delivery model, banks can not only avoid the peak in expenditure associated with the set-up of large IT projects but also benefit from a ‘hands-free’ approach to IT, allowing them to focus efforts on product innovation and customer service – a key differentiator in today’s market.
As banks in the region look to review their payments IT infrastructure for efficiencies, they are also searching for opportunities for expansion and growth. China to one side, it is banks from countries such as Singapore and Australia, as well as the top two to three banks in Malaysia in particular, that are focusing on expanding regionally and across borders. However, as they do so, there are two main issues to consider:
Singapore, for example, is considered a financial centre on the worldwide stage, and Thailand, the Philippines and Malaysia also have a reasonably established industry. Vietnam, Cambodia and Laos, however, have less regulated international banking practices and standards.
These disparities in banking practices and IT infrastructure from country to country are also due to the fact that customers require different types of services and products as a result of differences in the level of ‘sophistication’ of each group of customers.
A further challenge is that, as banks expand across borders, regulatory requirements become even more complicated. Banking regulation and rules on data security in Asia tend to be domestic by nature, as do the payment mechanisms. This means that banks may have to follow different rules of operation in different countries without a common standard being set. This might have a knock-on effect on the types of payment systems banks have to implement and invest in. As banks expand, they must also make decisions about what services can be centralised versus those that need to remain in-country. As such, banks require a flexible banking system which allows them to service different customers segments, supports local regulations and offers the flexibility to retain certain services centrally while moving others to the local level.
As banks in Asia look to both refresh their payments IT infrastructure and plan for future growth, they will need to make a decision on whether to modernise their existing technologies in line with today’s market demands or to modernise with an eye on what infrastructure will be required to support the business in the long-term to gain the most cost efficiencies. An IT architecture based on an SOA approach will help banks to improve their systems in line with current market requirements while also providing the flexibility for updates and changes to be made in the long-term.
Retail banking and payments have undoubtedly been growing in the Asia-Pacific region, although not at the levels of most developed markets. The lack of standards for a common set of infrastructure and payment systems needs to be addressed to encourage further growth. It is only when domestic payments systems in Asia reach a certain level of efficiency and sophistication that the region can look at expanding these systems across borders, reaching out to neighbouring markets for bilateral clearing mechanisms and promoting business and trade relations.