A world view: Asia

Economies around the world are witnessing a rapid change in the way that consumers can make payments. This is no more so than in Asia, where the speed of changing consumer behaviour, boosted by advances in technology together with a willingness to try new payment channels, have supercharged the payments environment. 

Government action has also enabled this change, with countries such as India enabling digital identities for all citizens – transforming the lives of the previously unbanked or underbanked. 

So, what lessons can corporates learn – irrespective of whether they have operations in the region or not?

Five key lessons 

1. Don’t assume the pace of change around the world is the same as your home territory. Use local experts to ensure you remain abreast of local developments
2. One-size-fits-all cash management solutions may no longer work. Differing geographic trends, coupled with distinct client demographic differences, may dictate differing treasury approaches
3. Consumers tend to be faster adopters of technology than corporates, this will sometimes require treasury teams to react quickly
4. Real-time settlement is being enabled through payment schemes globally, this again impacts approaches to treasury, particularly as central banks move to connect domestic schemes across borders outside the SWIFT network
5. With the aforementioned increase in real-time payment systems, this could have significant implications for liquidity management 24/7 in certain industries.

Focus on India

India provides a good example of the scale of transformation in how business can be transacted when technology developments deliver paradigm shifts rather than an evolving business landscape.

Over the past five years, the country has experienced a rapid move towards digitalisation in its payments ecosystem. The drivers of this change can be summed up through the acronym JAM – Jan Dhan, Aadhaar and Mobile. These three drivers have combined to produce an ecosystem that is rapidly altering the landscape for retail payments and forcing retail companies to reassess their collections and payments activity. 

The Jan Dhan policy saw the creation of 500 million bank accounts that now allow individuals to receive government subsidies and benefit payments digitally, tackling the issue of the high number of ‘unbanked’ individuals. For many, this will have been the first time they will have received payments in any form other than cash. But this could only have been achieved through an identity system.

Aadhaar provided such an identity system – over the last decade some 1.3 billion Aadhaar identities, the equivalent of a social security number, have been issued. These identities capture biometric details and digital identities, helping individuals to open bank accounts. The incentive is clear – without an Aadhaar number, it is not possible to open an account. And without an account, it is not possible to receive benefits.

The third part of this revolution has come in the form of mobile internet – through a smart phone, individuals are able to access the internet, which then opens up access to digital banking, e-commerce and the e-verification of personal identities. It is no surprise that there are now some 800 million mobile internet users in the country.

The mobile payment revolution is also being driven by UPI (the unified payment interface), which allows person-to-person payments through the use of QR codes. Businesses are able to accept payments using this interface, avoiding relatively expensive credit card transaction fees.

Today, UPI can be used to buy practically everything – shopping at a retail store, e-commerce, fuel, buying a sandwich, paying bills, or transferring money to family and friends. The government-owned National Payments Corporation of India (NPCI) has since added additional features such as an offline wallet, voice-based payments, and auto-pay for bill payments.

In order to create a competitor to the two main international card schemes – Visa and Mastercard – the NPCI has created RuPay as an alternative and much cheaper alternative. As of March 2021, the market share of RuPay in India was at 34% by volume of transactions and at 30% by value. 

Corporate impact

This rapid digitisation seen in individual payments is now being replicated in the corporate cash management sphere as the greater use of digital payments is removing the need to handle large amounts of physical cash. 

At the same time, treasurers are adapting to real-time payment requirements. There are three payment rails in India – RTGS for high-value payments, NEFT for low value, and IMPS for small-value immediate payments. Three years ago, the Indian central bank amended the operating hours for RTGS so that it operated 24/7, while at the same time introducing an end-of-day regime that penalised companies if they failed to credit client accounts within set time limits.

The move to 24/7 payments for RTGS has impacted how treasurers manage liquidity. In theory, it can result in treasury teams being available 24/7 to deal with any incoming funds. Some may leave the funds in low-yielding accounts, others may contact financial institutions, and during these extended periods they may require these institutions to have staff available to deal with the investment needs of their clients. 

Other ancillary activities are also experiencing changes. For example, banks that lend more than 10% now have to self-certify how the proceeds have been applied. This increases the level of risk for lenders and for corporates, and it reduces the choice of payment bank.

Multinational companies (MNCs) will be mindful of KYC requirements when opening a new business account in the country – this process is becoming easier as the government in India is becoming more joined up with its central repository of corporate information, the Ministry of Corporate Affairs, that is available to establish corporate identities.

 Treasurers need to leverage on the infrastructure available for ease of doing business in India and take advantage of some of the payment ecosystems to enable their faster, immediate and real-time payments along with yields on liquidity.  

Future developments

India is just one example of how technology, regulation and consumer behaviour are combining to revolutionise the payments environment. Fintechs and banks are working alongside each other to optimise processes, such as enabling data generated in a corporate ERP system to work seamlessly with payment systems and improve cash management processes. This will offer greater efficiencies and lower levels of manual intervention.

Payment files are becoming standardised so that it becomes easier to switch payment providers, while automation is enabling a greater use of straight-through processes.

As such, treasurers will be looking at service levels when deciding which bank to use as their payment service provider.

Summary

Across the region, corporate treasurers need to develop a flexible mindset and recognise the need to understand the nuanced differences between payment systems from one country to another. The pace of change will be such that this flexibility will become increasingly important as treasurers look to tailor their payment processes to fit the ever-changing needs of the markets (and their consumers) in which they operate.

As Sanjay Durante, Head of Payments and Cash Management Sales for Barclays in the Asia Pacific and Middle East regions, says: “Treasurers need to leverage on the infrastructure available for ease of doing business in India and take advantage of some of the payment ecosystems to enable their faster, immediate and real-time payments along with yields on liquidity.”

That, perhaps, is the key lesson.