Payments at the edge: APAC on the rise – Deutsche Bank

May 2018

Given the rapid pace of innovation in payments in Asia-Pacific (APAC), what are the key trends that might affect global corporates? GTB’s Head of Cash Products and Client Connectivity for APAC, Chintan Shah and Digital expert, Marie-Caroline (Sunday) Domingo report on the pace of change in APAC and the current status of digital payments.

In Asia Pacific, there is a clear direction towards faster and real-time settlements as well as more e-settlement solutions (e-tax, e-bill payments), primarily driven by government regulators. Electronic payments are the starting point for many regulators’ national digital agendas, as they are relevant to the daily life of individuals and businesses. Regulatory developments, combined with emerging technologies and changing customer behaviour is driving an explosive growth of digitalization in the region.

So how can you make the most of these opportunities for your business? For corporate treasurers, it is important to separate out the noise and focus on what is most relevant and has the potential to be most impactful on your forward business strategy.

Instant Payments and APIs

We have seen announcements about the launch of Instant Payments across a number of countries (i.e. India, Sri Lanka, Singapore, Malaysia, Hong Kong) in APAC over the last 24 months. The continued roll-out of instant payment systems in countries around the world can be a game-changer for corporate clients across B2B and B2C companies. One potential benefit to treasurers will be real-time access to cash flow information, especially with a view on receivables status as well as liquidity forecasting.

Deutsche Bank in Asia is already live with instant payment schemes in Singapore (launched in 2014) and Sri Lanka (live since 2017), and is helping to shape these initiatives in order to investigate the potential benefits for our customers. The FAST scheme in Singapore was primarily launched to drive the move of cheques into electronic payments. However, real-time payment models that provide day-long connectivity have practical and operational implications for corporate treasuries, who today may not be geared towards a 24/7 funding model. This will also require changes in the way treasuries operate and have an impact on related functions and activities, for example making investment options operationally supported and available around the clock.

The use of open application programming interfaces (APIs), creating a new interaction model between corporates and banks, are seen as a catalyst for new platform business models around the world, with regulations such as the Second Payments Directive (PSD2) forcing the pace in Europe.

In Asia, India is a driving force in establishing this new platform economy. The new digital infrastructure is built upon the “India Stack” - a set of APIs that allows governments, businesses, start-ups and developers to utilise a foundational set of digital services – seen as a front-runner initiative in this space that will promote the country’s move towards a paperless and cashless economy.

Equally in India, we have already seen a number of corporates looking into API connectivity with banking providers in order to get access to real-time services now possible with the introduction of new instant payment schemes such as UPI (Unified Payment Interface).

India UPI is a key strategy focus for Deutsche Bank Global Transaction Banking in the region (read more about Deutsche Bank in India in this recent flow article). The bank has successfully completed a proof of concept in leveraging APIs to trigger a UPI payment message on a real-time basis.

At Deutsche Bank, we are working with clients on several use-cases leveraging UPI that would provide competitive edge to our clients. Some of them to note are real-time refund of e-commerce sales for returned transactions, real-time loan disbursements or collect request for NBFIs, real-time settlements for insurance claims, etc.

However, the possibilities for APIs are far more extensive and as open banking matures over the next 12-18 months, forward-thinking corporates should consider how these technologies might deliver significant cost efficiencies or even unlock new revenue pockets.

The rise of e-wallets

While China has not introduced a real-time payment scheme, we have instead seen the widespread adoption of mobile payments. Within only four years, cash has virtually disappeared from urban areas.

China's third-party mobile payment market – including Alipay and WeChat Pay – expanded 27.9 percent quarter on quarter in the fourth quarter of 2017 with payment transactions totalling 37.7 trillion yuan (US$6trn), according to market research firm Analysys International. In addition to basic mobile payments, both now offer a range of solutions including wealth management, QR codes, taxi ordering, utility bill payments and so on. Even buskers in China now use QR codes featured on card-boards so that passers-by can donate electronically.

In APAC, people are increasingly choosing to work for themselves and technology is enabling this. More than half of talent (65%) and hiring managers say that the gig economy is rapidly becoming the new normal for how businesses work, and 84% of talent managers hire or use gig workers, more than anywhere else in the world, according to research conducted by KellyOCG, a global workforce solutions provider.

To strengthen oversight of mobile payments, the People’s Bank of China (PBoC) is introducing a new clearing platform, Nets Union Clearing Corp (NUCC) that can facilitate payment settlement across banks, Alipay, and WeChat Pay by June 2018.

At Deutsche Bank, we are currently working with two dominant mobile wallet providers on developing solutions which will broaden our disbursement capabilities and allow us over the next months to start making local and cross border payments into e-wallets. The next step will be to look at collections from mobile wallets.

As global corporates expand their business and grow their customer and supply chain in China, there is an emerging need to facilitate payments into and collection from AliPay and WeChat Pay in China. This is particularly relevant for corporates with B2C flows such as the FMCG segment.

With the growth of e-commerce, legacy distribution channels may no longer be an advantage and there is a levelling of the playing field between global and local players. We have seen news about companies such as Unilever setting up shop in e-commerce platforms, such as Lazada. For such brands – they get access to the traffic generated by the marketplace and take advantage of the new path-to-purchase that has fundamentally changed in the digital age. This shift to a new distribution channel also necessitates that these corporates get access to new, alternative payment channels, such as e-wallets, associated with the marketplace platform.

The booming fintech ecosystem

VC-backed fintech funding in Asia grew 188% from US$701m in Q4 to US$2.2bn in Q1, according to research by CB insights. Record-breaking investments into Asian fintechs in 2016 and 2017 have started to bear fruit; with emerging players providing additional competition to existing fintechs, while incumbents are looking for scale and venturing into new business lines and products that were outside of their traditional solution suite.

In China, the big Chinese “TechFin” players Ant Financial, LianLianPay, and Tencent Holdings are extending from mono to multi-product and opening new investing channels. Ant Financial has also been looking into blockchain, artificial intelligence, and identity management services. LianLianPay is promoting their e-commerce collections and payment gateway services across the world, while Tencent invested in more than 15 companies outside China, including a stake in Snap, parent of messaging app Snapchat.

With access to world-class talent, fintech start-up ecosystems have developed in the regional hubs of Singapore and Hong Kong over the past few years, with more local players now emerging in India and South East Asia.

South East Asia on the rise

Fintech companies in South East Asia are championing financial inclusion, and leveraging the massive amount of data they possess to launch new financial services. This is especially relevant because of a confluence of demographic factors; a massively under-banked or unbanked population of 266m people, that is young and highly adoptive of mobile and online technologies (predicted 480m internet users by 2020), combined with the overall trend of a rising middle-class that is upwardly mobile according to CB-Insights.
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Source: CB-Insights / Fintech Trends To Watch in 2018 Report

The blurring lines between fintech and commerce will inspire and enable new innovation and businesses in the region. Some examples of innovators in the region include GRAB, a traditional ride-hailing platform that recently acquired UBER’s business in South East Asia announced the launch of GrabPay and Grab Financial Services at Money2020 in Singapore in early 2018. Sitting on a mountain of data of its users, drivers, and businesses, an algorithm can compute a credit score to offer a micro-loan to a business, or offer an insurance product tailored to a driver, based on the telemetrics from a driver’s device that for example, indicate a driver’s driving style. A business-model successfully introduced by Go-Jek, who has 8-9m of its 16-18m active users using its payment gateway Go-Pay for transactions 3-4 times daily.

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Source: CB-Insights / Fintech Trends To Watch in 2018 Report

AirAsia, a major low-cost carrier in Asia, launched BigPay – Air Asia’s new e-wallet – licensed by the Malaysian central bank. It has also teamed up with MasterCard to offer a prepaid card that is tied to the e-wallet. BigPay wallet users can transfer funds to each other for free, and travellers who use BigPay for their overseas transfers can obtain preferential FX and have certain fees waived (eg, overseas ATM withdrawals). 

In other words, some interesting examples of a ride-hailing platform and an airline, each moving out of their traditional business models, to venture into fintech and financial services. This step-change is a sign of the increasing digitalisation of businesses and services in the region.

To take advantage of the accelerated pace of innovation in Asia Pacific, Deutsche Bank is looking to establish the first DB Innovation Lab for Asia Pacific. The DB Labs are a docking station to bring new technology into the bank. They act as the eyes and ears into the local innovation ecosystem and provide connectivity to start-ups into Deutsche Bank. Most importantly, the DB Lab environment will allow for increased collaboration and co-creation of new solutions with our corporate clients in the region.

Marie Caroline (Sunday) Domingo

Head of Client Data Products , Digital Cash Products | Deutsche Bank

Marie Caroline (Sunday) Domingo

Chintan Shah

Head of Cash Products and Client Connectivity, Asia Pacific | Deutsche Bank

Chintan Shah

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