Powering the Efficient Economy: Innovation in Payments & Collections
An HSBC Industry View
by Helen Sanders, Editor, in conversation with Mark Evans, Head of Payments Advisory, Global Liquidity and Cash Management, HSBC
How would you characterise the payments landscape in which TMT companies operate, and how is this changing?
Technology, media and telecom companies are expanding internationally at an unprecedented speed, fuelled by customer demand on one hand, but newly accessible business models on the other, particularly in e-commerce, m-commerce and the growth of multi-seller marketplaces. It is in these industries too where some of the technologies that are shaking up the payments landscape are originating, from blockchain through to the internet of things, biometrics, wearables and big data. Technology companies in particular, therefore, play a dual role, both as consumers of payments and collections on one hand, and providers to banks and the wider retail and corporate community on the other.
As TMT companies continue to pursue international growth, what would you identify as some of the biggest challenges experienced by TMT companies, and what opportunities exist to overcome these challenges?
One of the biggest dilemmas for TMT companies is how they can take control of their international payment operations whilst maintaining central visibility and control over cash and payments processing. Some of these payments are familiar to every company operating internationally, such as regular supplier, staff, tax and customs payments. However, technology and media companies in particular face additional difficulties:
Firstly, for example, technology companies that are most frequently headquartered in United States incur most of their manufacturing costs and generate a large proportion of their revenue outside their home market, particularly in Asia. Techniques such as payments-on-behalf-of (POBO) and effective repatriation strategies are vital in resolving this mismatch in where the funds are both used and generated, and where they are ultimately required.
Secondly, technology and media companies face the additional difficulty of paying a large numbers of beneficiaries such as development and content providers, where traditional forms of payment are less suitable. New forms of payment are emerging to meet this changing demand, such e-wallets.
e-wallet solutions have rapidly gained traction worldwide, but the way in which these solutions are deployed, and the purpose they fulfil, often differs significantly. In western countries, for example, Paypal is now a common means of payment for retail ecommerce transactions, with even greater penetration in parts of Asia: in China, for example, around 18% of retail transactions now take place via Alipay. In Africa, mobile wallet solutions such as M-PESA have played an essential role in digitising payments and increasing financial inclusion. Increasingly, however, there are new e-wallet solutions emerging that meet corporate as well as retail payment and collection needs. Technology and media companies are often generating millions of payment obligations every day to pay royalties and other fees to developers and content providers. As many of the beneficiaries are individuals or small businesses, it is neither practical nor cost effective to make payments by card (with the exception of prepaid cards in some cases). Similarly, acquiring and maintaining settlement instructions for each of these beneficiaries would place an enormous burden on the accounts payable function. Many of these technology and media companies have established regional or global payment factories, so the cost of making cross-border payments would be prohibitive bearing in mind that beneficiaries are often located across the globe.