Innovation as Usual: A New Era in Payments
By Eleanor Hill, Editor
The world of payments has never been so exciting. Digital payments are gaining significant traction and smart innovation is gathering pace. In the 24/7/365 world of commerce, treasurers have an opportunity to leverage these developments to help their organisation gain a competitive advantage, says Atul Bhuchar, Group Head of Payments, DBS.
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.