Beginning in 1967, a collective of countries in the Asia Pacific region began discussing their political and economic future. Ten countries – Indonesia, Malaysia, the Philippines, Singapore, and Thailand; later joined by Brunei, Cambodia, Laos, Myanmar, and Vietnam – formed the Association of Southeast Asian Nations, ASEAN. Chief among its aims was to promote economic growth within the region. In 1997, members developed a blueprint to establish economic unity throughout the region: the ASEAN Economic Community, or AEC.
The AEC seeks to create a single market within the region that is competitive and integrated into the global economy. Combined, the countries of the AEC would be the world’s seventh-largest economic powerhouse, behind the United States, China, Japan, Germany, France, and the United Kingdom according to the
‘ASEAN Community in Figures’
The AEC focuses on four key objectives: a single market and production base; a competitive economic region; equitable economic development; and integration with the global economy. The planned date for integrating the member countries into a unified economic region is the end of 2015. To meet the aggressive deadlines, the regulators, national governments, banks and businesses will definitely have their work cut out for them.
The Middle Market
Integration promises to bring better banking infrastructure for regional trade, especially in the payments area. As Asian corporates look to grow their offerings and markets beyond local borders, both regional and domestic transactions are bound to increase significantly. However, a majority of businesses in the ASEAN region – and especially in countries such as Indonesia and Cambodia – are small- and medium-sized enterprises (SMEs). Many of these businesses are nervous about economic alignment, for fear they will be ill-equipped to thrive in the open market.
However, these mid-market companies, which form a significant part of an economy’s gross domestic product (GDP) in emerging markets generally, have great growth opportunities with the AEC. Savvy companies are rapidly scaling up to offer pan-regional products and services, and are also becoming increasingly competitive internationally. Going forward, mid-market companies will look to sustain their growth by expanding their customer base, delivering regionally-focused products, and optimising IT investments to drive their operations across borders.
Working capital tools that capture transaction data – and provide actionable insights from regional cash flows – can drive liquidity optimisation for mid-market corporates operating in regional markets. In addition to having structured data (such as regional balances and forecasts), and real-time capabilities, it is essential to a good working capital solution that these businesses have process standardisation and compliance with corporate internal policies.
Regional banks can seize this opportunity by offering solutions that provide effective controls over transactions, such as workflow support to approve invoices based on their value, or validating payments from vendors and suppliers.
Using best-in-class cash management solutions at a low upfront cost, regional, correspondent and local banks can offer customised ‘byte-sized’ working capital tools through a software-as-a-service (SaaS) platform that targets specific segments of the corporate market. With quick deployment and easy-to-use web-based and mobile channels among many other critical features of the working capital solution, regional banking institutions can engage with their mid-market corporates more collaboratively and provide business solutions that help both the corporate and bank win.
Technology is a key enabler to drive the payment integration and technology innovation in the ASEAN region. The region is moving towards creation of real-time gross settlement systems (RTGS) and domestic automated clearing houses (ACH). Singapore, for example, has launched the Fast and Secure Transfers (FAST) immediate payment infrastructure and similar initiatives are being explored in other countries such as Malaysia and Thailand.
Another key development will be the launch of ISO 20022, a common standard to enable corporate-to-bank integration to enable and improve straight-through processing (STP).
Digital banking is evolving to enable channel integration that provides a seamless customer experience to the bank’s corporate customers.
Indonesia Emerging as a Powerhouse
The banking industry in each ASEAN country will face unique challenges, and have to make their own adjustments to ensure that their banking industry can take advantage of new opportunities.
Mention should be made at this point of the economic situation in Indonesia, the largest economy within the ASEAN region. Last summer’s elections focused attention on whether the country’s ascendancy towards becoming a major economic powerhouse can be maintained.
Indonesia is certainly gearing up to embrace the opportunities provided by AEC. The country’s banks are working to develop an integrated national payment system before having a system that integrates across the ASEAN region. With this, the Indonesian banking industry will have a new real-time gross settlement system (RTGS) in which bank customers can carry out multicurrency transactions on a real-time basis.
Indonesia can be a major contributor to the success of AEC through its large population, natural resources, and thriving tourism industry. Therefore, the country should aggressively build on its capacities to benefit from the limitless opportunities that AEC provides.
The positive impact of the ASEAN Banking Integration Framework (ABIF) will enable Indonesian banks to strengthen their capital, human resource quality, and efficiency; enabling them to compete at regional and global levels. In return, banking integration will benefit business sectors through the larger and safer sources of financing for trade and cross-border investment activities.
The arrival of the AEC represents an important economic opportunity. However, the extent to which that opportunity is realised will depend heavily upon the development of high quality pan-ASEAN payment systems and messaging standards.
By building on the experience of previous similar initiatives (such as the single euro payments area, aka SEPA) AEC payments integration is perfectly achievable at a technical level. Once the key standards are agreed upon, the next step would be local implementation. Once achieved, the consequences for the AEC and the corporates that trade within it will be extremely positive.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?