Cross-border payments in Asia have typically been considered by treasurers to be challenging and complex due to the region’s highly-fragmented market and regulatory environments.
Challenges at the strategic level include enabling global growth, centralising treasury structures and simplifying processes. Operational considerations include managing a high volume of cross border payments, foreign exchange (FX) volatility, responding to regulatory changes and cyber risk.
What’s more, new demands from continued global market volatility, gradual market liberalisation in China and India, as well as new electronic commerce (e-commerce) channels are all shaping new cash flow dynamics. While quick fixes don’t exist, there are robust strategies and best practices that treasurers can consider to optimise cross-border payments in the region.
Shifting paradigms, new options
E-commerce is a US$1.6 trillion market globally, and growing at 20% annually. Considering demographic factors in Asia, online sales will be a fundamental driver for the exponential growth in cross-border payments volumes for the foreseeable future.
Increasingly, e-commerce flows are characterised by high-volume, low-value payments, whether they be consumer purchases, advertising commissions or payment for online services. Cost-effective management of these low-value payments require high levels of straight-through processing (STP) – making automation, connectivity and reconciliation important key performance indicators (KPIs) for the treasury function.
Foreign exchange (FX) automation is also a major theme in this region. Client conversations consistently point to the fact that multinational corporations (MNCs) making payments in non-strategic currencies require automated execution and increased standardisation.
China and India – both critical markets for MNCs due to their size, diversity and growth potential – have provided historical issues for treasurers. Banks have responded by delivering innovations to enable clients to upload their supporting documents for cross-border payments to digitise and streamline the process. Working with large and MNCs in the region on their treasury strategies for e-commerce suggests that the trend for bank account rationalisation is gaining momentum as treasurers look to increase operational efficiencies and continue to prioritise automation and cybersecurity.
Banking partners as strategic advisors
While execution and settlement remain important aspects of cross-border payments, corporate treasurers are now looking to their banking partners for end-to-end advisory services. This includes the ability to provide real-time data, advanced analytical tools and institutional access to intellectual capital in making informed decisions.
Understanding the impact of regulatory changes is another important requirement for successful treasury management. Policy shifts can be unpredictable in this region, especially when data privacy and updates to payments infrastructure are concerned. In turn, banks are stepping up to provide regular updates to help corporates to capitalise on opportunities from evolving regulatory reforms.
In addition, the reality of ongoing FX volatility places additional pressures on treasurers to execute cross-border payments in a more timely and strategic fashion. To achieve this, banks that combine both working capital expertise and FX trading and advisory are better positioned to ensure the efficient execution of operational flows during times of currency instability.
Limited disruption from disruption
Rapid technology advancement continues to be an influencing factor in enhancing cross-border payments. Globally, the impact of financial technology (fintech) on the payments space has become a more frequent topic of conversation – and for good reason. Start-ups are prompting many financial institutions to re-evaluate the infrastructure and marketing of business-to-consumer (B2C) payments processes. As consumers become more mobile, it’s a case of adapt and adopt – or risk losing volume.
In the business-to-business (B2B) space, it is a different story from a client’s needs and infrastructure perspective. Corporations, more often than not, will prioritise security and risk management over payment speed and mobile user interface – typical areas of focus for fintechs.
Fundamentally, the ability of banks to process both high-value and high-volume payments via a globally consistent, locally-compliant platform requires scale, capabilities and on-the-ground expertise that start-ups will be unable to provide. Additionally, the fact that corporations require integrated treasury and finance solutions – across working capital, liquidity management and trade financing – plays to the strength of established financial institutions.
Nevertheless, ongoing technological innovation is essential to help businesses better adapt their operating models to shifting market and business demands. Citi’s own innovation in response for Asia has been the Treasury and Trade Solutions Innovation Lab, dedicated to exploring new ideas and service concepts and collaborating with corporate and institutional clients to develop fintech solutions relevant for treasury and finance management. Located in Singapore, the Lab has explored about 400 ideas, 80 prototypes and conducted some 1,500 client engagements since 2011.
Piecing it all together
The cross-border payments space continues to evolve as globalisation and digitisation transform the way corporations do business. From market volatility, the emergence of new of new supplier and consumer markets driven by e-commerce, to digitisation and technology innovation – treasurers should continue to watch the cross-border space to assess how to enable their companies to grow while managing risk and driving efficiency.
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