A recent survey from SunGard’s AvantGard revealed that multi-bank connectivity is high on the agenda of treasurers around the world. There seems to be little regional difference in the importance of this requirement. However, practice proves that it is more challenging to implement a multi-bank connectivity solution in Asia Pacific than in other regions.
In Europe and North America, SWIFT has become a major catalyst of multi-bank connectivity and standardisation of formats in cash management, treasury and now also trade finance. Although SWIFT connectivity for corporations has also increased in Asia Pacific, the region has more barriers that obstruct implementing a single channel to banks than there are in the US and Europe. Some of these barriers are economical; others are cultural or even technical in nature.
The slower pick-up in Asia Pacific is clearly visible from the traffic volumes. In the first three quarters of 2009, corporations with a BEI registered in Asia Pacific counted respectively for 10% and 1% of the total FIN and FileAct traffic of SWIFT. While there are fewer multinationals in Asia Pacific than in Europe or North America, the difference is still not significant enough to account for the low percentage of FIN and FileAct traffic. Other factors are in play.
An alternative to SWIFT, such as EBICS in Germany and France, does not seem to be immediately available in Asia Pacific. Although ANSER has a strong foothold in Japan, it has not been adopted in other Asia Pacific countries. Treating Asia Pacific as one coherent region is also a simplification as there are large differences in the adoption of bank-agnostic bank connectivity between different countries in Asia Pacific.
The major barriers and regional differences we can currently see through our research and customer interactions can be characterised in the following observations:
Margins on vanilla products, such as FX and cross-border payments are much higher in most Asian countries than in Europe or North America. As is in other emerging markets, competition in most Asian countries focuses on growing the client basis. As a result, banks are less prone to charge through the cost of both electronic banking interfaces and non-straight-through processing (STP) to their clients. The consequence is that the business case to invest in a multi-bank connectivity solution is much less attractive than when these services are charged through by the banks at cost or at profit.
The comparative cost of non-STP or manual processing is much lower in Asia Pacific than in Europe or North America because of the significantly lower cost of labour. This has an important impact on the investment decision to roll out cash management, payment, treasury and electronic banking solutions.
In countries with low labour costs and a large pool of technical resources, the build of bespoke interfaces to banks is much more attractive than in western countries, where there is enormous pressure to reduce bespoke developments because of the build and support cost.
The lack of a single currency and cross-border payments clearing in Asia Pacific increases the complexity of both domestic and cross-border payments. Accounts in local currencies held with banks that have access to the different local clearing systems are a must in each country where the corporation has operations. Although the multitude of domestic accounts can be a stimulus to implement a multi-bank connectivity, it makes standardisation of accounts payable (A/P) files much more complex and the cost of implementations increase exponentially with the number of countries in scope.
Multi-bank Networks in Japan
Japan, China and Korea have a substantial concentration of large corporations, but there are technical challenges to implementing solutions due to their need for double byte character sets. While some international standards such as ISO 20022 support these character sets, their adoption is not widely spread.
Japan, which, according to Hoovers, still accounts for 50% of all non-bank corporations in Asia Pacific with yearly revenues larger than US$1bn, has a strong domestic multi-bank legacy network. The ANSER network connects all domestic banks for Japanese yen-dominated cash management transactions to corporations of all sizes. Because of ANSER, Japanese corporations have little or no incentive to look at alternative networks for their domestic bank operations. In addition, most Japanese multinationals have their international treasury handled outside of Japan and even outside of Asia Pacific. This is certainly impacting the volume of treasury payment transactions in the region.
There have been initiatives in the past to bridge the ANSER network with the SWIFT network. These initiatives stalled, however, on technical complications and low interest in the corporate community. As the Japanese government has taken action to stimulate repatriating treasury operations to Japan, there seems to be a mentality shift which might lead to more demand from inside Japan for cross-border multi-bank connectivity in the coming years.
Obstructions to Multi-bank Roll-out
Most international and traditional local cash management banks in the region have advanced electronic banking interfaces for corporate banking. However the readiness of some of the fast-growing wholesale banks in the region is lacking. These regional wholesale banks in Asia Pacific have been growing strongly in the retail space over the last years and now need to invest in infrastructure that is scalable and supports future growth in corporate banking as well. Clearing infrastructure and electronic banking interfaces for corporate banking will probably advance in the next two years and will improve the feasibility of regional multi-bank solutions that also include the fast growing regional wholesale banks.
Some country-specific legislation and differences in reporting complicate the rollout of cross border payment and cash management solutions in Asia Pacific. Some examples are:
- Limitations on currency outflows in some countries.
- Specific central bank reporting obligations for international payments.
- Local legislations such as the certification requirements of electronic banking systems in China.
Asia Pacific is clearly lagging behind with regard to corporations adopting and implementing solutions for multi-bank connectivity. There are a number of economical, cultural and technical obstacles that Asian corporations have to overcome when rolling out payment, cash management or treasury solutions with multi-bank connectivity. Very low cost of bank proprietary electronic banking solutions and low cost of labour make it hard for decision makers to build a profitable and defendable business case to invest in bank agnostic connectivity platforms like SWIFT. The radical drop of TCO for corporate SWIFT connectivity over the recent years is starting to change the tide and return on investment (ROI) calculations are looking more attractive.
A large number of the Asian companies that do sign up for SWIFT use their solution to manage their accounts in the US and Europe and less so for managing domestic accounts in the Asian countries with local banking partners. However, as European and North American companies are wrapping up the roll out in their regions, they start to look for maximising the return on investment and aim at incorporating their Asian business units into these solutions as a next phase. This is certainly the case for the early adopters of SWIFT connectivity. This trend, in combination with a broader acceptance for the ISO 20022 standard by the large global cash management banks, will put the pressure on regional banks to follow and invest in structural solutions that better serve the lucrative large caps space for cash management, treasury and payment services.
It will not happen overnight, but the barriers are slowly disappearing and the trend first noticeable in Europe and North America – of large corporations moving to multi-bank solutions rather than relying on bank proprietary interfaces – will likely pick up in Asia Pacific in the coming years as well.
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