Insights Asia: Immediate Payments, Renminbi and Technology Implementation

Fundtech senior vice president (SVP) and panel moderator David Brown opened a panel discussion entitled ‘The Need for Speed – Immediate Payments’ by suggesting that they represent a once-in-a-lifetime change that can enable banks to keep up with commerce that continues around-the-clock and a pace of life that continues to accelerate. Australian Payments Clearing Association (APCA) chief executive (CEO), Chris Hamilton, ANZ Bank head of payments, Paul Inglis, and Capgemini industry leader, Phillip Gomm, shared their insights on developments in the Australian market and globally.

In a world that is universally connected via mobile networks and payment technology that has moved to real time, Gomm said, gone is the concept of end-of-day. Banks need to utilise new capabilities to meet customers’ expectations that payments will be processed in real time.

Although there has been a major shift in customer expectations, Hamilton noted that payments professionals grew up in an era where customers adapted what they did to the payment systems available. A new paradigm is now emerging, as the customer is no longer interested in adapting to the payment system. As Australia begins to deliver real-time payments, there is a question of whether banks will make it native 24/7 or have different implementations that give a 24/7 experience and are easier to manage in the back office – with a day mode and a night mode that may be invisible to the customer.

In the past deposits and sending money have been valuable to banks, but more likely to be valuable to them in the future is enriched data, big data, and sharing complex information. “I can see a scenario where what banks have derived revenue from historically will not continue into the future,” Gomm said.

Looking more broadly at other markets, Hamilton believes a pure regulatory approach won’t work and there has to be an opportunity for banks to develop the services customers want to buy. Inglis noted that different geographies have different drivers, and there are variations in scale as well as the maturity of regulators. Sweden is focused on peer-to-peer (P2P) mobile payments, for example, while India has massive volume and is looking for clearing house functionality.

In Australia, Inglis said, the Reserve Bank of Australia (RBA) has met the challenge by allowing innovation of the customer piece to develop along with the core infrastructure and in parallel with the industry infrastructure. Hamilton believes the big message is to leave space for the marketplace and allow competition to drive innovation, as it is difficult to come up with a holistic solution for everyone. Over time, a framework to make cross-border payments easier is likely to evolve, with ISO 20022 as a standard while ensuring that the platform has flexibility to meet local needs.

The Liquidity Challenge

Westpac director of network management global transaction services Belinda Savlan and Fundtech EVP Sanjay Dalmia took up the challenge of managing liquidity.

What is critical for liquidity management, according to Savlan, is obtaining the right data real-time in order to manage intraday liquidity and reporting. Fundamental to the new liquidity cycle is the account holding the funds, so central management of nostro accounts is now essential. Leveraging her experience at Westpac, she said best practices include supporting liquidity risk metrics, intra-day data and ad hoc query reporting, with flexibility and transparency. In this changed environment banks need to make performance, rather than regulatory compliance, the key for good risk management.

Dalmia pointed out that while banks are worried about liquidity risk and it is a major concern of central banks, a key question is whether large corporates are behaving like banks – with liquidity but without the responsibilities that banks have. Corporate liquidity in the US has risen tenfold in the past 30 years to almost US$2 trillion, and corporates are sitting on piles of cash. Since they keep their cash in banks and can make quick decisions to move liquidity, it creates a systemic risk for banks. Corporates’ key concerns are cost and the need to manage liquidity sharper, so banks could be well positioned to educate them on systems and policies to manage liquidity better.

Renminbi takes Centre Stage

Fundtech Asia Pacific president, Gil Gadot, and Bank of China (BOC) general manager, Wu Qizhi, then reviewed the opportunities for financial institutions (FIs) as the RMB market continues to expand.

Gadot laid out a timeline showing the vast changes in RMB policy relating to trade, investment, and global reserves since in 2002. While China has now surpassed the US as the top trading country in the world, the RMB only accounts for 10% of global trade. Banks have opportunities to leverage this growing internationalisation by improving automation of RMB transactions, helping customers spot new revenue opportunities, providing more investment options, processing payments with a new level of efficiency and being ready to support high volumes.

According to Wu, the three conditions for internationalisation of the RMB are free convertibility, a basic foundation for market-oriented operations such as internationalisation of interest rates – which will take two to three more years – and liquidity. Many countries are competing to become offshore RMB centres, and at the same time BOC has been competing to become an offshore clearing bank and is now the RMB clearing bank in Hong Kong and Taiwan. While the Industrial and Commercial Bank of China (ICBC) is the clearing bank in Singapore, BOC’s RMB clearing business there is larger than ICBC’s. “I believe market forces will surpass the government,” Wu said.

The key for banks that want to take advantage of the RMB, Wu believes, is to understand the market trends and customer needs, either providing trade settlement or investment and foreign exchange products.

A Global Payments Journey: the BOC Case Study

In recent years, BOC has gone through implementation of a payments project to synchronise its payments globally and increase efficiency. Fundtech executive vice president (EVP), Isaac Yaniv, IBM associate partner, James Methe, and Bank of China general manager, Wu Qizhi, gave their perspectives on the payments transformation process.

Methe noted that a key driver for transaction banking has been the emphasis on trade finance, particularly from China into Asia and throughout the world. Banks are looking at how to modernise transaction banking to compete, as 30 of the top 50 banks have initiated transaction banking transformation.

Transaction banking transformations follow the same model, and leaders need to consider the key facets of strategy integration, scalability, the data strategy, migration, tracing, data for regulatory requirements, infrastructure, the testing and tooling strategy, and stakeholder benefits. Transformation is for many people a once-in-a-career event. The cost of getting it right is imperative, and no longer can banks make mistakes and start again, so the four key areas they need to focus on are:

  •  Getting started, focusing on what to deliver to customers, rather than how to deliver it.
  •  Clear business drivers, principles and stakeholder management.
  •  The solution framework approach and delivering benefits early on.
  •  Managing governance within the organisation.

Defining what you’re trying to achieve and using hard metrics is also essential.

Yaniv said the first stage of transformation is analysis to define the business requirements, including identifying gaps against the requirements and traceability metrics. It is also important to get sign-off, to make sure the people who will use the system approve it. The next stage is implementation, with coding and configuration of the system run jointly by the systems integrator, the solution provider and the bank working together. The longest and most costly stage is verification, through a process of system integration testing (SIT), user acceptance testing (UAT) and operational testing, with the biggest challenge being how to reduce the time and cost while not compromising quality.

Wu provided the bank’s perspective, noting that BOC operates in 37 countries and overseas systems had been relatively independent. The bank wanted to change the overseas systems so that payments between branches would be seamless. The objectives were to build an internal payment channel, combine multiple payment systems, develop a strong capability in data mining and better support the overseas RMB business.

The first implementation was completed for a batch of 12 countries, with 16 local clearing system interfaces and 17 systems within the bank. The next batch will be 16 overseas branches, primarily in Europe and Africa. “We spent 17 months to bring the system online,” Wu said, including four months in the SIT phase, five months in UAT, and a parallel run of two months.


Once again, the conference provided valuable insights on the key issues facing transaction banking today, as well as how to plan for a future with far greater usage of the RMB and with immediate payments becoming commonplace.


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