Building Asia’s road to real-time treasury
Asian treasurers need to embrace real-time payments, open banking, APIs and adopt frameworks such as virtual accounts and real-time in-house bank accounting
23 Aug 2019 | Chintan Shah and Melvyn Tay

The value of real-time technology is not only that it can upgrade treasury functions, but that it also empowers treasurers to reimagine their treasury’s fundamental mechanisms through a digital toolkit.

As instant payments schemes and other enablers continue to roll out across the world, this has a knock-on effect on the full value chain of globally connected corporates. As a result, treasury departments are now looking to move from batch and daily processes to real-time or near-real-time systems – and from a purely operational treasury to a more strategic treasury focus.

There are many paths that could be taken by Asian treasurers to unlock the benefits of real-time treasury, but perhaps the most fundamental of these will be to embrace real-time payments, open banking, application programming interfaces (APIs), and adopt forward-thinking frameworks, such as virtual accounts and real-time in-house bank accounting and reporting.

Understanding the Asian payment landscape evolution

Asia contains the top three countries for unbanked populations globally, with a significant proportion relying on cash and cheques, as opposed to electronic fund transfers, cards and other payment methods.

Over the past decade, however, mobile e-wallets have grown in popularity, serving to reduce payment friction for consumers across Asia. Alipay and WeChat Pay, for example, have become highly prominent e-wallet providers in China, offering instant settlement for users within their own ecosystem. 

Yet, while many wallet providers have been offering instant settlements for some time now, their services typically serve only the peer-to-peer (P2P) and business-to-consumer (B2C) segments, and do not allow users to transfer funds to different wallet providers. What’s more, corporates are often reluctant to transact or place their balances in e-wallets, due to their risk management policies.

Instant payments, as one of the fundamental services underpinning real-time treasury, represent a natural contender to drive the next revolution in Asia’s payment landscape, driving financial inclusion and digitalizing large volumes of payments – that is, providing these schemes can compete with the simplicity and immediacy of existing payment methods.  

The advent of real-time payments in Asia

Many countries across Asia are now introducing domestic real-time payment schemes, with recent initiatives including Malaysia’s Duitnow, Hong Kong’s Faster Payments System (FPS), the Philippines’ InstaPay in 2018, Thailand’s PromptPay in 2017, and both Singapore’s Fast And Secure Transfer (FAST) system and Sri Lanka’s Common Electronic Fund Transfer Switch (CEFTS) in 2014.

India is also making significant headway in widespread instant payment implementation. Following the launch of the Immediate Payment Service (IMPS) in 2010, the Indian government launched the Unified Payments Interface (UPI) in 2016 – further driving the ubiquity of real-time payments.

The UPI project has met with considerable success – processing more than 674 million transactions worth 1.07 trillion Indian rupees (US$15.4 billion) to date, and reporting a 293% year-on-year growth in February 2019. As a measure of its success, UPI has now surpassed domestic e-wallets in terms of transaction volume.

While real-time payments have the potential to digitalize large volumes of payments, driving migration in the business-to-business (B2B) space is still a major challenge, since the upper payment limits on current schemes remain too low for wholesale use. Today, UPI has an upper limit of 100,000 Indian rupees (less than US$2,000).

Other schemes have similarly restrictive thresholds, with Thailand’s PromptPay and Sri Lanka’s CEFTS having upper limits of two million Thai baht (US$64,000) and five million Sri Lankan rupees (US$28,000), respectively. However, Singapore has set a promising precedent with the FAST system’s payment cap, which increased from S$50,000 to S$200,000 (US$147,000) in February 2018 – setting a precedent for other real-time payment schemes across Asia.

While the various real-time payment options now available or in development represent promising advancements, they do not yet facilitate cross-border transfers. To address this, the Association of Southeast Asian Nations (ASEAN) is working to set up cross-border payments systems in local currencies.

The ASEAN Payments Policy Framework, for instance, is an initiative looking to establish cross-border real-time retail payments across ASEAN member states. If successful, this will create a more competitive economic bloc.

In the meantime, SWIFT gpi is enabling faster cross-border settlements while increasing transparency for participating banks. Adoption in Asia, however, is still work in progress. As of October 2018, 119 banks across the Asia-Pacific have pledged to join the initiative, but only 30 are live with the service, with most banks only implementing SWIFT gpi for G10 currencies – predominantly the US dollar and the euro.

Benefits of real-time payments

As real-time payment caps rise, a plethora of benefits will emerge for corporates. Firstly, corporates can meet the demand for real-time 24/7 settlement of transactions, which has risen in recent years due to changes in the consumption of goods and services. At the same time, it will help these businesses meet requests for deeper integration of payments into purchase processes.

The adoption of real-time payments will also mean businesses can broaden their customer and supplier bases without incurring additional risk, since payment on delivery can be written into new contracts and facilitated by real-time settlement. 

By moving towards real-time processing, corporates can also streamline their procure-to-pay (P2P) and order-to-cash (O2C) operations, as well as provide faster refunds, timely payment of insurance claims, or faster commissions to gig economy employees. 

While many B2B corporate treasurers claim real-time payments have a limited applicability to their business model in the short term, they could have a transformational effect in the future. And, as a corporate’s downstream customers and suppliers begin utilizing real-time payment methods, this will put greater pressure on upstream companies to adopt faster payments themselves.

Consumers, meanwhile, are also looking for a deeper integration of payments into purchase processes. Through real-time payment schemes, there is scope to simplify the payment experience by linking bank account numbers to national identifiers or mobile numbers, and/or integrating QR code technology. This practice is already common in China and gaining popularity in other countries.

For instance, in September 2018, Singapore introduced the Singapore Quick Response code (SGQR) – a single QR code that combines multiple e-payment solutions. Corporates will have to consider the risks and implications of these new mediums, paying extra attention to all privacy and security concerns.

Treasurers must also be realistic about the impact real-time payments will have on working capital and liquidity. For businesses selling on credit terms, corporates will still look to optimize their working capital cycle by cutting their days sales outstanding (DSO), and extending their days payables outstanding (DPO). Real-time payments will not change this behaviour in the B2B space, but rather facilitate a shift to “just-in-time” payments.

Adopting real-time technology, and transforming real-time visibility into real-time liquidity management

By utilizing existing technology, treasurers across Asia can already obtain a daily view of their financial positions. In the not-too-distant future, treasurers may be able to achieve a comprehensive real-time view through APIs – a service banks are already beginning to provide. Yet the value of real-time visibility will be limited unless treasurers can respond to these updates with the same immediacy.

To fully unlock the advantages of real-time payments, treasurers must first be realistic about what their legacy systems can support. They will then need to move from file-based to API-based systems, and identify key areas that need upgrading to enable real-time processing.

While payment caps remain relatively low, treasurers can focus on driving enhanced client and employee satisfaction through accelerated low-volume payments. When payment caps do eventually rise, the best prepared can roll-out real-time operations for their B2B payments and gain a considerable competitive edge.

For treasurers managing numerous bank accounts, the ability to manage liquidity in real-time could prove both cost-efficient and profitable, as cash can be funnelled to where it’s needed through a just-in-time approach. Real-time technology’s application within liquidity management could accelerate cash sweeping from end-of-day or intraday to near-instant.

But, a number of treasurers argue that the value of real-time sweeping is limited by practicality: corporates operating with end-of-day cash sweeps have long used credit lines to ensure their intraday requirements are met.

Nonetheless, this is not to say that Asian treasurers could not benefit from real-time cash concentration by taking a different digital approach. In fact, real value for treasurers can be derived from in-house banks (IHBs) adopting payments-on-behalf-of structures, which are enjoying a rise in popularity across open markets. Leveraging a virtual account solution, treasurers could streamline physical accounts down to just one per currency in the most straightforward cases.

In turn, this facilitates savings on account fees and administration, and can be applied across subsidiaries and operating regions, thanks to the solution’s scalability. While growing in popularity, the uptake of this kind of solution is hampered by costly set-up and affiliated legal and tax due diligence processes.

Once the hurdles are negotiated, this kind of set-up will open the door to further efficiencies. From here, for instance, other emerging technologies such as robotic process automation (RPA) and artificial intelligence (AI) can be employed to undertake daily treasury tasks quickly and automatically – freeing treasurers to focus on more strategic objectives.

The shift to real-time treasury is inevitable – and, while challenges abound along the way – there are many benefits to be reaped from the early adoption of foundational technology and services, which will serve as a robust platform for future treasury evolution.

Chintan Shah is the APAC head of products, cash management, corporate banking, and Melvyn Tay is with cash management structuring, corporate banking, both at Deutsche Bank.

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