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HSBC Sibos Spotlight Podcast Series: Adapting to the evolving payment landscape
26 Plays6 months ago
Manoj Dugar and Mark Evans (HSBC) join Jane Cooper (TMI) to discuss how global payment trends are evolving and how financial institutions and corporates are adapting.
They delve into why the current payment trends are important, and why it is necessary for organisations to adapt to the latest technological advancements. They also cover the challenges that institutions face with payments, and where their priorities lie. Also, they discuss the current developments with international payments and whether the world is truly ready for real-time cross-border transactions. And finally, they elaborate on the progress that is being made with ISO 20022 and the different approaches that financial institutions and corporates have been taking to realise the full benefits of the new standard.
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Transcript
Introduction to HSBC Global Viewpoint
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
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Hello and welcome to this podcast on global payment trends.
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The world of payments is changing rapidly and there have been numerous developments in recent months.
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That's what we'll be talking about today.
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We'll first dive into the major trends and why they're important, how institutions are adapting, and the current state of play with cross-border real-time payments, as well as the migration to ISO 20022.
Major Payment Trends Overview
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I'm Jane Cooper, the editor of TMI, and today I'm joined by Mark Evans and Manoj Dugar from HSBC to delve into these topics.
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Thank you both for joining today.
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So Mark, shall we start with you?
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Do you want to sort of set us off and just paint a picture, give us a quick overview of what the current trends are with payments right now?
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Yeah, sure.
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Thank you, Jane.
Digital Payment Shift Driven by Technology
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Well, I guess the first thing to say is that the business environment in which we all operate continues.
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to be ever more digital.
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That's an overriding trend.
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And that's driven by client behavior and demand for much more consumer-like payment experiences.
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The payment experiences that we have in our personal life
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is starting to become much more prevalent and demanded by commercial customers of all shapes and sizes, from the very smallest right through to the very largest.
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And the technology advances that we've seen in recent years is making it much easier to create those digital experiences and begin to address some of that demand, whether that's cloud technology, APIs,
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We can use all of that to construct an experience that can be much more deeply and more seamlessly integrated into our customers' operations.
Cross-Border Payment Democratization
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And that in turn allows them to create much more modern business models to begin to address the needs of their own clients as well.
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At the same time, we're seeing regulators and industry bodies progressively upgrade what we call financial market infrastructure, effectively payment systems that help support that trend.
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And then we've seen the geographic expansion continuing of real-time payment schemes.
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And that's making it much more easy for our customers to create those more modern digital business experiences and for us to supply the underlying services that makes that possible.
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And then lastly, just to sort of cap off the cross-border side of this, I think these developments, if you think about them creatively, are also allowing us to democratize cross-border payments in a way that wasn't possible a few years back.
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Services like Swift GPI, which allows customers to track payments, is very, very mature now, used by a large majority of banks.
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And newer services like pre-validation are allowing customers to determine and check who they're paying before they begin to execute a payment.
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And then finally, you referenced ISO, Jane, in your opening there.
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The ISO standards that are here now and that will begin to proliferate more in the future are
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are setting standards for transparency, quality of data.
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And this all helps create a much, much more progressive payments environment.
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Yes, there's a lot going on.
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I've got some more questions about real time cross border payments.
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And I will save that a little bit later.
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Manoj, before I move on, do you have anything to add to what Mark has just said?
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Thanks, Jane.
Importance of Working Capital and Cybersecurity
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So clearly, Mark has touched upon some of the important aspects.
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Just a couple of more things to add on to it.
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One is area around working capital optimisation.
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Given the macro situation, the elevated interest rates which we are operating in, and the volatile environment, the focus for corporate treasurers continues to be in terms of how we optimize working capital.
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Thereby, enhanced strategies for managing liquidity in this environment is crucial, which is leading to more sophisticated treasury-centered discussions, cash pooling discussions, and forecasting techniques, I would say.
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Even in many geographies, you see usage of commercial cards, for example, emerging for B2B transactions as one of the efficient working capital management tools.
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Many of our clients are becoming much more global in nature, expanding internationally.
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Thereby, managing global operations requires awareness of geopolitical risk,
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and currency fluctuations, which is influencing treasury strategies.
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So clearly, working capital optimization has always been at the forefront for corporate treasury, and it continues now in this environment.
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And the only other thing to add, Jane, is really around the focus around cybersecurity.
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We definitely see how payments are becoming increasingly fragmented.
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Some trends are increasingly consistent.
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Although the velocity uptake of some of these trends would differ in different markets, companies will move to more cost-effective and efficient payment methods with tools which are providing greater security and minimizing fraud risk.
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Treasury departments, in fact, are prioritizing cybersecurity measures to protect financial data and transactions.
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Those are the two points which I'll probably add, Jane, to the discussion with Mark Head.
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Yeah, so there's lots of trends, Manoj.
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Maybe you can sort of sell it to me.
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What if you've got listeners who think, yeah, these trends, yeah, they've been happening for a while.
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I don't really need to think about it.
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Why would you sort of sell it to them that they need to be aware of these trends and what's happening right now?
Strategic Alignment and Risk Mitigation
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So, Jayan, this applies across any organization, any functions, and including in the payments in the treasury space.
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The trends which we spoke about are critical for several reasons, and I'll touch upon a couple of them.
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First and foremost is the strategic alignment.
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Staying updated of these trends really help align treasury and payment strategies with the broader business goals, ensuring that the financial management supports organizational growth.
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That's one.
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The second which comes to my mind is around risk mitigation, awareness of emerging risks and market changes, which enables proactive measures, reducing likelihood of financial losses.
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I think it's super critical from their perspective.
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The third I would touch upon is regulatory compliance, right?
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Keeping abreast of regulatory changes, ensuring compliance, thereby minimizing legal risks and potential penalties.
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All these are very critical from a treasury and payment strategy perspective.
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But the most important aspect, which I think is very critical for any businesses, any corporate treasurer, is the evolving business environment and what that end client is demanding.
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We've clearly seen how digitalization is transforming commerce and society, which Mark spoke about it earlier, driven by rapid technological advancement,
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evolving consumer behavior, and upgrades to banking and payment infrastructure.
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To meet these end-client evolving demands and to compete effectively, they better embrace these innovative and market-leading practices.
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Organizations are transforming themselves, we've seen that in our discussions, to succeed in this new paradigm.
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And if they don't, then they risk obsolescence or disintermediation in addition to some of the financial and operational risk management which I spoke about.
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Yeah, that's great.
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So I guess no one wants to become obsolete.
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So Mark, when I just talked about risk mitigation and the rapid technological changes, a lot going on.
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So as your clients or other institutions adapt to these changes, what would you say the biggest concerns are?
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Is it cybersecurity or fraud?
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Are these the biggest issues that are top of mind, would you say?
Concerns in Payment Trends: Resilience and Security
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Yeah, Jane, I would put probably the biggest concerns in three brackets, if I may.
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The first is resilience, non-negotiable in our mind.
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Payments are the most frequent touchpoint that we have with our clients.
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And the resilience, therefore, of the services that we collectively provide is often mission critical for those customers.
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All the things that Manoj was outlining in terms of how customers need to operate, if payments aren't operating for them and are not resilient, then
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It's a huge impact to their business.
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And that's true, as I said earlier, from the smallest business right through to the largest corporate or indie bank.
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So resilience is right up there as one of the primary concerns and really is a key consideration when choosing a partner for payment processing.
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The second would be transparency.
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And what I mean by that, I mean transparency, obviously, in terms of pricing, clearly, but also in terms of reporting.
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And that's never been more important than it is today.
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Being able to track and trace a payment wherever it might be in the world is an expectation now of all customers.
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We've had that experience with parcel tracking for many years.
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Why can't we have that with payments?
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But also providing services that help customers verify and get confidence about payment execution before they go on to do so is all part of transparency as well, whether that's beneficiary pre-validation, whether that's fraud detection, whether that's outlier detection.
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Lots of these services that we can now assemble together help create a much more transparent payment environment for our customers.
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And the third, which I think is where you started, Jane, is speed and security.
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And that's often a trade-off, right?
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Clients want speed.
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Of course they do.
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And the speed of payments continues to accelerate.
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And I don't see that actually slowing up, ironically enough.
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But you do need to balance the speed of payments with appropriate safety and security so that we can take steps to make sure we have cyber security.
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technology countermeasures.
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We have fraud technology countermeasures and that we can implement those in such a way that strikes the balance between delivering that great overall customer experience with the payment going at the speed it needs to go, but also keeping our customers safe.
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Yeah, so there's been a lot of talk about real time and we're talking now to coincide with Cybos where everyone often talks about real time and cross-border payments.
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So can you give us a sort of day of play of where we're at with cross-border real-time payments?
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And given all those things that people are caring about, resilience, transparency, speed and security, is the world ready for real-time cross-border payments?
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Where are we at?
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Great question.
Cross-Border Real-Time Payment Systems
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Yeah, it's super clear, Jane, isn't it?
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With the growth of international trade, cross-border e-commerce continues to boom, got the growth of the gig economy.
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And because of who we are, HSBC, many of our clients are operating internationally.
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And they do.
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They expect that same experience cross-border as they've grown to love domestically.
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So what's happening, there was more and more real-time payment schemes are now opening themselves up to be available to receive cross-border payments.
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And they're doing that with the appropriate adjustment.
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And by adjustment, I mean, they're expanding the data that they collect so they can screen and properly monitor payments.
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They are upgrading their infrastructure in terms of resilience and availability for time zones, et cetera, 24 by 7 being increasingly important.
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And we're seeing correspondingly increased growth and usage of those schemes for that very purpose.
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So we are beginning to see more and more customers shift from the traditional ways of making a cross-border payment to using a real-time payment scheme for the end settlement where it's available to do so.
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And we've also seen schemes like SEPA Instant, which is relatively new, still only a few years old, is now beginning to process a meaningful percentage of overall SEPA volumes.
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And whilst we'd acknowledge that it's a single currency in a zone, it is multi-geography and therefore cross-border in many senses.
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Brilliant.
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Manoj, what have you been seeing?
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What trends are there with real-time cross-border payments in Asia, for example?
Integration of Real-Time Systems in Asia
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So what Mark referred to then clearly applies to Asia landscape as well.
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We've clearly seen how real-time payment has got established domestically in most of the markets which we operate in here.
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But we also started seeing some of the work which central banks are doing to integrate some of the real-time payment infrastructure.
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We've seen the rollout of bilateral RTP system linkages, as we see in Malaysia, Thailand, or Singapore, India.
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or Hong Kong, Thailand, which allowing customers to make instant payments as locals in other Asian markets.
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The other aspect is the work which is going around Project Nexus, which is an initiative to develop an instant cross-border payment systems between most of the Asian markets and India.
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And on the other hand, you have players like Alipay Plus are also creating integrated ecosystems by linking acquirers, payment service providers, domestic wallets, and RTP rails, enabling consumers to pay with QR code,
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when they are traveling or on the road as well.
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So the trend is clearly there, demand is there, but there is still some way to go, Jane.
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That's clear.
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Regulatory framework, harmonization of services, when you think about message standards, scheme rules, the technical and legal integration, which needs to be happening across central banks and financial institutions will take some work before we get some same experience as you see in the domestic payment trades.
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Yeah, these things always take time.
Adopting ISO 20022: Challenges and Benefits
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And another thing that seems to be taking a lot of time and has been a trend for a number of years is ISO 20022.
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I'd be interested to get your views on where we're at.
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I think there's awareness that is happening and people know the benefits of it.
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But I'm interested to know...
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who is doing what and what a good example or best practice looks like with ISO 22.
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And maybe Mark, you can sort of illustrate, I guess there's a difference between what financial institutions are doing and what corporates are doing.
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Maybe you can sort of comment on what you're seeing at the moment.
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Yeah, sure, Jane.
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A big project for sure.
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And a complex one too.
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We shouldn't underestimate the complexity of such a program.
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We expect at HSBC the program itself to continue for another two to three years.
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And it's really characterized by three large events, which are multi-year in themselves.
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The first is the Swift upgrade that we saw last year, affectionately referred to as CBPR+.
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I think extremely well executed by the industry.
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Then there's been multiple what we call FMI upgrades, financial market infrastructure upgrades in the last 18 months or so.
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And such a large scale impact for banks and indeed for corporates that you have to execute something like this extremely safely.
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Coming back to my earlier point around resilience, this is not an area where you really can take any sort of shortcuts.
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So by definition, it's a lengthy project in terms of overall timeline.
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And quite resource intensive, too, for many organizations, both banks, service providers, technology companies, ERP vendors, right down to the clients and corporates and clients themselves.
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So we think there are three primary steps here to get to a position where
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the sort of benefits of ISO that we're all anticipating and all clearly subscribed to begin to surface for customers.
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The first is being able to speak the language, often referred to as like the like, but like the like is the first step.
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but it doesn't give you command over the entire vocabulary.
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You can speak the language, but you need to learn the vocabulary.
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So how do you go about learning the vocabulary?
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Well, you do that by beginning to introduce support for what we call rich data to really exploit the depth of the ISO message specification.
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And if you can begin to do that, then you're sharing with your customers more information.
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They can share with you more information.
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And that creates for a much richer data exchange between customers, banks and counterparties, which in turn creates much more opportunities for data analysis, data forecasting, smarter reconciliation, more precise screening of transactions.
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And it really begins to uplift the
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the whole environment so that payments become even higher straight through processed, lower rejections, more automatically reconciled, really playing into the working capital point that Manoj was making earlier.
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That requires some work on the part of third-party vendors too, who support our customers.
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And the industry itself is working towards
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how we enable the next version of accounting platforms or how we enable the next version of ERP platforms, treasury management systems, so that they begin to introduce the capability to carry this rich data, which in turn means customers are able to both supply it and consume it on the return side.
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In the interim, we recognize that will take some time.
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And so it's super important that we can continue to supply the resilient service for customers today as they build their own pathway with tools that we supply as well to become very much sort of native in that new vocabulary that I mentioned earlier and able to speak, as I say, not only the language, but really grasp all the possibilities that language
Corporate Approaches to ISO 20022 Adoption
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supplies.
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And what about on the corporate side?
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Yeah, on the corporate side, we're seeing really two approaches, Jane.
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The first is for customers that are large enough and sophisticated enough to join Swift directly under the Swift score arrangement.
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There is work underway to enable the very same ISO message standards that we've been implementing for bank-to-bank communications, which
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for corporate to bank as well.
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That work is actively underway.
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There's a small group of large corporates, a small group of banks actively progressing that and pursuing that.
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The flip side is the work required on corporate side to engineer capability to not only create the ISO messages themselves,
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So creating the technical capability to do that, re-engineering their systems and their processes to use this new language in its full capacity.
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And then more importantly, Jane, not only be able to talk that language with their banks and their counterparties,
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They'll be able to grasp the possibilities of the data.
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That's the key, I think, to unlocking the success of ISO for a corporate customer.
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How do we turn this new message standard into data, meaningful data that they can use to re-engineer, to improve, to make more efficient their own operations?
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Brilliant.
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So there's a lot to do and a lot going
Conclusion and Upcoming Report Announcement
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on.
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We're going to have to wrap up this podcast now before I say my final goodbyes.
00:18:34
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Minaj, is there anything else you'd like to add or any sort of summary, final thought before we go?
00:18:39
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No, I think we covered it comprehensively.
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So clearly it's important as corporates embark on the journey on the ISO.
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They work with the ERP providers, with supply chain power providers and banking providers to understand how changes are being incorporated and how can we use some of these data elements in their future decision making or optimizing tools which they are implementing as well, which Mark alluded to.
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Brilliant.
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So I'll have to leave it there.
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Thank you, Minaj, for your time.
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And thank you, Mark.
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And thank you to the audience for listening.
00:19:09
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I'd like to ask you all to look out for the HSBC Payment Trends Report that's coming out.
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And also TMI covers this topic well.
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So if you want to read more about the payments trends or anything in treasury management, go to tmi.co.
00:19:40
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Thank you for joining us at HSBC Global Viewpoint.
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We hope you enjoyed the discussion.
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