The global financial crisis
that rocked the US and Europe has left banks in Asia-Pacific
relatively unscathed. When it comes to transaction banking for
corporates, they are now well positioned to battle global players
for market share, writes Richard Davies.


Strong balance sheets have given
leading domestic banks the opportunity to acquire other
institutions, achieve scale and invest in new services, and
payments are at the heart of these activities.

In the past, many of Asia’s
emerging regional banks operated with semi-autonomous, in-country
frameworks that primarily serviced local companies. Now, as banks
and their customers expand into different markets, regional banks
have recognised the need to provide a more unified treasury
management solution.

Asian regional banks are no
strangers to competition from larger global players keen to grow
transaction banking business in the region. However, these regional
banks see their core strengths in local relationships and
willingness to lend as major advantages. Another benefit is that
the foreign multinational corporations that would previously work
with one lead bank from their home market and use an Asian bank for
local needs are now diversifying.

The Asian corporate market is often
described as unsophisticated in comparison to North American and
Europe due to a greater reliance on paper- and fax-based payment
processes. The need to avoid time delays in paper processing and
payment authorisation between subsidiaries has significantly
increased the appetite for electronic payments. Corporates are
expecting the same level of integration with their banks and online
services as global multinationals in the region.

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Corporates are also demanding that
their banks help them achieve a greater understanding of cash flow.
For payments, particularly in the SME market, the most pressing
requirement is for notification of incoming payments or receipt of
payment by counterparty via SMS and email alerts.


Low value payments and

South-East Asia and the Pacific are
home to an incredibly mobile workforce. The Philippines and
Indonesia are two of the largest sources of migrant workers. The
World Bank and the G8 have been promoting programmes to help reduce
the cost of remittances for migrant workers. But cost is also an
issue for banks wanting to get into this remittance market, which
has traditionally been dominated by money transfer operators (MTOs)
and informal channels.

Options for banks delivering
remittance services have traditionally included establishing a
proprietary network, building a bilateral service with a
correspondent or using open correspondent banking arrangements. But
these are costly to maintain and scale. In some countries banks
have partnered with MTOs in order to scale this part of their
business. But Asia’s regional banks have acquired or grown
operations in many of the countries that make up key remittance
corridors. Many are therefore looking to use their regional
infrastructure instead of the MTOs to deliver competitive

The potential reward for banks
succeeding in this strategy goes beyond the remittance fees to
encompass opportunities for gaining both new worker accounts and
employer accounts.


A less fragmented

South-East Asian countries are
significantly improving interoperability between their capital
markets and Real Time Gross Settlement (RTGS) system linkages. Hong
Kong is the major hub for RTGS and multi-currency settlement. But
for many banks, the use of CLS Bank, SWIFT and traditional
correspondent banking relationships meets their cross-border
high-value payment needs.

Numerous developments are also
underway to increase the interoperability of low-value payment
systems across the region. Many linkages between national ATM
networks have been put in place to make life easier for tourists
and migrant workers.

These are now being strengthened
with the potential for cross-border POS and low-value funds
transfers. Interestingly, the Asian Payment Network Forum says it
will soon offer cross-border funds transfer and e-POS services, in
addition to the existing cross-border ATM cash withdrawals.

Another driver of interoperability
of low value infrastructures is the adoption of SWIFT’s low value
clearing solution and possible use of the ISO 20022 message
standard. Work being carried out in Australia and New Zealand will
demonstrate how well this works in practice.


Moving towards the

Faced with growth pressures,
customer demands and new opportunities, banks are increasingly
looking to modernise and improve their infrastructures. It is a
complex task when so many parts of the banks’ operations are
running on legacy systems, making investment prioritisation

Many are now considering the
payments hub model for high value payments to support their
transaction banking business because this promises a centralised
infrastructure to handle payment flows. It also offers genuine
flexibility and business functionality.

Low value payments, which are
easier to process by nature, are typically managed differently in
each country. Regional banks are therefore increasingly interested
in the convergence of these onto a single hub. However, the
difficulties in managing processes, connections and rules for each
market often mean this is not an immediate priority. This is likely
to change as volumes grow and infrastructures achieve more

Whether banks begin the payments
hub journey with low-value or high-value payments, they must work
with partners that understand the intricacies of both and the
business process change required.

Banks in the Asia-Pacific must look
at the big picture for payments. Faced with growing customer
demands and business opportunities, creating a payments hub
represents the best strategy to overcome domestic and cross-border
payments challenges.

It’s paramount that a payments hub
is introduced in conjunction with a fully coordinated payments
strategy. Without this, the hub can’t be fully exploited, further
fuelling the disjointed banking environment. By taking an
integrated approach to modernise operations, banks in the region
can realise a faster return on investment and ultimately gain
market share from the larger global players.

Richard Davies is director of
APAC at Logica’s Global Products Business