Cross-border payments: challenges, opportunities and disruptions in 2017
2017 will be another bumpy year for payments across Asia Pacific. On the one hand, growth of e-commerce and mobile commerce (m-commerce) coupled with efforts to realize financial inclusion initiatives will bring revenue to a broad spectrum of players from retailers and merchants on one hand to the banks and cards companies on the other end, as well as the intermediaries in the middle.
On the other hand, any significant growth in the market will attract not only the attention of regulators interested in ensuring consumer protection as well as prevention of trade-based money laundering. E-commerce is a natural magnet for the hackers wishing to monetize the opportunity for themselves as well.
Fintech Innovation spoke to Mohit Mehrotra (photo upper left), Strategy Consulting Leader, Deloitte Southeast Asia, on how e-commerce payments are evolving in the region and the impacts of social media, evolving regulation, faster payments and blockchain on the ecosystem. He also talks about the evolving profile of merchants, the peer-to-peer play and how payments will evolve in the Industry 4.0 landscape.
Rise of social commerce
Mohit Mehrotra says apart from the expansion in cross-border payments as e-commerce extends beyond national borders, the industry will also see social commerce gain a foothold particularly in markets with high social media use.
“We are seeing greater rise of social commerce which will be a pertinent topic especially when you see many of the social companies building commerce capability and payments capability in their construct,” he adds.
Roger Graham (photo right), Senior Director APAC, Hootsuite, explains that buying via social is already an integral aspect of social media. For consumers, the ease and accessibility facilitates on-the-spot purchases. For sellers, social is increasingly shortening the path to purchase, with new formats to directly generate sales on the platform.
He suggests that “given widespread device penetration and social adoption, the biggest hurdle today is no longer technological, but cultural. Vendors need to recognize that social is now the core environment for businesses to engage customers. Successful vendors are using social to find, acquire, and build long-term relationships. As interaction between sellers and buyers becomes more personal and co-creative, social’s role as a first and recurring touch point will only continue to grow.”
Phil Pomford (photo left), General Manager, Global eCom, APAC at Worldpay, chimes in predicting that coming years are likely to see major technology companies, including Facebook, Apple and Google, follow in Alipay’s footsteps and compete on the lifestyle USP to win over customers.
“The roll-out of in-browser payments by Apple and Google and launch of in-app money transfers from Facebook mark the first steps in terms of delivering a ubiquitous experience,” he adds.
Evolving regulation opens opportunities
Deloitte’s Mehrotra also notes that many regulators are leveraging payments to drive the broader [financial] inclusion agenda, and drive greater productivity in the economy. As a cascading impact of that many of the non-banks have started to look at how they can play a role in this particular space.
“Everybody appreciates the broader profit pools that exist in the fee income market. The cautionary tale is: with the rise of the digital economy, beyond just the classical players in the physical economy payment ecosystem, we will see greater scale plays by the digital native businesses that are going to ride of this wave of regulatory change happening in many of these countries,” he elaborates.
Need for transparency in cross-border payments
With tightening regulations on KYC and AML, it’s very critical to monitor these flows from a cross-border perspective. This is what is driving the transparency agenda in many organizations. At the same time, governments are mandating national financial institutions to push forward their financial inclusion agenda.
The LexisNexis paper, Financial Transparency and Inclusion Survey, revealed that 87% of respondents agreed that financial inclusion is a prerequisite for financial transparency. But getting to this position is the challenge. Respondents from Singapore (53%), the United States (52%) and China (55%) say their onboarding processes are mostly (Singapore) or as much (United States and China) a compliance exercise as one that yields true insights about the customer.
Figure 1: True insights or ticking the box
Source: Financial Transparency and Inclusion Survey, LexisNexis 2016
How then do you balance transparency, financial inclusion, compliance and still meet the business agenda of gaining deeper insight into the customer’s needs? And how do you achieve this taking advantage of the economic benefits that advances in technology offer?
Imperative for faster payments
The adoption of real-time payment systems continues to move forward with systems in various stages of use or deployment in Sweden, Singapore, the U.K. and South Africa. The ability to settle a payment immediately is of interest to merchants.
In Asia where e-commerce, m-commerce and social commerce, are fast becoming a popular platform for buying and selling goods and services, small merchants are looking for ways to ride the faster payment wave to increase revenue and reduce customer churn.
Mehrotra says a second driver of instant settlement or faster payments in Asia is the rise of the sharing economy, particularly for the next generation of buyers and sellers.
Payments powered by blockchain
In addition to consortiums and startups dabbling in blockchain-based payment solutions, Mehortra notes that governments and regulators are looking at blockchain for their settlements.
“I think the ecosystem is gearing to see how we build that more transparent, efficient payments infrastructure. Blockchain is one of the many technologies being considered to see if it can play a bigger role moving forward.
“The definition of industries is changing and has a cascading impact on how commerce is done, and by necessity, how payments will be done. He predicts greater set of complexities going forward that the ecosystem needs to think through,” he concludes.
Abdul Naushad (photo right), Founder and Chairman of PayCommerce, warns that Blockchain doesn’t necessarily mean faster payments. “Blockchain is out of the box technology—it’s just a way to manage your records. You should be very careful when mentioning blockchain in the context of faster payments. There’s no way that money is settled or cleared instantly. How they act on the message is what makes it fast,” he comments.