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How the payments landscape is evolving in Asia-Pacific
In this episode of the EY NextWave Banking in Asia-Pacific podcast, we discuss the changing payments landscape, and the need for agile and scalable banking infrastructure in Asia-Pacific.
We are all witnessing the evolution of the payments industry. The fast-changing and dynamic payments landscape has enabled banks to focus extensively on agility and scalability as customer expectations continue to transform. Moreover, banks are drawing inspiration from digital players in adopting their digital payments model and considering innovative partnership strategies with fintechs. This has changed the way banks engage with customers and has made us reimagine the role of banks moving forward. The same development impacts the speed of change we expect in the coming years.
Tune in to this exciting discussion with host Clare Sporle and guest speakers, May Lam, EY Asia-Pacific Payments Leader and Ethan Teas, Executive General Manager, Payments, Commonwealth Bank of Australia.
Key takeaways:
Payments will play a crucial part in reimagining the role of banks going forward.
Traditional models used may need to be challenged, and collaboration across the ecosystems needs to be embraced.
Payments come hand in hand with rich data — providing not only an opportunity, but also a responsibility.
For your convenience, full text transcript of this podcast is also available.
Andrew Gilder
Welcome to the EY NextWave Banking in Asia-Pacific podcast.
The payments landscape in Asia-Pacific continues to experience a wave of innovation, driven by technological advancement as well as consumers and business’ desire for on-demand banking and payment solutions. Payments leaders must make decisions today to win in the future as technology giants, fintechs, merchants and social media giants have all created their own digital payment offerings. So, what might the future of payments look like in this region?
For today’s episode, I’m glad to introduce Clare Sporle, our EY Financial Services partner based in Sydney, who will be leading today’s conversation with two special guests. Over to you, Clare.
Clare Sporle
Thanks, Andrew, for the introduction. Our special guests today are here with me in Sydney, Australia. First, Ethan Teas, Executive General Manager Payments at the Commonwealth Bank of Australia; and May Lam, EY Financial Services Consulting Partner, as well as EY Asia-Pacific Payments Leader and our EY Oceania fintech Leader. That's quite a list of titles you've got there, May.
Sporle
So, in this episode today, we will uncover the key trends shaping the payments evolution — how should banks be considering their partnership strategy with fintechs, as well as a dive into the banking infrastructure needed to enable agility and scalability for the continual evolution of payments.
Sporle
So, hello, Ethan and May. Thank you so much for joining me today. So, let's get started by setting the scene with a macro question. So, Ethan, perhaps we’ll go to you first. Can you give me a sense of the macro mega trends that you're seeing impacting payments here in Australia? And then, May, it would be wonderful if you could compare and contrast that with what you're seeing more broadly across Asia-Pacific.
Ethan Teas
Sure thing, Clare. And thanks so much for having me, Clare, and to the EY team. This is an exciting topic and has been for a couple of years and will be for a few more. When I think what the mega trends that are affecting Australia, they really mirror the global mega trends, where payments becoming faster, safer, more open, better, and make cases better value. Here in Australia, we've got lots of changes in the underlying capabilities, which is driving the uptake of digital payments in emerging payment technologies. That's both in traditional clearing streams and also in new emerging clearing streams. We have a faster payment infrastructure here.
Teas
We're good 10 years behind the UK and several years behind other markets, but it's moving really fast. So, we just launched at CBA PayTo over the weekend and that was a really exciting moment where the NPP, which is already doing over 3 million transactions a day, has a new capability for mandates, which is exciting. And we're seeing a lot of reform and regulation. So, we're seeing the rules of the game hopefully improving and better matching the current state and future state. And in that, there's an opening of the payment system, which we don't know what's going to happen yet, but it's certainly exciting.
May Lam
Thanks, Ethan, and great to be here. Thanks for having me. So, from the APAC perspective, probably there are four megatrends that we'll summarize. The first one is that there are changing customer behaviors, preferences, expectations. The pandemic suddenly accelerates digital transformation, but also the relevance as well. So, when it comes to payments, customers have NSD mind on different ways of payment, like contactless payment, the different ways of SS Fund, so that hands to the buy now pay later, digital wallet.
Lam
And from the businesses perspective, it's growing their e-commerce. The society perspective is looking at solutions on cash replacement, which accelerates the digital economies. The second trend that we see is that the channel development. So, for a long time, maybe Ethan you'd agree with me, that when we talk about payments, it's about ubiquitous payment, multi-channel, omni channel. So, what we're seeing now is not an option, it is actually a key enabler for the industry convergence.
Lam
When it comes to the channel, now it's [inaudible 03:52] and click. So, certain transaction can start online and finish in store or vice versa. So, we see more developments in the targeted segments of our partner sells solutions and the tender payments, in-app payment. And this payment capability actually became the first way of financial services moving into non-financial services. And we see that as the embedded finance.
Lam
The third trend that we see in the APAC region is leveraging the emerging technologies and infrastructure change. So, as mentioned by Ethan the Buy Now real-time payments, the open architecture, open banking, open finance, open data, the LFC, the QR code development, especially very strong in the ACI region. Cross border payments, DeFi, the central finance tokenization, leveraging the 5G technology, I can go on the list, machine learning, AI, etc. So, that is disrupting the holistic landscape, and at the forefront, that Ethan touched on, is the regulation. So, the regulation compliance and, also the trans regional initiatives like the CDR here ISO 20022 migration, payment licensing and also the CBDC. So, these are the four trends.
Sporle
Great. Thanks for outlining those. And I think the breadth of those trends just goes to show how payments is really playing a vital role on how we reimagine the roles that the banks will be playing going forward across Asia-Pacific. And Ethan, I'm sure this is the key part of your role at CBA, in terms of thinking about payments and how it helps to reinvent the bank. So, could you tell us a little bit more around how this is playing out in terms of those key trends we've talked about, and how they apply to your day job within your bank?
Teas
Yeah, hopefully, it is a big part of my job if I'm doing it right. And, you know, it's interesting May mentioned moving beyond payments, and it's 100% what we're looking at CBA. CBA is that digital leader and a technology leader in this market, and we hope on the global stage, as well, and we're reimagining the role of the bank in payments in a big way. We're embracing end to end experiences. And we have this great privilege of saying 40% of the transactions in Australia, we see both sides of many of those transactions that gives us valuable insight into our customers' financial lives. And nobody else has that.
Teas
We're trying to bring these to life, and we have to do that in a way that is moving beyond what the bank is traditionally focused on. In just enabling finance, we want to enable our customers’ experiences at large. And in some ways, we're doing that in specific ecosystems. In other ways, we're doing that kind of across the board. So, it's a big space for us.
Sporle
And this role, as you've described there, of payments, being able to enable financial institutions to see their customers financial lives, in a broader sense is really powerful, both in terms of enabling that enhanced customer experience that you talked about, but also that role that we have to play in retaining and building trust. But as you've pointed out, in reality, we know that that comes with a broader ecosystem, which prompts the question around, how should banks be thinking about that strategy with regarding partnerships with fintechs?
Teas
Yeah, it's a big question. And I think one that probably every bank in the world, there's a big discussion happening today. At CBA, we've got pretty good balance. So, we have our X15ventures, where we're harnessing innovation in the fintech community, partnering and introducing. In fact, earlier this week, I was at an X15 event called Accelerate, where we brought in a bunch of fintechs in payments, and it was a really exciting conversation. But it also showed how this is an emerging conversation.
Teas
And as we work with the fintech community, you know, we're working on PaaS, for example, payments as a service, that's going to be something that opens up the bank, just like the payment system is opening up, but we'll be selective in how we expose that. We want to make sure we're partnering with the right folks and do that in a safe way. And so, we've got innovation inside the bank, we've got innovation through X15, and we're supporting innovation in the broader economy. We think all three of those are things that we need to do at CBA.
Teas
So, May, I know that we regularly conduct research in this area, and we publish our EY fintech census. Can you give us a bit of background in terms of what the findings have revealed from that research?
Lam
Sure, Clare. So, EY is actually doing the 7th consecutive year of the fintech census for Australia. We started to have a lot of data on the trend and information of that. We just actually closed the census on Tuesday, so I can't really comment on this year. But looking at last year, as a center, we are no longer a startup, it is a scale that's grown up. In fact, Australia is ranked number six in the world, and number two in Asia-Pacific. So, as a sector that, we have generated quite a significant revenue, like compared to the prior year.
Lam
So, about 78% of the industry is now post-revenue, and we created a lot of jobs. And when they come to the payment, I would like to emphasize that last year's census has told us that PayTag is representing about 43% of the industry. And the early data of this the year is also showing the same way.
Sporle
Wonderful. I love that comparison, that we're no longer a startup, we're now a grown up when it comes to payments. I always find it useful to bring to life these theoretical discussions that we're having today with some examples. So, it'd be wonderful if we could share perhaps next some examples of innovative use cases that we've seen rolled out in Australia and broadly across APAC. And May, perhaps I'll start with you.
Lam
Yeah, sure. So, probably I just set a little bit of context in terms of the Asia-Pacific perspective. So, APAC is the home to 55.8% of the global e-commerce sales. And 60.2% of e-commerce payments are through the digital and mobile wallet. And average about 30% decline of the cash since the pandemic. So, it was that kind of landscape that we see that as the ecosystem, we see fintech come into play, the big tech coming into play, and then the incumbent banks are also having different strategy to go-to market.
Lam
And one of the major banks in the ACR region that we see that is quite interesting, so they look at the segmentation. They bring back the good segmentation of the banking, understanding how to serve the customer from consumer to business banking to institutional banking, and provide different payment capability, whether it is platform to embrace the super apps for consumer. From business perspective, they're also looking at for [inaudible 10:30].
Lam
So, what are the underbank, underserved markets, they have more innovative payment capability to go in. So, it's whether it's payment in a box, kind of services are building not beyond just payment, or getting pay is leverages the payment data to do that those reconciliations, helping the businesses to manage their book and grow their businesses well. And then from the institutional perspectives, it's also quite interesting, because the banks had to be very clever of leveraging the assets, like banking as a service of providing the payment as a service. So, helping the institutional corporate treasury to manage their treasury management as well.
Sporle
Wonderful. And Ethan, I know, I've seen your face smiling back at me on a number of news feeds recently. So, there must be some great examples that you'd like to share from CBA.
Teas
Yeah, I've got a few. The one you've been seeing recently is PayTo, and it's pretty exciting. So, the first major to bring this to our customers broadly, they receive strangely named side of the transaction where you can receive a mandate and a request for payment. And we've also done some test transactions with Telstra and the Good Shepherd here in Australia on the Cen side. So, this is another area where CBA can enable both ends of the payment. And we're the first in the majors. So, that's pretty exciting.
Teas
What does PayTo do? I mean, at its simplest, it digitizes and modernizes direct debit, makes it real-time. But that opens up a number of other use cases. And this is where we're really going to start to see convergence between card rails and real-time payment rails. So, that's really exciting. And the other thing we've been doing is working on our ecosystems I mentioned earlier, and this is an area where we have this privilege to see the financial lives of our customers, so we can help them with those lives.
Teas
So, we'll talk about two. We've got shopping and health. You know, we've brought to market proposition where customers can search for provider, they can book they can pay, and they can claim. So, end-to-end, that transaction, we would have focused on paying in the past. Now we can enable all that. That's really exciting. And that's great for us, because we can help our consumers and consumers in Australia at large. But also, we can help our business customers who are practitioners. So, that's really cool.
Teas
And then shopping. This is an area, again, where we can help introduce our customers to opportunities. We recently celebrated US$20 million in savings for our customers and our shopping proposition, and that's just growing and compounding. So, we have propositions where we can introduce discounts, cashback, and we can actually help our customers find opportunities to save money, which is great for our customers. It's really cool.
Sporle
And that's some great examples. They're much broader than financial services. And obviously, this is a banking podcast. So, we have been focused on banking. And we have heard that lingo of embedded finance being mentioned already earlier in the conversation. So, we're hearing a lot more around this concept, and the adoption of it more broadly in sectors beyond financial services, such as retail and telcos. So, Ethan, perhaps can you help our listeners understand what we mean by embedded finance, and how banks should be considering this role for them in the new model going forward?
Teas
I'll give it my best. I mean, I think it's a really hard to approach term sometimes. But to me, it's really simple. It defines itself. It's about embedding finance in other services and experiences and offering a more seamless end-to-end experience for the customer. And so, this allows any provider — it could be a bank, it could be somebody else — to provide richer, more seamless experiences. And to kind of get on with it in terms of driving the economy, which is really cool.
Teas
The intertwining of payments and finance creates some questions that we're going to have to answer as we get into embedded finance in a more meaningful way. They're big regulatory questions around how do you – today, we regulate institutions, and we say we regulate activities, but that gets really complicated when you get into embedded finance. So, how's that going to work?
Teas
There's also questions about how we introduce experiences into the financial system and keep things safe, but also move at pace, right? So, this is going to be tremendously important. And that's where we have this intersection with banking as a service (BaaS) and payments as a service (PaaS). So, we're open to it. We're learning and we're really excited about it.
Sporle
Right. And maybe May we'll jump back to that research that we've done before, particular around embedded finance. What did we hear in that research?
Lam
Yeah. EY might actually be projecting that is a US$7.2 trillion of the market of better finance by 2030. So, we see that, as mentioned earlier, payment is the first financial services moving into the non-financial services but the embedded finance, it's actually opened up a lot of different opportunities for open insurance or embedded insurance, as Ethan mentioned quite a few times about the word experiences. So, it's providing different experiences.
Lam
And what I would like to call out is that from the bank perspective, what that means. So, bank, traditionally, maybe talking about like in Australia or any developed economy or nations that has rapidly transitioned as an industry from into service-driven industries. So, from the main bank relationship, traditionally, between the business and the bank, it's also transitioning from the previously anchor on lending, to now transactional banking. And the number one transactional banking need is payment, which is precisely what has been disrupted.
Lam
And that is the relevance of why payments for banking are so important because it's moving beyond. Again, payment capability itself is closer to the customer experiences and their journey. So, when the customer, whether they're consumer or business, when they come to payment, they don't even need to think about that I am doing the payment transaction. It is part of the journey. And I think that is the growth and the need of the embedded finance.
Sporle
Wonderful. So, I don't think we can talk about payments without talking about data. It's such an important element. And data arguably could be seen as a new capital within organizations as we consider the sources and the uses of data. So, I know neither of you would consider payments as a cost center, can you share your thoughts on why it's essential that it is seen as a source of revenue and profit? May, perhaps we'll go to you first.
Lam
So, if data is the new oil, behavior will be the alternate energy. And payment data is about the commercialization and the data monetization opportunity. And what it refers to is that any use cases on which that information in payment messages or in the transaction records can be leveraged to deliver value, creating new revenue streams, or driving efficiency.
Lam
So, the example that I can provide is like, for example, the common use case that we see a lot is about internal operations. So, how can, using the payment, data or the pattern, to understand the cost reduction and driving the efficiency gains, and improve the strikethrough processes, helping dispute the payment, and that can shift that savings and to maybe enhance the margin and have better customer experience.
Lam
And also enhancing the existing services. So, banks can improve their payment tracking, provides stronger support for the relationship managers, and having a more meaningful conversation, helping the businesses to enhance, for example, the liquidity and transparency of what other needs from the business growth perspective. And then, of course, I think CBA, probably you Ethan can talk more about that, is that what is that new proposition and the business model, as you mentioned earlier about you seeing two sides of the coin — both the consumer and the business. There's huge opportunity to close the loop, leveraging those data. And we imagine what is the role of the bank in the future.
Teas
Yeah, it's really good. And at CBA, we think about, yes, about payments monetization or data monetization, in this case. And at the end of the day, we're in the customer business, and at the heart of the customer relationship with the bank is a transactional relationship. And that's really payments, right? So, we start there. And we have the privilege to be part of both sides of the experience, at times. We have the privilege of having that data and being able to create better experiences for our customers with that data. I talked a little bit about the ecosystems earlier. But there's more to it than just that. And so, we don't spend a lot of time thinking about what the P&L is for payments, because we know the intrinsic value, and that it is really about our whole business. This is in the middle of it.
Teas
But on the data end of things, we were talking earlier about ISO 20022, there's a bigger data payload, and an all of our modern payments infrastructure, we can bring more data into the payment message. That brings huge opportunities to create more value. And actually, for the banks and the operators of these messages, to replace some of the parallel processes that are out there and be able to cater to that inside of the data that we're now moving. That's going to be an exciting next chapter. And I'm really curious to see everyone monetizes and venture around that.
Sporle
Right. And May, we have discussed this data part being critical to the success for payments, but what are the other critical success factors that you'd highlight to be considering by our listeners?
Lam
Yeah. I think there's quite a few critical success factors. First one is money — so the investment. And investment envelopes that for bank perspective is still quite heavily due to the compliance and risk and regulation obligation. So, it's like how to leverage that investment opportunity, moving from compliance to compete. I think that's one critical success factor. And the second one is that I kind of mentioned before is that the segmentation. So, we need to focus on the distinctive verticals. We see some of the international banks in the APAC region as well, that they are really honing in onto their sweet spot. So, the vertical maybe health, maybe transports, maybe property. So, we see those different value propositions come to market. Because when it comes to payment, it is not one size fits all. It needs to be relevant.
Lam
And then the third one is that the leverage in the partnership and ecosystem. Because banks do have the duty of keeping their license is their responsibility. So, they can be seen as moving slow, but it's not necessarily the case. So, it's embracing the right partner, modernize the payment products, make it more open, make it more consumable by different partners and creating a new model. I think that's really key to do that. And then the last but not least, to kind of touch on the data. So, keep having this group data strategy, understanding how good you create the new model, new services and closing the loops of the bank.
Teas
I love moving from comply to compete. It's a big struggle, I think, for every institution. Especially at this time right now, there's an elevated demand. We think about, can we find a way to invest in such that we're complying but it's end to end and we're innovating and improving, modernizing. But when I think about critical success factors, it's all about balance, and balance comes down to being on the right foundations. So, we've got to get the foundations right in the industry to ensure that all parties are motivated to innovate, grow, and drive new experiences. So, that'll come down to really boring stuff inside of our real-time payments infrastructure, our current infrastructure around the rules and the economics, and these sorts of things.
Teas
But it's also finding balance between the tensions of opening up, keeping things safe, moving fast and moving in an organized way, such that we can bring that ubiquity that you talked about at the beginning, May, to all of our experiences, because that's one thing about payments, they're an inherent network economy. You've got to bring the whole market along. And that means everyone's got to be motivated to row the boat in the same direction, do that in a safe way, and bring all of those great outcomes to our customers. And so, finding balance, and getting the foundations right, those are, to me, the two most critical success factors.
Sporle
Wonderful. So, we've covered a lot of ground today. So, I have one important question for you both in closing, and that is, what is the one piece of advice that you would like to give a CEO listening to the podcast today? Ethan, I'll go to you first.
Teas
I'll just say get to know your payments people and get to know the industry. That's the most important thing you can do.
Sporle
Good. May?
Lam
I would ask whether they have the group Y payment strategy, do they have a robust operating model and investment governance? Payment is a crucial part for the bank of the growth strategies. It's no longer a cost center, it should never be a cost center. It is revenue, generating revenue, source of revenue foundation, the relationship buildings. So, it's moving away from the commodity solution to the business-critical value-added services.
Sporle
Wonderful. Thank you both so much for joining me today. It's been a very rich discussion. I've certainly learned a lot. And perhaps in summary, a few takeaways for me. The first one is that payments obviously are playing a critical part in how we reimagine the role of banks going forward. And we see that that's needed as consumers demand more speed, and more insight. The ecosystem needed for success means that some of the traditional models we may be used to need to be challenged and that collaboration across the ecosystems need to be embraced.
Sporle
And payments come hand in hand with rich data, which provides an opportunity, but also comes with responsibility. And our governance bodies need to make sure that we ensure that that is balanced, and as May eloquently put it, that we make sure that we need to comply to compete. So, thank you so much today.
Lam
Thank you.
Teas
Thank you, Clare.
Gilder
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