Commercial Payments in Asia-Pacific: Is this the New ... · McKinsey & Company | 1 Commercial...

Commercial Payments in Asia-Pacific: Is this the New Opportunity?

Asia-Pacific Commercial Cards and Payments Summit, Singapore

14-15 May 2015

Presentation

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company | 1


▪ Overview of Commercial Payments in Asia-Pacific

▪ Roadblocks to success

▪ Changes impacting Commercial Payments landscape

▪ Way forward

Contents


Global payments revenues have resumed a healthy growth rate after the crisis; Asia Pacific will account for 56% of overall growth

SOURCE: McKinsey Global Payments Map, McKinsey Global Banking Pools

+8% p.a.

+8% p.a.-12% p.a.

2018

2.3

2013

1.6

2009

1.2

2008

1.3

Share of total banking, %

39 4334 41

US$ trillion

Payments revenue growth decomposition 2013-2018

100% =

13%

15%

APAC

EMEA

2013-2018 growth

NorthAmerica

Latin America

755

56%

16%

10%

5%

5%

11%

CAGR2013-18

Global payments revenue

Percentage (100% = US$ billion)


6

13

42

14

EMEA

Credit card issuing

Commercial CA

Transactions

309

12

1

28

5

12

167

61

22

64

Merchant Acquiring

Transactions

Credit card issuing

Consumer CA

Latin America

44

35

9

31

9

33

28

North America

323

6

10

15

27

APAC

539

81

Percent of total revenue pool within geography, 2013, USD Billion

Already today APAC shows the biggest payment revenue pools, mostly coming from Commercial Accounts

SOURCE: McKinsey Global Payments Map

Co

nsu

mer

Co

mm

erc

ial

1 Includes Cash, Cheques, Transfers, Direct debits, Debit cards, Prepaid cards2 Includes Current Account and Overdrafts


Commercial payments will be a strong growth driver, with growth rate higher than in consumer paymentsPayments revenue, CAGR 2013-2018, %


11

4

10

5

6

11

4

10

Latin America

North America

EMEA

APAC

ConsumerCommercial


Accounts and transactions likely to be the main source of payments growth in APAC Commercial

World payments revenue growth 13-18

60

29

67

106

28

13Transactions

Accounts

Credit cardsissuing

Merchant acquiring

5

USD billions


154

22

59

3

9

19

15

67

Consumer Commercial

APAC RoW


Share of electronic payments by value has increased across markets in the last 7 years


2013, %, USD Billion

MalaysiaIndia

Australia

China

Japan

100% =

2013

15

94%

4% 2%

2006

11

87%

11%2%100% =

2013

33

87%

11%2%

2006

32

82%

15%2%

100% =

2013

124

49%

33%

18%

2006

49

18%

67%

15%

100% =

2013

14

77%

12%11%

2006

5

27%

44%

29%

100% =

2013

2

50%

37%

12%

2006

1

20%

66%

14%

Cash ElectronicCheque


MalaysiaIndia

Australia

China

Japan

1.3 1.5

173 211

0.49 0.39

25.4 30.1

4.7

61

15.2

254

3.1 2.7

13.7 29.4

11.1 10.4

136 124

Commercial Card spends have also grown across most APAC countries; with the exception of Japan

SOURCE: Euromonitor

Number of Cards (Mn)xx xx Number of transactions (Mn)

4734

+8% p.a.

13 F2009

2426

-2% p.a.

132009

60

15

2009

+42% p.a.

13 F

1.20.5

+23% p.a.

132009

4.32.8

+12% p.a.

132009

Total spend on commercial cards1, USD Billion

1 Includes Paylater cards


1 Includes prepaid cards

Number of payments transactions Value of payments transactions

However, still significant opportunity to electronify payments, including Commercial

100%

96%

76%

82%

90%

59%

57%

100%

15%

8%

46%

34%

36%

13% 39%

9%

G2G 0

G2B 07%

G2C 47%

B2G 0

B2B 186

B2C 15

C2G 4

C2B 1,618

C2C 457 19%

36%

25%

100%

13%

14%

8%

29%

67%

37%

56%

88%

55%

9%

89%

99%

8%

10%

83%

14%

G2G 1

G2B 4

G2C 34%

B2G 5

B2B 192

B2C 5

C2G 15%

C2B 164%

C2C 7

APAC, 2013OthersTransfers

Direct debitPay later cards

Debit cards1

Cheques

Cash


Percentage, 100% = million Percentage, 100% = USD trillion


B2B payments by number of transactions B2B payments by value

Asia Pacific B2B payments are less electronified than other geographies

90%

56%

70% 18%Latin America 39

North America 199% 9%

EMEA 48

Asia Pacific 186 29% 55%

87%

50%

74%

28%

0%

21%

15%

10%

Latin Americal 298%

North America 720%

EMEA 2121%

2%

Asia Pacific 19110%

OthersTransfers

Direct debitPay later cards

Debit cards

Cheques

Cash


Percentage, 100% = million Percentage, 100% = USD trillion






▪ Way forward

Contents


Substantial opportunity to create value from “e”-nablement of billing

SOURCE: Fidesic; Ariba, OP Bank Group; Gartner Research; Certipost

€ per bill

3.0

4.5

No printing and enveloping costsFewer exceptionsE-archiving

Automatic data encodingFewer exceptionsE-archiving

Theoretical savings potential

B2C: €7.5

Biller Receiver


The order-to-pay process is complex and involves numerous bank and third-party services

Simplified order-to-pay process

Procurement/Purchasing

Accounts payable

Order Receipt/Processing

Accounts receivable

6

4

5

1

Buyer Supplier

3 2

Payment sent to supplier

Invoice sent to buyer

Goods/services sent to buyer

Purchase order (P.O.) sent to supplier

P.O. data sent to Accounts payable for reconcilement

P.O. data sent to Accounts receivable for credit evaluation/invoicing

Supply Chain Management EIPP space


… and client relationship life uplift of 30%

Transaction Banking continues to be very attractive for bankswith high relative returns and positive impact on client stickiness

5.3

2.3

CorporateBank

TransactionBank

9

7

With TB services

+29%

Credit onlyrelationship

Operating profit over RWA, % Years

2x higher relative returns on risk-weighted-assets…


5 key roadblocks in Commercial Payments

Lack of common standards and policy support to drive e-invoicing

1

Fragmented value chain for B2B automation2

Unclear revenue stream to replace loss of incumbent earnings

3

Significant informal SME economy4

Insufficient focus from leading players5






▪ Way forward

Contents


We see 8 paradigm shifts that are impacting the Commercial Payments landscape

Improving customer willingness to use digital and alternative channels

1

Growth of Asia-linked trade and changing nature of businesses

2

Convergence of technologies, standards and 3rd

party platforms3

Digital @ the speed of thought – non-banking innovators are driving change

6

Increasing enablement by Governments8

Customers thinking ‘end-end’ – multi-platform, inter-operable and integrated solutions

4

Strengthened capabilities of local banks5

Adoption of big data & advanced analytics7

McKinsey & Company | 17SOURCE: World Bank, Strategy Analytics; IDC

In Emerging Asia, smartphone & internet penetration will exceed current bank account penetrations by 2018

% e-Commerce penetration, 2018

% Population with bank account, 2011

% Smartphone penetration, 2018

% Internet penetration, 2018

Indonesia 20 44

India 35 21

96 84Japan

73 34Thailand

64 60China

66 74Malaysia

Higher penetra-tion enables mobile solutions

Higher penetra-tion increases likelihood to purchase online

730

829

6774

1744

4375

3043

1

Penetration: Share of population using


Technology is changing corporate client needs and demandsin corporate payments

SOURCE: Corporate practitioners survey, EFMA and McKinsey Mobile Banking survey

Increasing importance of e-channels

▪ Over 70% of Corporate customers are already strong users of digital channels

▪ 82% of corporate practitioners cite technology platform and capabilities and 55% cite e-channel services as an important factor in selecting a bank

▪ In terms of products, 37% of domestic corporates in Asia cite that internet/electronic banking capability is important for consideration for choosing banks as lead cash management provider and 23% of corporates expect more use of electronic bank platforms in Trade Finance

New opportunities from mobile

▪ 72% of banks offer mobile solutions for corporate clients (with 91% offering payments)

▪ 70% of banks agree that mobile banking will funda-mentally change retail banking in next 5-10years1

▪ The mobile channel offers unique solutions not available on other channels including mobile payment solutions

▪ Mobile is also being used for reporting and verification but not for execution

Strongest client preferences expressed for payment approvals, account information and FX transactions

1


SMEs are increasingly using digital channels and solutions

1 N = 750 SME customers in India; Interaction refers to any kind of contact with the bank, eg., doing transactions, gathering information, receiving advice, etc.

SOURCE: McKinsey BANCON survey 2013

2

8

8

9

17

21

Call Center

ATM

Mobile Banking

RM

Online Banking

Branch

Average number of interactions per customer per month across channels1

Digital Channels rapidly gaining in importance for SMEs

Accounting software penetration by segment , %

SMEs increasingly using ‘digital’ tools to facilitate business

80

60

25

Medium

Small

Micro

60-7015-20MYOB

Others

Sage

<55-10

AutoCount

▪ 25 touchpoints per month on digital channels▪ Branch & RMs remain important

▪ Roughly 200,000 SMEs are using Sage/UBS▪ Competition from small accounting software

such as Auto-Count and QnE is increasing

1


Incremental Asian cross-border trade likely to account for 57% of global growth over the next 5 yearsTotal cross-border trade flows (excl. services), growth 2013-2018F, US$ billions

SOURCE: IMF DOTS, McKinsey Global Payments Map

Trade > 5% of total/growth

Trade > 10% of total/growth Trade > 20% of total/growth

Trade < 5% of total/growth

Total cross-border trade flows (excl. services), growth 2013-2018F

… to

Africa

Oceania

Asia

Europe

Latin America

Middle East

North America

Africa Oceania Asia EuropeLatin America

Middle East

North America

2013 71 7 202 222 25 24 61

Growth 36 1 172 135 9 10 23

2013 6 21 224 20 4 12 16

Growth 2 5 118 11 2 3 3

2013 206 163 2,970 918 329 333 986

Growth 113 72 1,750 517 126 109 300

2013 215 58 883 4,713 193 343 522

Growth 66 8 501 2,037 64 132 64

2013 23 6 255 149 241 21 488

Growth 6 1 209 74 93 9 110

2013 59 10 734 209 16 125 127

Growth 29 1 584 102 7 77 34

2013 438 34 466 301 398 91 599

Growth 15 7 256 147 154 41 103

Trade flows from …

US$ billions

2


Open account usage growing – now a quarter of trade finance spends in Asia

SOURCE: Greenwich: 2011 Asia Large Corporate Trade Finance Study

Share of fees paid for trade finance (weighted) - 2011

%

Export Finance

Open AccountTrade Finance

25

26

Import finance49

21

2


Customers are already going digital in Trade Finance

45%

45%

46%

43%FT 500

Domesticcompanies

Foreignsubsidiaries

Total Europe

Increased share of Trade Finance is being managed electronically

Percentage of Trade Finance being managed electronically, %

SOURCE: Greenwich Large Corporate Trade Finance Survey 2013 across 300 participants

20132


Increasing globalisation of supply chains

SOURCE: WTO, Research

China

2030

Emerging Market ex China

Developed Markets

60

2012

40

1990

20

Percent

Import contribution to global exports1

1 Value of imports in the goods exported - global average

2

Supply chains across industries continue to become more globalised


In Cash, comprehensiveness and sophistication of solutionare becoming increasingly critical for Mid-Corporate

n = 145, % of respondents who agree / strongly agree with attribute

Online presentation of MIS

Reach/proximity to branch

Integration with customer ERP/accounting system

Provides comprehensive cash management solution

77

Price 84

SOURCE: 2011 Asia-Pacific Mid-Market Banking Survey

50

42

30

20

18

Agree

Strongly agree

Rate each of the following criterion when selecting a bank for cash management products

30

37

33

35

34

48

57

63

3

McKinsey & Company | 25SOURCE: Institutional websites, expert interviews

New standards and technology-driven innovation with shift to more interoperable, multi-bank market

Providing clients with a seamless channel experience across different banks

Dematerializing the Trade Finance process and providing straight-through processing

Sharing cost of selected operating processes across competing players

Main area of innovation Related emerging standards and 3rd-party platforms

Provide global payments solutions through 3rd-party platforms

� Earthport: low-cost STP international payments9

� Ripple: open payment protocol for real-time international payments, aimed at replacing correspondent banking relations

10

� Thomson Reuters ACCELUS: shared KYC and compliance database

8

� Polaris iGTB: new generation “turnkey” IT platform for TxB7

� 3SKey: multi-bank authentication token2

� MT 798: SWIFT trade messages for corporations3

� EBAM: electronic account management1

� OpenSCI: 3rd-party Supply Chain Finance platform6

4 � BPO/TSU: 100% paperless LC-like trade instrument supported by 3rd-party clearing

5 � Bolero Exchange: cloud-based multi-bank trade platform

3


Digital leaders beginning to provide “end-to-end” digital journeys

MarketingSales & Coverage

ProductsOperations & IT

ServiceData analytics

Online plat-form for trade execution, order management and portfolio management

Simulation tools that facilitate decision-making

Remote acc-ess through video con-ferencing with bank representative

Innovative digital solutions, such as "follow the sun pooling"

Channel interoperable portal (easy, fast and remote access)

Use of online & social media for service, incl. Twitter sites for service requests

Use of transaction details to target sales and offerings to customers

Online/ seamless fulfilment of SME loans

Leveraging online and mobile applications to build awareness

Online SME forum for procurement

Examples

4


Citi launched an integrated mobile payments solution for Corporate clients

SOURCE: Citi webinar

4 EXAMPLE

Mobile Collections Solution for Corporate Clients

▪ Client: Coca-Cola Beverage in Korea– Conducts more than 200,000 transactions per month, many in

physical cash from its retailers.– Cash collection considered inefficient manual process, requiring

significant investments in time and effort and prone to errors and security issues

▪ Citi’s solution:– Move cash collection on mobile platform– Service features a real-time direct debit with real-time account

owner approval through any mobile phone▪ Key factor for adoption:

– Making real time fund collection from retailers possible via direct debit methods and mobile communication processes

– Citi’s solution allows putting a stop to physical cash collection without change in collection terms

▪ Benefits: Removal of physical cash collection prevents:– cash accidents,– reduce physical cash delivery costs,– maximizes liquidity and– increases efficiency through accounts receivable reconciliation

automation

Citi Transaction Banking Innovation center

▪ Areas in development– Web solutions– Mobile technologies– Supply chain

technologies– Analytics

▪ 10 FTEs in Singapore▪ Innovative collaboration

with clients to co-develop and pilot solutions


1 Weighted on top 10 banks in each country (subject to a minimum respondent base of 3 for each of the banks)

Cash management: The quality of local banks’ capabilities now matches foreign banks in many markets

Foreign banks havestronger capabilities

Domestic banks are betterthan foreign banks

Domestic banks are onpar with foreign banks

Asia ex-Japan, 821 respondents in 2013

China

India

Indonesia

Malaysia

Philippines

Singapore

South Korea

Taiwan

Thailand

Country

Domestic product capabilities1 International product capabilities1

54

51

58

62

61

60

56

52

52

54

54

59

58

54

43

43

50

44

Foreign banks Domestic banks Foreign banks Domestic banks

58

39

53

45

65

72

51

50

28

38

38

52

60

66

49

56

85

69

SOURCE: Greenwich Associates – Large Corporate Cash Management – 2013 – Asia ex-Japan

5


Exploration and development

Production Refining & processingPrimary distribution and storage

Secondary distribution

Retail

Tra

nsacti

on

Ban

kin

gF

inan

cin

g

▪ LCs with Forex hedging ▪ Liquidity mgmt

▪ LCs purchase of crude

▪ Forex hedging

▪ Structured trade finance products

▪ Bid bonds

▪ Trust and retention account

▪ Payments to vendors (e.g., well site service vendors)

▪ Payroll processing

▪ Cash collections from retail stations

▪ Excess funds deployment in overnight money market

▪ Performance guarantee

▪ Credit against receivables – commodity financing, warehouse financing and bill discounting

▪ Vendor financing

▪ Dealer financing

▪ Collection from dealers

▪ Current accounts

▪ Bank guarantees

▪ Insurance

▪ Pre-project advisory

▪ Debt capital raising

▪ E2E risk mgmt

▪ Working capital

▪ Interest rate hedging on loans

▪ Term loans for maintenance and expansion with rate hedging

Integrated solutionacross working capital, Fx and

financing

Example: One bank has provided integrated solutions across the Energy value chain

5

McKinsey & Company | 30SOURCE: Expert interviews

Payments flow

Example: An offering for intermediate payments between telecom dealers and sub-dealers trading in pre-paid mobile phone minutes

To …

Operator Authorized dealer Sub-dealer Retailer/POS Customer

From …

3 Bank makes payment after 2 days

4 Sub-dealer pays the Bank at end of the credit cycle

Bank’s electronic payment portal

1

Sub-dealers

2 Authorized dealer transfers minutes after checking the order

Authorized dealer

Sub-dealer places an order through payment portal using procurement pass

3 Sub-dealer makes payment at the end of credit cycle through cash (70%) or online transfer (30%)

Authorized dealer

Sub-dealer

1 Sub-dealer places an order though phone or a physical PO

2 Authorized dealer transfers minutes after checking the order

Bank earns a fee from use of payment portal, float from authorized dealer, float from sub-dealer, interest from working capital loan

5


Built a plug-and-play capital wizard toolkit …Trained ~1,000 RMs and 100 change agents…

Developed a GROW app to provide an easy way to build benchmarks & scenarios…

…delivering a competitive advantage to the bank

▪ Lucrative revenue streams e.g., trade finance

▪ Higher client loyalty

▪ Break into new markets / clients –upstream / downstream customers

A leading regional bank has trained RMs to adopt a consultative sales approach to help their clients unlock trapped cash in the supply chain

5


New business models are beginning to take hold

Business model DescriptionExamples

Mobile POS payments & acceptance

1

� Pay or be paid … anywhere, anytime

� Phone or tablet as the merchant terminal

B2B payments & e-invoicing

4

� Electronify the “round trip” of B2B invoices

� Improves efficiency of AR/AP operations

� Opens up new services to offer corporates (e.g., transaction level financing, receivables mgmt.)

E-commerce & lending

2

� E-Commerce platforms & 3rd parties providing lending on the back of full e-Commerce transaction data

� P2P lending & crowd funding platforms directly intermediating between individual investors and M/SMEs in need of funds

Payments & solutions

3

� E-payments for small businesses both offline & online

� Real time payment systems

� Cloud-based apps and solutions

� Alternative currencies for specific types of commerce

6


Alibaba has built its financial ecosystem around its e-commerce platform

SOURCE: Company website, lit-search

May 2003

Apr2008

Feb2008

B2B platform

Interna-tional

China

June2007

Data based SMElending service with banks

June1999

Aug2003

June2010

Micro lending companies

Sep2012

Guarantee companies

Nov2011

Trade finance service

July2014

Unsecured SMElending with banks

Feb2013

Online P&Cinsurance company

June2013

Alipay launched Money Market Fund Product Yue’Bao

6

▪ SME loans by banks based on online transaction histories

▪ Shangcheng Financing Guarantee (Chongqing)

▪ Provide guarantee service to SMEs

▪ Yidatong(Trade finance service)

▪ Outsourced import and export service provider for SMEs

▪ Zhejiang(2010)

▪ Chongqing(2011)

Two banks▪ "e-Daitong“

with CCB“▪ Yirongtong”

with ICBC

▪ Products targeting at Taobao/Tmallsellers

▪ Cooperated with TiaohongFund first, later acquired it

B2C platform

New brand in 2012

C2C platform

Alipaylaunched Mobile payment

3rd party payment platform


Banks are attempting to leverage multiple information sources to develop a comprehensive credit assessment system

1 Residence and business premises category questions in QCA model

Qualitative data

Quantitative data

▪ “QCA lite” model

▪ Psychometric model (e.g., EFL)

▪ Reputation based models (e.g., cabbage)

▪ QCA model1

▪ Prepaid phone data models (e.g., Cignifi)

▪ Social media and big data models (Zest finance, Kreditech)

Direct customer data Indirect data

▪ Quantitative model (demographics, location, etc.)

▪ Credit bureau model

▪ Behavior model

7


Social welfare payments greater than USD 30 billion are paid out by Governments in India

SOURCE: India budget; State budgets; RBI

8

Cash payments

▪ MNREGA▪ IAY▪ RAY▪ NSAP

Schemes

Subsidy

▪ LPG – Direct benefit▪ Fertilizer▪ TPDS▪ Others

Service-individual

▪ SSA▪ NRHM▪ ICDS▪ MDM▪ RAM▪ PMGSY▪ AIDP

State Government

▪ All

Total paymentsUSD billions

8

10

22

10






▪ Way forward

Contents


Development of Commercial Payments in Asia Pacific will need the efforts from all stakeholders

Industry & Value Chain

Collaboration

Player Actions

Government and Policy stimulus

Development of Commercial Payments


Players will need to demonstrate 7 traits to be successful

1 Be unreasonably aspirational

2 Acquire new capabilities

3 Ring-fence and cultivate talent

4 Challenge everything

5 Be quick and data driven

6 Follow the money

7 Be obsessed with the customer


Asia-Pacific Commercial Cards and Payments Summit, Singapore

14-15 May 2015

Presentation

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

Date post:	23-Apr-2018
Category:	Documents
Upload:	phammien
View:	227 times
Download:	4 times

Commercial Payments in Asia-Pacific: Is this the New ... · McKinsey & Company | 1 Commercial...

Documents