Interview: Apac payments ecosystem evolving quickly amid challenges

CorporateTreasurer recently caught up with Manoj Dugar and Yvonne Yiu, HSBC’s Asia Pacific (Apac) regional co-heads, global payments solutions. 

Since so-called ‘Liberation Day’ on April 2, tariffs have been very much on the agenda for businesses across Apac with recent US and China tensions raising more alarm for treasurers and chief financial officers (CFOs). 

Commenting on the tariff impact, Singapore-based Dugar told CT: “Clearly this is an uncertain time for corporates. There is some slowdown for strategic investments and FDI flows. Our Trade Pulse survey, of close to 5,700 businesses, showed an increase in costs because of tariffs, and delays due to logistical challenges.”

Dugar (pictured left) added: “Since Covid, there has been the reshaping of the supply chain: companies are getting closer to their home markets, and looking to optimise their supply chain network. Businesses are looking at technology for treasury transformation, whether it's API adoption, or artificial intelligence (AI) use cases, they are focused around adopting technology to transform their treasury, and optimising visibility and liquidity.”

Some firms have been diversifying towards the Middle East and diversifying their supply chains.

Hong Kong-based Yiu told CT: “Tariffs have been a topical subject, and particularly for firms in Greater China. We've done several roundtables with businesses, and they have already been diversifying some risk. For example, setting up manufacturing in the US, diversifying their supply chains, and changing their distribution networks. We’ve also seen many firms enter the Middle East from mainland China -- that corridor has become very active.”

Yiu (pictured right) continued: “The potential cost pressures and the subject of regional and global treasury management have become critical for businesses, especially when they expand, e.g. via Hong Kong and Singapore. In addition to cash management, there are virtual account openings, providing liquidity solutions and helping expansion; it’s also about working with treasury management system (TMS) providers.”

She added that redefining treasury has been a theme since 2024 and is continuing this year. As examples she cited liquidity management and cash forecasting, and the adoption of AI, in addition to looking at risk management and cyber risk.

Apac's fragmented payment ecosystem

The Apac payment system is arguably fragmenting more and more players, such as fintechs and super-apps, enter the market and compete for attention. Businesses and banks are needing to be agile and adapt quickly.  

Dugar said: “Fragmentation is growing in some areas. You see the proliferation of local players, especially in Asean markets, and you see a rise in fintech and e-wallets. For fintech players, it’s a 360-degree relationship, and some are our clients. In some cases, they compete, and others, we see them as potential acquisition plays.”

He continued: “Consumer preferences are very important – it’s been varying across markets in Asia; for example, the adoption of QR codes in China and mobile wallets in Southeast Asia. There are opportunities of centralisation emerging across borders, and the dominance of key platforms and emergence of super apps, such as Grab, Shopee and Alipay, which are forming central hubs for payments and partnerships and cross-border transactions.”

The standardisation of APIs are set to bring more interoperability in the region, however these are often diverse across geographies. Some Asean central banks are trying to push for cross-border QR code linkages, and Project Nexus is a step towards trying to bring more regional interoperability. 

"While there’s more regional integration, there are countries who promote their sovereign payment systems e.g. DuitNow in Malaysia and PromptPay in Thailand," Dugar commented. 

Yiu said: “It's not conclusive as to whether it’s fragmenting or consolidating, but everybody is trying to find ways to create interoperabilities. For example, we recently launched Digital Merchant Services in Hong Kong, a market where a divergence of wallets exist. We partner with external vendors, and link up competing e-wallets on the same platform, so that we can deliver a holistic, one-stop solution that accepts not only HSBC’s PayMe but also Alipay, WeChat Pay, and different card options.”

Digital adoption 

The move from paper processes to digital at businesse in the region is often slower than many think.

Yiu said: “You’d be amazed that many corporates in Hong Kong are still using paper, but we are glad to see a gradual migration to digital. Companies cannot stand still if they want to remain competitive -  digital adoption would enable them to optimise value in speed, costs and control. A lot of investments have been happening in this area.”

“Cost savings depends on the nature of the business, not only from a working capital efficiency standpoint, but also through reducing the cost of reconciliations to improve efficiency and control," Yiu continued. 

One example of digital evolution is HSBC’s mobile virtual corporate card which was launched in Hong Kong recently.  Businesses can issue virtual cards and send money to anyone with a mobile phone which can be added to the mobile wallet. 

Hong Kong as a Smart City

Hong Kong is one location which is seeing speedy change as the likes of the MTR take-up the use of card payments and digital wallets for individual journeys – opening up the city away from the traditional Octopus card, which itself has gone digital. The aim is to become a Smart City as quickly as possible.

Yiu explained: “As part of the Smart City agenda in Hong Kong, we play an active role in supporting the migration to digital payments. We are amongst the first in the industry to develop Faster Payment capability, and enabled QR codes to be printed on invoices and scanned digitally to drive adoption of digital payments and collection across different industries.”

She continued: “It’s already a common practice to pay your utility bills, school fees, insurance premiums etc., just by scanning QR codes, and the payments can be done and processed 24/7, including public holidays. We also have developed the ‘real-time direct debit’ capability to enable companies to request for payment 24/7.”

The bank has also introduced procurement cards and virtual cards to facilitate companies to streamline their B2B procurement and settlement, whilst enhancing control and working capital efficiency. It is also exploring the development of Central Bank Digital Currency (CBDC) to see how to make use of eHKD and eCNY.

As previously reported by CT, since June, the bank has been participating in Payment Connect to enable real-time payments between Hong Kong and mainland China. The system is available for retail clients to transfer money between Hong Kong and mainland China, with plans to support transfers between businesses in the future. 

Cross-border, real-time payments: patience required

Commenting on the desire for businesses to start using cross-border 24/7 real-time payments, Dugar said: “We've seen the evolution of real-time payments for domestic payment links. Businesses want similar experiences for cross-border, but we're not there yet. There are bilateral linkages in some of the Asean corridors coming together.”  

He explained: “We are seeing elements of real-time payments getting connected on a cross-border basis, but it requires central banks and industry participants to come together to address the challenges, especially for liquidity or anti-money laundering (AML); operational standards need to be streamlined. Project Nexus is one step in this direction. It aims to bring these markets and technologies together, giving the same experience from a cross-border perspective.”

Overcoming these challenges will be key to all market participants. 

“There are significant challenges. If central banks and industry participants, including banks, work together, then you'll see success with integration and making real-time payments interoperable across markets. Once it happens, you'll see elements of consolidation," he added. 

Dugar continued: “We see SMEs who are becoming more international, and also MNCs who want to optimise or scale. Over the last 24 months, the number of firms looking at treasury transformation, whether for optimisation, scaling up, or using technology, is at an all-time high.”

He continued: “When companies think about digital transformation, it’s about the entire lifecycle of their transaction, and how they integrate with their banking partners. That's where API tools can digitise their transactional workflow. There are solutions on the cross-border side, especially in mainland China and India, to digitise cross-border processes.”

AI play

AI is also very much on the agenda in the region as treasury systems evolve, however there is a long way to go as treasurers look to harness different data sets and ensure safety. 

“We have started embedding AI -- especially in the payment workflow journey e.g. for fraud or sanctions. Also, AI is making a difference in the working capital optimisation journey, whether through cash flow forecasting and receivable reconciliation tools. However, it's still at the tip of the iceberg – there is a lot more to be done,” Dugar explained.

Yiu added: “The adoption of AI, for us, at the back-end, such as system resilience and cybersecurity, is very important. For example, pre-validations – to give an extra layer of protection to clients using SWIFT capabilities, and to improve validation. Clients are looking for structured data to be provided by the bank so that they can adopt their AI and leverage structured data to include their abilities to predict their cash flow.”