UOB speeds ahead on cross-border payment

Singapore

THE race to send payments across borders in Asia is coming down to a blink of an eye and UOB has quietly worked behind the scenes to soup up regional fund transfers at a lower cost, a top executive at the bank said.

At the end of last year, UOB made public Asean's first completed test in making multiple funds transfers between a UOB Singapore account and a UOB Thailand account in real time.

This experiment, or proof-of-concept, was done by using the account-holders' mobile phone numbers that are tied to a bank account.

UOB's test in such peer-to-peer fund transfer comes as regulators across Asean, including Singapore, Thailand and Malaysia, have launched their real-time mobile payment systems for customers who are increasingly working on the go.

The system replaces the long string of bank account numbers with one mobile phone number or one business registration number to identify an intended fund recipient for instant round-the-clock payments. Singapore's version is PayNow, Thailand has PromptPay, and Malaysia has DuitNow.

Regulators are exploring ways to connect their respective domestic real-time payment systems, and if done right, can benefit corporates. The connection can lower fees attached to wire transfers and ensure more prompt, traceable payment.

Similar charges are levied on customers making traditional remittances as well, and can cost a pretty penny. These fees are charged by Swift, a global network messaging service that is run as a co-op of international banks.

But the challenge with these sprouting peer-to-peer real-time systems across Asia is that different regulators have different standards and processes to connect, and have launched these at a "sequential" pace, said UOB's group head of banking technology Graeme Greenaway.

"What we started to see from an infrastructure point of view is that for the bank, with every different regulator coming out with requirements, we could have a proliferation of multiple gateways (and) multiple technologies, with a lot more to manage," he told The Business Times.

UOB's proof-of-concept took two months to complete, but came after some two years of plumbing, so that the bank's pipes have a single standard to link different payment gateways efficiently. To ensure competitive cross-border fund transfers, the bank powers payments with its own forex conversion engine that drives its multi-currency debit account for retail customers, known as Mighty FX.

With focus on small-and-medium enterprises (SMEs), UOB could turn up the heat by using its Asean network to zip payments to small corporates that can hurt from cashflow woes. It could also make it easier and less costly for consumers to remit money to family abroad, or pay for a cup of coffee overseas at better forex rates than that charged on credit cards.

The bigger breakthrough for UOB may come with its fresh connection to Malaysia's real-time payment gateway that went "live" in December.

Its ongoing tests in cross-border payments allowed it to "encourage" the regulator, as Mr Greenaway put it, to allow UOB to go through with the 13 other foreign and local banks.

What this means is that UOB's Malaysia customers can come into Singapore and use the bank's mobile app to scan Singapore's standardised QR code - the ubiquitous barcode that accepts various payments - offered by Singapore retailers to pay for a coffee directly out of a Malaysian account denominated in ringgit, he said.

Once Malaysia launches its own standardised QR code later this year, Singaporeans can do the same with their shopping at KLCC or any other mall across the Causeway.

While many multi-currency accounts have emerged in recent years to allow travellers to use a debit card to pay in foreign currencies, they mostly exclude the ringgit, a restricted currency. With UOB's headstart here, small cashless payments in Singdollars can now be converted from ringgit, and later, vice versa.

As backend pipes go, they come to immediate attention when there is a chance of them springing a leak.

While the benefits of quick small payments are apparent to consumers, banks that do not bring down the costs for such payments - for example, for a cup of coffee at a hipster cafe in Bangkok - can end up taking disproportionate backend costs. But transferring that cost to consumers via the forex spread could make banks unattractive in a hyper-competitive payments space.

"The volume of payments is increasing, but the value of those payments is decreasing," said Mr Greenaway, referring to retail payments.

"So I don't want to be paying these fees for low-value payments. Otherwise, we can't be competitive. We have to reduce the costs associated with these low-value payments going out externally through the bank."

UOB's proof-of-concept can go quickly into production, with plans to take this across the region soon, said Mr Greenaway.

How far this can go will depend on regulatory limits on cross-border fund transfers on real-time payment systems, and limits on network access. The daily transaction limit for Singapore's PayNow Corporate is S$200,000. And for now, the proof-to-concept in Thailand's case only extends to customers in the UOB banking network.

It will also depend on how fee structures for cross-border payments will evolve. Swift last year conducted its own experiment with a group of banks in Australia, China, Thailand, and Singapore to create its instant cross-border network for payments. Swift said in October that all the payments sent during the trial were fully processed within 60 seconds.

Swift had said it is in discussions with multiple domestic real-time payment operators and regulators on connecting those payment corridors using Swift's service known as the global payments innovation, or Swift gpi. It has targeted that by 2020, all 10,000 banks on the Swift network will be able to offer same-day payments that are fully traceable throughout the payment chain.

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