19 Oct 2018
There is something quite seismic happening in the normally below ground geology of the payments system. Barely a month goes by now without some new technology shaking the foundations of traditional banking.
Fortunately this is good news for companies – and even banks – because these disruptions are actually making traditional payments more stable and faster.
"In Hong Kong, the average monthly volume of paper cheque transactions… in the first nine months of 2018 was 7.3 million.”
In September 2017, the Hong Kong Monetary Authority (HKMA) announced seven initiatives to prepare Hong Kong to move into a new era of smart banking.
For Hong Kong, two significant recent examples are the launch of the Faster Payment System (FPS) and eTradeConnect, a blockchain trade finance platform.
FPS aims to create an efficient retail payment infrastructure in Hong Kong to facilitate money transfers between users of banks and stored-value facility (SVF) operators on the same platform.
Currently, transfers among different banks in Hong Kong can take up to two or three days and may entail interbank transfer charges of as much as $HK200 ($A36). The use of FPS will significantly reduce the transfer time and cost for customers by making instant money transfers.
At its launch, a total of 21 banks and 10 SVFs in Hong Kong have participated in the system that supports real-time fund transfer.
At ANZ, we have also introduced FPS for our Institutional customers in Hong Kong and we support batch fund transfer. It is a quick and secure payments solution, enabling customers to make Hong Kong Dollar (HKD) and Renminbi (RMB) transfers to other participating banks in Hong Kong.
While this user-friendly platform is a boon for our customers, we are under no illusions – nor is any bank - that this is a minor development. The introduction of FPS will help ANZ keep pace with the change in the payment landscape in Hong Kong and support the needs of our Institutional customers.
In Hong Kong, the average monthly volume of paper cheque transactions and electronic autopay transactions in the first nine months of 2018 were 7.3 million and 8 million respectively. The significant numbers demonstrated a huge demand in the market for payment which FPS can potentially take over. We expect to see retail and corporate customers start shifting to FPS which provides a faster and more convenient payment option.
In October 2018, in the first month after FPS was launched, the volume of FPS turnover was over 1.6 million, demonstrating a large number of early adopters in the market. When FPS becomes more mature, it can also support other currencies such as USD to provide more comprehensive payment options to customers. FPS may even replace the existing Real Time Gross Settlement (“RTGS”) sometime in the future.
Blockchain trade finance platform
eTradeConnect is a trade finance platform using blockchain technology to vastly improve trade finance documentation. ANZ is one of the seven initiating banks and the only Australian bank participating in the platform. A further five additional banks have now joined, adding up to a consortium of 12 member banks.
The project was first announced in March 2017 as a proof-of-concept, leveraging blockchain technology to improve the currently labour-intensive trade finance business, often described as one of the most manual and paper-orientated elements of the financial services industry.
eTradeConnect is a combined public and private sector initiative which went live in late September.
The way it works is by allowing everyone in the supply chain to contribute to the “block” of information in an encrypted way. So you can actually see every time somebody has touched the goods within that supply chain. There is an extra layer of security because everybody can see the same information and each piece validates the previous.
The project has commenced as a minimum viable product (MVP) with the initial focus on Open Account Trade. A rapid build out is of full functionality is expected across Trade Loans and Supply Chain Finance.
It will allow banks and their corporate clients within the ecosystem to submit and record purchase orders, invoices and applications for financing using distributed ledgers, thereby reducing the risks for fraudulent trade and identity theft.
It also allows corporates to track transaction flows, reconcile transactions through invoice or purchase order matching, and reduces the risk of duplicate financing for the participating banks.
With eTradeConnect, cost is a very obvious advantage. A lot of these processes are currently manual and data-driven and a distributed ledger blockchain platform puts all the data into one place, so the cost reduction is immense.
Speed is also an important factor, primarily important from a customer point-of-view. The technology is completely secure and there is an end-to-end record of each transaction – also extremely useful.
Of course, with these new technologies and platforms, we don’t want to build a lot of competing systems, which would defeat the purpose, and eTradeConnect is built on the vision of connecting different trade ecosystems – it opens up the ecosystem and helps entice other participants, such as shipping and logistics companies, to join and facilitate cross-border trade finance.
For ANZ, the vision is to position the platform as a gateway to China, building on our expertise and role in the Australia/New Zealand/China Trade Corridor.
As an institutional bank which facilitates trade flows in the region, we understand the majority of transactions we handle for our customers are paper-based. This is also true when they’re trading directly with their buyers or suppliers, using standards as certificates of origin and freight forwarders’ certificates.
Connecting with other trade finance platforms
Typically banks – and most companies – look to turn a first mover advantage into a competitive edge however, with trade platforms, network affects mean the more banks that join the better. We are all better off.
There is also a need to connect more jurisdictions to the platforms in the future, subject to the agreement and discussions between the regulators. Some jurisdictions may include Singapore, China and Australia, as Singapore is a key business hub in the region and there are many trade flows among Hong Kong, China and Australia.
We hope the cross-border collaboration can promote more efficient trade and financial flows for the benefit of our businesses and people, as the connectivity of different trade and trade finance platforms will make cross-border trade and financing cheaper, safer, and more efficient.
As these platforms expand and become more connected they will help spur the digitisation of both physical and financial trade supply chains, making the process more safe and efficient for our clients.
Looking into the future, we expect these platforms will support more products and bring in more participants in addition to banks, such as trade insurance companies and customs authorities.
At ANZ, we are in active discussions with our clients with trade flows between our home markets of Australia and New Zealand and Hong Kong/Greater China to bring them on eTradeConnect.
We don’t believe any single party can digitise an industry or a supply chain by itself. It is crucial to be willing to work with everybody and collaborate with everybody. And this essentially requires government or regulators to take the lead.
Our chief executive Shayne Elliott has spoken of the joint need for banks to both enable and work with others to be enabled by the digital economy and that’s particularly true in this domain where we will work with other banks, corporates and especially regulators. Part of our role is to better understand the policy imperatives in different countries and help drive growth across trade ecosystems.
As the first mover to production (beyond proof-of-concept) with strong regulator backing, the eTradeConnect has set a good example for other jurisdictions to follow.
Ivy Au Yeung is CEO of Hong Kong at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
19 Oct 2018
03 Apr 2018