Pioneering Payments Innovation: HSBC tell us how real-time payments are revolutionizing global commerce

Nicholas Soo, Regional Head of Payment Products for Global Payment Solutions, HSBC

Nicholas Soo, Regional Head of Payment Products for Global Payment Solutions, HSBC is a constant voice in the Asian fintech community. Self-described as ‘straddling curiosity and confusion in payments and Web3’, he’s well placed to opine on transformative opportunities in this space.

A payments pioneer - HSBC used innovative technology to help a leading hospital chain in Malaysia to promptly deploy a QR code-based collection platform, allowing convenient payment options for citizens who were undertaking “drive-thru testing” during the pandemic. Nicholas told us how he observed transaction volume within India’s Unified Payments Interface (UPI) platform more than double, when looking at March 2021 data compared to the prior year – a solid indicator of what’s to come as the world becomes increasingly cashless.

We invited Nicholas to give his perspective on the real-time payments' revolution, within the context of a rapidly changing financial landscape. He divulges the nuances of real-time payment infrastructure across different geographies, his predictions for the future of banking and the relationship between sustainability and payment processing.

It’s said that real-time payments are revolutionizing global commerce and changing the world's financial landscape. Could the world’s dependence on paper money come to an end in the next ten years?

I highly doubt this. I do believe that the relative share of paper money will gradually reduce, especially with the increased digitisation of our economies, and the eventual introduction of retail-CBDCs, which are electronic forms of central-bank-backed money.

However, the claim that real-time payments and other forms of digital money will lead to the disappearance of paper-based is overstated in my opinion. The hard use-case of physical cash cannot be completely replaced since cash is a bearer asset, and there are legitimate reasons why certain segments of the population continue to prefer it. This could range from privacy, preference in budgeting, or access issues. This position is backed by numerous studies, which include papers by the US Fed, Bundesbank and UK government bodies.

Can you tell us some of the nuances when it comes to real-time payment infrastructure across different geographies and how you’ve overcome these?

As a very diverse region, which was actually home to the world’s first real-time payment platform (Japan’s Zengin in 1973), Asia has its fair share of differing real-time infrastructure and complications. Broadly speaking, we could look at areas such as ISO vs ATM switch, availability of overlays and clearing vs settlement nuances.

Firstly, on the core infrastructure, we have seen a variety of approaches, with many markets adopting richer ISO standard platforms from day 1, which are better suited for B2B payments, and serve as foundations for eventual migration of ACH / RTGS platforms, as well as compatibility with the eventual ISO20022 standards deployment. Some markets, however, chose to build on top of the existing ATM switch (commonly the ISO8583 standard), as these were typically quicker to market, though limitations around ticket size and data payload were noticeable trade-offs. Finally, in some markets like India and Thailand, hybrid approaches were taken, using the ATM switch initially, and eventually adding more overlay services to cater for use cases such as addressing and bill payments.

Speaking of overlays, we have also seen a mixture of approaches of the introduction of overlays. Some markets have focused on basic payment infrastructure only from day 1, whilst some markets, having learnt from others, chose to deploy a larger “package” of both payments’ infrastructure and additional overlays such as addressing, QR codes, bill payments and clearing access for non-bank participants.

Finally, on settlement and clearing. Specific to clearing, we also have a variety of approaches globally, but the centrally operated hub approach seems to be the predominant model, whereas on the settlement front, it's primarily real-time (upon receipt of positive acknowledgement) vs deferred-net. Each country has chosen methods according to what suits them best, and it is very common for regulators to also compare notes and learn from one another.

As a bank with one of the world’s most comprehensive participation in domestic real-time payment schemes, this has led to a great amount of opportunity and also lessons learnt, when it comes to architecture, speed of deployment, cost and commercialisation outcomes. That conversation alone could take up days!

Can you tell us what is sustainability in the context of payment processing?

I would like to firstly opine that sustainability or ESG more broadly is still in a nascent stage, and that more work is required in this space, including the understanding of second or third order impacts of decisions made in this area.

That said, we are cognizant that payments processing and choices made around various payment instruments and associated internal processes may leave different ecological footprints.

That is why we are we are in early stages of exploring new concepts with both our internal sustainability teams as well as FinTech's. Broad areas under consideration include mapping our internal processes and that of certain client industries.

As a more recent and concrete example, we have started issuing cards with recycled plastic in some markets, and have announced plans to phase out single-use PVC cards in the coming years.

Better Connectivity goes two ways: once within the bank and the other externally through interoperability with other infrastructure and schemes: How have FinTech's helped in connecting the stakeholder and various business infrastructures internally?

With the proliferation of various payment methods, both domestic and cross-border, FinTech's who specialise on connecting corridors or orchestrating between various payment rails are valuable partners within the industry. SWIFT was probably the original fintech that provided a standardised communication network before the advent of the Internet. This was done by promoting common messaging standards and processes within the network of financial institutions, thus driving interoperability.

On a more domestic basis, the rise of the mobile, e-wallets, and real-time payment schemes in serving traditional retail and e-commerce have driven more adoption. However, also given rise to complexity for merchants. HSBC has helped clients navigate this by partnering with Payment Service Providers (PSPs) to aggregate these collection options via a service called Omni-Collect, which is now live in more than 11 markets in Asia.

What are your predictions for the future of banking? What trends do you expect to explode in the next few years?

This is a fun question but also simultaneously a serious head-scratcher! Broadly speaking, I think banks will continue to play a very important role in the manufacturing and distribution of financial services within communities. Extrapolating from observations of recent history, there could certainly be changes in the form factor, or perhaps the introduction of new entrants both within the manufacturing or distribution realms of financial services. However, the underlying role that regulated financial institutions will continue to play, is unlikely to diminish.

In terms of trends, I will preface my comments by stating that I do believe in the cyclicality of things, and it’s quite plausible we will observe these trends moving back and forth. Firstly, I think embedded finance will continue to pick up steam. I deem this a natural evolution, as most banking transactions take place at the tail end of a commercial transaction. As such, embedding a financial service, be it a payment or a loan, deeper into the underlying commercial transaction is a trend that I suspect will mature further. I do think most banks understand this, and are pretty progressive in working with partners who may be better placed to serve these end customers’ needs and view it as alternative methods to reach new client segments. However, it would also not surprise me if there is a pivot in the future, potentially driven by regulations or consumer sentiment.

Secondly, I think we will see the continued rise of new payment methods and industry consortiums, driven by innovation, regionalisation, and a broader recognition of payments as an important public good. This is not inherently good or bad in my opinion, as innovation may lead to more competition and new services being introduced. However, also wearing my industry hat, we should keep a close eye to avoid splintering or excessive fragmentation of payment schemes which may ultimately lead to increased costs or consumer confusion.

Thirdly, less of a trend but more of a general statement, around the much publicised compete vs collaborate dichotomy. I observe that the lines here continue to blur, and one needs to constantly maintain a very well-rounded view on the industry, beyond just your individual specialisation. A fintech or corporation could easily be a vendor, client, competitor or partner, and in some instances, all 4 at the same time. I am blessed to have a very exciting role within this industry, and it’s fascinating to see the banking and payments industry play out this dynamic in real time.

Finally, I also think things will generally get more complex as the world deals with multiple forces coalescing at the same time. These include rapidly maturing technologies such as AI, IoT, Quantum computing, the increasingly prominence of energy and food security, as well as implications of dealing in a landscape where globalisation has peaked. On top of this, the very concept and properties of money itself are being debated with the introduction of CBDCs and cryptocurrencies, and suffice to say that the payments industry has some very interesting times ahead of us!