As banks look to navigate what is likely to be a transformative decade ahead, many are now rapidly embracing digitalisation and sustainability, and integrating them into their cash management, trade finance and securities services capabilities. By adapting and strengthening their core offerings, banks are confident that they will be able to better serve customers and cater for their future needs. These opportunities – along with many others – were discussed at length at SIBOS 2021, which took place in October. Leading experts from HSBC’s Asia-Pacific business reflect on some of SIBOS’ main talking points and outline how the bank is responding to the changes.

    Digitisation reshapes banking

    The traditional approach to transaction banking is ripe for disruption, something which is being fuelled by the meteoric rise of fintech providers and online payment platforms.

    Fintechs form a crucial part of our digital strategy. By partnering with the world’s leading technology companies, providers such as HSBC are re-imagining transaction banking; creating new value for customers and driving future growth. In Asia-Pacific, we notice there has been an increase in the number of real-time cross-border payments and payment infrastructures linking up in the region.

    Yvonne Yiu, Interim Co-Head of Global Liquidity and Cash Management, Asia Pacific, HSBC

     

    In addition to SWIFT GPI - which can facilitate instant cross-border payments, local initiatives in Asia-Pacific are gathering momentum, added Lewis Sun, Interim Co-Head of Global Liquidity and Cash Management, Asia Pacific, HSBC. Yiu cited Singapore, which is currently exploring ways by which to develop multilateral linkages of domestic real time payment systems across borders1, as being a regional leader in this area. Earlier in the year, Singapore’s PayNow system linked up to Thailand’s PromptPay version, while a faster payments link up has been announced with India as well. Yiu added Singapore has also confirmed that PayNow will connect with Malaysia’s DuitNow real-time payments system - in what will enable customers to transfer funds in real-time between both countries from the fourth quarter of 2022.2 Further to supporting faster payments, Sun said that providers such as HSBC are leveraging data analytics gleaned from payment and trade finance transactions – and subsequently sharing this information with end customers so as to help them make better informed business decisions.

    Innovation has also been facilitated by the work being undertaken by SWIFT and the wider banking community – and this was evident from some of the discussions at SIBOS. SWIFT’s strategy is rapidly shifting from messaging to that of an end-to-end transaction management platform, something which will be accelerated with the transition towards ISO20022 at the end 2022. ISO20022 will complement other SWIFT initiatives such as SWIFT GO, Pre-Validation, and Case Management. It will provide a platform for banks and industry participants to collaborate and tackle the remaining frictions in the cross-border payments landscape.

    ISO20022 is the new language of payments, and it is like learning a new language – so there will be lessons along the way. The community will continue to collaborate for a smooth roll-out and crucially, to realise the benefits of this data-rich standard.

    Lewis Sun, Interim Co-Head of Global Liquidity and Cash Management, Asia Pacific, HSBC

     

    Moving forward, SWIFT has outlined plans to build out currency agnostic platforms to accommodate account-based money, CBDCs [central bank digital currencies] and regulated stablecoins.

    On trade finance, Ajay Sharma, Head of Global Trade and Receivables Finance, Asia Pacific, HSBC, said financial institutions – including HSBC - are increasingly eliminating paper-based processes in favour of automation, a trend that has been accelerated by the pandemic, but also because of growing digitalisation among corporate clients. Elsewhere, Sharma noted that innovative technologies – including data analytics and artificial intelligence [AI] – are being utilised to support faster financing of small and medium enterprises (SMEs) and e-commerce. Nonetheless, Sharma noted there are challenges with some of these new technologies. He highlighted that data privacy laws – especially in some Asia-Pacific countries – are very strict - meaning market participants need to be careful when sharing data on a cross-border basis.

    Securities services is also making in-roads with digitalisation. Several providers at SIBOS said they are developing digital asset servicing capabilities and custody solutions in response to increasing institutional investor demand for digital assets. SIBOS speakers also discussed the possibilities that could be unleashed through CBDCs. “While CBDCs have huge potential in the retail world, the securities services industry believes these instruments could be used to speed up existing trade settlement processes. Through adoption of CBDCs together with DLT and smart contracts, the current T+2 trade settlement process could become instantaneous. While instant settlement poses challenges [e.g. pre-funding], it could help eliminate settlement risk by reducing the duration which counterparties are exposed to each other once a trade has been executed - thereby generating major liquidity benefits,” said Brian Godins, Head of Securities Services, Asia Pacific & MENAT, HSBC.

    Since May 2019, HSBC has participated in the Inthanon-Lionrock cross-border wholesale CBDC project led by the Hong Kong Monetary Authority (HKMA) and Bank of Thailand (BoT) exploring the merits of a cross-border CBDC settlement platform. The study demonstrated technological readiness and the potential benefits of applying distributed ledger technologies (DLT) and CBDCs to cross-border payments.

    In 2021, Project mBridge (Multi-CBDC Bridge PoC), which was led by BIS [Bank for International Settlements} included two additional central banks – the People’s Bank of China (PBoC) and the Central Bank of United Arab Emirates (CBUAE) – so as to further trial cross-border wholesale settlements using a multi-lateral CBDC platform.

    Sustainability dominates SIBOS

    Sustainability was a recurrent theme at this year’s SIBOS. Sharma stressed clients are increasingly demanding that banks provide them with sustainable supply chain finance solutions, along with green trade loans. Adoption of ESG, he added, was somewhat hampered by different regulations being implemented across multiple markets.

    ESG needs to be standardised so that its potential can be harnessed.

    Ajay Sharma, Head of Global Trade and Receivables Finance, Asia Pacific, HSBC

     

    Nonetheless, ESG in Asia-Pacific is gaining momentum, said Sharma. Under the leadership of the Monetary Authority of Singapore [MAS], HSBC – together with UOB – has developed the Green & Sustainable Trade Finance and Working Capital [GTF] framework, which will provide a guide for the industry around green trade and working capital financing.

    Sustainability and ESG issues are also thematically important to Securities Services at HSBC. With sustainably managed funds at record levels – which Morningstar now puts at around USD2.3 trillion - 3 the securities services industry is developing an array of solutions to support investment firms with their ESG reporting obligations. HSBC's Securities Services, for instance, launched an ESG reporting toolkit for asset managers and asset owners in 2020 providing institutions with independent measurements and insights of how focused their listed investments and investment portfolios are performing against various ESG criteria. 4

    The reporting service comprises a monthly reporting dashboard, portfolio-level analysis using ESG ratings and carbon and greenhouse gas emissions data from a choice of three leading ESG providers.5 With ESG AUM [assets under management] projected to undergo exponential growth, it is vital that service providers can provide meaningful post-trade ESG investment insights for clients’ investment portfolios, and to prepare for ESG regulatory reporting requirements, in order to cater for this fast growing appetite for sustainability and ESG investment.

    Brian Godins, Head of Securities Services, Asia Pacific & MENAT, HSBC

     

    Preparing for the next decade

    The world is changing. Organisations and Financial Institutions are digitising and are taking an increasingly engaged approach on matters related to ESG. "Banks like HSBC realise they must integrate disruptive technologies into their offerings and support clients on their ESG journeys, and deliver on the transition to net zero. This will enable clients to build up smart businesses and access a world of opportunities,” said Yiu.

    References:

    1 Finextra [July 28, 2021] BIS and Singapore central bank publish blueprint for global real-time payment connectivity
    2 Finextra [September 27, 2021] Singapore and Malaysia link faster payment systems
    3 Reuters [July 27, 2021] Global sustainable fund assets hit record USD2.3 trillion in Q2, says Morningstar
    4 HSBC GBM [July 24, 2020) HSBC launches ESG portfolio reporting service
    5 HSBC GBM [July 24, 2020) HSBC launches ESG portfolio reporting service

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