WRAP-UP REPORT I 1 March 2016 I Kuala Lumpur #BFMalaysia Growing interest Banks urged to lead the way in adoption of standards Malaysia: A leader in payments modernisation
SWIFT Business Forum Malaysia Growing interest Malaysia: A leader in payments modernisation Bank Negara Malaysia s deputy governor Datuk Muhammad Ibrahim I would like to call upon the financial industry to jointly work with MyClear in the development of such new realtime retail payment platforms. Malaysia is developing a new real-time retail payment platform as part of an ongoing plan to modernise the country s payment infrastructure and keep up with global payment trends. Bank Negara Malaysia s deputy governor Datuk Muhammad Ibrahim, in revealing this at the SWIFT Business Forum in Kuala Lumpur on March 1, said the central bank s wholly-owned subsidiary MyClear (Malaysian Electronic Clearing Corp Sdn Bhd) is spearheading the development. MyClear initiated a multi-year programme in 2010 to modernise Malaysia s payment infrastructure, roping in SWIFT as its infrastructure provider in 2014 to provide the messaging platform for their next generation high value payment system, known as Rentas. SWIFT, or Society for Worldwide Interbank Financial Telecommunication, is a global provider of secure financial messaging services. Going forward, the next step is to enhance and evolve real time payments. The key thrust of the plan is to develop a new realtime retail payment platform that will serve as both a catalyst and enabler for innovative payments in Malaysia. This should meet the needs of consumers and businesses who increasingly expect payments on-demand, where funds are available to the recipient immediately. In this regard, I would like to call upon the financial industry to jointly work with MyClear in the development of such new real-time retail payment platforms, Muhammad said in his keynote address at the forum, which comprised of more than 350 participants from the financial industry. In high-value interbank payments, Muhammad said continuous efforts are being made to modernise and enhance the country s real-time gross settlement system, known as RENTAS. RENTAS, which was implemented in July 1999, enables the transfer and settlement of high-value interbank funds and scripless securities transactions. As part of the ongoing transformation of RENTAS, there is currently an exercise to transform it into a multi-currency system that adopts the SWIFT messaging standard. The adoption of SWIFT as an alternative access channel, which caters for multiple messaging standards, including the ISO 20022, will facilitate the integration of RENTAS with other regional large value payment systems to facilitate seamless, safe and efficient cross-border financial transactions. The interconnectivity with other economies within the region will further enhance the integration of our trade and financial transactions, Muhammad said. It is understood that RENTAS will be transformed into a multi-currency system from the third quarter of this year. In 2015, daily average transactions over RENTAS totalled about 17,900 with a value of RM217.8 billion. This amounted to 4.4 million transactions valued at RM53.6 trillion throughout the year. Muhammad noted that Malaysia cannot be complacent as an increasing number of people turn to electronic fund transfer services for payments. He pointed out that the annual growth rate for Interbank GIRO had increased from an average of 18.8% prior to 2013 to 34.1% in 2014 and 2015. And the annual growth rate of Instant Interbank Funds Transfer, which has been more than 60% since 2011, further increased to 67.8% in 2014 and 76.7% in 2015, signifying greater confidence in e-payments. Panellist Susan Bray, executive general counsel for the Australian Payments Clearing Association, shared the Australian experience in developing a new real-time retail payment system. In 2014, Australia picked SWIFT to design, build and operate the basic infrastructure for the real-time payment system. Where are we on the journey so far? Well, we ve been talking to Australia s industry since 2012 about what it might mean for the Australian economy. We re now at the stage where we re well into the implementation. We expect to go live around October 2017. The model that we came up with was very important for the banks, in that the banks were actually paying for the development and operation systems in Australia, which is not inexpensive. Fundamental to the infrastructure is that we are adopting the ISO 20022 framework, Bray said. Twelve financial institutions have committed funds to the building of the system and operating it in its initial years. And these participants have all become shareholders in the new company that we ve set up to operate the system New Payments Platform Australia Ltd, she added. To a question on what have been some of the toughest challenges to date, Bray had this to say: I think, back in the early days, it was that it s always difficult to see the business case for each of the participants. How are they actually going to make some money out of this? And in some sense, that had to be led by the central bank s initiative looking at the broader public policy and global competitive issues. But also, it required banks to take something of a leap of faith, and to say, Okay, perhaps we don t need it right now, but ultimately in the medium and longer term, it s something that Australia will need to remain competitive. In our new real-time retail payment platform, one of the services we intend to offer will leverage mobile technology, offering, for instance, person-to-person mobile payments where you ll be able to make a mobile payment as easily as sending a text or WhatsApp message. Together with that, we intend to offer mobile e-commerce solutions with a few clicks of the mobile, you can make an immediate payment for online purchases, he said. Earlier, in his welcoming address, Alain Raes, SWIFT s chief executive for Asia-Pacific and Europe, the Middle East and Africa, said the Malaysian operation would be its second largest in the world by the end of 2020. This is after Belgium, where SWIFT was founded in 1973. Now in its third year of operation in Malaysia, SWIFT employs 280 people, and this number is expected to grow to 600 by 2020. Over time, we expect one-third of our people in Asia. That tells you how important Asia is becoming for SWIFT, he said. Susan Bray, executive general counsel for the Australian Payments Clearing Association The model that we came up with was very important for the banks, in that the banks were actually paying for the development and operation systems in Australia, which is not inexpensive. Fundamental to the infrastructure is that we are adopting the ISO 20022 framework. He highlighted that payment and settlement systems play a critical role in the smooth functioning of the economy and can also be leveraged as a strategic tool to facilitate regional market integration, strengthen Malaysia s competitiveness and enhance its position as an international Islamic financial centre. In a panel session on the trends and developments in Malaysia s payment system, moderator Michael Moon, who is SWIFT s head of payment markets for Asia-Pacific, noted that globally, changes are happening that are designed to make retail payments faster, smarter and available to customers 24/7. Panellist Tay Gim Soon, MyClear s chief operating officer, shared that the Malaysian initiative would tap mobile technology, given the increasing smart phone penetration rate in the country. 2 3
Malaysia : A leader in payments modernisation SWIFT Business Forum Malaysia Banks urged to lead the way in adoption of standards Growing interest inlast September, the Securities Commission Malaysia (SC) launched its afinity@sc initiative to encourage development in the financial technology (fintech) space.it has so far gathered 43 expressions of interest. These expressions of interest included peer-to-peer lending platform operators, blockchain technology providers and robo advisers, Foo Lee Mei, the SC s executive director and general counsel, shared at the recent SWIFT Business Forum in Kuala Lumpur. Foo was part of a panel discussion on the fintech evolution in the Asean community. Fintech has come to be somewhat of a buzzword in recent years. The emergence of fintech companies the big ones in the region include China s Alipay and WeChat is reshaping the financial services industry as they are helping ease payment processes, saving users money and promoting financial planning, among other things. Ultimately, banks view them either as rivals or choose to collaborate with them. Given that fintech companies operate in the financial services sphere, regulation has become a key issue in their development. Foo said the SC would work with the fintech community to understand their needs and to provide the appropriate regulatory support and steering. Regulators need to take a proportionate and balanced approach to regulation. This means that the SC will constantly reassess and redefine regulatory parameters to facilitate the introduction of innovative financial products and structures. We will adopt the sandboxing or experimentalism approach, where regulation is imposed on a graduated scale in line with the growth of the market and complexity of the product, she said, stressing that fintech regulation will remain flexible and nimble to support innovation and digitisation. She noted that the emergence of robo advisers a class of financial adviser that provides services with minimal human intervention and the use of blockchain technology will alter the role of many key players in the capital market, such as advisers, distributors and even the clearing house. Blockchain is the technology behind Bitcoin, for example. Clearly, the growth of fintech may result in the displacement of existing roles. To remain relevant, capital market players and intermediaries will need to evolve, acquire new skills, search for the competitive edge and rethink their long-term strategy, Foo remarked. These remarks were echoed in the panel moderated by Philippe Dirckx, Managing Director & Head of Markets and Initiatives APAC for SWIFT, with collaboration between emerging Fintech providers and Financial Institutions at the heart of the discussions. S T Chua, chief marketing officer at the KL-based fintech firm Perfectsen which provides personal finance management solutions noted that financial institutions are more willing to engage with fintech; as such companies are called, these days compared with a few years ago. Chris Leong, chief strategy officer at another fintech, Soft Space, agreed. I think there are a couple of driving forces behind this trend. For one, regulators help, in the sense that Bank Negara Malaysia is pushing for a lot more payment acceptance points in the market. So, financial institutions are also looking at more cost-effective solutions in delivering them. And, of course, history has proved that technology is one of the best ways to deliver cost-effective solutions. Second, there are a lot more working Gen Y than Gen X. That s actually quite significant, in my view, because Gen Y use the mobile phones more and so, there s been a change in consumer behaviour. From the banks perspective, if they don t do anything about it, then that s where the more innovative players coming into the financial space will succeed. So, that s driving collaboration, Leong explained. Soft Space, a Kuala Lumpur-based mobile payment technology company, has live deployments in 13 banks across Asean. Perfectsen offers banks white-labelled solutions for their millennial customers through aggregation of banking data and enhanced personalized financial management tools. Perfectsen and Soft Space were semifinalists in the SWIFT Innotribe Start-up Challenge in 2013 and 2014 respectively. SWIFT Innotribe is an initiative that seeks to bring together start-ups and the financial services industry. Foo Lee Mei, the SC s executive director and general counsel We will adopt the sandboxing or experimentalism approach, where regulation is imposed on a graduated scale in line with the growth of the market and complexity of the product. 4 5
Growing interest SWIFT Business Forum Malaysia Banks urged to lead the way in adoption of standards Tony Lewis, HSBC s head of securities services The development and modernisation of the country s payment system will not be possible without banks. Therefore, banks should lead the way in facilitating straightthrough processing (STP) to enhance operational efficiency by promoting standardisation and interoperability, said Bank Negara Malaysia. This can be achieved through the adoption of common standards, such as the ISO 20022, for corporate and cross-border payments, Bank Negara deputy governor Datuk Muhammad Ibrahim said in his keynote address at the SWIFT Business Forum. In this regard, banks should leverage the momentum created by the ongoing transformation of RENTAS to reach out to their customers by offering holistic, end-toend, STP solutions. This would contribute towards enhanced safety and efficiency and facilitate economic growth through greater connection with global supply chains as well as enhance greater integration with regional markets, he added. Malaysian Electronic Clearing Corp Sdn Bhd (MyClear) chief operating officer Tay Gim Soon notes that prior to the move to the new RENTAS on SWIFT standards, only 35% of Malaysian banks were adopting STP for their real-time gross settlement systems. With the move to the new RENTAS, 86% of the participants of the system will be on STP. That translates directly into greater efficiency and faster crediting payments, Tay remarked. Alexandre Kech, SWIFT s head of securities markets and standards for Asia-Pacific, notes that one of the global trends that is also being seen in this region and Malaysia is the ISO 20022 adoption and standards of adoption in general. International standards are now seen as the enabler for not only cross-border activities but also domestic activities, he said in a panel session on the topic, Gearing up for growth in Malaysia s securities market. One of the panellists, Tony Lewis, who is HSBC s head of securities services, agreed that the adoption of the ISO 20022 standard is thematic across the region. SWIFT is the registration authority for ISO 20022, a methodology that can be followed when creating financial messaging standards. As this topic is germane for frictionless processes and efficiency gains, more than 220 industry participants including banks, central banks, market infrastructures, corporates and IT experts gathered in Kuala Lumpur the day before the Business Forum for a Standards Forum on Feb 29th 2016 to discuss the latest development of standards, exchange information and collaborate on ideas. Gim Soon Tay, Chief Operating Officer, Malaysian Electronic Clearing Corporation (MyClear) provided the latest development of standards initiatives and its strategic direction including ISO 20022 adoption plan for RENTAS (Malaysia s RTGS and CSD) and new Retail Real-time Payments Platform. Kiyono Hasaka, Lead Standards Specialist, SWIFT then updated the participants on the latest MT standards releases and how some of the changes may affect their business and operations. Highlights included changes to be implemented in trade finance messages in 2018 and 2019 and a newly created forum to enable communities to freely exchange comments on Change Requests for MT Standards through MyStandards, the community Standards platform. ISO 20022 standards as an enabler for innovation A key theme of the Standards Forum was ISO 20022 standards as an enabler for innovation in payments and securities markets in Asia Pacific. Cindy Foo, Senior Standards Specialist, SWIFT set the scene by giving a history of standards evolution in the securities and payments markets as well as key drivers, benefits and approaches of adopting ISO 2002 standards. The global adoption status of ISO 20022 was also shared with the audience, positioning SWIFT as the one-stop-shop for ISO 20022. The panel session, How does ISO 20022 enable innovation in Asia Pacific? was moderated by Alexandre Kech, Head of Securities Markets and Standards in APAC, SWIFT, who used this opportunity to update the audience on key ISO 20022 initiatives in the ASEAN region. As a panel speaker, Sharon Khua, Vice President, Group Operations & Technology, OCBC Bank shared a practitioner s point of view on adopting ISO 20022 for Singapore s electronic funds transfer service called FAST. She shared critical success factors, such as open standards of ISO 20022, importance of getting buy-in and participation from the industry stakeholders and establishment of legal, risk management and regulatory framework to enable FAST in Singapore. She also emphasised that FAST is just an utility and it is up to the banks to leverage on the utility to innovate and deliver differentiated product and services to their customers. She cited an example of how OCBC makes it easy & convenient for their customers to make micro-payment without the need for recipient s account number and no hassle of using transaction signing token. Instead, money can be transferred to recipient s account almost instantaneously through mobile number contact list, email or Facebook. Mei Yee Chua, Founder and Principal Consultant, Alpha & Omega Consulting, joined the panel to share a case of corporate s adoption of ISO 20022 for their global payment operation in 9 countries across Asia, Europe and USA covering 4 banking partners. She explained key challenge of standardising payment file format across different banks due to banks specific requirements and countries specific regulations. She recommended to use the template of Common Global Implementation (CGI), global market practice to consistently and easily adopt ISO 20022 standards in the corporate-to-bank space. Her final remark was SWIFT and central banks need to conduct more dialogue session to promote standardisation of ISO 20022. Alexandre Kech then updated the audience on SWIFT s role in ASEAN s financial integration. SWIFT s standards expertise with ISO 20022 has enabled deeper community engagement in the ASEAN region to help drive the regional harmonisation initiatives. He shared SWIFT s involvement in various working groups to facilitate standards integration and reiterated our commitment to this region and its development. International standards are now seen as the enabler for not only crossborder activities but also domestic activities. Alexandre Kech, SWIFT s head of securities markets and standards for Asia-Pacific 6 7
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