Hong Kong and Immediate payments and the impact on corporate treasurers: Difference between pages

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  |above        = KEY COUNTRY FACTS
  |above        = Treasury professional
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  |image        = [[File:Flag_hong_kong.png|border|160px|alt=Flag of Hong Kong]]
  |image        = [[File:Treasurers_handbook_image.png|285px|alt=Treasurers Handbook]]
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  |header1 =  
  |header1 = Author
  | label1 = System of government:
  | label1 =  
  |  data1 = limited democracy (Special Administrative Region of China)
  |  data1 =  
  |header2 =  
  |header2 =  
  | label2 = Population:
  | label2 =Barry Kislingbury
  |  data2 = 7.1 million
  |  data2 =Lead Solutions Consultant, Consumer Banking, Europe, [http://www.aciworldwide.com ACI Worldwide]
|header3 =
| label3 = Currency:
|  data3 = Hong Kong dollar (HKD)
|header4 =
| label4 = FX regime:
|  data4 = currency board at a fixed rate to USD
|header5 =
| label5 = GDP:
|  data5 = HKD2,122bn (2013)
|header6 =
| label6 = IGTA member:
|  data6 = yes
|header7 =
| label7 = FATF member:
|  data7 = yes
| header8 =
| label8 = Treasury association:
|  data8 = [http://www.igta.org/member-detail.php?id=12 The Hong Kong Association of Corporate Treasurers (HKACT)]
 
|header9 =
| label9 = Other professional financial/banking associations:
|  data9 = [http://www.hkab.org.hk The Hong Kong Association of Banks]


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==Financial regulatory framework==
===Hong Kong Monetary Authority===
Established in April 1993, the Hong Kong Monetary Authority (HKMA) is the government authority in Hong Kong responsible for maintaining monetary and banking stability. The HKMA is the office of the Monetary Authority (MA) which is appointed by the Financial Secretary under the Exchange Fund Ordinance. The powers, functions and responsibilities of the HKMA are set out in the Exchange Fund Ordinance, the Banking Ordinance, the Deposit Protection Schemes Ordinance, the Settlement and Clearing Systems Ordinance and other relevant Ordinances. While the MA reports to the Financial Secretary, the division of functions and responsibilities in monetary and financial affairs between the Financial Secretary and the MA is set out in an Exchange of Letters between them dated 25 June 2003. This Exchange of Letters also discloses the delegations made by the Financial Secretary to the MA under these Ordinances.
At present, the HKMA has four major functions, namely:
* Maintaining currency stability within the framework of the Linked Exchange Rate system.
* Promoting the stability and integrity of the financial system, including the banking system.
* Helping to maintain Hong Kong's status as an international financial centre, including the maintenance and development of Hong Kong's financial infrastructure.
* Managing the Exchange Fund.


===Banking supervision===
 
Hong Kong's legal framework for banking supervision is laid down by the Banking Ordinance. Section 7(1) of the Banking Ordinance provides that the principal function of the Monetary Authority is to promote the general stability and effective working of the banking system. The HKMA seeks to establish a regulatory framework that is fully in line with international standards, especially those recommended by the Basel Committee on Banking Supervision. The objective is to devise a prudential supervisory system to help preserve the general stability and effective working of the banking system, while providing sufficient flexibility for banks to make commercial decisions.
==Introduction==
We live in an instant world, where two-year-old children know the ‘finger swipe’ used on mobile devices and, as adults, we get frustrated if we have to wait more than three seconds for a web page to load. This demand for immediacy is now ingrained in our way of life, and the same expectations are increasingly held about payment services.
 
 
The purchasing world already largely functions online and in real-time. However, the payment industry that underpins it – and historically lagged behind when it comes to modern technology – is now preparing to respond to this demand for speed.
 
 
Mostly due to regulatory, technological, behavioural and cultural drivers, immediate payments are about to enter the corporate transaction space – with benefits to corporates and their customers. As with any major change, these new developments are likely to create significant impact.
 
==Revolutionising the UK payments industry==
In the UK, we have four main payment schemes that process transactions worth a total of £72 trillion each year. These are:
* '''BACS:''' via the Automated Clearing House (ACH) for batched low-value, high-volume payments
* '''CHAPS:''' via the Real-Time Gross Settlement (RTGS) systems for high-value, low-volume payments
* '''C&CCC:''' the Cheque & Credit Clearing Company for cheques
* '''Faster Payments:''' the UK’s immediate (or real-time) payment scheme, which takes the best elements of ACH and card payments, delivering speed, information and cost effectiveness
It is the last of these that is driving change. The Faster Payments scheme, initiated by the UK government in 2006 and launched in 2008, reduces traditional low-value payment clearing times from three working days to a matter of seconds. Previously, members of the scheme were able to send and receive immediate payments up to a transaction limit of £100,000. However, this limit is in the process of being raised: first to £250,000 in 2015 and then potentially to £1m in 2016, opening up the scheme to expanded use by corporates.
 
 
Faster Payments Scheme Ltd (FPSL), working with the UK’s new Payments Systems Regulator (PSR), is also opening up the Faster Payments scheme technology and infrastructure to new entrants, be they challenger banks or other payment service providers (PSPs). This ‘New Access Model’ encourages increased competition and innovation by opening the scheme to new directly connected bank members, to PSPs and to technology providers (such as ACI Worldwide) to offer aggregator services (a Faster Payments service bureau) – reducing barriers to entry for enterprises with lower annual transaction levels.
 
 
There is also a third initiative that will further revolutionise the UK payments industry, called the ‘World Class Payments Project’. Launched to review the UK’s payment schemes and look forward ten years to 2025, this project will set out a vision of how to achieve a world-class payments environment. This is intended to keep the UK at the forefront of financial services and to support consumer and corporate payments requirements which, in turn, help to drive the UK’s economic growth. The project has already identified that there are too many access points, schemes and processes and that customers’ needs are not at the heart of the current payments environment. 
 
 
The ultimate goal of this project is to simplify and improve the end-to-end experience, driving innovation and competition and standardising interfaces – providing the ability to change core processing schemes without affecting services or stability. As a result, over time, we can expect to see a reduction in the number of payment schemes, with the provision of additional products and services using modern, internationally accepted messaging standards such as ISO 20022 – now the standard for new payments schemes and financial services, globally.
   
   
===Exchange controls===
==How are financial institutions responding?==
None.
It is not just changes to the UK payments infrastructure that are driving the banks to provide real-time payment services – consumer demand is increasing as well. A 2015 YouGov survey<sup>1</sup> conducted on behalf of ACI Worldwide highlighted that:


==Taxation framework==
* 45% of bank current account holders would be tempted to switch account providers by the off¬er of faster electronic payments
The tax environment in Hong Kong fosters a strong incentive to foreign investment. Hong Kong is renowned for its simple and lucid tax system and low-tax jurisdiction.
* 41% expect electronic payments to reach their destination either immediately or in less than five minutes; 64% expect them to arrive in up to three hours
* '''Corporate income tax''' – the corporate income tax rate of 16.5% is amongst the lowest in the region.
* 66% want to make immediate payments to friends and family; 65% want to pay utility bills and other regular monthly bills immediately; 57% want to make immediate purchases online or in-store
* '''Capital gains''' – none.
* '''Taxation of dividends''' – none.
* '''Indirect taxes''' – stamp duty, estate duty, betting duty and hotel accommodation tax. In essence, only company profits, salaries and property rental income are taxable. This makes Hong Kong's effective overall tax bite much lower than all other developed countries. While most of these countries impose 40% to 50% tax on all income and profits, in Hong Kong the rates stand only at 15% for personal income tax and 16.5% for corporate.


Favourable tax rates aside, Hong Kong also adopts a territorial source principle of taxation. This means that income derived from outside Hong Kong by a local resident will not, in general, be double taxed in Hong Kong. Furthermore, many developed countries (e.g. the UK and Australia) also provide their residents with unilateral tax relief for Hong Kong tax paid on income derived from Hong Kong. To this extent, most foreign residents will not suffer double taxation. In addition, legislation provisions have been made years ago providing double taxation relief for certain businesses with internationally-based business activities, such as airline operators and shippers.
The banks realise they need to respond to this demand, or risk being disintermediated by more competitive PSPs and Trusted Third Parties (TTPs). There has been a plethora of announcements confirming this – news that Lloyds is building a digital bank, for example – as leading banks start infrastructure renovation, silo breakdown and digitalisation projects to enable them to meet the needs of customers and regulators in what is now a far more competitive, global and real-time world.


==Banking service provision==
==Implications for corporates and corporate treasurers==
Hong Kong is one of the world's most important financial centres, along with New York and London. Most of the world's 100 largest banks have a presence in Hong Kong – one of the chief contingents of international banks in the world. The banking sector has played a vital role in establishing Hong Kong as a major loan syndication centre in the region.
So, what is the relevance to corporate treasurers? Well, we are all consumers and, as personal banking services develop, we will become accustomed to real-time payments, positive confirmation of funds transfer and new, innovative services. We will quickly come to expect them in our working lives as well.
Hong Kong maintains a three-tier system of deposit-taking institutions – namely licensed banks, restricted licensed banks, and deposit-taking companies (collectively known as “authorised institutions”). At the end of April 2014, there were 158 licensed banks, 21 restricted licence banks and 23 deposit-taking companies in business. In addition, there are 62 local representative offices of overseas banks in Hong Kong.
The major commercial banking players in Hong Kong are Standard Chartered Bank, HSBC, Bank of China, Hang Seng Bank and Citibank. Banks in Hong Kong offer a wide range of products for corporate customers, including deposit-taking, cash management, credit facilities, trade services, investments, insurance, treasury and capital market, as well as securities and custodian services. Authorised institutions in Hong Kong comply with the provisions of the Banking Ordinance which, among other terms, require them to maintain a healthy level of liquidity and capital adequacy ratios. They are also required to submit periodic returns to the HKMA, to adhere to statutory limits under the Banking Ordinance on loans to any single customer or to their directors and employees, and to seek approval for the appointment of their directors, chief executives and controllers.


==Clearing and payment systems==
The interbank clearing systems in Hong Kong are operated by Hong Kong Interbank Clearing Ltd (HKICL), a private company jointly owned by the HKMA and the Hong Kong Association of Banks. There are three main types of clearing systems in Hong Kong, all of which operate in accordance with the real-time gross settlement (RTGS) infrastructure launched in December 1996:
* '''RTGS payments (HKD, USD, Euro and Renminbi (RMB))''' – also known as the Clearing House Automated Transfer System (CHATS), these payments are settled in real time on a gross basis via a Settlement Institution (SI). The SI for HKD RTGS, USD RTGS, EUR RTGS and RMB RTGS are the HKMA, HSBC, Standard Chartered Bank (Hong Kong) Limited and Bank of China (Hong Kong) Limited respectively. While all banks in Hong Kong are required to maintain a settlement account with the HKMA to participate in HKD RTGS, it is optional for them to maintain a settlement account with other SIs and directly participate in RTGS of other currencies. Alternatively, they can participate indirectly through another direct participating bank. RTGS has been linked to payment systems of other countries, e.g. MY RTGS, to provide Payment versus Payment (PvP) for foreign exchange transactions to reduce settlement risks. To further facilitate interbank transactions, starting from November 2009, USD and EUR RTGS services became available on public holidays that fall on weekdays, with the exception of New Year's Day.
* '''Paper cheque clearing''' – Hong Kong has implemented cheque imaging and truncation in 2003 in which cheques are exchanged in image format. Physical cheques are only required to submit for exchange if the cheque amount exceeds a pre-defined threshold.
* '''ECG (electronic clearing)''' – ECG is designed to handle high-volume and low-value payments that are cleared and settled in bulk. ECG items include autopay-in and autopay-out (i.e. ACH payments or direct debit and credit), direct debit consumer payments at point of sales (Easy Pay System) and Automatic Teller Machines.


The People's Bank of China appointed Bank of China (Hong Kong) Limited as the Clearing Bank for RMB business in December 2003. The RMB business in Hong Kong started in 2004 and its scope has expanded since then. Prior to the introduction of the RMB trade settlement business in July 2009, banks in Hong Kong participating in the RMB business scheme (Hong Kong Participating Banks) offered a range of retail banking services such as deposit-taking, currency exchange, remittance, debit and credit cards, cheques, and the subscription and trading of RMB bonds. However, since July 2009, Hong Kong Participating Banks have been able to provide a wider range of RMB services, including trade finance. To support the operation of RMB business, the RMB Real Time Gross Settlement system in Hong Kong was upgraded from the RMB Settlement System in June 2007.
The banks are aware of this expectation and, as they modernise their systems to respond to consumer demand, they will also be renovating systems servicing corporate treasurers. Banks use essentially the same underlying payment systems to service their corporate and consumer customers, albeit with different products and services offered over the top.
The major responsibilities of the RMB Clearing Bank in Hong Kong are to:
* open RMB settlement accounts for Participating Banks for the inflow and outflow of RMB funds; open a settlement account with the People's Bank of China's Shenzhen sub-branch to centralise the inflow and outflow of RMB funds of the Clearing Bank and the participating banks;
* collect and distribute RMB banknotes;
* provide clearing services for RMB remittances and RMB cards and bonds issued by Hong Kong banks;
* provide services for the Participating Banks to square their RMB open positions that result from the conversion of RMB into Hong Kong dollars and vice versa.
In 2009, a pilot scheme for cross-border trade settlement was initiated across five mainland China cities, Hong Kong, Macau and select ASEAN countries.
In August 2011, in light of initial success and ongoing regulatory changes, the scheme was extended from 20 provinces to the whole of mainland China. By June 2012, all Chinese companies with an import-export licence were allowed to settle trade in renminbi.
On the investment front, the Chinese market was liberalising, too. In October 2011, all domestic mainland corporates were allowed to participate in the Dim Sum Bond market; and by December, channels were broadened to allow for the repatriation of offshore renminbi funds to China for foreign direct investment purposes.
In addition to changes around trade and investment, the Chinese government has made efforts to gradually open its capital accounts – a key requirement for full convertibility.
The following table is a review of these RMB services offered in (or through) Hong Kong:


{| border="1" cellpadding="5" cellspacing="0" class="infotable" style="float:right; background:#fff; min=width:100%; width:100%"
|-
! colspan="4" style="color:#48001f; font-size:18px; background:none" | '''Table 1: Types of cash management solutions'''
|-
| style="background:#f2ebef"| '''Account services'''
| style="background:#f2ebef"| '''Payment services'''
| style="background:#f2ebef"| '''Receivables services'''
| style="background:#f2ebef"| '''Liquidity management'''
|-
| style="background:#e9d7e0"|Current / Savings accounts, Client Account Services, Phone banking
| style="background:#e9d7e0"|RTGS (HKD/USD/Euro/RMB), Telegraphic transfers, Automated clearing house, ACH direct credits, ACH payroll, Demand drafts, Cashier’s orders (HKD/USD), Credit card, Internet bill payment, EPS (Easy Pay System), Electronic payment, Automated teller machines, Jet Payment, EPSCO electronic fund transfer, Cheque outsourcing, Multi currency solution (MCS)
| style="background:#e9d7e0"|Inward remittances, ACH direct debits, Retail lockbox, Wholesale lockbox, Local cheque clearing (HKD/USD)
| style="background:#e9d7e0"|Pooling (in-country and regional), Sweeping (in-country and regional), Bal-ance aggregation
|}&nbsp;


===Deposit taking===
The changes in the UK payments industry will affect corporates in a number of direct ways: through the potential removal of BACS and cheques, the reduction or replacement of direct debits with the rise of e-invoicing, the opportunity to use new service providers, and the use of real-time order processing, invoicing, refunds, payments and reconciliation.
Hong Kong residents, “designated merchants” (those belonging to the seven categories of retail sales, catering, accommodation, transportation, communications, medical and educational services), corporates and financial institutions can open RMB deposit accounts with Hong Kong Participating Banks.


===Currency exchange===
==Removal of BACS scheme==
Individuals can exchange RMB for Hong Kong dollars or vice versa, up to the equivalent of RMB20,000 per person per transaction, if the exchange is made in cash, and up to RMB20,000 per person per day, if the exchange is made through a deposit account. Designated merchants can exchange RMB cash obtained from their normal course of business for Hong Kong dollars (one-way) without limit. For RMB bond issuers on the Mainland, conversion of RMB to Hong Kong dollars can be conducted for the settlement of expenses incurred in bond issuance. Corporates, financial institutions, and non-residents of Hong Kong can exchange RMB from the Participating Banks in Hong Kong. Since August 2010, an offshore RMB deliverable market has been established to enable interbank trading in RMB FX and derivatives.
It has been proposed that the payments traffic currently running through BACS could be routed through Faster Payments, making BACS redundant. The Direct Debit scheme currently runs via BACS, so this makes the future of direct debit somewhat uncertain, although we know other countries are planning to move direct debits to their real-time payments schemes. Adding to this, consumers do not like the lack of control they have with direct debits, while the banks are not fond of them due to high levels of associated complaints and the Direct Debit Guarantee. Although direct debits provide a level of security to merchants, because the scheme runs via BACS, it takes the money three days to enter their account, making cash management more difficult. There are a number of proposals as to how this could be handled, including a move to instant direct debit via the Faster Payments scheme and a move to standing orders, which currently already run over Faster Payments. Either option would have significant impacts for those who utilise direct debits currently.
==Rise of e-invoicing==
E-invoicing (or Electronic Bill Presentment and Payment) could be another alternative to the Direct Debit scheme. Already widely used in the US, these systems issue an invoice either directly to the customer, or via the customer’s bank, enabling payment to be authorised with the click of a few buttons. This gives control back to the customer, reduces complaints and costs for the bank and provides the funds to the corporate immediately, improving cash management for both the consumer and the corporate.
Alternative service providers
Under the New Access Model, if your current bank does not provide the services you need to grow your business, you may well be able to turn to an alternative (bank or non-bank) provider. It is envisioned that there will be multiple aggregators within the Faster Payments New Access Model, and that many of these will provide services specifically designed to meet the needs of particular types of enterprise, including merchants. Service providers will also compete to offer additional services, such as tighter integration with enterprise resource planning (ERP) systems and better reconciliation using the remittance data available with ISO 20022 standards, allowing instant reconciliation with purchase order or invoice numbers. 
==Benefits of immediate payments for corporates==
Corporates stand to reap significant benefit from immediate payments, particularly when combined with the richer transaction data available using the proven ISO 20022 standard. CFOs increasingly see treasury processes as strategically important, and immediate payments will give the corporate treasurer the tools to better manage cash-flow forecasting, purchase orders, invoicing and ultimately supply-chain risk, improving financial control and, ultimately, profitability.


===Remittance===
Hong Kong residents can remit RMB to their own accounts with their Mainland banks, subject to a daily limit of RMB80,000 per account. Apart from individuals, issuers of RMB bonds in Hong Kong can remit proceeds from bond issuances to the Mainland. Starting from July 2009, two-way remittances could be conducted between enterprises on the Mainland and those outside the Mainland, based on actual trade transactions. Fund transfer services among individuals and corporates within Hong Kong are also permitted.


===Trade finance===
Benefits to treasurers include:
With the launch of the RMB trade settlement pilot scheme in July 2009, Hong Kong Participating Banks can now provide trade finance to financial institutions overseas and corporates outside Mainland China.


Credit and debit cards
* '''Discounts:''' with improved cash flow and positive payment confirmation, corporates could obtain discounts for settling commitments early.
Hong Kong Participating Banks can issue RMB debit and credit cards to Hong Kong residents for use on the Mainland. RMB debit and credit cards issued by Mainland banks are also accepted by retailers in Hong Kong.
* '''Terms negotiation:''' one step further, if a corporate had a history of paying invoices on time or at pre-agreed events, such as shipping and delivery milestones, better contract terms could be negotiated with suppliers, totalling significant savings.
* '''Reduced borrowing:''' better cash flow management and information could reduce funds borrowed from banks, saving money by paying reduced levels of interest.
* '''Reduced reliance''' on cash, cards and cheques, which are expensive to process.
* '''Tighter integration''' between corporate ERP systems and banks’ trade finance and payment systems provides better control, reconciliation and forecasting.


===Cheques===
RMB cheques drawn on current accounts held with Hong Kong Participating Banks can be used both in Hong Kong and on the Mainland. Within Hong Kong, customers can make payments and fund transfers. On the Mainland, RMB cheques can be used for consumer spending in Guangdong Province, subject to a daily limit of RMB80,000 per account.


===RMB bonds===
Customers, too, will see benefits. For instance:
All entities, both in Hong Kong and overseas, are now permitted to issue RMB bonds in Hong Kong, in accordance with market and regulatory practices following the same practices as other currencies. All individuals and entities with a RMB bank account are also permitted to invest in RMB bonds in Hong Kong.


===Cross-border trade settlement===
* An insurance company can approve a claim and have the payment in their customer’s account within seconds.
The launch of the pilot scheme for cross-border trade settlement in RMB on 6 July 2009 was a significant milestone in the continuing development of RMB business in Hong Kong. The scope of RMB banking has been expanded with participating authorised institutions now offering a range of services for trade enterprises using RMB as the settlement currency for their trades with Mainland China.
* A retailer could refund a return in real-time, leaving their customer happy with the service and the money in their bank account.
* Loyalty cards' could be linked to a customer’s bank account, enabling the customer to actually pay with the loyalty card. Faster Payments are cheaper than cards for retailers, so they could reward their customers with more loyalty points as they will have the funds instantly. Only the card schemes lose out.
==Cash and bank account management==
* Goods can be shipped or taken home as soon as payment is received.
===Account availability===
* Immediate payments are cheaper than cards, giving more options for customers. Those who need credit can still use cards, but will pay a premium for the credit, while those who have budgeted for a purchase can use an immediate payment and benefit from lower charges.
Any corporation, financial institution and individual – regardless of their business location or residential status – can open accounts of any nature in any currency (including RMB for general purpose) denomination with any bank in Hong Kong. Designated Business Customers (DBC) are allowed to open a specific type of RMB DBC account in Hong Kong which comes with specific arrangement of fund transfer and currency exchange (e.g. only from RMB to HKD). Since 25 February 2004, RMB deposit-taking accounts, currency exchange and remittances have been permitted in Hong Kong. According to statistics published by HKMA, total RMB deposits with authorised institutions stood at RMB677bn at the end of April 2013.  


===Money laundering===
Hong Kong is a member of FATF (Financial Action Task Force).


===Cash management===
Benefits exist for employees too, especially temporary or hourly paid employees. Firms will be able to calculate pay, then initiate payment on a Friday afternoon knowing staff will have the money in their account for the weekend. Similarly, firms will be able to pay employees’ expenses as soon as they are approved.
Major banks in Hong Kong offer a full range of cash management services to their corporate and institutional customers via electronic banking, direct server-to-server connections, or through the internet. This typically covers account services, payments, receivables and liquidity management. In the past few years, there has been an increasing trend of:
==Conclusion==
* Integration into the customer’s back office, facilitating straight-through processing of transactions. This would typically cover payments, collections and automated reconciliation of accounts payables and receivables.
The UK payments industry is on the cusp of a revolutionary change. With the imminent increase in Faster Payments transaction value, the New Access Model and a forward-thinking mind-set, the UK will be at the forefront of electronic payments. Corporates are right at the heart of this change. Those who spot the opportunities and move first will increase customer, supplier and employee satisfaction, reduce costs and free up resources for investment – in the process, staying one important step ahead of the competition.
* Moving away from vanilla product offerings to solution-based offerings.
* Demand for more sophisticated liquidity management solutions including zero-balance accounts, pooling and cash concentration.
* Integrated solutions for the entire transaction processes, both in-country and regional.


==Corporate finance==
As of June 2014, there were 1,481 listed companies in Hong Kong. The amount of funds raised in the Hong Kong equity markets (for both the main board and the growth enterprise market) was at HK$46.7bn. At June 2014, the market capitalisation was about HK$23.5 trillion.
Hong Kong Exchanges and Clearing Limited is the holding company of The Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing Company Limited. These three organisations use a shared website.


==Websites==
==Notes==
'''Government (English)'''
<sup>1</sup>All figures, unless otherwise stated, are from YouGov plc. Total sample size was 2,074 adults. Fieldwork was undertaken between 12th-15th June 2015. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).
* [http://www.info.gov.hk/eindex.htm http://www.info.gov.hk/eindex.htm]
'''Hong Kong Monetary Authority'''
* [http://www.info.gov.hk/hkma/eng/hkma/index.htm http://www.info.gov.hk/hkma/eng/hkma/index.htm]
'''Census and Statistics Department'''
* [http://www.info.gov.hk/censtatd/home.html http://www.info.gov.hk/censtatd/home.html]
'''Hong Kong Stock Exchange'''
* [http://www.hkex.com.hk http://www.hkex.com.hk]
'''The Hong Kong Association of Corporate Treasurers (HKACT)'''
* [http://peter-wm.w0ong@aig.com http://peter-wm.w0ong@aig.com]
'''World Federation of Exchange'''
* [http://www.world-exchanges.org http://www.world-exchanges.org]
'''Business & Finance – Hong Kong Government News'''
* [http://news.gov.hk http://news.gov.hk]
'''Hong Kong Interbank Clearing Limited'''
* [http://www.hkicl.com.hk http://www.hkicl.com.hk]


[[Category:Book_Export]]
For more information about the support ACI Worldwide provides for faster payments, please click [http://www.aciworldwide.com/campaign/2015/from%20sluggish%20to%20supercharge here.]

Revision as of 10:24, 10 November 2015

Treasury professional
Treasurers Handbook
Author
Barry Kislingbury Lead Solutions Consultant, Consumer Banking, Europe, ACI Worldwide


Introduction

We live in an instant world, where two-year-old children know the ‘finger swipe’ used on mobile devices and, as adults, we get frustrated if we have to wait more than three seconds for a web page to load. This demand for immediacy is now ingrained in our way of life, and the same expectations are increasingly held about payment services.


The purchasing world already largely functions online and in real-time. However, the payment industry that underpins it – and historically lagged behind when it comes to modern technology – is now preparing to respond to this demand for speed.


Mostly due to regulatory, technological, behavioural and cultural drivers, immediate payments are about to enter the corporate transaction space – with benefits to corporates and their customers. As with any major change, these new developments are likely to create significant impact.

Revolutionising the UK payments industry

In the UK, we have four main payment schemes that process transactions worth a total of £72 trillion each year. These are:

  • BACS: via the Automated Clearing House (ACH) for batched low-value, high-volume payments
  • CHAPS: via the Real-Time Gross Settlement (RTGS) systems for high-value, low-volume payments
  • C&CCC: the Cheque & Credit Clearing Company for cheques
  • Faster Payments: the UK’s immediate (or real-time) payment scheme, which takes the best elements of ACH and card payments, delivering speed, information and cost effectiveness

It is the last of these that is driving change. The Faster Payments scheme, initiated by the UK government in 2006 and launched in 2008, reduces traditional low-value payment clearing times from three working days to a matter of seconds. Previously, members of the scheme were able to send and receive immediate payments up to a transaction limit of £100,000. However, this limit is in the process of being raised: first to £250,000 in 2015 and then potentially to £1m in 2016, opening up the scheme to expanded use by corporates.


Faster Payments Scheme Ltd (FPSL), working with the UK’s new Payments Systems Regulator (PSR), is also opening up the Faster Payments scheme technology and infrastructure to new entrants, be they challenger banks or other payment service providers (PSPs). This ‘New Access Model’ encourages increased competition and innovation by opening the scheme to new directly connected bank members, to PSPs and to technology providers (such as ACI Worldwide) to offer aggregator services (a Faster Payments service bureau) – reducing barriers to entry for enterprises with lower annual transaction levels.


There is also a third initiative that will further revolutionise the UK payments industry, called the ‘World Class Payments Project’. Launched to review the UK’s payment schemes and look forward ten years to 2025, this project will set out a vision of how to achieve a world-class payments environment. This is intended to keep the UK at the forefront of financial services and to support consumer and corporate payments requirements which, in turn, help to drive the UK’s economic growth. The project has already identified that there are too many access points, schemes and processes and that customers’ needs are not at the heart of the current payments environment.


The ultimate goal of this project is to simplify and improve the end-to-end experience, driving innovation and competition and standardising interfaces – providing the ability to change core processing schemes without affecting services or stability. As a result, over time, we can expect to see a reduction in the number of payment schemes, with the provision of additional products and services using modern, internationally accepted messaging standards such as ISO 20022 – now the standard for new payments schemes and financial services, globally.

How are financial institutions responding?

It is not just changes to the UK payments infrastructure that are driving the banks to provide real-time payment services – consumer demand is increasing as well. A 2015 YouGov survey1 conducted on behalf of ACI Worldwide highlighted that:

  • 45% of bank current account holders would be tempted to switch account providers by the off¬er of faster electronic payments
  • 41% expect electronic payments to reach their destination either immediately or in less than five minutes; 64% expect them to arrive in up to three hours
  • 66% want to make immediate payments to friends and family; 65% want to pay utility bills and other regular monthly bills immediately; 57% want to make immediate purchases online or in-store

The banks realise they need to respond to this demand, or risk being disintermediated by more competitive PSPs and Trusted Third Parties (TTPs). There has been a plethora of announcements confirming this – news that Lloyds is building a digital bank, for example – as leading banks start infrastructure renovation, silo breakdown and digitalisation projects to enable them to meet the needs of customers and regulators in what is now a far more competitive, global and real-time world.

Implications for corporates and corporate treasurers

So, what is the relevance to corporate treasurers? Well, we are all consumers and, as personal banking services develop, we will become accustomed to real-time payments, positive confirmation of funds transfer and new, innovative services. We will quickly come to expect them in our working lives as well.


The banks are aware of this expectation and, as they modernise their systems to respond to consumer demand, they will also be renovating systems servicing corporate treasurers. Banks use essentially the same underlying payment systems to service their corporate and consumer customers, albeit with different products and services offered over the top.


The changes in the UK payments industry will affect corporates in a number of direct ways: through the potential removal of BACS and cheques, the reduction or replacement of direct debits with the rise of e-invoicing, the opportunity to use new service providers, and the use of real-time order processing, invoicing, refunds, payments and reconciliation.

Removal of BACS scheme

It has been proposed that the payments traffic currently running through BACS could be routed through Faster Payments, making BACS redundant. The Direct Debit scheme currently runs via BACS, so this makes the future of direct debit somewhat uncertain, although we know other countries are planning to move direct debits to their real-time payments schemes. Adding to this, consumers do not like the lack of control they have with direct debits, while the banks are not fond of them due to high levels of associated complaints and the Direct Debit Guarantee. Although direct debits provide a level of security to merchants, because the scheme runs via BACS, it takes the money three days to enter their account, making cash management more difficult. There are a number of proposals as to how this could be handled, including a move to instant direct debit via the Faster Payments scheme and a move to standing orders, which currently already run over Faster Payments. Either option would have significant impacts for those who utilise direct debits currently.

Rise of e-invoicing

E-invoicing (or Electronic Bill Presentment and Payment) could be another alternative to the Direct Debit scheme. Already widely used in the US, these systems issue an invoice either directly to the customer, or via the customer’s bank, enabling payment to be authorised with the click of a few buttons. This gives control back to the customer, reduces complaints and costs for the bank and provides the funds to the corporate immediately, improving cash management for both the consumer and the corporate. Alternative service providers Under the New Access Model, if your current bank does not provide the services you need to grow your business, you may well be able to turn to an alternative (bank or non-bank) provider. It is envisioned that there will be multiple aggregators within the Faster Payments New Access Model, and that many of these will provide services specifically designed to meet the needs of particular types of enterprise, including merchants. Service providers will also compete to offer additional services, such as tighter integration with enterprise resource planning (ERP) systems and better reconciliation using the remittance data available with ISO 20022 standards, allowing instant reconciliation with purchase order or invoice numbers.

Benefits of immediate payments for corporates

Corporates stand to reap significant benefit from immediate payments, particularly when combined with the richer transaction data available using the proven ISO 20022 standard. CFOs increasingly see treasury processes as strategically important, and immediate payments will give the corporate treasurer the tools to better manage cash-flow forecasting, purchase orders, invoicing and ultimately supply-chain risk, improving financial control and, ultimately, profitability.


Benefits to treasurers include:

  • Discounts: with improved cash flow and positive payment confirmation, corporates could obtain discounts for settling commitments early.
  • Terms negotiation: one step further, if a corporate had a history of paying invoices on time or at pre-agreed events, such as shipping and delivery milestones, better contract terms could be negotiated with suppliers, totalling significant savings.
  • Reduced borrowing: better cash flow management and information could reduce funds borrowed from banks, saving money by paying reduced levels of interest.
  • Reduced reliance on cash, cards and cheques, which are expensive to process.
  • Tighter integration between corporate ERP systems and banks’ trade finance and payment systems provides better control, reconciliation and forecasting.


Customers, too, will see benefits. For instance:

  • An insurance company can approve a claim and have the payment in their customer’s account within seconds.
  • A retailer could refund a return in real-time, leaving their customer happy with the service and the money in their bank account.
  • Loyalty cards' could be linked to a customer’s bank account, enabling the customer to actually pay with the loyalty card. Faster Payments are cheaper than cards for retailers, so they could reward their customers with more loyalty points as they will have the funds instantly. Only the card schemes lose out.
  • Goods can be shipped or taken home as soon as payment is received.
  • Immediate payments are cheaper than cards, giving more options for customers. Those who need credit can still use cards, but will pay a premium for the credit, while those who have budgeted for a purchase can use an immediate payment and benefit from lower charges.


Benefits exist for employees too, especially temporary or hourly paid employees. Firms will be able to calculate pay, then initiate payment on a Friday afternoon knowing staff will have the money in their account for the weekend. Similarly, firms will be able to pay employees’ expenses as soon as they are approved.

Conclusion

The UK payments industry is on the cusp of a revolutionary change. With the imminent increase in Faster Payments transaction value, the New Access Model and a forward-thinking mind-set, the UK will be at the forefront of electronic payments. Corporates are right at the heart of this change. Those who spot the opportunities and move first will increase customer, supplier and employee satisfaction, reduce costs and free up resources for investment – in the process, staying one important step ahead of the competition.


Notes

1All figures, unless otherwise stated, are from YouGov plc. Total sample size was 2,074 adults. Fieldwork was undertaken between 12th-15th June 2015. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

For more information about the support ACI Worldwide provides for faster payments, please click here.

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