Interviewed By The Asian Banker Live
ANZ’s Vasic and Huse speak about the greater transactional business needs of Australian clients expanding into Asia and also discuss the shake up the payments landscape in Australia, once open banking legislation comes into play in 2019
Here is the transcript of the video with Lisa:
Boon Ping: As an Australian bank looking after Australian customers and Asia as a market, as a region (overall- Asia Pacific), what are the expectations of Australian customers of Asia and vice versa with customers that you serve in Asia?
Lisa: I think one of the wonderful things about being a long-standing member of the ANZ team is our heritage has always been in Asia. So, we’ve always been a very outward looking bank and more of our corporate institutional customers have taken on that same philosophy. They see the growth and particularly the core industries where ANZ has traditionally been strong in which is around infrastructure, it’s been in natural resources, agriculture, and similarly around our correspondent banking proposition which is a cross-border movement of payments. They’ve always been a very outward looking industry segment.
So, what we’re seeing from our customers is they are looking for banks that can help follow them through the cycles. So, if we think about Global Financial Crisis (GFC), a lot of our customers who historically may have used one of the ‘globals’ to support them in their activities, what we are seeing is that they understand that they also need a strong local bank to be able to support them in those key markets throughout the region.
Whether that’s ANZ and our local representation through the various 34 markets in the Asia-Pacific region or whether very much it’s around making sure that the proposition that we provide in our home market where we are strongest, is carried through to other markets and particularly to those hubs of Hong Kong, Singapore, and especially now into China and India.
Boon Ping: Talk about how your footprint in Asia now affects your business of corporate relationship management and what can they continue to expect from ANZ?
Lisa: We have just come out of the plenary session that Shayne Elliot was actually talking about at the opening of SIBOS and he said really it’s focusing on the things that you can do really well. So from the institutional business, it’s really focusing on the trade and capital flows that support our customers’ activity into the region and fundamentally, the reshaping of our institutional business has been following that guidance and making sure that we have got of the scarce resources that all banks have available, to that our investment is going to really support our customers into the region supporting intra-Asia trade, but also importantly back into our home markets of Australia and New Zealand and Papua New Guinea.
Boon Ping: Talking about intra-Asia trade, you are part of the Trade Information Network. How does that help the region in terms of digitising trade?
Lisa: On the 18th of October, we made an announcement to the market that six other banks plus ANZ formed part of the Trade Information Network. When we think back to ANZ’s heritage, we have always been a trade bank and a correspondent bank. So, our view around trade is it’s fundamental to our strategy of supporting trade and capital flows, but it’s also one of those industries that really hasn’t had the significant benefit of a lot of the digitization we have seen in others.
For our customers to continue to see the value proposition but also to support their underlying activity of their customers wanting speed, efficiency, oversight of the data, being able to find information quicker, we understood that we needed to be part of that leadership group to help support the trade digitisation program and that’s whether it is being a founding partner of the Trade Information Network or whether it’s supporting some other use cases we have had in our local markets where we have used distributed ledger to solve problems for customers using trade instruments.
Boon Ping: The distributed ledger technology or blockchain, there are various initiatives in in blockchain to facilitate trade finance. You have we.trade, you have Marco Polo and you are part of one of them. How will this play out in terms of getting more acceptance and participation?
Lisa: I think the key is accessibility and acceptance because trade fundamentally, as is correspondent banking, is the power of the network. So, from an ANZ perspective, we have participated in a number because we are making sure that we can help towards building the standards and the protocols that will create a much more connected world. Similarly, that’s been the same for us with global payments initiative (gpi) where we are a founding member of gpi and that is because getting the rails right, getting the standards and protocols will then help different value propositions sit over the top of those.
So, we are working with Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) on various projects, but also we are looking at use cases in the domestic market where our customers have come to us with a key problem and we have been able to harness the community in terms of participants and the other banks to bring together a networked community to be able to solve the customer problems. So, I think at the moment, there are multiple different programs. The key for them is when they get the convergence in scale that they become a value to all the participants in the network.
Boon Ping: Coming from ANZ, Do you expect any imminent announcement of key commercialization of blockchain for trade and is it in continuation from a previous development?
Lisa: We are in the process of one that is coming near to be announced on the domestic market. But again, this is not a one-off for us. So, if I think back into SIBOS in Geneva where we worked with Wells Fargo on the nostro reconciliation, it is very much around continuing to iterate. The key thing is the technology is an enabler, it is not the solution. What we are working with a number of our customers and also with our partner banks is identification of this problem we are trying to solve for and then identifying who are the right parties to bring together, including use of their various technologies around, whether it’s distributed ledger, whether it’s an artificial intelligence play, or a combination of both, to make sure that we can get the best outcome for customer.
Boon Ping: The geopolitical situation in Asia with trade and tariff tensions between the U.S. and China that will lead to adjustments on the supply chain side. How do you see that issue, what are some of the challenges and how is ANZ helping its customers solve those challenges?
Lisa: I think sometimes we underestimate how resilient our customers actually are. So, whether it’s dealing with the GFC or dealing with the current geopolitical factors, I think there is very much an eye on working through the major thing happened to their businesses, which is actually dealing with the technological change or digital transformation, whether that is in their own supply chain, and then looking at that in terms of what the risk elements are that sit within their supply chain, but I think looking around automation of the supply chain is hugely important for our customers.
So, I think always, we have one eye on the geopolitical landscape, particularly in terms of potential impacts of trade tariffs in key markets, but I think a lot of the planning and a lot of the contingency thinking has already been put in place. Even when you saw the announcement of tax breaks for multinationals twelve months ago, a lot of our customers were very on the front foot around the understanding, what they need to do from a liquidity perspective and similarly, from a trade tariffs perspective, there is a lot of contingency planning already taking on board.
So, key for us is keeping our customers informed through a lot of our economics briefings and a lot of our local market insights and I think this is one of the strengths for ANZ lies in. We have team members in each of the key geographies throughout the Asian network and they are providing that combination of home and local market insights in Asia around, and what the impacts will be for customers who are trading cross-border.
Boon Ping: There have been number of incidents originating from Asian banks in particular. In the plenary (SIBOS 2018 opening), we hear about the role of regional global banks playing the role of a mitigating factor and of mitigation controls. How is that working out with your clients in terms of the role that ANZ can play?
Lisa: Listening to the Head of SWIFT, cyber is here to stay and unfortunately, the cyber hackers, they get out of bed in their pajamas and go to work on their laptops. So, we are constantly trying to keep pace with the amount of innovation that we are seeing on the cyber side, whether that is state-sponsored or it is economically more disruptive. The key thing for us to look for is to look from front and back- what can we do to help our customers in terms of pre-detection, looking at unusual routing and unusual flows, but also we have made significant investments into our correspondent banking networks, which is looking at our transaction monitoring. Looking at those early warning trends to be able to show that we can see new markets or new routes that are coming through that are irregular and really have the front foot around trying to help our customers identify. But the biggest thing that we’ve been focused on for the last three years is education, so we need to be key to make sure a lot of our corporate customers are aware of cyber. Australia is still in the process of getting mandatory disclosure around cyber-attacks. So, the awareness is absolutely critical and I think all the banks have done a good job in trying to make sure that their customers are aware to do that prevention and also to make sure that our frontline staff are also aware of the threat of cyber and particularly, obviously, in the context of the importance of data and data breach regulations.
Here is the transcript of the video with Alan:
Boon Ping: Australia has launched NPP, a great opportunity to move the society even further. What are some of the opportunities that NPP opens up for payments and collection?
Alan: So, NPP officially saw the launch to the market in about February, but probably really only launched in terms of full take-up in about July. So, we’re still in that early stage of adoption. Each bank has gone at its own pace and determining channels. We’ve sort of targeted retail, corporate, and FIs so we’re live with all customer segments. The community is starting to absorb it and have the fun of paying people and receiving money in a matter of seconds and being able to add a lot more data to their message including an emoji which is a fun customer experience. I think it’s going to cause our compliance people all sorts of headaches.
The corporate world has taken up slowly to NPP at this point, but there are a number of use cases that we can see. If a customer’s particularly should be able to make payments say in the insurance industry on a weekend after someone makes a claim and things. So, those use cases will develop. Then, we’re also offering the service to our financial institution clients who don’t want to access the system directly but want to come through an agent and we are doing the first of those next month, which is exciting for us.
I think NPP is more a bit about the future and I think what we’ll see in the year 2019 is broader take-up by everyone and then the development of the overlay services, which is really where I think some of the exciting things will come. The first services to be offered are a request to pay and payment with attachment. I think there you’ll start to see banks and perhaps non-banks develop some solutions that will work for their clients. The request to pay one I think has got a lot for a small business or a single business.
So for collections let’s say, if I’m a plumber and I come to your house and I fix your leaking tap, I can, on my phone, send you a message requesting you to pay. You can look at the work and it’s done and you press the button and I get my payment. I don’t have to take a machine. I don’t have a card. So, that kind of feels a really good experience for people.
Boon Ping: And overly for Future POS (FPOS) acceptance, is that in the works?
Alan: I think the question we don’t know is what does NPP replace at some point? We’ve all spent a fair bit of money building out the infrastructure and at some point, I think it will become perhaps the dominant one and some other payments will go. Australian’s adoption of credit cards and tap and go technology is very high and I think that will continue for the foreseeable future but again, as our CEO said just this morning, it’s very hard to predict the future. So, you have to kind of keep things going. But the concept of being able to make payments quickly and with lots of data I think is a big driver.
Now, the other interesting part is on the cross-border side, where ANZ is announcing this week that you can connect real-time payment systems using the SWIFT network. That’s been a real pain point for people to be able to make a cross-border payment quickly and to know where it is. I think that if we can prove that that case works at scale, that will both – I think it will happen because as I said, it’s been a real pain point for customers and for banks, but I think it will drive the take-up of the domestic faster payments because people will see it’s activity not only domestically but in the ability to make a payment to a relative in the U.K (remittances) and they get it in a matter of minutes, which would be a fantastic and radical experience from where we are. So, we’ve got all that happening and then we have open banking legislation coming to Australia in the middle part of 2019.
Boon Ping: And that will open up the payments industry in Australia and create challenges and opportunities as well. So, NPP and GPI, with NPP now, peer-to-peer payment is a possibility and it has got the ability to disrupt and enhances entire customer experience, but it is also capable of disrupting traditional revenue models of fees and now makes transactions more cost efficient. How is ANZ looking at the implication of having the entire business and revenue model being disrupted, and if you look at the possibility of, in the future, getting into FPOS payments, like in other markets we introduced instant payment through adoption of QR code.
Alan: So, the short answer is we think a lot about disruption, particularly I do as I’m impacted by it, and we like to keep an awareness of all turns that are happening both domestically but also offshore. One of the advantages of having the network that we’ve got offshore is our ability to tap in and see those trends and think about them in Australia.
QR, for example, clearly wide, wide adoption in China and Australia enjoys a rapid growth in Chinese visitation, students and tourists. You would assume that they will want to use that experience when they come to buy their goods, pay for their hotels, etc. and how that will get adopted in a domestic market is something we think about. Equally, the QR technology has got broader application. Does it substitute what you get through NPP or is it just an alternative?
NPP was directed by the Reserve Bank of Australia to overhaul the clearing system, so we have all as banks spent a fair bit of money building the infrastructure. I think it’s incumbent on us to work out how we can maximize the return on that investment by using that infrastructure and building overlay services on top and then perhaps downplaying or removing other alternatives that might now have passed their time. Checks is clearly an example but there may be other parts of the clearing system that will go.
So, I think we’ve got two lenses on that. Look at what we can do to maximize NPP, but keep an eye on other trends so we don’t get totally blind. That’s a difficult game for banks because the world is tough.
Boon Ping: Payments today are looked at as a silo, right? So, as you look at overlay services, you may incorporate partners or other parts of the banks where you add value in financing etc.
Alan: Well, I think a colleague said it earlier today that actually we need to make the payment experience a genuine experience for the customer, not just something that happens, and that’s what the Chinese have done very well, bring it into a broader application and it becomes something much more enriching. The other point that you’ve hinted at, which I think we are all thinking about, is we don’t have to build everything. Many years ago, we did. We felt we wanted to be the owner of everything and scale massive.
I think culturally, we’re much more in tune with saying if someone else is better at providing that service and our customers want it, we will make it available to them through our channels and devices and I think you will see that trend continue. Apply Pay is a good example of that. We decided to do that, our customers were asking for it, and it’s proven to be very successful. I think in the corporate and institutional space, we will increasingly look at that model as an alternative to trying to build everything ourselves. So NPP is a common infrastructure, it’s powered by SWIFT, it’s clever, scalable infrastructure and therefore what could we lay onto that to enhance that.
Boon Ping: With GPI, it is also a common standard, but in terms of how you can bring in from domestic to cross-border.
Alan: The pilot case that we’ve been working on in the last two weeks has proven that faster payments can be connected to different markets, like Singapore to Australia. We’ve had a payment move from Singapore through beneficiaries into Australia in less than 60 seconds. That’s a fantastic experience and I think GPI, which was a mere idea fermented at SWIFT in Singapore three years ago is now an established platform. I think we’ve heard from SWIFT a really positive awareness of their need to – in fact, they described themselves as a Fintech, which I think is a really a large Fintech. Their capacity to open up that proposition quickly and flexibly to the broader market is key. For all of us, SWIFT and the larger banks, one of our big challenges is doing stuff at pace. We are large organizations with complex infrastructure. The competition we have faced from the Fintech community and particularly the smaller Fintech community, is their ability to start from scratch and build something and get it to market and we are (as banks) still thinking about it. We can’t work in that paradigm anymore. Touching briefly on Open Banking and API, they intertwine and that legislation will hit our market next July.
Boon Ping: Open-banking and API will involve opening up to the non-banks as well, so how much can banks differentiate using APIs and recreating around how they open up their APIs?
Alan: Massively, I think it presents a wonderful array of opportunities and equally, a massive array of challenges. Again, it’s probably a little hard to determine exactly how it’s going to land, but we know the world is changing. One of the great messages I give is we need to be the bank that people go to to access those services. We use the term ‘crown jewels.’ What are the reasons why you come to ANZ for services and from that, what other services can I access via ANZ.
Boon Ping: Shayne (Shayne Elliott, CEO, and ANZ) mentioned that in this environment, the pace of change, being a first mover allows you speed and scale. How much of a first mover is ANZ?
Alan: I think we’ve done it pretty well actually so far if I can say on NPP. I’m pretty confident – so, we are the first bank to open up all three channels, which is the retail channels and the corporate and institutional channel and to the FI agencies. In fact, I think we’re the only bank that provides those services to our FI banks and we’ve been a leader of the GPI both as well. They were conscious choices that we made. On the trade side, we are by far the market-leading trade bank in Australia. The bank’s strategy, Shayne may have talked on this but if he didn’t – and he did say a few things and do them well. So, we basically said we are going focus on helping people buy and own a home, to establish and run a small business, and to support companies driven by trade and capital flows around our region. That’s the third one is where I primarily spend my time. To do that, you have to be the leading cash management bank in your home markets of Australia and New Zealand and you need to provide the products and services to support clients that are driven by those trade flows.
So, GPI is a cross-border payment and we need to be at the forefront of that development along with several other services as well.