Steven Marshall & Colin Digby
Steven Marshall & Colin Digby

Technology - Key to transforming the emerging market payments landscape

Crown Agents Bank (CAB) has been a trusted partner to frontier market central banks and financial institutions for decades with a unique expertise in these markets. Serving a wide network of partners across Africa, the Caribbean, parts of Asia and the Pacific islands CAB now offers a range of solutions encompassing foreign exchange, international payments, pensions and payroll payments and trade finance. We talked to Steven Marshall (Chief Commercial Officer) and Colin Digby (Head of Banks and Non-Bank Financial Institutions) at the firm to discover what factors are influencing the fast-developing payments landscape across the emerging markets (EM’s) and what role technology will be playing here in the future.

First Published: e-Forex Magazine 87 / SIBOS 2019 / July 2019

Why are the EM’s going to play a central role in driving a technology-led transformation of the payments landscape over the next few years?

SM: Many EMs currently have high mobile penetration - the number of mobile internet subscribers in Sub-Saharan Africa has quadrupled since the start of the decade - but still have a large proportion of people who are underbanked and underserved by financial services.

Technology can play the most transformational role in these markets by helping to move money where it previously either wasn’t possible or where the process of change may have been glacial.

In more established financial markets, the infrastructure has often already been developed and there’s typically the challenge of legacy architecture and processes to overcome before new systems can be integrated. In many EMs and frontier markets, where infrastructure might not have developed to the same extent, there’s an opportunity to innovate with fewer constraints. There’s also in many ways a greater need; the use of technology in EMs can mean the difference between having access to payments services or not. In other markets, new developments might simply provide an additional choice of service option.

What issues have traditionally hindered global businesses wanting to make payments into frontier and developing markets and how is CAB helping them to overcome these challenges?

CD: There are two key challenges that tend to work against businesses attempting to make payments in frontier and developing markets. The first is the difficulty of getting money into some of the harder to reach territories. Where access to USD is limited, for example, the process is complex and technically problematic. The second is a lack of developed relationships in these markets.

It can be very difficult to operate without the trust of local government, central banks and commercial banks; in order to serve these markets properly, you need strong relationships and a thorough understanding. This is where Crown Agents Bank is uniquely positioned, having built up a network and expertise over nearly two centuries in these markets. As a result, CAB has unique levels of access to liquidity across a wide range of EM currencies and we therefore use our expertise and network to offer businesses essential market insight.

Digitalization cannot be ignored and so financial institutions need to adapt and embrace the potential that technology offers
Digitalization cannot be ignored and so financial institutions need to adapt and embrace the potential that technology offers

How is CAB looking to leverage its local customer franchise and FX and settlement network across frontier and EM’s to optimise its B2B offering and what benefits will this deliver?

SM: Utilising our extensive relationships is fundamental to optimising our B2B offering. We’ve worked with both central and regional banks over decades and this local understanding and trust enables us to provide consistent access to liquidity and reliable delivery of funds on the ground. In markets which can experience high levels of uncertainty, reliability for the end user as well as the local economy is crucial.

Many governments in EM regions are keen to boost financial inclusion and reduce the use of cash. In what ways does FinTech innovation help to achieve these?

SM: By integrating financial products with popular technologies such as mobile, services that were impossible to reach for the majority via traditional channels, become accessible. In addition, banks and other financial institutions can benefit from a more efficient foreign exchange process brought about by new technology, and this in turn, makes it possible for these organisations to deliver a wider range of financial products to the consumer. We recently acquired Segovia’s B2B payments platform, precisely because we realised a need to combine our expertise and network with the latest technology platforms, to provide a complete solution to our customers.

Through the use of technology to improve financial inclusion, there will be a natural reduction in the amount of cash exchanged, as transactions are increasingly processed digitally. The benefits of reducing cash through the use of mobile wallets are copious, ranging from reduction of tax evasion to increased ease of use for payments.

Crown Agents Bank has joined SWIFT gpi to deliver an improved cross-border payments experience to their range of clients. SWIFT gpi dramatically improves cross-border payments across the correspondent banking network.
Crown Agents Bank has joined SWIFT gpi to deliver an improved cross-border payments experience to their range of clients. SWIFT gpi dramatically improves cross-border payments across the correspondent banking network.

In what ways are new technologies being deployed to make it more economically viable to service the ‘unbanked or ‘underbanked’ populations of EM economies?

CD: Technologies like our EMpowerFX platform allow the automation of currency exchange, so we can reduce the cost and time it takes for businesses and other financial institutions to access currency. This has a knock-on effect for SMEs and end consumers, who in turn will have access to financial services without incurring unnecessary charges.

Mobile wallets are also playing a critical role in helping to distribute money at extremely low cost, supporting financial and social inclusion. Through our recent acquisition of Segovia, we now have direct access to make payments from charities, businesses and remittances for 11 African markets.

The payments business, traditionally dominated by banks, is witnessing increasing competition from new entrants including disruptors. What advantages does this have for the EM’s?

CD: As the industry evolves and markets are disrupted, many newcomers are also looking at underserved markets and regions that could offer high-growth. We believe that this will lead to greater investment in these markets, encouraging established banks and financial institutions to innovate and therefore enabling financial inclusion. Equally banks may choose to partner with some of the innovators; it all leads to greater choice, lower cost and higher levels of inclusion.
                
What role can vendors that specialise in niche value-added services in the payments processing chain play in helping to spearhead innovation as alternative system providers in the EM’s?

SM: Niche often translates to expertise, which is what is really required for these markets. Ensuring that solutions and services cater to the end user is much easier when you’re working on one part, rather than trying to address the full end to end process.

Mobile wallets are playing a critical role in helping to distribute money at extremely low cost, supporting financial and social inclusion.
Mobile wallets are playing a critical role in helping to distribute money at extremely low cost, supporting financial and social inclusion.

What steps can national regulators and industry associations in the EM’s take to help build security and trust in new e-payments systems?

SM: Working closely with communities and government organisations is crucial to establishing trust and uptake. From our experience industry associations represent a wide population of interests and can therefore offer real insight into what people in EMs need from e-payments systems.

Crucial steps that these groups can take include being open to communications, setting standards, training and encouraging innovation and ultimately offering their invaluable expertise to best implement e-payments in their markets.

Payment FinTech in many EM’s has leapfrogged from branch banking to e-banking and now mobile money with a corresponding reduction in the cost of serving customers. What implications does this have for the future of more traditional banking models and channels in these regions?

CD: Having been in many of these markets over decades, we’re used to seeing how organisations adapt to everything from industry trends to natural disasters. As with any big disruption, natural or otherwise, digitalization cannot be ignored and so financial institutions need to adapt and embrace the potential that technology offers or risk becoming increasingly irrelevant.

We are increasingly seeing demand to support mobility and this manifests itself in the need to service cross border transactions. This is why CAB has invested heavily in its network across emerging markets and more recently, in mobile payments. We believe we are well placed to service this next generation of demand.