Is Malaysia ready for greater adoption of e-payments?

Is Malaysia ready for greater adoption of e-payments?

First Read Written by Karthiyani Ramalingam Friday, 27 July 2012 12:20

THE Malaysian payments landscape is one of the most diverse in Asia. While some corporate entities have migrated to electronic channels for payments, others still use paper-based payment processes.

The migration to electronic payments (e-payments) to provide operational efficiencies is part of Bank Negara Malaysia’s agenda as shown in its Financial Sector Blueprint 2011-2020.

According to the bank’s payment statistics, e-payments through the country’s Real-time Electronic Transfer of Funds and Settlement System (Rentas) — the country’s large value payment system, are on the rise year-on-year, which demonstrates a clear ongoing trend towards payment automation in Malaysia.

As highlighted by the central bank, using e-payment methods can increase productivity and lower the costs of doing business. However, as the country is moving towards greater adoption of e-payments, are corporates in Malaysia ready and equipped for this change within their own operations?

To this end, companies using electronic channels can not only make faster payments in a more cost-effective way, but also improve their ability to forecast future cash flow requirements.

In addition, making payments electronically enables corporates to improve the efficiency of their working capital and to optimise the use of their balance sheet.

For example, they no longer need to maintain a certain amount of liquidity in their accounts to ensure cheque payments are covered. By eliminating paper-based payments, corporates can also prevent delays often caused by cheque authorisation processes.

Companies that are still using paper-based payment methods may also carry higher operational risks than their counterparts in other parts of Asia that have already moved to e-payment platforms.

Therefore, even if payment transactions are increasingly done electronically, corporates may not be able to enjoy the full benefits of these seamless electronic transactions if other internal processes are still manual.

When managing cash management operations, treasurers have to take into account their company’s future growth prospects and strike a balance with cost and control.

They need to ask themselves how they can manage their liquidity and forex risks, while ensuring payments are made with efficiency and scale. They also need to consider if the processing platforms in use will be adaptable to the changes that will arise from the expansion of their companies.

It is also important to carefully consider both the quality and quantity of existing banking relationships. Increasingly, we will see treasurers starting to rethink if having one banking provider for all their transaction banking needs provides them with the best results, or if they should look across the individual transaction banking domains to identify best practices in specific areas and make their banking relationship decisions accordingly.

Corporates in Malaysia tend to have two models: some use shared service centres for payment processing with their regional treasury centres established in major financial centres, such as Hong Kong or Singapore.

Others process all their account payables and receivables in Malaysia. However, in both cases, once their payment processing is set up electronically, they start to look at cross-currency payment platforms, such as Deutsche Bank’s FX4Cash, as the next step.

Such integrated payments solutions, which also facilitate forex conversion, allow corporates to further streamline their treasury processes as multi-currency settlements are done using a single platform.

They also provide the necessary transparency and visibility of an end-to-end process flow, and help mitigate forex risk. This is particularly important given the current market volatility.

In order to compete with other Asian countries, the payments landscape in Malaysia will inevitably evolve. While the US dollar is still widely used as an operational currency within Asia, this may change in the near future given the increase in intra-Asia flows.

As Deutsche Bank Research shows, the majority of Malaysian trade is done with other Asian countries, predominantly emerging market Asian countries. These volumes have been consistently growing since 2009.

The volumes of trade between Malaysia and China have also been increasing and Malaysia has now become one of China’s largest trading partners. As a result, corporates may increasingly ask their banks to offer them invoicing capabilities in other Asian currencies, particularly in yuan, with the growing internationalisation of the currency.

This would be further enabled by the recent announcement from the central bank to extend its real-time gross settlement services via Rentas to include the yuan in order to provide banks with “greater efficiency and competitiveness in trade settlements” involving the currency.

As the country’s corporate payment landscape continues to evolve, corporates in Malaysia will have to focus on four keys areas:

• The automation of their payment processes;
• Their choice of payment/transaction platforms in order to integrate all their processes, thereby increasing their operational efficiencies and mitigating risk while making cross-border payments;
• The banking partners they have to cater for their evolving needs; and
• The currencies they should use in order to make payments more efficient and cost effective as intra-Asia trade flows continue to grow.

Karthiyani Ramalingam is head of cash management for corporates — global transaction banking, Deutsche Bank (M) Bhd. The views expressed are those of the author and do not necessarily reflect the official views of Deutsche Bank or its related entities.

This article appeared in The Edge Financial Daily on July 27, 2012.

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