ACCOUNTS PAYABLE
Shrinking World of Payments
March 22, 2007
Christopher Bjorke

Banks and corporates must adapt to an international payments system that is moving toward electronification and consistent standards. Two payments experts give an overview.

As globalization progresses and technology advances, international borders are becoming less important and payments as a physical check are becoming less common. The upcoming Single Euro Payments Area will create uniform payments regulations for Eurozone members. Rapidly developing countries such as India and China are adopting technology that took North America and Europe decades to institute.

But new developments present adaptation challenges for banks and corporates. New cross-border intiatives like SEPA may affect banks' bottom line. In Latin America and other places, payments are still governed by a hodge-podge of local regulations. What is the finance professional to make of all this?

G.M. Stetter is managing director for ABN AMRO and a former AFP board chairman. Gary Kawka is director of cash management and treasury operations for Cytec Industries, an international specialty chemical and materials technology company.

How are payments changing in Asia?

Kawka: In China, we're trying to break into dealing in other currencies. There are still exchange controls in China that limit your capabilities. But I understand recently Citibank is making a huge investment into China, and China's opening up more and more, so I see that eventually this currency issue is going to go away. It's just going to take time.

But China is by far the biggest market for us in Asia. In the other countries in Asia, for example in Australia, there's still some checks, but we're doing quite a bit of electronics, and we have a small Singapore operation that used to be a regional center but now we're phasing it out and moving it to Malaysia.

Stetter: Again, the two big markets are obviously India and China. India is improving very quickly. A few years ago it was guys on bicycles running checks all over the country. You had multiple clearing houses for checks. Now they've got an electronic payments system. They're a perfect example of technology being able to leapfrog some of the inefficiencies that we had in the U.S.

In China, the problem is the regulatory environment determines how efficient you can be, because there are so many restrictions on what you can do with money, what provinces you can do it in, how you can move it among provinces. But there are ways around most of that. For instance, you can tie into the Chinese post office there and make payments all over the country.

They are adopting much better payment methods. The problem is, your payments can be efficient, but then what do you do with the money? Unless you can do a back-to-back loan with somebody, you can't do much with it. They're starting to let you remit some of that money back to the parent if it qualifies in certain ways.

China's not an easy market, but the potential is so huge, people are forcing themselves to get familiar with it and go in there and try it out.

I think one of the things you see with globalization is that years ago treasurers would dream of having global mobility of their funds. We're getting closer to that. The regulations have eased a bit. The technology allows greater visibility, and there are corporations that can actually go with the sun and move their money around the world in a very efficient way so they're not long money in Asia or short money in Europe. They can even out those swings, and that, I think, is one of the most exciting developments, a kind of global liquidity management, which is happening.

Kawka: The euro in Europe, obviously, went a long way in helping that move forward. With the structure we established in Europe we're able to move cash through the use of a notional pool and back to the U.S. We wouldn't dream of being able to do that five or six years ago.

The frustrating thing though is that there are still regions of the world where it's very difficult. In Latin America it's very difficult. There's really no pooling structure there.

Stetter: There's no consistency at all among the LatAm countries. Brazil has eased up its restrictions a little bit so you can pull some money out of there, so that's a big plus for some companies, but there's no consistency. It's different with every country.

What does the future hold?

Kawka: Obviously, we're driving more and more toward electronics and it seems to take centuries, but with the opening up in some of these regions where they can quickly jump to electronics, I think it's going to eventually force it on a global basis. At some point, I think we're going to see some commonality in making electronic payments. I don't think it's right over the horizon, but maybe in the next 10 years.

Stetter: You can make electronic payments all over the world, the problem is the laws change all over the place with who's got the liability on these things, but I think technology will still drive that process as opposed to waiting for the legal systems to catch up.

I think the low cost of adopting the technology and the fact that you can use all the experience that Europe and the United States have gone through on these systems and simply replicate it in India or China means that we're going to see the rate of adoption of the electronification of payments speed up even more.

As much as you want to talk about the future, there's a lot of practical issues that people have to overcome. I think a big challenge is, how do I set my priorities? What do I work on first? Where do I get the most bang for my buck? At the end of the day, the cash manager wants to impress the treasurer; the treasurer, the CFO; the CFO, the CEO. And how do you do that? You either save money or you make money.

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