Copyright The Asian Banker All rights reserved 1 The Asian Banker Building the payments infrastructure as a business November 2009

Copyright The Asian Banker All rights reserved 2 Key discussion notes 1.Key developments in global payments today 2.New opportunities in payments 3.Rethinking payments as a core business in banking 4.Internal back office and Straight through processing still a long way to go 5.Where to play in the customer’s value chain 6.Reintegrating payments into the core business proposition

Copyright The Asian Banker All rights reserved 3 Some key global trends 1.The future of SWIFT as a cooperative with hidden price structures vs a demutualised corporatised structure 2.The RMB as a reserve currency (Asian CLS with RMB?) 3.A CCP for payments, providing global aggregation and netting services (FX Marketplace - a CME-Reuters first attempt failed due to lack of liquidity) 4.Post-crisis Asian GDP growths muted, will create a few winners and many losers

Copyright The Asian Banker All rights reserved 4 How we map the evolution of the Payments Industry End of Bretton Woods Formation of SWIFT Herstatt Risk Microsoft’s “Banks are Dinasours” IBM’s Integrion The Borwser Wars - blocking of the Microsoft-Intuit deal Source: Asian Banker Research Start of Realtime Gross Settlement Transformation on the Wholesale Front Transformation of Bulk Processing Power at the front end Integration of backend Interbank GIRO First E-Com and Cable & Wireless as payment gateways Start of GSTPA and CLS Bank Swift opens up to corporates 1980s - Setting up of domestic interchanges? 2010

Copyright The Asian Banker All rights reserved 5 The starting point in measuring the value of payments is to map its contribution to the core businesses Source: Asian Banker Research Cash and Float - cheque, cash mgmt ForexWealth Management Interbank - interchange, bank charges Payments Fees - convenience, membership, penalties CreditTrade Supply Chain Merchant Acceptance

Copyright The Asian Banker All rights reserved 6 Four pillars to think about… 1.Building a payments distribution network in a sustainable manner 2.The impact of Risk and Regulation 3.Loyalty and Non-payments Value Transaction 4.Key global trends to plug into

Copyright The Asian Banker All rights reserved 7 Building a payment distribution network should be done in a sustainable manner 1.Stop going it alone - include the equity of your partners/customers? - Building on the “community effect” - the Lianlian mobile phone charging service in China - PayMate IVR-based online transaction service in India - Involving merchants, aggregators, competitors - Tokyo’s SUICA and Osaka’s ICOCA networks - Hong Kong’s Octopus 2.Payments as part of an overall transaction business can include downstream activities (post-trade aggregation as a service, reference data, reconcilation etc) which in turn contributes back to the network effect 3.Long term, sustainable, operational cost management models will emerge

Copyright The Asian Banker All rights reserved 8 The impact of regulation 1.The global regulatory cut-down in price of transactions and credit will reach your country soon! 2.SEPA and the impact on direct debit in Europe – the IPA’s ISO20022 standard for mapping cross-border payments 3.US regulatory activism, the Wolfsberg Report on covered payments, MT202 and costs vs value 4.Systemic risk lessons from the Lehman failure 5.Two sides to the regulatory debate on global payments– regulators want Control but they also want Liquidity

Copyright The Asian Banker All rights reserved 9 Loyalty and non-payments value transactions 1.Banks have lost the customers rewards revenue to the airlines industry, hands-down-fists-over and need to regain this relationship 2.The perception of relative value of cash to non-cash rewards 3.Standard Chartered Bank’s online, realtime, interactive, online rewards management programme - value to customers - value to merchants 4.The advent of online communities will require banks to speed up their infrastructure on this front 5.The swing from a low-interest, low-inflation to a high-interest, higher- inflation economy will provide small window of opportunities in the loyalty space

Copyright The Asian Banker All rights reserved 10 Deutsche Bank does integrate trade and cash both on the front and back ends Deutsche Bank  Breaking down product silos within transaction banking business by creating products that straddle businesses.  It developed a dual trade finance and cash management solution in Indonesia that it has taken to other markets. Both trade finance and cash management businesses under the same division head.  In India, the bank even sells cash management and trade finance solutions through the same sales team.  The bank is also working on a cash management and FX tool that actually crosses divisions (dbFX4cash).

Copyright The Asian Banker All rights reserved 11 Source: Deutsche Bank Deutsche’s take on transaction banking consolidation Trends Price Pressures Increasing Regulatory Investments Increasing Sophistication of Solutions Scale is Key to Survival CustomerSales/ServiceProduct MgmtProcessingClearing CustomerSales/Service Distribution Bank Transaction Bank Resulting Business Models

Copyright The Asian Banker All rights reserved 12 The Questions we Ask - Industry Level 1.How is increased electronification changing the payment value chain? 2.What should SWIFT and other Utilities mean to us? 3.What lessons were there from the systemic risks from the Lehman failure 4.Where is regulation taking us? 5.How should we view non-payment value transactions? 6.What about other global trends: -The RMB as a reserve currency (Asian CLS with RMB) -Increased global payments volatility and the need for global aggregation and netting services that can create liquidity and clearing certainty

Copyright The Asian Banker All rights reserved 13 1.How do to measure revenue per dollar transaction in banks? 2.How to build a payments distribution network in a commercially sustainable manner, instead of just assuming it will work? 3.The sticky transactions that retain core customers are not the transactions that give us the market share or profitability – so what do we do? (European numbers: 24% revenue: 9% profit: 90% CIR: pushing industry CIR from 59% to 64%) 4.What is the benefit of making Payments a part of an overall transaction banking infrastructure, and what models are there out there that can show us how to do it? The Questions we Ask - Business Level

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