International Payments in Asia: Far from Harmonious
by Wim Grosemans, Head of Product Management International Payments - Cash Management, BNP Paribas
Looking East, an international sales director might picture the land of milk and honey, while a treasury executive will see a promising yet complex patchwork. While the two will marvel at growth drawing near, the cash expert will soon endure the strains of a heterogeneous market. This article explores the multiple challenges of payments in Asia.
Because of Asia’s outstanding growth and potential, corporates are eager to adapt to local requirements. To do this, they must know what is expected of them. Yet this is far from simple, as there is no such thing as a homogeneous payment market in Asia. Instead, what we find is a mix of regulated and restricted countries, in addition to a select few countries operating much like in the West. As a result, a European treasurer setting out to conquer Asia faces a serious challenge. While the sales or operation managers can foresee a consistent development of their activity across the continent, he or she is confronted with a veritable patchwork, with almost as many currencies and rules as languages.
To make things more complex, regulations may change rapidly in Asia, with some countries facing political instability. Remaining alert is essential – take China, for instance, where key developments to come will change the local clearing system (CNAPS2).
Non-convertible currencies: Go local!
Let’s first focus on countries with non-convertible currencies, such as Vietnam or South Korea. Sending funds and changing them into a local currency is feasible if the local requirements are respected. In practice, most businesses will rely on a well-established bank to transfer their funds to closed markets. But then again, if the customer experience is relatively simple, processing the transfers is more complex. It is likely that the bank will use a strong currency like the euro or the US dollar to make a payment from Europe to a local Vietnamese or South Korean bank.
As a next step, the local bank sends the payment in a local currency to the beneficiary’s bank. Solid expertise is required to manage the foreign exchange risk, but it also requires a holistic operational approach to comply with the local rules and monitor the entire payment chain. This can be time-consuming, as it takes up to seven days for the funds to reach the beneficiary. In the case of recurring operations, however, corporates can plan ahead and optimise the time spent.
Semi-regulated countries: simpler, but not simple
The second challenge treasurers face is transferring funds in a local currency to semi-regulated countries, such as India, China, or Thailand (typically, the larger countries). Although strict conditions apply, these markets offer a more liquid access to currency. Although the Indian rupee is partially convertible (it can be exchanged under strict conditions), making a payment in India remains complex. Transfers to India are subject to challenging procedures, and failure to comply can lead to payments being stopped or returned.
In India, a payment order must specify if the settlement is made as a down payment or for the total amount of a given transaction. Some banks require the telephone numbers of the beneficiary for any transfer, so European businesses have no choice but to adapt their procedures in order to meet Indian requirements.