How e-commerce is compelling payment innovation
E-commerce and online market places like iTunes, Alipay and eBay have seen the emergence of non-traditional payment channels with rapid customer adoption.
As technology develops and platform providers such as Facebook host their own payment methods, the opportunities for e-commerce can only increase – low-value transactions of this nature are already being made several hundred thousand, if not millions of times, each day.
According to a survey by Pitney Bowes, 66% of consumers who frequently make e-commerce purchases do so from websites outside their home country. This suggests that the need for seamless management of international payments is growing.
Given the huge increase in payment flows combined with the transactional cost of handling payments through the traditional correspondent banking model, for example via Swift – the need for lower-cost cross-border transactions becomes more pressing. The standard model works for high-value payments, but is not cost effective for low-value payments.
At the same time, heightened pressure over international sanctions screening and AML means that financial institutions need to be more creative if they are to be both compliant and relevant.
In one such instance, Westpac Banking Corporation (Westpac) has partnered with a major international e-commerce business’ global bank to deliver a solution, using Swift File Act, which packages up small payments and then distributes them through Australia’s low-value clearing system.
This is an exciting development. In the past the package of payments would have been cleared through the more costly RTGS system. At the same time, the payments are still compliant with AML and sanctions screening regulations. The net result? The cost per transaction is down to several cents from several dollars.
Cross-Border Payments Innovation
Small payments are not just for online shoppers, of course. This is also about financial inclusion and low-value payments are an important part of how the global financial sector is helping to solve the long-term goal of reducing poverty, as defined in the Millennium Development Goals which Australia adopted in 2000, along with 188 other countries.
Westpac has launched LitePay International (LitePay), a low-cost payment service from Australia to the Philippines for payments of less than AU$3000.
Partnering with a bank in the Philippines, LitePay uses an Application Programming Interface (API) to offer a cheaper and more transparent service for small payments between the two countries.
Enabling direct payment between two identified parties with no aggregation of multiple payments, LitePay complies with AML and KYC certifications. It gives customers a transparent way to send money overseas, with lower fees and it’s integrated directly into our online banking portal.
Using an API also achieves faster delivery of value than traditional telegraphic transfers, with Australian dollar denominated payments reaching Philippine bank beneficiaries accounts, including conversion to pesos, in some cases, in under a minute from the time the customer originates the transfer.
India: Capturing the low-value flow
India is another significant market for low-value payments. The World Bank has estimated that around $2 billion in small payments flow into the country each year from Australia.
Westpac, through its wholly owned in-house software company, Qvalent, delivers a solution to six of the largest banks in India, which enables simple, secure and low cost money transfer.
The solution is designed for overseas banks that have a proprietary online service for individuals with bank accounts in Australia to send money back to their home country.
Available for inward payment flows
Qvalent was also instrumental in creating Westpac’s inbound payment solution, initially launched in the UK and being explored to be extended to Hong Kong, Singapore and India.
In partnership with a UK bank, British people migrating to Australia are able to open an Australian dollar bank account from the UK and move funds into their new account as if it is a domestic UK transfer. Further, similar customers within the European Union can also use this facility and transfer Euros to their Westpac Australian dollar account.
As the use case for blockchain (or distributed ledger) continues to present a challenge to traditional banking, Westpac has been at the forefront of testing its potential to deliver faster, safer and cheaper payments with other international banks on the Ripple platform.
Westpac is a member of R3 CEV, a consortium of 42 global banks investigating how to employ blockchain in financial services.
In all of these initiatives, it is important to understand that banks need to drive innovation and that the future demands new solutions for a range of customers. Traditional models, such as correspondent banking and Swift network still serve a purpose, but the world is diversifying and needs a range of diverse new financial solutions to help it grow.
For more details, please contact:
Gordon Sparrow | Executive Director
Head of Financial Institutions
Things you should know: Westpac Institutional Bank, a division of Westpac Banking Corporation ABN 33 007 457 141 (AFSL 233714). Information is current as at October 2016. This information has been prepared without taking account of your objectives, financial situation or needs. Westpac’s Financial Services Guide can be obtained by calling 1800 024 420 or visiting westpac.com.au or by visiting any Westpac Branch in Australia. Any information about products and services in this article is subject to local capabilities and regulatory requirements