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1、The New Silk Road SeriesNEXT-GEN PAYMENT AS SUPERCHARGERAdel AlfalasiBen Simpfendorfer Oliver Wyman2The New Silk Road:Next-Gen Payment As SuperchargerThe New Silk Road is now a source of innovation and disruption in the emerging payment solutions space.The New Silk Road:Next-Gen Payment As Superchar
2、ger Oliver Wyman3EXECUTIVE SUMMARYThe New Silk Road could be a driver of digital payment solutions,as the region seeks to improve the cost and efficiency of transacting across more than 50 countries that are home to 62%of the worlds population.Progress to this end is important to the regions growth.
3、We see the regions rising intra-regional trade,cross-border mobility,and geopolitics as forces for change,so long as the region continues to integrate.The New Silk Road is also an innovator in many areas,such as cross-border fast payment networks.This report recognizes there are multiple pathways to
4、 improving digital payment solutions,and that the challenges are not small.However,the New Silk Road is already making progress in this area,and the implications for global payment systems and the US Dollar(USD)could be profound.We see four areas of exciting opportunity:Cross-border fast payment con
5、nectivitySoutheast Asia is driving connectivity between retail fast payment networks,and we see opportunities for other regions to participate.Enhanced solutions by banks and payment service providers(PSPs)Leading financial institutions are already delivering improvements in wholesale multi-currency
6、 cross-border settlement.Chinas bilateral flows and the Chinese YuanChina is the largest export partner for over half of the countries in the New Silk Road and is trying to grow the volume of CNY settlement.Digital payment solutions will play a role.Connecting the Silk Road with central bank digital
7、 currenciesThe regions major central banks are well advanced on cross-border CBDC payment options,which are albeit more a long-term bet.The New Silk Road:Next-Gen Payment As SuperchargerINTRODUCTION:THE NEXT GENERATION OF PAYMENT NETWORKSThe Silk Road is best known as the worlds major historical tra
8、de route.Today,the cross-border flow of people and goods is equally important,for the New Silk Road region is home to 62%of the worlds population spread across more than 50 countries.Unlike Europe or the United States,the region is not part of a single currency or monetary union,so cross-border fina
9、ncial transactions are a tax on the regions efficiency and productivity(Exhibit 1).Therefore,improving the speed,cost,and reliability of cross-border transactions is important to the New Silk Roads success.Exhibit 1:Cross-border transactions in the New Silk RoadTrade,currency,and timeTrade volume$11
10、.4 TNTotal intra-regional Silk Road trade in 2022Currency share11%New Silk Roads share of global payment currenciesSettlement time2-3 daysTo clear a cross-border transaction on averageSource:International Monetary Fund,SWIFT,Oliver WymanEmerging payment solutions will be fundamental to any progress.
11、When we first started writing about the New Silk Road in the mid-2000s,international transactions were still complex in many countries.It was hard at times to find a vendor or automated teller machine(ATM)that accepted international cards.Things have changed a lot since then,with tap-and-go payments
12、 with international credit cards or digital wallets,such as Alipay,being just some of the improvements.However,there is so much more to do,from connecting fast payment services to increasing the utilization of central bank digital currencies(CBDCs).Oliver Wyman5The New Silk Road:Next-Gen Payment As
13、SuperchargerThe benefits could be enormous.In a report Oliver Wyman co-published with JPMorgan in 2022,we estimated that cross-border digital payment solutions could save US$120 billion in cross-border fees per year.However,we also recognize there are many pathways to improving speed,cost,and reliab
14、ility,with some being more challenging than others.The spectrum ranges from improvements in the messaging system of SWIFT,to bulk disbursements into local payment rails by major banks or credit card operators,to the development of CBDCs.The changes also matter for the future of the USD.Asia and the
15、Middle East still rely on the USD as a primary settlement currency.Hong Kong SAR and the United Arab Emirates(UAE),among other countries,still peg their own currencies to the USD.However,any improvement in cross-border payment solutions may also lead to the greater use of multi-currency settlement s
16、olutions.While the USDs primary role will not change rapidly,the New Silk Roads use of alternative multi-currency settlement solutions or,alternatively,a dollar-backed stablecoin or digital dollar will be key to the USDs future global role.We see three key drivers of payment solutions and multi-curr
17、ency settlement across the New Silk Road:THREE KEY INFLUENCES ON THE REGIONS EMERGING PAYMENT NETWORKSInfluence 1INTRA-REGIONAL TRADE AND CAPITAL FLOWSThe majority of the regions trade is with other Silk Road countries,making a strong case for wholesale multi-currency payments.The region already tra
18、des largely with itself.Over 60%of the regions total goods trade flows stay within the Silk Road region,making it a huge trading bloc.China has emerged as the largest bilateral trade partner for over half of the 52 countries in the region,so the logic for settling in CNY in new payment solutions is
19、growing(Exhibit 2).Rising bilateral trade corridors among other countries,such as Malaysia and Singapore,or the UAE and India,will also increase the motivation to improve settlement speeds for non-USD currencies.Any improvement in cross-border payment solutions may also lead to the greater use of mu
20、lti-currency settlement solutions.Oliver Wyman6The New Silk Road:Next-Gen Payment As SuperchargerExhibit 2:The total annual trade flows and potential payment corridorsIn billion US$0500300350400Currency pairsChina-KoreaCNY/KRW364CNY/JPYChina-Japan357CNY/VNDChina-Vietnam235CNY/MYRChina-Mal
21、aysia205CNY/IDRChina-Indonesia149CNY/INRChina-India136CNY/THBChina-Thailand135SGD/SARChina-Saudi Arabia115SGD/MYRSingapore-Malaysia110CNY/AEDChina-UAE106CNY/PHPChina-Philippines88JPY/KRWJapan-Korea87KRW/VNDKorea-Vietnam87INR/AEDIndia-UAE85CNY/SGDChina-Singapore63Source:International Monetary FundInt
22、ra-regional capital flows are also rising.Japans funding of Southeast Asia has expanded rapidly over the past 15 years,and its funding is also rising in the Middle East.The foreign issuance of CNY-denominated Panda bonds is likewise increasing,particularly with Chinas lending rates now being much lo
23、wer than those of the rest of the world.The prospect of increased intra-regional capital flows,including between Asia and the Middle East,further argues for the improved connectivity of intra-regional payments and,potentially over the long term,multi-currency settlement.Oliver Wyman7The New Silk Roa
24、d:Next-Gen Payment As SuperchargerInfluence 2MOBILITY AND SMALL-VALUE PAYMENTSLarge-value trades are important,but so are small-value retail payments and remittances by individuals.The New Silk Road region is home to nearly five billion people spread across more than 50 countries.Travel among those
25、countries is rising rapidly and,in turn,driving strong demand for cross-border retail payments.For example,over 75%of international flights originating from the Silk Road region are destined for other Silk Road countries.This is equivalent to around 300 million trips per year,either for business or
26、leisure,with those travelers making multiple foreign currency purchases while abroad.The region is also a huge source of migrant workers,all requiring fast,efficient,and affordable small-value remittance payments.Most of those workers stay within the Silk Road region.The air route between India and
27、Saudi Arabia,for example,is the regions busiest.The Philippines provides a similarly large number of overseas workers,of which 78%work in Silk Road countries,particularly Saudi Arabia(24%),the UAE(14%),and Hong Kong SAR(7%).Influence 3THE RETURN OF GEOPOLITICSWhile the Silk Road region is historical
28、ly tied to the USD,political tensions or rebalancing are driving it to search for non-USD alternatives.A number of countries in the Silk Road region are seeking to either de-risk or rebalance their traditional foreign policy relationships.Chinas relations with the US have worsened and the two are sl
29、owly decoupling.At the same time,some countries in the Middle East are taking a more neutral foreign policy stance.When faced with growing global political tension,it is natural for governments to seek greater resilience in their infrastructure for cross-border payments.Multi-currency settlement and
30、 emerging payment solutions are an important part of the countries infrastructure needs.China has been more explicit in its hopes to develop alternatives to the USD.The digital CNY(eCNY),for example,may yet play a key role by providing the country with greater monetary sovereignty.Moreover,while the
31、 USD is highly likely to remain the Silk Roads primary foreign settlement currency,geopolitics will only accelerate any changes,as political imperatives shape market forces.Oliver Wyman8The New Silk Road:Next-Gen Payment As SuperchargerTHE VARIOUS RESULTS OF THESE INFLUENCESThe New Silk Road is now
32、a source of innovation and disruption in the emerging payment solutions space.Project mBridge is an initiative by China,Hong Kong SAR,Thailand,and the UAE,with the support of the Bank for International Settlements(BIS)Innovation Hub in Hong Kong SAR,to develop a CBDC targeting wholesale cross-border
33、 settlement.In 2022,20 banks in the participating countries used the mBridge platform to conduct 164 cross-border payment transactions totaling US$22 million.The project is not the regions only CBDC effort;Project Dunbar is another that includes Singapore and Malaysia,as well as Australia and South
34、Africa.The region has also launched the worlds first linkages of domestic fast payment systems.PayNow-PromptPay allows customers of participating banks in Singapore and Thailand to transfer funds of up to around US$720 between the two countries using just a mobile phone number,much as they do at hom
35、e.Transfers are completed in minutes,rather than from one to two days.Singapore has since also connected its domestic fast payment system to Indias Unified Payments Interface(UPI),similarly allowing for rapid cross-border small-value transfers.These projects target individuals and small and medium-s
36、ized enterprises(SMEs),and have laid a trail for Project Nexus to follow.Project Nexus aims to standardize the way fast payment systems in different countries connect to one another.With each operator connecting via a single connection to the Nexus platform,the respective operators are able to have
37、access to all fast payment systems on the same network.Led by the Monetary Authority of Singapore(MAS)and BIS Innovation Hub in Singapore,the project initially focused on connecting fast payment systems between Indonesia,Malaysia,Singapore,the Philippines,and Thailand.Subsequently,in March 2023,the
38、Nexus prototype successfully connected fast payment networks between Malaysia,Singapore,and Europes Eurosystem,enabling payments to be sent across the three using only mobile phone numbers.Oliver Wyman9The New Silk Road:Next-Gen Payment As SuperchargerWHERE WE SEE EXCITING OPPORTUNITIESThe rapid pac
39、e of change means new opportunities are opening up for companies and investors focused on the regions supply chain.We have identified four of the more exciting ones.Opportunity 1FAST PAYMENT NETWORK CONNECTIVITYASEAN countries are driving connectivity between domestic fast payment networks,and we se
40、e opportunities for other regions,including the GCC,to participate.Mobility between ASEAN countries for either business or tourism is high,and the opportunities to connect fast payment networks for individual or small-value transactions is significant.We estimate between 30 and 35 million intra-regi
41、onal ASEAN trips are made annually by plane alone.If only US$500 were transferred via fast payment networks during each trip,it would be equivalent to US$15 billion to US$17.5 billion worth of cross-border transactions.The figure would of course be much higher if we were to then add small-value SME
42、transactions.Project Nexus will help ASEAN countries lead the charge and so provide a benchmark for the rest of the region to follow.ASEAN countries are also among the most highly connected in the region in terms of fast payment networks,and member states are committed to pursuing payment connectivi
43、ty.If successful,other countries may join the program,particularly financial hubs,such as Hong Kong SAR and Dubai,or countries where international flight connectivity with ASEAN countries or tourism flows from ASEAN countries are strong.Opportunity 2ENHANCED SOLUTIONS BY BANK AND NON-BANK PSPsLeadin
44、g financial institutions are already delivering improvements in multi-currency cross-border settlement.For all the focus placed on high-tech solutions,we see banks and credit card providers with large cross-border networks making disbursements directly into local payment rails as just one driver of
45、cheaper,faster,and more reliable cross-border settlement.Programs by the Hongkong and Shanghai Banking Corporation(HSBC)and Mastercard are just two examples.Paypals USD-backed stablecoin is another.If more ambitious innovation efforts struggle,these types of enhancements to the existing infrastructu
46、re offer a way forward.The landscape may become increasingly fragmented and competitive in a region with more than 50 countries,and where financial inclusion,capital controls,or a lack of direct banking relationships compound the existing challenges.PSPs are bridging the gap by establishing partner
47、networks between banks and alternative payment methods,often focusing on just a few countries.In many cases,their relationships with regulators are as important as their technology.Oliver Wyman10The New Silk Road:Next-Gen Payment As SuperchargerOpportunity 3CHINAS BILATERAL FLOWS AND THE CNYChina is
48、 the largest export partner for over half of the New Silk Road countries and is trying to grow CNY trade settlement volume.Chinese firms that are building supply chain footprints in Southeast Asia or business ties to the Middle East will drive opportunities for retail and wholesale CNY-settlement so
49、lutions and create greater offshore liquidity.The New Silk Road region also includes many small wholesale traders who place relatively low-value orders for consumer goods from Chinese manufacturers and would benefit from lower fees and faster transactions.Capital controls are still a constraint on c
50、ross-border CNY payments.However,Beijing seeks to accelerate CNY internationalization,and new payment solutions have a role to play.Improvements to the Cross-border Interbank Payment System(CIPS)international banking network,for instance,would boost progress.Collaboration between Chinese tech player
51、s and Chinese banks abroad,similar to the collaboration between Citibank and PayPal,might equally create new solutions and help navigate capital controls.Opportunity 4CONNECTING THE SILK ROAD WITH CBDCsThe regions major central banks are well advanced on cross-border CBDC payment trials,which are al
52、beit more a long-term bet.CDBCs are an exciting albeit potentially long-term opportunity.Asia and the Middle East are moving steadily to build the necessary infrastructure via programs such as the earlier-referenced mBridge,as well as Project Dunbar(between Singapore,Malaysia,Australia,and South Afr
53、ica)and Project Aber(between the UAE and Saudi Arabia).CBDCs are also becoming attractive at a time when the prevailing geopolitics are raising questions around monetary sovereignty and the role of the USD.The next challenge is creating commercial use cases.The obstacles are not small,and recent pil
54、ot projects have identified issues that still need to be resolved,including the standardization of legal rules.However,given the importance of cross-border trade and capital flows to the Silk Road region,and the progress that a number of the regions central banks have made toward developing CBDC inf
55、rastructure,the solutions could be a gamechanger in the long term.Oliver Wyman11The New Silk Road:Next-Gen Payment As SuperchargerTHREE SCENARIOS FOR THE FUTURE OF THE SILK ROADS DIGITAL PAYMENTSThe New Silk Road region is large,complex,and evolving quickly.There is no straight-line trajectory of ho
56、w the next five years will look.However,scenario analysis based on the drivers identified in this report can help us think about the different potential pathways.Our scenarios are based on a matrix of integration and transformation.High levels of integration and transformation will supercharge the N
57、ew Silk Road,while low levels will dampen the regions progress.The scenarios are not mutually exclusive,and the final pathway may contain elements of each.Scenario 1A SUPERCHARGED FINANCIAL BLOCIn this potential scenario that involves high integration and high transformation,fast payment connectivit
58、y improves,there is rapid progress on CBDCs,and the region sees rising wholesale CNY settlement.Fast payment connectivity accelerates among ASEAN countries,with a large share of individual cross-border transactions settled instantly and at low fees.The GCC,Hong Kong SAR,and India connect to the ASEA
59、N countries fast payment networks.Bank and non-bank PSPs roll out a range of enhanced solutions for connecting liquid and illiquid markets.The USD remains the regions major settlement currency,but the CNY is increasingly used between China and its major trade partners as digital platforms improve.At
60、 the same time,CBDC pilots identify viable commercial opportunities led by Chinas push to expand the use of the CNY,including eCNY,for wholesale trade settlement.High levels of integration and transformation will supercharge the New Silk Road,while low levels will dampen the regions progress.Oliver
61、Wyman12The New Silk Road:Next-Gen Payment As SuperchargerScenario 2BILATERAL GAINS,BUT WINNERS AND LOSERSThis low integration,high transformation scenario sees ongoing progress,but mainly between countries with large bilateral flows,and strong political and regulatory ties.Singapores fast payment co
62、nnectivity to other ASEAN markets improves,including Thailand,Malaysia,and Indonesia,as well as the UAE and Saudi Arabia,owing to the latter pairs greater ambitions.Multi-currency settlement is increasingly used for major bilateral trade corridors,particularly between China,the ASEAN countries,and t
63、he GCC.Hong Kong SAR and mainland China accelerate financial integration with eCNY increasingly used for cross-border transactions,alongside existing digital wallets.However,CBDCs generally struggle to gain traction,aside from a handful of high-profile transactions between major international hubs,a
64、s their business cases fail to generate sufficient appeal.Scenario 3REGULATION AND INERTIA KILL EFFORTSIn this potential scenario that involves low integration and low transformation,progress stalls as the technical and regulatory hurdles to achieve improved cross-border payment solutions are too gr
65、eat.Domestic regulators continue to push ahead with improvements to domestic payment solutions,but have little appetite to negotiate the complex agreements needed for intra-regional connectivity.Major banks and a handful of larger PSPs are the main drivers of improvement in cross-border payment effi
66、ciency,and they do so by tweaking the existing infrastructure.The USD remains the regions primary settlement currency in the absence of faster,cheaper,or more secure alternatives.Chinas slowing economy and debt challenges constrain the ability of regulators to push ahead with eCNY internationally.Th
67、ere is also limited appetite for CNY financing,not least because Chinas import demand remains soft.The New Silk Road:Next-Gen Payment As Supercharger Oliver Wyman13The New Silk Road is a global driver of innovation and opportunity in the emerging payments space.Oliver Wyman14The New Silk Road:Next-G
68、en Payment As SuperchargerTHE NEW SILK ROAD SERIESGROWTH,CONNECTION,OPPORTUNITYIn this white paper,we identify a series of no-regret moves that companies and governments can consider today to capture these opportunities for companies and governments.Read more here:https:/owy.mn/3ZpAFTqREMAPPING SUPP
69、LY CHAINSThis white paper explores how the Silk Road will shape the worlds future supply chain and identify four exciting areas of opportunity.Read more here:https:/owy.mn/3LQhCfvAdel AlfalasiPartner and Head of the UAEAdel is Head of the UAE and a Partner at Oliver Wyman based in Abu Dhabi.He works
70、 in Oliver Wymans Public Sector practice and is an expert on topics such as large-scale transformations and public sector excellence.He has more than two decades of experience,holding senior positions across the UAEs private and public sector.He previously worked as an Executive Director in the UAE
71、Prime Ministers Office before moving to management consulting,and also founded the Dubai Competitiveness Council and served as its Executive Director.Ben Simpfendorfer is a Partner at Oliver Wyman based in Hong Kong.He has worked across Asia and the Middle East for over 25 years and leads the Oliver
72、 Wyman Forums initiatives in Asia Pacific.He has already authored two books that explore economic opportunities in Asia and the Middle East,including the New Silk Road published in 2009.He is also a leading specialist on Chinas Belt&Road Initiative(BRI).Ben is a board member of PBEC,one of Asias old
73、est business organizations,and is a regular commentator on Bloomberg and CNBC.Ben SimpfendorferPartner,Hong KAUTHORS Oliver Wyman15The New Silk Road:Next-Gen Payment As SuperchargerOliver Wyman is a global leader in management consulting.With offices in more than 70 cities across 30countries,Oliver
74、Wyman combines deep industry knowledge with specialized expertise in strategy,operations,riskmanagement,and organization transformation.The firm has more than 6,000 professionals around the world who work with clients to optimize their business,improve their operations and risk profile,and accelerat
75、e their organizational performance to seize the most attractive opportunities.For more information,please contact the marketing department by phone at one of the followinglocations:Americas Europe Asia Pacific+1 212 541 8100+44 20 7333 8333+65 6510 9700 Copyright 2023 Oliver WymanAll rights reserved
76、.This report may not be reproduced or redistributed,in whole or in part,without the written permission ofOliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.The information and opinions in this report were prepared by Oliver Wyman.This repor
77、t is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants,tax,legal or financial advisors.Oliver Wyman has made every effort to use reliable,up-to-date and comprehensive information and analysis,but all information is pro
78、vided without warranty of any kind,express or implied.Oliver Wyman disclaims any responsibility to update the information or conclusions in this report.Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report o
79、r any reports or sources of information referred to herein,or for any consequential,special or similar damages even if advised of the possibility of such damages.The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities.This report may not be sold without the written consent ofOliver Wyman.Oliver Wyman A business of Marsh McLennan India,Middle East&Africa+971(0)4 425 7000