Surveying global banking and niche payments with Standard Chartered’s Anand Natarajan
- There's a growing trend of large, established banks doing deeper, more integrated work for clients with international footprints.
- We're joined on the podcast today by Anand Natarajan, who leads treasury services for the TMT and fintech sector for Standard Chartered Bank.
An interesting thing is starting to happen with partner banks. What began as the purview of some smaller, regional players is now becoming interesting to some of the largest global banks. For example, we spoke a couple of weeks ago with Citi about its plans to provide partner bank services for global firms. That means a brand or fintech with global aspirations could work with a single bank in each market, instead of partnering with different local players on the ground.
Standard Chartered is already supporting its clients with its own extensive footprint in Asia, Africa, and the Middle East. I spoke with Anand Natarajan, who covers the technology, media and fintech segments for the firm’s treasury services. At a conversation that began in Las Vegas in 2022 and continued into the beginning of 2023, Anand shares his view on a wide range of topics including evolving merchant ecommerce experiences, social commerce, gaming payments, CBDCs and more.
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The following excerpts were edited for clarity.
Anand Natarajan: I cover the TMT and fintech segment from a cash management perspective at Standard Chartered Bank. And essentially what that means is in helping clients in the tech, TMT, and fintech sectors, think about payments strategy as a whole, and helping them think about domestic payments, cross border payments, account structures,and liquidity structures. What is the most efficient way to move money from point A to point B?
Payments and ecommerce
Trend number one is on the ecommerce side. If you look at some of the larger ecommerce players, there's a big focus on diversifying their merchant base across Asia and the Middle East Asia. Historically, these marketplaces sourced merchants or products from one or two countries. Now, given what we saw during COVID where worldwide things were shut down in many places, they realized that there was a significant concentration risk.
So what this diversifying merchant base now means is that there are more requirements that these marketplaces have to build to pay out to merchants across different complicated footprints, like Vietnam, Pakistan, and Bangladesh – all of these have gained a little bit more prominence in terms of sourcing merchants.
The other thing I would say is on the payment side, merchants are also now looking to receive payments using alternative payment methods. So think about QR codes and mobile wallets. It's no longer just a once or twice a month settlement or bank account. They want the ability to get paid in multiple currencies and also in multiple payment methods. I think that's also going to impact a lot in terms of how some of these marketplace companies think about their whole payment strategy and the risk management strategy associated with that.
Social commerce is basically the creator/influencer economy. There are so many Youtubers Instagramers, people who make content for the social platforms that are based in Asia or in the Middle East. All of these people have access to mobile phones, access to data, and are generating content. Usually, this means that they now need to get paid in these various currencies, as well. So solving for the ability to make these frequent small value payouts also becomes quite important.
I think there is a significant payment opportunity in the gaming industry. When I was growing up, the way you would purchase games is you would go to a shop, buy a CD, install the software on your computer, and then start playing. And now it's all about buying access to an app, or you buy a game through a publishing or distribution store. But then there are so many in-app and in-game purchases that you end up buying, whether it's buying avatars or costumes. You spend $5 here or $10 there supporting these types of microtransactions.
I think the interesting thing to notice is that over 50% of these online gaming revenues are now generated from Asia and the Middle East. It's no longer just in the US and Europe, which are the big gamers.
Payments in streaming content
If you look at the big streaming services today – whether it's Netflix or Disney or Amazon Prime or any of these big services out there – in most markets when they initially launched, the payment methods that they would support were credit and debit cards because that used to be the most frequent payment method in those markets. And this held true for the US, Europe, and some parts of Asia, as well. But now as you start to think about, targeting your next segment of consumers and going deeper into some of the emerging markets, these companies will help to support alternative payment methods, including bank account transfers, mobile wallets, or QR code payments.
So this whole thing makes a payment acceptance value proposition a little bit more challenging. Now you need to find the right partners to solve for this at scale. If you had an acquiring partner, for example, who was mainly supporting cards and now you need to support these alternative payment methods as well, then you'll need to think about how to solve for that.
But at a more macro level, let's say for a particular region, or five or six countries at once, I think the same thing holds true. For Africa as well, it’s a similar story, but instant payments, maybe not yet as prevalent as you would see in Asia. But mobile wallets are big, right? So people have access to phones, people have access to data, and they want to see content on their phones. But how they pay for these services is predominantly through mobile wallets in markets like Nigeria or Kenya, for example. So the ability to support mobile wallets as a payment method, I think if these content streaming services are able to solve for that, I think that could present a whole new plethora of customers that they could get access to.
Consumer-led changes hit B2B
I think these trends are fairly consumer led. In most countries, when instant payments and alternative payment methods were launched, they were predominantly launched from a B2C standpoint. Or C2B standpoint – consumers are making these payments using payment methods to businesses. And the big question always was, Are you going to see that shift in the B2B segment as well?
I would say that hasn't fully happened yet in the B2B segment, where payments are still predominantly done based on invoicing. But in the small and medium business segment, you're starting to see a much quicker shift in terms of moving to these alternative payment methods. I think that will carry through over time as well.
SMBs are starting to sell more internationally. Historically, they were predominantly domestic and during COVID, a lot of SMBs started using the global payment acquirers to start offering global products. So they were not just limiting consumers to people in their own country, because it was now much easier for them to just have access to a payment acquirer, who can easily settle the payments for them.
In the SMB segment, the other thing that we're starting to notice is that they are becoming a lot smarter about currency risk management. So to your earlier point, as they start to sell into these various countries, the idea that they can now start receiving accounts, payments and multiple currencies means that they now have to think about how to price their goods. How they will ensure that they're not going to have a shortfall, whenever a product is being sold in a different currency.
Many SMBs are starting to utilize some of these Banking-as-a-Service type value propositions from some of the other fintechs and banks. That gives them access to a much more agile and nimble banking platform. Or they can open more accounts – they can have different virtual accounts, for example, API enabled solutions, which historically was kept only for like the big corporates – these are becoming a lot more accessible to the SMB segment as well.
Standard Chartered and the Influencer Economy
If you look at our footprint, our significant focus has always been on Asia, Africa, and the Middle East We also have footprint in the US, in the UK, and Germany. So our goal is really to know that most of the payments, for example, happen out of US, UK, Germany, into the markets in Asia, Middle East, and Africa. Our footprint enables us to actually do this today.
Some of the challenges that we have to consider are really around how good our clients’ KYC processes are. Are freelancers receiving the money for something that they actually did? Is any AML happening that maybe we're not aware of, because these are all freelance type invoices, right? So how efficiently can we validate a payment that is going through our systems to these types of channels? The infrastructure exists today. I think the compliance aspect around that needs to continually improve.
So any clients that we support on the payment space in the segment, I think they're all getting a lot smarter about what banks need from a compliance standpoint. Then they build that into their initial sort of merchant or customer onboarding process fairly early on. We are definitely making significant strides in that space. And I would say that once we solve for the compliance or the KYC aspect of things, and we as a bank are comfortable, our customers are comfortable on the corporate side that the person receiving the funds is receiving it for legitimate purposes, the infrastructure is ready to support that today.
Evolving and scaling as an FI
It's been an interesting journey for us. I think a large part of it comes down to having a focus on certain economies or certain industries and developing solutions around that. I would say in the technology and fintech segment, I personally have seen Standard being fairly on the front foot, when it comes to making some of these investments. In many of the markets that we are present in, we are present not just for corporate banking, but also for some retail banking customers and small and medium business customers, as well.
What that enables us to do is, not just look at some of these payment solutions from a large corporate lens, because not everything can be scaled down or scaled up, but actually think about the solutions more holistically for SMB clients or individual retail customers and think about what payment solutions can actually marry the requirements of these two or three different business verticals, so they can be rolled out more seamlessly.
One of the big focus areas for us when we were launching, or sort of growing our payment space, was the ability to scale up. I think the rideshare companies are a great example – if you think of a rideshare company, there are like thousands of trips happening at any given point in time. All these drivers need to get paid. And historically, these drivers got paid once or twice a month. But that is changing. A lot of these rideshare companies are looking to pay their drivers more instantly. What this means is the banks that support these companies have to be able to scale up their payment processing systems to be able to support thousands of transactions per second, whereas historically that was not necessarily a top of mind requirement for us.
So we made a lot of investment, making sure that our payment solutions can be scalable to handle these types of volumes. I think that was a big focus of where we grow the portfolio. And I think the other thing is the sector specialization. If you are in a position where we're solving for a particular solution for a US fintech company, how quickly can we take it and scale it for, let's say, a fintech company in Asia or sitting in Europe? The ability to have that global sector specialization has also helped us scale some of these solutions in a lot more efficient manner.
Build, buy, or partner
I wouldn’t say we definitely don't want to try and build everything under the sun, because we may not be able to achieve scale. Our collaboration with fintechs and other companies gives us access to an industry that we are not necessarily a big player in. From a bank's perspective, we definitely view the fintech model as a true partnership. We've partnered with companies in the past who have focused on API integrations – basically, they act as a sort of intermediary between us and our clients. We can, of course, always enable API integrations for our clients directly. But using a third party aggregator actually makes it a lot more scalable for our clients as well, because they just interface one time with the aggregator and then that gives them access to three or four banks at once.
We enable our partners with information sharing and access as needed based on client approvals between us and the API aggregators in the card acquiring and processing space. We also have our own payment gateway, for example, that supports credit and debit card acquiring, and we support bank account transfers and alternative payment methods.
But what we started to notice is a lot of the fintechs in this space are also starting to realize that in order for them to provide a comprehensive offering to customers, they also need to support bank accounts as a payment method. So if you look at Stripe, for example, or Adyen – they were known to be these New Age, nimble credit card, debit card acquiring companies with the ability to make payments using credit and debit cards. But as they started expanding into more markets, they also realized that they needed to build access to alternative payment methods on their platform. And now we're working with some of these companies to enable that sort of access as well – to make sure that, as they grow in this space, they get access to banking infrastructure.
Having a global footprint
I think being global is a fairly important point. We do tend to work with customers who either service end to end beneficiaries or end customers in our footprint markets, or are present in our footprint markets and looking to serve customers globally. I think one of those things has to marry for us to make sense in terms of developing mutually beneficial relationships. So the footprint overlap is an important consideration for us.
When people talk about the next billion users, the next wave of economy, the next segment of consumers that will actually adopt new technologies, a lot of it will come from Asia and Africa. So we definitely see that most of our clients in the US have a big focus on trying to grow their business in these markets. So I think there is a big overlap there in terms of what we want to offer to these customers versus the business that they are looking to grow.
Interestingly, with a lot of the clients that we work with, I spend time talking to the Treasury teams, but also, more importantly, we spend a fair bit of time with their product and business development teams, understanding what customer end user challenges they are trying to solve for, and basically developing a banking product that helps meet that requirement. So, it's no longer a treasury relationship. With some of these companies, it becomes a more holistic product relationship, where we're both trying to solve for a seamless customer experience.
The delivery side of Standard Chartered
I think in terms of the specialization within the bank, we've hired from some of these companies. For example, we've hired for treasury and payment roles to give us a little bit more insight into how some of these companies think about product investment and innovation. I think that gives us more insight versus us trying to solve for these things in a silo.
We regularly hold what we call customer experience or client experience forums, where we invite some of these companies to share their product strategy with us. And whether the way we think about rolling out our solutions actually makes sense from their perspective. A big component of our product investment roadmap is based on the feedback that we get from these customer experience forums. And we take that into consideration when we roll out some of these products. Usually we look for two or three pilot clients whenever we want to roll out something new. In most of our recent announcements, they've always been in partnership with two or three customers. These products were initially developed as a bespoke solution for them. And then we found we can scale them into multiple markets, as well.
Payouts as a Service
So for example, one of the more recent announcements that we did was something around payouts as a service. The idea behind that is the ability to automate some of the steps that treasury and payments teams do in terms of generating a payment file, segregating funds based on algorithms or rules that they may have in mind already. If the rules and algorithms around that are fairly consistent, it is fairly easy to automate the entire process using pre building rules and guidelines at the bank. So we rolled this out recently, not as a standalone product, but because we were able to solve this for a fintech company in Asia, making payments out into multiple markets, they realized that they could also outsource a lot of the payment operations stuff into this automated service. Finding those pilot clients for some of these is a big component of how we try to scale the business as well.
Central Bank Digital Currencies
CBDCs are definitely a very exciting development in the blockchain space. There are a good number of banks worldwide exploring the use of CBDCs – the number is anywhere between like 60% to 80% of central banks, globally, are exploring the use of CBDCs. So we do think it will likely go mainstream at some point.
Standard Chartered has participated in a trial platform that basically validates the proposition of using CBDCs as a means of making cross border payments in a more real time manner. The central banks in two or three corridors can actually work with each other to say, Okay, if a payment is initiated in CBDC, let's say, in Hong Kong dollar, it can reach UAE and be paid out in the local currency in a fairly real time manner. That is possible using CBDCs.
We've participated in a trial platform called low value aggregation services, that basically is testing out this proposition. And based on the initial feedback that we've gotten and the results that we see, I think that seems fairly promising, as well.
We believe that as a regulatory framework around CBDCs becomes clear, this presents an interesting alternative to traditional currency. Most countries are still adopting some sort of a hybrid model, where the central bank issues the tokens and honors the claims, but they are not going to be the ones actually distributing the tokens to everybody, so they're going to a few participating banks, for example, who will act as distributors, onboarding customers and distributing the tokens. We therefore believe that banks will continue to play a role in the success of the solution. We don't necessarily see it as a disintermediation of the banking system. It just moves from a bunch of microtransactions here and there to more aggregated services that you provide to customers.
The last difference to think about is the evolving conversation around CBDCs versus private stable coins. I think the volatility and all the stuff that we've seen play out in the last six months has given rise to a healthy amount of skepticism. But I do believe that the stable coin players that will emerge out of this will actually be the more legitimate ones that actually do believe in strong governance and do believe in strong regulation, and actually are going to succeed as a result of some of the other players that got taken out. And now, whatever players remain, I think those are the players where both the regulators and the broader industry and users are going to have a lot more confidence with.
There is going to be some sort of a market for both CBDCs and stable coins to exist. The use cases for both will evolve over time, whether it's going to be in banking, making payments in gaming (microtransactions), or in the cross border remittance space, a very interesting macro shift happening in terms of how efficiently and quickly payments are being done in the cross border segment. I do think CBDCs and stable coins could have an interesting role to play in that market.