Chapter 8 & 9 Implications of Payment Systems

The three reasons why banks are reluctant to adopt RTPS to assist their customers in the payment process...

• High implementation cost and support cost

• Unclear revenue potential

• Project implementation Risk

• Card is expensive

What could be the reason why banks in developed markets are more reluctant to adopt RTPS than banks in emerging markets?

• Implementation costs to change the existing systems in developed markets are heftier than the emerging market

• Retail payment systems in developed markets are established and matured for many years compared to emerging market

• Banks in the developed markets are more sceptical on the new RTPS as they are complacent to the existing payment systems that have been working so well for so long

• Banks in the developed markets have more motivation to make changes than the emerging markets

• Banks in the emerging markets are more willing to change as they do not have an established payment systems and so not having huge sunk cost

Despite the banks in emerging markets may be willing to adopt RTPS more easily than the ones in developed markets, what are the factors that may hold the banks back from implementing RTPS in the emerging markets?

• if the payment infrastructure is underdeveloped in the market, huge implementation costs can be a large leap, especially for smaller banks in the country

• the ability to reach the large pool of unbanked population with improved banking services after the implementation of RTPS may not be effective due to the lack of immediate budget available

• lack of participating banks together to implement RTPS to benefit the market

• Huge maintenance cost - support and enhancement to the RTPS

What is the most concerning factor should the banks implement RTPS in its payment systems for retail consumers?

• ROI

• profitable revenue Stream

• RFID

• Reduced card revenue

• Loss of float revenue

What is an API and how does it help banks to stay competitive in the financial market today?

• API is a set of tools that enable different software components or systems to effectively communicate with one another

• FinTech firms provide technology support to the banks needed in key areas such as the simplifying process of adding innovative technology services by piecing together building blocks of flexible services

• FinTech firms had direct competition with the banks as the banks will refuse to collaborate, thus the banks developed their own sets of technology using API

Despite the banks and FinTech firms seeming to have joined forces to stay relevant in the digitalization of the financial markets, the banks today were still not built to serve today's fast-paced and digitally-savvy customers. Why?

• The banking products developments and their delivery are very much rigid

• Banking business models and technology infrastructure are constructed around the products available, not how they serve the different customer segments

• Banks are willing to adapt to the fast-changing environment

• Hostile behaviour of some banks to argue that FinTech disruption has nothing to do with the banks

Banks and non-bank institutions in Malaysia have seen to work together in embracing the FinTech evolution in the financial market.

• Malaysians are using many alternative payments channel together

• Malaysians adopted mobile banking alongside with e-wallets provided by non-bank institutions in mobile payments

• Malaysians know how to alternatively use specific payment channels at a time for varying purposes

• Malaysians are concentrating only one payment channel to see how the banks can compete with the non-bank institutions

Risk of the negative public opinion that results in a critical loss of funding or customer base.

• Operational risk

• Security risk

• Reputational risk

• Legal risk

Risk of losing control over access to the systems and vulnerability of the systems to external or internal cyberattacks

• Operational risk

• Security risk

• Reputational risk

• Legal risk

Risk of loss due to deficiencies in system design and/or implementation which lead to reliability or integrity issues. Also, the risk of customer misusage and lack of understanding on the security system.

• Operational risk

• Security risk

• Reputational risk

• Legal risk