• Service: Advisory, Management Consulting, IT Advisory
  • Type: Business and industry issue, Publication series
  • Date: 11/21/2012

KPMG China Connect

KPMG China Connect - a bilingual business newsletter

It reports KPMG's latest research and insights, client events, news and firm-wide developments.



Defining and executing a payments transformation strategy 

Defining and executing a payments transformation strategy

By Jez Heath and Harry Hughes, KPMG China


As this Great Payments Transformation series has articulated, payments infrastructure is rapidly developing in China and the wider region. Adoption rates for electronic payments are growing exponentially in developing markets, regulations are continuing to mature, and platforms are evolving. At the same time, new market entrants are driving competition alongside the consumer who is increasingly setting expectations for innovation in product development.

A shifting marketplace


The challenges for payment providers in the market are broad. In part, the payments environment is being impacted by key regulatory projects across the region such as G3 (Singapore), Immediate Payments (Australia), e-billing (Hong Kong) and CNAPS2 (China), which are rapidly evolving the agenda.


But it is also the payments market itself that is boosting transformation throughout the payments ecosystem. Just look at the innovation currently springing up right across China’s payments ecosystem as a result of 200 newly licensed Third Party Payment Providers entering the market which immediately increased competition and eroded margins. In response, many market participants are now streamlining their systems and processes to deliver Straight Through Processing (STP) capability, which in turn, will lead to reduced transaction execution times and costs.


Interestingly, it is the drive for customer-centricity that is catalysing these improvements as payments organisations start to keenly focus on providing services and performance demanded by customers. Take, for example, the growing trend for China’s banks to leverage social media in order to capture the ‘voice of the customer’, identify and resolve issues more effectively, as well as develop and deliver increasingly customer-centric product offerings. When one considers the traditional product development approach for banks (which focused on matching existing market offerings), this new approach (delivering more innovative solutions) stands in stark contrast.


Despite these drivers for change, payment providers are still largely constrained by the economic realities of the current environment. Few payment providers are willing to undertake new initiatives without first understanding and verifying the potential return on investment that each new product may offer. With management challenging the prioritisation of key initiatives and driving regional standardisation where possible, any new operating model or strategy will absolutely need to show how the investment will be monetised in the short and medium-term. Clearly, this is where the importance of robust business planning lies.


A transformation imperative


Once the need to transform has been recognised, payments market participants will then need to identify the most effective ways to facilitate such change within the payments ecosystem. Key consideration areas include: organic versus inorganic growth, who to partner with and how, what markets or product lines should be entered (or exited), and how best to structure operating models and entities for tax and transfer pricing impacts.


That being said, creating a successful strategy requires a clear understanding and analysis of today’s payments market. Indeed, participants will need to understand and develop a single, forward-looking view of how market changes will impact current business models and revenue streams. Admittedly, this will be a complex undertaking as many of the transformation opportunities will naturally include strategies based on a long play with multi-year investments.


Key stakeholders – including customers, shareholders and regulators – will also need to be engaged. While support from shareholders and approval from regulators will give customers the confidence to adopt new payment approaches, only those who move first are likely to reap the rewards from the market.


Formalising the strategy


Payments market participants should not understate the importance of a well-defined, future-proofed transformation strategy that directly aligns to their growth goals. Without one, banks and payments providers risk operating reactively in the face of market change which, in turn, will lead to costly mistakes such as rolling out products or continuing operations in markets that are misaligned to their strategic goals.


Those that are able to take a long-term, holistic view of business planning and transformation will find themselves better prepared to take advantage of the current market changes and, in doing so, can outline a road-map for the future growth and stability of their business. 


Jez Heath

Jez Heath

Partner, Business Performance Services

+852 2143 8813

Harry Hughes

Harry Hughes

Senior Manager, IT advisory services

+852 2826 7261