Corporate Payment Priorities Bank Card & ePayment 2005 October 26 th , 2005

1. Corporate Payment Priorities Bank Card & ePayment 2005 October 26th, 2005 Natasha Khakhar Patel Head, Global Payments and Cash Management HSBC

2. Agenda • Payments and Clearing Systems in India • Challenges faced with the existing infrastructure • Case Study 1 – Company with a large supplier base • Case Study 2 – Companies with cash intensive business

3. Banking System Clearing System 296 Scheduled commercial banks of which 27 Public Sector Banks 31 Private Sector Banks 42 Foreign Banks Large number of Co-operative Banks, Regional Rural Banks 65,000 bank branches Predominantly Paper-Based Over 25,000 clearing locations Clearing in 16 major zones done by RBI 1,040 clearing houses ECS /EFT/SEFT – batch based electronic payment/clearing systems RTGS introduced in 2004 – covers 11,000 bank branches Issues Constraints Delays in receiving credits Uncertainty of Payments Reconciliation Issues Increase risks of fraud Administrative burden Geographical Spread Low levels of banking automation Poor Communication Poor Postal Infrastructure Payments and Clearing Systems in India

4. Challenges faced with the existing infrastructure • Cheque remains the pre-dominant payment instrument • Poor technical infrastructure in remote areas • Legal framework for e-payments systems needs to be further strengthened • Banks need to build customer focused electronic delivery systems and increase usage of e-payments • The geographical coverage of low value payments systems needs to be expanded further

5. Case Study 1: Company with Large Supplier Base • FMCG Company with a large supplier base of about 600 suppliers (of which about 150 are strategic suppliers) • Turnover of INR 2000 crore • Manufacturing sites in 20 locations including 15 factories at remote locations • Supplier Management and Payments Processing is largely decentralised

6. Challenges in Payments Case Study 1 Current Situation: • 20 Manufacturing sites of which 15 located in remote areas with poor banking infrastructure • Lack of centralised payments approach. • Lack of awareness amongst suppliers / factories about e-payments • Payment information spread across various factories, systems and banks Consequences: • Inefficient Liquidity management • High transaction costs • Errors or delays in payments could result in supplier issues • High administration / staff costs Challenges: • Need to identify local banks and maintain multiple banks accounts • Difficulty in Cash flow forecasting • Migration to electronic payments is difficult and long drawn • Reconciliation remains a challenge

7. Goods / Invoice Cheques Company A’s Units Payments Instructions Suppliers Bank Company A’s Supplier Advice of credit e-Payments HSBC Advising Payment Advice by Email / Courier Payment initiation Payment Process Advising & Reconciliation • Multiple Payment type • Single processing platform • STP • Integration with RBI • Advice to beneficiary • Account / Payment information • Reconciliation • Security • Ease of access • Automation Solution across Payment Value Chain Case Study 1

8. Benefits to Customer Case Study 1 Challenges: • Need to identify local banks and maintain multiple banks a/cs • Difficulty in Cash flow forecasting • Migration to e-payments is difficult and long drawn • Reconciliation remains a challenge Benefits: • Cost savings and allows the company to focus on core processes • Improves control and Liquidity management • Certainty of payments resulting in better relationships with suppliers • Reduced staff and administrative costs Solutions: • Complete payments outsourcing to (single) bank • Centralisation of Payments process • Supplier management (e.g. education on e-payments) • Electronic delivery channel for payments initiation and account information

9. Case Study 2 : Management of Physical Cash • Retailing chains • Petroleum retailing companies • FMCG companies with a rural marketing focus Cash Intensive businesses

10. Challenges: Difficulty in handling of cash (counting, storage, etc) Customer service affected due to long payment queues Risks in handling cash (fraud, malpractices, etc) Disposal of Cash is difficult Loyalty program implementation is cumbersome Consequences: Higher staff / administration costs Can result in customer dissatisfaction/ loss of business especially during peak hours Financial losses Higher banking / storage costs Ineffective marketing Challenges in managing physical cash Case Study 2

11. Card solutions – Alternatives to Cash Case Study 2 Smart cards (store value cards) can be used to replace physical cash Features: • Smart Cards enable enhanced data storage • Point-of-Sale Terminals may be connected or even offline • Convenience of loading value at frequented access points • Flexibility to support multiple sponsors to increase acceptability Benefits: • Enhanced MIS • Loyalty program enablers • Data security • Minimised Risks / Frauds • Improved controls • Lower effective costs • Reduced administrative /staff overheads

12. Thank You