The payments industry has seen fast-paced change in the past year: online payments have moved into the physical retail space; merchants are collaborating in order to better control their customers’ data and experience; and banks and card issuers are gaining more control in the payment card space. In addition, the accelerated uptake of tablet and smartphone technology has created a very different payments landscape compared to even just a few years ago. Emerging technologies and the success of some non-bank competitors have spawned a new wave of innovation and investment – which the banks are very much a part of.

Biography

Ather Williams is managing director and head of Global Payments and Global GTS Strategy in the Global Transaction Services (GTS) group at Bank of America Merrill Lynch. He is based in New York.

As head of Global Payments, Williams works closely with the Global Transaction Services region heads to execute a global strategy for payments product management. Serving both the Corporate and Commercial lines of business, his responsibilities include end-to-end product and P&L management; new product development and product launches; pricing; all training and marketing for the urgent/high value and non-urgent/low value payments products, banknotes, and the related foreign exchange products.

Williams assumed expanded responsibility for Global GTS Strategy in January 2013. In this role, Williams oversees Investment Governance, Country Expansion, Strategic Initiatives and Client Analytics. In addition, the GTS Chief Operating Office (COO) executes their functions in close coordination with Williams.

Williams joined the company in September 2011 and was previously at JP Morgan Chase where he held a variety of senior leadership positions including Americas Liquidity executive, Global Segment executive and Global Strategy & Corporate Development executive, all within Treasury & Securities Services. He was most recently Global Product executive for Investment & Credit Products.

Williams has nearly 20 years of experience working in the financial services industry. In addition to his tenure at JP Morgan, Williams has worked in a variety of senior strategic and financial management roles including several years as a management consultant with First Manhattan Consulting Group and in the Financial Institutions practice of AT Kearney.

In 2008, Diversity MBA Magazine named Williams one of the Top 100 Executive Leaders Under 50. He holds a BA from Harvard College and a MBA from Harvard Business School.

It has been a year since we last spoke with you about the new dynamics in payments. Has much changed?

I can pinpoint four areas that have undergone significant change in the past 12 months.

Firstly, the consumer’s mobile commerce experience has moved to the point-of-sale (POS). A recent example is the agreement between Discover and eBay’s PayPal to roll out online payment services to physical retailers, enabling consumers to use their PayPal accounts at POS. And I expect there will be more innovation in this space as traditional card companies look for alternative payment solutions.

Secondly, banks and card issuers are gaining more control in the payment card space. For example J.P. Morgan Chase (JPM) and Visa have extended their partnership with the expressed intention of delivering added value to merchants and providing a better experience for cardholders. As part of this agreement, JPM will launch Chase Merchant Services, a payments platform powered by Visa in order to create new value propositions for merchants, not only on the interchange side but also to improve their working capital management. This illustrates how banks are beginning to move beyond a siloed approach to payments and linking products that have traditionally sat in transaction banking with those in merchant services to create a full end-to-end solution. In addition, it shows a strong aspiration to build direct relationships with merchants on a deal-by-deal basis. This is a monumental shift in the payments landscape.

Thirdly, merchants are collaborating in order to better control their customers’ data and experience. An example of this is the Merchant Customer Exchange (MCX.com), which was created last year by a group of leading US merchants. They are working together to control costs, not just simply from a per transaction card interchange perspective but also in terms of point-of-sale technology investment. When Visa and MasterCard mandated a move to EMV and Chip and PIN, many merchants hesitated in investing in expensive new hardware and voiced a desire to have a greater say in the process.

The final area of change, which hasn’t happened yet but is making its way through Congress, is legislation compelling online retailers to pay sales tax in every state where they sell goods. This is an attempt to level the playing field between bricks-and-mortar and online shops, but I believe that it will create an additional burden for small merchants, many of who have moved online through marketplaces such as Amazon or eBay.

What hasn’t changed since last year is consumer expectation: consumers are looking for easy, instantaneous payment methods that facilitate an end-to-end, joined up customer experience.

It seems that merchants could be looking at some dramatic changes if they are to stay profitable and connect with their customers in the ways they prefer.

The accelerated uptake of tablet and smartphone technology has created a very different payments landscape compared to even just a few years ago. Instead of the dumb wired card readers, new technology such as cloud computing and expanded broadband access have enabled tablets to create an advanced consumer experience. I call it the “Nordstrom experience” where associates walk around the sales floor with their tablets – which have not only payment and checkout capabilities but also inventory and sales suggestions – to facilitate a more integrated shopping experience. Some retailers have gone a step further and are using geo-fencing, where they identify and communicate with customers as they walk through the store entrance. With geo-fencing, using the GPS capabilities of your smartphone, you can check into a store or restaurant, open a tab, make purchases and simply check-out by leaving the store; all without the need to swipe a card. Moreover, such capabilities would also allow you to order food without a server or for a store clerk to know your preferences and past purchases with them so they can offer complementary items or loyalty discounts.

Consumers are integrating their shopping experience with social media sites such as Facebook or LinkedIn. For example, a shopper can walk into a store, buy a product and receive an electronic receipt, which is then posted on their Facebook page to illustrate the great deal they got. This creates a level of price transparency not seen before; previously pricing differentials have been core to merchants’ sales strategy in different markets based on demographics, demand, etc. This transparency presents a great opportunity for merchants because it provides deeper insight into a consumer’s buying behaviour; but it also presents a challenge – one tap of the iPhone and a consumer’s network knows what they bought and the price they paid for it.

And this is just the beginning. With the free shopping app RedLaser, consumers can walk down a street and scan a barcode or take a picture of an item, search for it and have it delivered the next day at the best possible price. In order to compete, merchants will need to develop innovative ways to attract customers and retain them through loyalty programmes, as well as provide a user-friendly experience.

Historically, many issuing banks solely focused on the individual carrying the card. Bank of America Merrill Lynch’s (BofA Merrill) strategy, on the other hand, starts from the merchant’s standpoint – they are the hub of the payments ecosystem, touching both suppliers and buyers. Our approach is to consider the merchant’s needs and work across the entire enterprise to address them and improve their solution set to better serve their customers.

Banks have been slow to engage within the end-to-end customer payment experience. How are they engaging right now?

I think the payments industry as a whole is responding to this challenge by moving beyond a siloed view of payments, as I have already mentioned. BofA Merrill views payments as an enterprise-wide endeavour. We have integrated the end-to-end purchase process, which we call the “Commerce Lifecycle”, from card issuance to working capital management and commodity finance, and use this concept to frame our solutions to help both consumers and merchants. As the largest consumer bank in the US, serving approximately 52 million consumers and small business relationships, 97% of the US Fortune 500 and 73% of the global Fortune 500, the bank intervenes into all parts of the lifecycle, including helping merchants manage their supply chains.

In order to facilitate innovation, BofA Merrill has established an Enterprise Payments Council, of which I am a member as well as counterparts from the consumer side. The Council discusses new technology, not just the infrastructure and the information associated with transactions, but also the touch points of merchants and consumers. We consider how they all link together to create an ecosystem that works.

The second part of the bank’s strategy is looking at channel investments. Despite all the advancements in technology, there are still only five ways to settle a transaction: cash, cheque, issuance, card and wire. The questions we are asking ourselves are what will be the next generation of payments and how can we engage with our clients to give them a better experience? Is it real-time or same day? Although there are many services that create an immediate payment experience, the reality is money doesn’t move that quickly today. However, many governments are pushing for faster settlement, for example the UK, India and Singapore, which is a positive development because it will diminish settlement risk and provide a better client experience.

Tell us about your new initiatives in the payment space.

As a result of considering how to improve the client experience in our large network of merchants and consumers, BofA Merrill teamed up with Wells Fargo and JPM Chase and launched clearXchange (CXC), in May 2011. This is the first network that lets customers send person-to-person (P2P) payments easily and securely with only the recipient’s mobile number or email address.

BofA Merrill is also looking at how to use data to create a better experience with value-add offers. The first foray into this area was BankAmeriDeals, launched last year, in which merchants are able to deliver offers to BofA online banking and mobile banking customers.

Additionally, the bank is exploring ways to leverage its capabilities around working capital management, security, compliance, cash movements, FX and risk management to create a platform upon which companies can connect into the bank’s infrastructure in order to innovate. Using FX as an example, the bank now offers corporate clients with real-time API access to its FX rate engines to quote currency pairs, or to insert a tradable rate into an on-line platform, such as a merchant retail site. Companies using this service don’t have to undertake a costly implementation/integration with a third party; rather they can use the bank’s API to gain access.

From a payment utility standpoint, for example, a payment company might have a token innovation for a merchant that requires a payment capability. The bank can create a secure environment and give the company access to a payment system – effectively leveraging the bank’s assets and resources to enable ecommerce to advance. I believe that there is a lot of opportunity in terms of where we can collaborate with innovative payment companies.

What about international payments?

The correspondent banking network is still extremely complicated. The complexity and lack of transparency has come to the fore due to the Dodd-Frank Remittance Regulation 1073 (DF-1073). This is legislation that requires the banks to provide the retail remitter with full information on taxes, fees and details of when the funds will arrive; all in advance of a transaction. This has created a significant challenge for many institutions. For example, if a wire is sent to Sri Lanka through three different banks in a correspondent chain, knowing where that money is and what fees, taxes, etc will be charged is incredibly difficult to determine.

In an attempt to solve this issue for itself and smaller financial institutions, at the end of March BofA Merrill launched a set of solutions for financial institution clients to help address the new requirements for conducting cross-border payments as outlined in DF-1073. The lead products are FXtransact White Label and BofA Merrill Information Exchange for Payments.

Lastly, although there are high value and urgent payments between institutions that need to move through secure channels, such as real-time gross settlement (RTGS) systems and the SWIFT network, many payments can go through a low value or local network. Therefore, BofA Merrill is investing time, energy and money in expanding our local clearing capabilities for low value, automated clearing house (ACH) payments.

Currently the bank can perform ACH payments in 52 countries and territories but we are looking to expand that to more than 75 over the next few years, both directly and through partnerships. This will benefit consumers who are buying goods from a merchant in another country, whether on Amazon, eBay, Google or Alibaba. Such a transaction can prove to be expensive because of the card FX rates. By completing the same transaction through a low value clearing mechanism, where the consumer is transferring funds in local currency, efficiencies are created on both sides.

Another example is pension payments. If a pensioner is receiving their monthly US dollar cheque payments in the Philippines, the local bank’s FX rates can prove to be quite steep. It is cheaper and more efficient to transfer those payments through local clearers directly into the pensioner’s bank account.

BofA Merrill is working to build its cross-border capability in situations where it makes sense because I don’t think that ACH systems around the world will all line up and work together seamlessly anytime soon. But I do believe that we can go a long way for our clients to create such an environment – and that is one of the many investments we’re making.

So, in closing, how do you feel about banks’ future in payments?

Bullish. Up until about 10 years ago, banks by default had a dominant position in the payment spectrum, from end to end. The rapid emergence of non-bank competitors, which found a way to leverage the banking infrastructure while transforming the consumer experience, put banks on their heels. As these companies grew, banks needed time to determine their viability and the extent to which their offerings posed a threat.

Some might say banks were slow to react due to complacency. Now, however, emerging technologies and the success of some of these non-bank competitors have spawned a new wave of innovation and investment, as evidenced by some of the examples I’ve shared. I believe we’ll see this continue, and we’ll ultimately see banks at the forefront. Financial institutions are viewed as trustworthy and safe due to deposit insurance and regulatory oversight. Those qualities will continue to be highly valued as individuals and entities make choices in the new payments paradigm. This is, in turn, a good thing for consumers and the merchants with which they conduct commerce as banks have it within their means to deliver choice, loyalty and expansive reach for buyers.