The payments space has for some time been a hotbed of innovation. Much of what has been brought to market is consumer-driven so should treasurers watch and wait or act now?
It’s hardly surprising that most of what is written and spoken about in terms of payments innovation eventually boils down to delivering the right ‘customer experience’. And why shouldn’t it? Giving customers the best possible user experience when it comes to meeting the fundamental need for every business – being paid – makes perfect sense. An effective payments experience may not be the main reason for using one business over another, but frustrate that process with poor technology and, rest assured, customers will go elsewhere.
Increasingly, there is a blurring of the distinction between the user experience expected by consumers, where most new technology is launched and proven (or killed off), and that of the corporate community. After all, every commercial user is at some point a consumer and will have a view on what is good and what is not. As consumer-style payments innovation reaches further into the corporate space, so expectations rise amongst companies and their customers of a similar experience.
Consumer and business needs “for a better experience, for simplicity and security” are commonly in the driving seat, with regulations such as PSD2, initiatives such as the UK’s New Payments Architecture (NPA), and the roll-out of more real time gross settlement systems globally, propelling the market forwards. For Dino Nicolaides, MD, Head of Treasury Advisory UK&I, Redbridge Debt & Treasury Advisory, companies that keep pace with the right innovations will be dodging a bullet marked ‘competition’.
The kind of innovation that is meeting this need is rarely a bolt from the blue. Instead, it is typically the result of evolution, notes Nicolaides. It is the adaptation of existing technology and knowledge “to provide something extra that serves or creates a need”.
In practice, this usually means being able to offer corporate customers a tailored version of mobile, online and real-time payments services and, vitally, the user-friendly experience they have come to expect in the consumer space.
Mark of success
There is no shortage of new payments products vying for corporate attention. For Nicolaides, meeting the wants and needs of customers through these systems seems like a “no-brainer” given the competitive nature of most commercial sectors. If a solution “ticks all of the boxes” then its success is, or should be, inevitable.
However, he recognises that not all innovations tick all the boxes. Sometimes new solutions fall foul of over-complexity or lack end-user confidence, the latter despite the emergence of new ‘RegTech’ solutions to help businesses combat fraud and comply with KYC and AML requirements. But for corporates, he reports persistent concerns over how a new solution will be adapted and integrated into an existing infrastructure.
For vendors, it is a hard market to penetrate, and uptake of any innovation depends on many other factors, not least cost of ownership and the degree of need it is satisfying. Some solutions manage to create their own need but for most, the future is uncertain, notes Nicolaides. “If it is a nice-to-have, then it is competing with many others and may struggle. If it meets a real need that nobody has satisfied before, only then will it become a no-brainer.”
The agile fintech community has a hard time getting innovation accepted, but banks are not immune. For Phil Beck, Head of Treasury Management at Capital One Commercial Bank, there are three main issues that can hold back progress, at least from a commercial banking standpoint. The first is the age of the underlying technology across many institutions. Legacy mainframe technology (which in most cases is over 20 years old) was not built for the demands of mobile channel provision and real-time data access, he says.
Secondly, the needs of corporate clients are vastly more complicated than for individual consumers. “When an individual logs into a banking platform, generally speaking, they have full authority to do everything they need to do. In the corporate environment, different people have different access rights and processes span across organisational boundaries. That complexity makes the development and adoption of innovation a challenge.”
Thirdly, there is often an end-user change management challenge. Modernisation can sometimes be slower or less comprehensive than users expect, especially given the underlying technologies many institutions are working with and the relatively simple consumer experience most critics use as their reference point.
Fit for purpose
Of course, the threat of cybercrime is never underplayed in the corporate space and innovation in fraud prevention is developing in parallel with payments solutions. “Solution providers have to keep one step ahead of the fraudsters,” says Marcus Hughes, Head of Strategic Business Development, Bottomline Technologies. “By using machine learning and artificial intelligence (AI), they are making sure both banks and corporates have the means of monitoring transactions and behaviours, looking for anomalies.”
In what appears to be a difficult set of circumstances for most commercial payment providers, Beck says services being delivered today are “adequate” and rarely of the quality a corporate might expect, given the raised expectations they have from their experience as consumers.
“Blockchain too has great potential but the agenda is so full there is almost project-overload, meaning delivery of some of the opportunities for treasurers are still years away.”
Marcus Hughes, Head of Strategic Business Development, Bottomline Technologies
For Nicolaides, the notion of whether current tools are fit-for-purpose is not so clear cut. What may be unsuitable for one business, sector or even country, may be perfect for another. It may be that hard currency is the only appropriate payment type in countries where there is black economy and little trust in the banking system.
Mindful of the constraints on progress, treasurers still want their own payments experience to be as simple and as easy as possible. Having the fingerprint or face ID-type log-ons that make life easier in the consumer world are being used in the commercial space “but nowhere near as broadly as they could be”, Beck notes.
Having the ability to log into one platform and see all account activity across an entire enterprise – versus the painful reality of using multiple tokens (50 or more is not uncommon in a large treasury) – is another ‘emerging’ corporate user experience. The relatively slow progress here suggests that current corporate solutions have some way to go, but Hughes rightly points out that the adoption of cloud technology “has brought major benefits” in terms of a quicker go-live, lower cost of entry and ownership, and indeed of future-proofing the organisation.
When it comes to innovation, the starting point is finding a genuine need for end-users, notes Nicolaides. Most innovations then require those users to adapt to how they will be used. So, is technology driving the way people think about their payments experience? Or is the way people think about payments driving technology?
“There are definitely some solutions out there – mostly on the periphery – that are looking for problems,” notes Hughes. The idea of using cryptocurrencies for cross-border payments being one example – one that he says already has regulators pondering the implications. “Blockchain too has great potential but the agenda is so full there is almost project-overload, meaning delivery of some of the opportunities for treasurers are still years away.”
Beck shares this view of blockchain. “Look at the amount of publicity that it receives; it is a great example of how technology is trying to drive an agenda,” he says.
In most cases (blockchain may be the exception), Beck feels this ‘innovation-first’ approach has limited success. “Despite a lot of hype, the impact is usually much more muted than what people might think is happening out there.” On the other hand, he believes there is a “significant amount of business-led innovation” that is pulling technology into leveraging change in the customer experience.
Real time processing sits somewhere in the middle. Instant payments tools have been successful in the consumer space, but for corporates, “the jury is still out”, says Hughes. Many treasurers are content with batch processing for most payments (and the three-day cycle in the UK will be ending over the next few years under NPA; other jurisdictions will surely follow just as they have with instant payments).
What treasurers really want, he notes, is real-time information. “It is more important to get the data showing what the payment relates to, and to know the payment is on its way or has been received by the beneficiary,” he explains. SWIFT’s gpi seems to answer the ‘track and trace’ need for certainty and visibility in single bank-to-bank transactions: its function in a multi-banking context is understood to be on the SWIFT agenda.
If, within a new technology, its security is a given (and it should be), it offers a genuine and easily realisable benefit to the user, and there is a realistic cost of ownership, the other key requirement for corporates has to be ease of deployment, says Nicolaides. Any new system needs to integrate straightforwardly into existing business operations, not demand that its users undergo major technical surgery and process change. Indeed, Beck notes that “our customers want software to fit their needs now; they don’t want to have to build new processes for where a solution falls short”.
However, notes Hughes, it is possible that the deployment in the banking sector of certain technologies, notably APIs, will lead to the commoditisation of some processes. Standardisation will be great for corporate efficiency – especially when allied with AI and data aggregation tools to give vastly improved data sharing and analytics – but it does raise a question around service provider differentiation.
“If connectivity becomes commoditised, it will be the value-adding solutions that count,” he suggests. “That means processes such as cash flow forecasting, netting, spend analysis, cash allocation and bank fee analysis will need to become easier and quicker for treasurers.”
Of course, in reality, not all technologies are created equal and it is the adoption of the right technology that makes the difference, adds Beck. Backing the wrong horse is never good for business (Betamax anyone?). As such, it may seem counterintuitive, but competition and collaboration must become the norm.
“In most sound business relationships, technology is only ever an enabler. It should be driving tighter collaboration. For treasurers, I see a future where innovation actually brings the parties closer together.”
Phil Beck, Head of Treasury Management, Capital One Commercial Bank
The more payments systems and carrier channels are connected, the better the user experience. But as technology becomes more interdependent and complex, providers will have to accept that they cannot do everything, notes Nicolaides.
Amazon’s Alexa can automate home lighting, heating or entertainments systems but Amazon does not make these systems; it leaves that to the experts in their fields. The positive outcome is one of necessary collaboration, because offering a better user-experience is only possible when specialists work together. “It is an analogy that applies to payments because to work well, payments need to integrate with ERPs and TMSs and be compatible with a host of other corporate systems, each built by specialists. That can only come from collaboration.”
That banks can differentiate through the adoption of the right technology is going to become more important. Regulatory change is paving the way for new payment providers to fundamentally transform the way this industry works and banks need to up the game.
Open banking, for example, is going to make multi-banking easier, especially for the midcap corporates, says Hughes. “Most of the news so far about open banking has been consumer-focused. There is a big opportunity for corporates here but more education is needed as not everyone is fully aware of the possibilities.”
With the roll-out of the APIs that facilitate open banking making headway (many banks at least have some programme in place), the idea that banks would somehow be disintermediated by the onset of PSD2-fuelled non-bank payment service providers is perhaps misguided. In fact, for Hughes, the early hype that promised a new breed of fast-moving fintechs “so innovative that they would eat the lunch of the incumbent banks” has largely dissipated.
Banks do not have the agility to develop cutting-edge solutions but they remain largely well-trusted. Fintechs have that agility but are yet to earn the trust. Herein lies the basis of a perfect partnership (one often resulting in the bank’s acquisition of the fintech). For Beck then, the future “will be nothing like how the market seemed to think it would be, with banks relegated to being relatively dumb back-end pipelines”.
Most banks today also understand that any business that is marginalised to the point where it cannot directly engage with its customers, or collaborate with them to drive innovation, is in trouble. They know that disintermediation from their customers is bad for them, obviously, but also for their corporate customers.
Long-standing relationships would be weakened. In treasury, these relationships extend way beyond just the transaction banking components; think about the impact on credit facilities and access to liquidity in stressed times. Clearly there is cost-benefit analysis to be undertaken when considering service portability versus strength of relationship.
“In most sound business relationships, technology is only ever an enabler,” states Beck. “It should be driving tighter collaboration. For treasurers, I see a future where innovation actually brings the parties closer together.”
By implementing the right tools, corporates and their treasuries have an opportunity to become part of an ecosystem where the whole is greater than the sum of its parts.
Although some of the current crop of innovations could be transformative, potentially having an immediate broad appeal (blockchain, for instance, if it gets past the hype phase), most new ideas will initially find their place in a retail or consumer context before transferring to the B2B environment. Request-to-pay, for example, will likely evolve into an e-invoicing system for business, with essential add-ons such as multiple levels of approval and access to supply chain finance helping to automate the financial supply chain with the integration of payments and documents.
The ‘consumer before corporate’ pathway is no bad thing. Taking this route allows each innovation to organically take root and build scale before being migrated into the vastly more complicated and far less homogenous corporate environment. Business users, including treasurers, will know what works for them as consumers, and they can see new technologies rise to the top or fall by the wayside under this harsh real-world scrutiny.
The providers of these technologies – banks, fintechs and vendors – are naturally keeping close tabs on every outcome. Where a corporate use case can be found, the need for every provider to differentiate in this competitive market will ensure innovation continues to be delivered.
But ‘innovation’ status doesn’t last forever. Treasurers need to stay alert to movements in the consumer payments space and know when the time is right to move. Customers have great expectations and stealing a march on the competition with the best payments experience is a good way to keep those paydays coming.