The financial services world is changing rapidly, none more so than payments. Every bank in this space should already be responding to the transformational, innovative and fundamental change that open banking and APIs will bring, through ground-breaking solutions such as request-to-pay, the rise of corporate in-house banking, as well as the emergence of ‘big tech’ players becoming financial service providers.
Managed well, these transformative events, and others that will follow, are an opportunity for all stakeholders. But only those that have the vision to embrace new technologies alongside the imagination to form collaborative relationships will be able to fully meet the needs of ever-more demanding customers.
In terms of major impact, ‘open banking’ is in the upper reaches, says Joanne Towers, Managing Director, Europe Regional Head of Payments and Cards, Global Liquidity and Cash Management, HSBC.
Derived from CMA rules in the UK and the EU’s PSD2, the idea of promoting competition and growth in the payments space through technology took off in 2018. With it now comes a regulatory framework protecting consumers and a whole new opportunity for third parties, including the ability to connect consumer and corporate payments, and payments data, to the individual customer experience through an increasing number of channels. This, Towers explains, puts the customer in far more control of their transactional data, across all of their accounts; something that would not have been possible just a few years ago.
Although a regulatory play in Europe, open banking in North America and Asia has had a more commercial driving force, notes Towers. ‘Big tech’ players are increasingly engaging with their markets on the payments front, as they seek to bring about greater ownership of the customer experience.
By steering the development of a payments infrastructure that offers an end-to-end customer journey, where the payments process is but one step in an extended data-driven purchasing ‘event’, they are indeed taking that ownership to new levels.
But whilst it may look like the payments space is heading for a ‘bank versus non-bank’ showdown, Towers believes that it really is an opportunity for all stakeholders to collaborate for the greater good.
As an example, she reports that where a corporate is seeking cost efficiencies by adopting an in-house banking and centralised treasury strategy, it will still be looking to its bank as a trusted advisor. “We can guide them through that journey, helping them best understand the changes and the new technologies, such as APIs or virtual accounts that facilitate a move to their new structure,” she explains.
In the big tech and retail sectors too, these businesses are still looking to embed banks within their own infrastructures as vital components of their end-customers’ payments journey. The banks necessarily bring the expertise and resilience in clearing, for example, because non-FIs are not as well-placed to navigate the increased regulation and risk in this space.
However, when it comes to banks partnering with smaller fintechs, challenges remain, notes Towers. It’s right that a bank will seek to leverage the undeniable expertise of the fintech community, but it can be difficult for the individual vendor to demonstrate that it has the necessary resilience and scalability demanded by the bank on behalf of its clients.
To help overcome this, HSBC has invested and worked with a number of select providers, and in doing so, enabled development of both the fintech as a business, and it’s product-set. HSBC aims to partner with the vendor until such time as they have grown sufficiently to stand on their own two feet, benefiting both the vendor and the wider market in the process.
It’s through this collaborative mindset that the customer will ultimately benefit. Michèle Zaquine, Head of Payments Advisory, Europe, HSBC, observes a number of different market participants – including fintechs, insurers, aggregators, big techs, challenger and virtual banks – which are all busy evolving discrete ecosystems. But driven in part by the wider push for real-time information, many of these players, she notes, are working towards ecosystem interaction – a kind of network of networks – so that not only do they serve their own needs but also, by intersecting at certain points, they serve a wider set of demands.
This spirit of collaboration extends to corporate clients where they seek guidance from banking and technology experts on how best to achieve their strategic goals. “We are seeing some traditional corporates – driven by the demands that PSD2 places on the new digital services they are providing – requiring e-money provider licences,” notes Towers. “As a result of these new structures, clients look to us in particular to manage the regulatory requirements around these, and to provide appropriate solutions, across account and liquidity structures within their payments and receivables architecture.”
Where the provision of new banking services and technology appears to be pushing the boundaries of the traditional bank-client relationship, it is changing the dynamic of the relationship. “We’re very much a partner at the table with them now,” she says.
Some banks are naturally more open to collaboration than others. The so-called challenger banks on the high street, for example, only know this way of operation. The difference between consumer and corporate banking may seem clear, for now.
Retail banking has to deliver excellent service and an embedded digital offering – consumers demand it – and so it needs total customer awareness and agile development teams. But whilst consumer banking has been driven far harder than its corporate counterpart into the collaborative model, that gap is closing. This is notably so as a seamless digital experience, where APIs and real-time payments begin pushing this model on the corporate side.
Arguably, the translation of consumer attitudes into the corporate world is inescapable. Corporate customers, informed by their own consumer experiences, want to be able to order and pay in real-time. As real-time expectations rise, so more corporates need to be able to accept payments and progress orders accordingly. This effect has been notably gathering momentum in Asia, with big tech providers offering dedicated payment services to retailers.
“Companies need to be able to offer on-demand payment services and be able to reconcile information in the background,” says Towers. “Real-time payments has made everyone change their expectations; everything needs to be ‘now’.”
It’s easy to plot its progress. Contactless payments existed for many years before they took off. Now, with mobile options such as Apple Pay and Google Pay, the move towards electronic payment solutions for e-commerce and collections, is taking a rapid leap forwards in most markets. The next big step, certainly in Europe, is request-to-pay. In the UK, the service is already being driven by industry authorities as part of the New Payments Architecture. Continental Europe, too, has a SEPA-driven variant; a number of hybrid versions are also emerging elsewhere.
“I think it will dramatically change the electronic payments landscape,” says Towers. “It won’t completely change the card space, for example, because they are embedded into so many markets. But request-to-pay puts people in control of their own transactions; they can even use an instant payment at point-of-sale without a card.” Whether it removes cash, cheques or direct debits remains to be seen but, she asserts, request-to-pay is set to be a “transformative offering”.
Getting what you want, not what you’re given
One challenge with request-to-pay is the current lack of standardisation across solutions and markets. With individual banks and fintechs jockeying for position, the motivation to get it right is in plain sight: if it proves not to be frictionless for customers, it will not be adopted.
The idea that any new technology is fit for purpose pushes treasury involvement to the fore. Banks such as HSBC are working in partnership with treasurers from a wide variety of corporate clients. “We discuss and advise so we can get to the right solution in partnership with them,” says Towers. “Gone are the days when bankers told treasurers what they were going to give them. Today, we need to discover what the changes are that the client wants and needs to make as part of their business, and then work to see how we can support them with the right solutions to achieve those changes.”
Banks know that no treasurer will implement new technology for the sake of it. Real-time payments and collections may be the hot topic, but it is not needed in every case. It is therefore incumbent upon the bank and client to explore the most appropriate solution.
Although that discussion may be driven from unexpected angles – perhaps better use of working capital can be achieved by using a corporate or purchasing card solution, or maybe treasury prefers the predictability and control offered by direct debits – Towers believes that real-time is coming, simply because end-customers want it.
Zaquine adds that every business receiving funds 24/7 not only needs to think deeply about how to manage its working capital and intra-day liquidity positions, but also to consider the cyber-security and fraud angle.
Indeed, with every stakeholder needing to grasp the realities of new ideas such as open banking and real-time information, the discussion should now focus on how to evolve and grow together. Solution providers – banks and vendors – need to step away from old proprietary solutions which may never be agile enough to allow clients to adopt these new offerings. But, as Towers says, “that’s why we’re working with treasurers, with fintechs and other FIs, making sure these solutions work for everyone in the best possible way”.