With COVID-19 driving changes in payment behaviour and the adoption of ecommerce sales models, how can treasurers adapt to this new payments landscape?

Among the many changes prompted by the COVID-19 crisis, one significant development is a shift away from traditional payment channels. In recent months, lockdowns and social distancing requirements have changed payment behaviour for both consumer and businesses – and as a result, treasurers are having to work proactively to embrace newer payment channels.

“All transactions that have a high touch element, such as cheques, have become difficult to handle during lockdown, as people haven’t been able to access their offices or go to the bank branch,” says Mahesh Kini, Managing Director, Head – Cash Management, Asia Pacific at BNP Paribas. “In markets like India, we have seen volumes come down by 40-45% during the pandemic.” Likewise, Kini says the use of paper instructions bearing wet signatures has reduced significantly, while the use of physical supporting documents in cross-border transactions has also declined.

At the same time, many traditional retail businesses have seen a rapid shift from physical branches to ecommerce sales models. “Some of the luxury brand retailers from France, for example, are now selling their products either on their own commerce portal, or even via third party channels,” comments Kini. “From a payment perspective, corporates now need to be able to handle new payment channels, so this shift has driven quite a bit of transformation in the payments landscape.”

From aggregation to e-banking

These shifts are leading to new trends in how corporations manage payments. Kini points to an increase in the use of third-party payment aggregators which are able to aggregate all types of alternative payments, including wallets, peer-to-peer transfers and credit card acquiring. “Payment aggregators are now operating in most of the markets in Asia Pacific and are physically facilitating payment flows,” he notes.

Another trend is the rise of real-time payments. Most markets in Asia Pacific are now equipped with real-time payments systems – and while many of these are restricted to B2C flows due to transaction value limits, other markets, such as Singapore, have higher limits and are better able to support B2B transactions.

As Kini notes, there has also been a rapid increase in the use of e-banking channels for sending payment instructions and submitting digital documents – “so those documents which have come in paper formats in the past are now being digitalised into images or data and submitted via e-banking channels to the banks.”

Priorities and challenges

For treasurers, the rise of new payment channels brings considerable challenges. “Businesses are demanding acceptance of these new payment channels, but their ERP systems and treasury platforms are not fully geared up for this kind of instant flow coming into them, or the need to make instant payments,” says Kini.

In addition, as they seek to marry up new payment channels and legacy platforms, Kini says treasurers need to keep a close eye on payment risks. “As businesses move away from shop front to ecommerce models, the risk of fraud and cybercrime is all the greater,” he comments. “So it is extremely important that while treasurers support their businesses, they also put in the necessary controls to manage these risks.”

When it comes to handling different payment channels, Kini says that banks have an important role to play in bringing solutions such as payment aggregation to their clients. “We have a platform which offers payment aggregation globally. So if there is a global client who wants to power their ecommerce platform with a payment engine, we are able to connect into their ecommerce portal using an API, and give them access to multiregional payment aggregation systems,” he says.

The use of payment aggregators can bring challenges where reporting and reconciliation is concerned – but again, banks can support companies in achieving more uniform reporting across their different payment channels. In addition, Kini notes that in an instant or near-instant world, there is a greater need for access to more sophisticated liquidity information and cash forecasting functionalities.

Impact of the crisis

In today’s challenging environment, treasurers not only expect their banking partners to be able to connect to all relevant payment channels, but are also looking for banks that will work proactively with them to achieve their target operating model. And they are looking for quick results: Kini cites the example of a corporate client in the retail segment in Korea which needed to set up an ecommerce portal and implement a payment aggregator interface in just 30 days.

The COVID-19 crisis has also prompted a closer focus on liquidity. Kini says that when the pandemic began, treasurers were focusing on keeping liquidity close to their operating entities to cover any sudden funding needs. “But in the second half of the year, we have seen a different strategy: the focus is now on how to manage liquidity coming out of the newer payment channels,” he adds.

Linked to that, Kini says, is the need for faster cash forecasting. Companies that have previously managed forecasting using spreadsheets are now seeking technology and platforms that can support near-real-time forecasting, thereby enabling more effective liquidity management.

Here to stay?

The current environment has brought significant changes for payments and liquidity – but are these changes here to stay? “I don’t think we will go back to how things were before the crisis,” says Kini. “Some elements may return – for example, I don’t think cheques will completely disappear. But there will be a large proportion of transactions which will remain electronic.”

Likewise, the transition to ecommerce is likely to continue, with consumers becoming increasingly comfortable with this model. “And central banks are also strongly pushing the adoption of electronic and real-time payments,” Kini says. “A lot of lessons have been learnt across the different markets, and some of the practices which are being adopted now will become more established.”