Question Answered: Tapping payment opportunities

Published: Sep 2023

“How are payments evolving and what steps should companies take to tap the opportunity?”

Stepping stones in Boxhill, Surrey
Kaiwan Turel, Director, Treasury Solutions Group, Asia Pacific, HSBC

Kaiwan Turel

Director, Treasury Solutions Group, Asia Pacific

The payments landscape has undergone structural changes over the past few years. New infrastructure such as real-time payments systems, new regulations such as allowing non-bank payment service providers (eg, e-wallets) to access these networks directly, as well as the ambition of and competition among industry players, have transformed the sector. Until recently, there was a huge mismatch between what was possible and what was happening, but we are now seeing the commercialisation of the infrastructure as adoption from big corporations to SMEs accelerates.

When I started my career, payments infrastructure was characterised by one-way, time-bound payments either as a batch or file-based that provided limited visibility. Once people had paid for their goods and services, the transaction was over and treasury teams were focussed on reconciling payments efficiently by the end of the month.

Because real-time payments systems are available 24/7, with near-instant settlement and same-day reconciliation, it has revolutionised the way businesses transact. Leveraging technologies such as APIs, companies can devise innovative straight-through processes in which payments are a part of an overall customer experience. Real-time payments are also helping bring the unbanked into the financial system. For example, HSBC partners with companies in Egypt to facilitate direct payments into e-wallets.

E-commerce has taken off on the back of digital payments. We increasingly support companies that have been relying on traditional distribution models to move to a D2C (direct-to-consumer) model that no longer depends on intermediaries. We are observing this trend across a wide range of sectors including logistics, pharmaceuticals distributors, the auto industry and insurance companies. There is certainly an element of the old guard reinventing themselves.

As companies move into the D2C space they are looking for scalability, capacity and variety in terms of how they collect payments because their customers want options. For example, companies need to support customer purchases via bank transfers, QR codes, credit cards and e-wallets in different locations across their physical, online and mobile stores.

One notable change we at HSBC have observed is that we no longer just speak to a client’s corporate treasury team. We also speak to their strategy and business development teams because they are also supporting how these new systems work and connect.

Changes in how we pay means MNCs must adapt their treasury function to become more strategic and resilient, ie, putting technologies, particularly APIs and RPAs, to effective use in payment and transaction flows and treasury processes, leverage data optimally, supporting the broader supply chain and addressing risks of payment errors, information security and fraud. As businesses pivot to D2C models, 24/7 collections and payments on demand, treasury teams must be able to adapt. We have clients who have seen the number of digital payments they process jump significantly. Add payroll on top, and it’s a big responsibility leading to increasing levels of specialisation for the treasury function.

The transformation in payments has implications for working capital management and the efficiency of processes, particularly because the cost of capital is now higher. Because interest rates remain elevated, there is increased focus on self-funding, better management of receivables and driving efficient realisation and use of internal cash. Digital payments are also changing the way companies can engage with their stakeholders to tap into competitive advantages, for example by using supply chain finance to support their broader ecosystem.

Can Balcioglu, Vice President, Treasurer, PayPal

Can Balcioglu

Vice President, Treasurer

As many companies expand their business models to place e-commerce as a more prominent feature in their retail strategy, treasurers must consider certain challenges such as ensuring systems integration for a seamless omnichannel shopping experience for their customers, accommodating a variety of payment methods and managing activity through new geographies and currencies.

Whether a company’s business is digital, omnichannel or a platform/marketplace, choosing the right payments service provider to partner with is one of the most important decisions a CFO or treasurer must make.

To navigate the complexity inherent in the payments ecosystem successfully while providing the best experience to your customers, companies will need payments processors who will provide a stable, secure and scalable platform that is able to support growth across multiple channels and geographies.

Based on our experience, a few important factors to consider for a company in making this decision include:

  • Look for a provider that can provide a transparent pricing model to help you manage your costs; however, refrain from choosing based on cost alone as there are many other factors to consider.

  • Ease of integration of your systems to the payments platform provided by your processor is key.

  • Your payment partner should help your company meet customers across different channels and devices and allow your customers to use whatever funding source or method they want to use.

  • Look for a provider who can improve approval rates to boost your bottom line while providing services to proactively reduce fraud and chargeback risks to help manage losses.

  • If you are servicing customers internationally or have expansion plans into new geographies, it is imperative that your provider is able to connect you to local payment schemes globally. Your payments provider should be a trusted partner to you as you navigate the complexities of FX conversion, compliance with local regulation and tax rules, for example.

  • Finally, look for a provider that will offer a variety of value-added services and capabilities, to support your business as you grow into new offerings and verticals.

The pandemic accelerated the shift to new digital business models such as D2C, Direct to Store and B2C/B2B online marketplaces. Here are a few factors treasurers will need to consider with regards to payments under these new business models.

  • Systems integration: it is not unusual for companies to have fragmented systems for their existing sales channels; supporting new sales channels will require additional systems investment for better integration with these existing systems.

  • Managing losses: expanding into new digital channels will require treasurers to manage a higher volume of smaller transactions, which can increase chargeback and fraud costs.

  • Managing FX risks: directly selling to customers online is a cost-efficient way to access international markets; however, expansion into new countries brings new challenges for treasurers. For example, companies will have to think about presenting prices in local currency to boost sales.

  • New payment methods: selling through new digital channels and international markets brings in new customers who will have specific expectations when it comes to payment methods they want to use. It is a significant burden for companies to try to offer these local payment methods by themselves, without the help of a payment provider with appropriate expertise.

  • Safeguarding customer data: businesses expanding into new jurisdictions will have to ensure they comply with all local customer data safeguarding and privacy requirements in line with local regulations.

Payments data (data that can be collected from customers managing and moving money) can offer valuable insights into customers behaviour and needs. This data can be used to increase customer engagement, unlock new streams of revenue or manage risk better. However, safety and security are critical factors when utilising this type of data.

Recently, we are seeing the rise of “embedded finance” – essentially companies providing their customers with a financial product during a non-financial commerce experience.

While this concept is not new, digitalisation of commerce brings about many new opportunities in this front. Shopping carts, various software solutions, digital wallets all provide companies who are advanced in their digital journey to interact with their customers and provide financial products as a natural part of their experience.

These products range from transactions and deposits accounts to payments and lending related services. Such add-on services can provide companies with valuable data and insights about their customers.

Technology companies and other non-financial institutions with a large base of captive customers (eg online retailers and marketplaces) are using embedded finance to provide better customer experiences, increase engagement and sales and gather additional customer data that can be used to offer improved or new products.

For example, PayPal enables merchants to offer a BNPL product to their customers during their online shopping experience – this, in turn, maximises customer engagement, increases sales for the merchant and provides a better retail experience for their customers.

Grégoire Toussaint, Director, Edgar, Dunn & Company

Grégoire Toussaint

Edgar, Dunn & Company

B2B payments are becoming increasingly complex and digital. To analyse this complexity, Edgar, Dunn & Company (EDC), conducted a research study to understand the current state of B2B payments and the payment-related pain points that corporates and SMEs face.

We found that the B2B payments value chain has evolved significantly in the past few years, driven by the automation of B2B processes for both Accounts Payable and Accounts Receivable. The optimisation of these processes, the evolution of the role of actors in the value chain and also new entrants in B2B payments have created increased competition and collaboration.

B2B payments encompass many industry verticals and use cases. We found payment providers increasingly focus on specific areas with high profitability and growth potential that include:

  • Real-time payments.

  • Development of virtual cards (eg, B2B travel, supply chain, gig economy).

  • Development of B2B e-commerce and B2B marketplaces.

  • Development of BNPL (Buy Now Pay Later) for B2B payments.

  • Increasing usage of B2B cross-border payments.

Our research also identifies key payment-related pain points faced by businesses:

  1. Manual B2B processes and payments.

  2. Cashflow management and payment delays.

  3. Complexity of ecosystem in B2B processes and payments.

  4. Lack of integration capability with existing systems.

  5. No clear visibility on direct costs (invoiced by suppliers) and indirect costs (related to manual processes).

  6. Difficulty in changing current internal processes.

Next question:

“Transaction banking in Asia: from cash management to supply chain management or support with cross border trade, where are the region’s corporates most focused?”

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