With increasingly sophisticated cash management infrastructure available from non-bank payment service providers (PSPs), corporate treasuries have a powerful arsenal to tackle the increasingly real-time mind set of global consumer markets. In doing so, they are opening new revenue streams, operational risks, and external regulatory and stakeholder oversight.
Constantly evolving expectation in retail payment services – and of payment systems technology in general – with respect to the ‘always on’ environment is closing the long-established gaps between treasury risk, cash management, operations and the external consumer base. Working capital cycles are moving to instant product settlement and delivery, in turn generating exposure to intensified operational transparency demands, solution liquidity and foreign exchange (FX) risk including asymmetric order timing and purchase execution.
Corporate treasuries are arming their businesses with new technology-as-a-service (TaaS) models around these opportunities. Frequently, the innovation in the payment space is coming from PSP partnerships and the opening of historically institutional banking services, and injecting them further down the commercial pyramid into corporate banking relationships to reach even small to medium-sized corporate banking relationships.
Implications from Emerging Markets
It is exciting to witness the adoption of payment innovation in emerging markets. From the remittance-based economies of the South Pacific to the birthplace of modern mobile banking in Africa and Asia, millions of consumers are gaining direct access to advanced payment services without prior exposure to legacy technology and two- to three-day payment clearing cycles.
In the Pacific, where the synergies between networks and regional mobile operators have led to a full scale deployment of an ‘always-on’ 24/7 and bank-agnostic five currency mobile clearing network, consumers are rapidly moving from barter-style cashless trade to formalised, yet branchless, cashless multi-currency financial infrastructure. These are replicating in only a matter of months a process that began for the sophisticated banking systems of New Zealand and Australia in the 1960s.
The process of enabling cross-border, bank-to-mobile payments (bank via web to wallet), international bill payments (bank via web to bank), and a host of other sophisticated back office solutions that link the banking systems of Australia and New Zealand to the ‘islands’, and back again in real time, is also enhancing the working capital functions of corporates in the region; particularly with cross-border invoicing, receivables and payables.
The implications of a real time settlement network enable products, particularly consumer/consumables, to be re-marketed around a platform of instant delivery and instant payment. In markets where the payment and collection risk from end users is at best ‘uncertain’, involving cash, site visits, and principal agent-network issues, a treasury run pre-funded or secured electronic transactional facility (in this case, a ‘financialised’ mobile network) that eliminates settlement risk via micro-payments, with or without cross-regional patented cross-currency solutions, is transforming the way that business can be done.
The implications of providing both the payment systems, via a PSP, and the means to execute deliverable FX has demonstrated considerable consumer ‘stickiness’ (loyalty), and cross selling opportunities coupled with deep insights to consumer data, and purchasing behaviour metrics.
While emerging payment technologies largely revolve around the consumer’s adoption of mobile phone interfaces, or providing corporate access to traditionally institutional products, it has been Europe’s Payment Service Directive (PSD) that has provided both PSPs and their corporate clients with access to regulatory confidence for incubator style ‘project services’ to develop outside the regulated umbrella of incumbent banks, with supervision now calibrated to the specific requirements of an individual technology or business line.
In comparison to the captive bank concept of a decade ago, these advances have meant that the cost of trailing new and regulated business services in the payments space, particularly for mobile payments, has drastically reduced the ‘get to market’ cost and schedule of innovation. New technology can quickly become a lucrative business line, both in terms of value-adding to the existing customer experience and adding impact across automated and non-automated process.
And as the ever-increasing velocity of mobile access point expansion continues to grow, and technology adoption and micro application deployment booms, the financial interaction between consumers and their service providers is deepening and shows no sign of slowing.
Corporate Access to Innovation
For corporate treasurers, this has opened the doors to innovation and provided direct access to important developments in this industry. It has enabled commercial and retail networks to stretch far beyond bricks-and-mortar financial relationships, while bringing about a clearly defined compliance and risk management programme within the money service or payment service business framework, with an opportunity to engage, trial or acquire customised retail facing payment solutions for the mobile client base.
By adopting the solutions required to reach into consumer payments, treasuries are also embracing the opportunities that can be drawn from direct access to the internal controls and transparency benefits of an independently-regulated and Anti-Money Laundering (AML)/Financial Action Task Force (FATF)/Anti-Bribery Act compliant suite of technology. These can maintain and demonstrate not only external compliance, but also internal compliance, efficient in-house accounting and budgetary accounting controls too, which has also been an important innovation in both the governmental and non-governmental organisation (NGO) sector.
But the large numbers of emerging PSP entities do present risk as well as opportunity that treasures should be mindful of. However, with a little common sense providers selling ‘yet to be built capability’ or capacity ‘under development’ can be avoided, and industry concern can be mitigated.
From a regulatory perspective, the energy and innovation being brought to market as a result of this is a welcome step forward. It enables observant and established players to benefit from the plural-intelligence problem-solving approach to resolving long-standing bottlenecks and surpassing historical gold standards.
Developments to Watch
As treasurers, we are perpetually on the lookout for new ways to understand, measure and mitigate risk, and to enhance the efficiency of the broader operations of our companies. While PSPs are already putting our businesses within real-time reach of millions of consumers and potential customers, providing widely-adoptable pre-paid/pre-order, direct pay, or post pay services, it is not necessarily our first instinct to believe that PSPs can offer solutions directly relevant to working capital, cash flow management or payroll.
However, with every combination of peer-to-peer (P2P), peer-to-government (P2G) and commercial payments now being provided at scale and low cost by one PSP or another, opportunities remain to utilise their embedded technology to deliver new service levels to customers and internal stakeholders. In many instances, with banks looking to expand their non-lending revenues as well as retain or defend their position of market share and exposure to payment volume and velocity of cashflow, some PSPs may already have more comprehensive access to regional banking relationships than traditional commercial banking relationships will provide.
With the advent of near field communication (NFC), biometric authorisation and PSP-provided cross border liquidity management, even the smallest companies can get access to the most advanced payment technology. With countries as small as Tonga, Samoa and Fiji now leading the way in payment network technology, case studies like these are proving that the magnitude of scale required to sustain profitable corporate and commercial investment in new payment technology is not what it once was.
One such shift has already occurred in a very large way over the last decade. In Africa, the payment systems were not readily available from the banking sector, or were non-calibrated to demand side-dictated pricing and service level expectations. Subsequently, the opportunity to capture this space arose and the associated challenges of recognising and regulating an emerging payments system shifted away from banks, and fell to corporates. The pattern has been increasingly repeated in the telecommunications sector in the past 15 years, as consumers respond to inaccessible or overpriced domestic and cross-border remittance facilities, and now provide meaningful transaction-based revenue to mobile carriers.
It remains to be seen how mobile payments will affect each industry, and the role PSPs will play within that. Will PSPs become banks, enable new corporate-driven banking services, or remain technology test-beds for corporate treasury and banking back offices? However, if the goal of taking a minimum of US$10 in physical cash from every mattress in the emerging markets can be fulfilled, then it equates to trillions of dollars of additional capital in banking systems all over the world. And with electronic banking (e-banking), comes insight, oversight, business clarity, and much deep consumer metrics – and that is something that every treasurer can use a little more of.
Regulation technology is fast gaining currency by transforming how financial institutions can tackle compliance in a swift, comprehensive and less expensive manner.
Many banks around the world, large and small, continue to experience major security failures. Biometric systems such as pay-by-selfie, iris scanners and vein pattern authentication can help.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.