How Can Treasury Departments Take Advantage of Payments Innovations?

Corporate treasurers are rarely the beneficiaries of innovations in the payments industry. All too often, banks and technology vendors focus on new products and services for consumers, and yet there is a swathe of businesses, from small and medium-sized enterprises (SMEs) to large enterprises, that would really benefit from new payments services.

A recent Ixaris report, ‘Payments Innovation 2011 – The Global Jury Decides’, confirmed that commercial payments and high-value payments were seen as the least likely to drive innovation. The findings were based on the expertise of 22 high profile payments and banking innovators and experts from around the globe, one of whom commented that the “evolution of payment technology always moves more slowly the higher the payment value”.

However, there is a growing disillusion with generic payment products that do not meet corporate treasurers’ specific needs and they increasingly expect more from banks when it comes to payment services. There are a number of challenges impacting treasurers that are creating this disquiet and forcing many banks to rethink the portfolio of corporate payment services that they offer.

The Payments Pressure Cooker

According to the Payments Innovation 2011 report, banks’ inability to 100% guarantee customer uptake is seen as the biggest barrier to payments innovation. For instance, a lack of certainty about customer demand has delayed most UK banks’ roll out of ‘Direct Corporate Access’ to Faster Payments. Currently, Barclays is the only financial institution that offers the service.

But with many banks showing considerable reluctance to innovate, other players are stepping in to exploit the opportunity. Competition is emerging from a variety of sectors, such as telecoms and internet organisations, that threaten the status quo of traditional payments institutions. And that, in turn, is putting pressure on banks to seek payments solutions for corporate customers that enable them to become more profitable and deliver greater return.

Meanwhile, corporates are facing their own challenges that mean they need payment services to integrate more closely with their internal systems and processes. For many corporates, payments are growing in complexity due to an increase in cross border business. This is particularly true for organisations that rely on the internet to drive a high proportion of their business. At the same time, the economic environment and ongoing regulatory changes mean that businesses are being forced to ensure that their cash flow is optimised.

The Emergence of Open Payments

With a perfect storm of pressures facing both banks and their corporate customers, there is a need for alternative payments services that can help to alleviate challenges in the market and have a direct impact on both parties’ bottom lines.

The breakthrough is coming from a new breed of payment services developed using open development payment platforms (ODPPs). According to Gartner, ODPPs “provide banks with deeper payment application customisation, more applications to choose from and the ability to provide more flexible payment arrangements to developers and commercial customers.” In a nutshell, ODPPs offer banks and their corporate customers a platform from which they can develop bespoke payment applications that connect to global card schemes and payment networks and meet their individual needs.

Importantly, open payment platforms are designed to enable banks and corporate treasurers to overcome the three major challenges to the development of payment services that use global payment networks: the complexity in developing tailored payment solutions, the high initial costs and the significant time it takes to get these solutions live and operational.

To achieve the potential of open payment applications, banks and corporate treasurers are partnering with payments vendors that can manage the end-to-end process.

The Benefits of Open Payment Platforms: A Travel Example

As banks and businesses increasingly recognise the opportunity that open payments bring, there are more and more organisations that are rolling out innovative payment applications in a variety of industry sectors, including in travel.

There is a new breed of online travel agents that typically handles very high volumes of low- and mid-value payments to multiple worldwide suppliers on behalf of their customers. By using conventional purchasing or corporate cards from banks for many of these business-to-business (B2B) payments, travel agents were experiencing significant problems with fraud, complex and costly back-office reconciliation and a significant number of failed transactions. To overcome these challenges, some forward-looking travel companies have started to work with specialist providers to implement brand new payment applications that automate the purchasing process through one-time-use virtual card accounts.

The virtual accounts are loaded with funds in real-time and used by travel agents to book travel arrangements for their customers. The travel companies no longer need to use ‘old fashioned’ corporate credit cards with high limits to make these payments. The benefits include:

  • Greater control over purchases and less risk of fraudulent use by staff.
  • More successful transactions because payments are split across one-time virtual cards rather than a single card which gets blocked for over-frequent use.
  • An almost total elimination of back-office reconciliation problems.

And it all happens automatically because the travel agent systems communicate directly with application programming interfaces (APIs) to access the virtual account systems.

A New Era in Payments

Open payments platforms are increasingly enabling corporates to create payment applications for their specific needs. While these platforms are unlikely to displace the high volume systems such as automated clearing houses (ACHs) that are used for large batches of simple payments, they will become increasingly important for payments where the requirements are more complex and a degree of customisation is needed. The ability to combine card payments with ACH and SWIFT transfers and have a global reach is going to be a big attraction for corporates and they will turn to banks that have partnerships with one of the new order of ODPPs.

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