The introduction of the single euro payments area (SEPA) between 2008 and 2014 was a big deal. It marked a profound industry change, designed to simplify payment transfers, making electronic payments in the euro area just as easy as domestic payments. It’s not often that a change this significant – and widespread – comes along in an industry as complex and interconnected as payments. When it does we must ensure that the underlying systems are set up to make the most of it, else we risk undermining the full potential of the overhaul.
The Faster Payments initiative, adopted in a number of countries since its UK launch in May 2008, stands out as another particularly significant change, shrinking the time taken for money to move between one account and another. However, with speed comes data. Lots of data. As payments become increasingly digital, many businesses are realising the need for a behind-the-scenes process overhaul, to manage the information deluge.
This issue is particularly notable for large corporations, due to the size and volume of their invoice book. Transaction banking is now in the spotlight, as financial institutions seek to demonstrate and maximise ‘sticky’ client relationships, in line with regulatory requirements. Yet despite this focus, many banks are still failing their corporate customers with an outdated accounts receivables process.
Although finance operations departments are generally becoming more automated, matching and reconciling corporate invoices remains an outdated display of manual effort – quite literally ‘posting and passing’. Armies of clerks must sift through piles of printed emails, Excel sheets and PDF documents in a bid to piece together not only who each payment is to and from, but which invoice each payment refers to.
SEPA introduced new standards, procedures, and infrastructure, but failed to take the opportunity to reassess and streamline the then 18-character payment reference. Instead, it was extended to 140 characters – as long as a tweet. With humans sifting through and trying to visually match this paucity of information, it’s little wonder that the process is prone to error. This was a missed opportunity to reassess the whole lifecycle of the transaction; looking at the bank rather than the corporate customer use case.
This brings a number of problems for the banks. Firstly, and perhaps most obviously, the impact on customer experience. The process is slow and frustrating for corporate finance teams and can create bottlenecks, preventing an accurate view of their cash position. This risk is greatest for businesses that rely heavily on cyclical cash flows, such as those in the insurance and financial services sectors. If the recipient and specific invoice cannot be pinpointed in the accounts receivable (AR) process, regulation often decrees that the money is sent back; creating a significant knock-on impact on the corporate’s assets and ability to absorb risk.
We haven’t been able to go too far in recent years without stumbling across a Basel II headline. Demonstrating “sticky relationships” with the bank’s business customers is a key part of reducing Basel II’s capital adequacy requirements. The relationship between a business and a bank can be far more than just providing a bank account.
Banks have unique insight into the data underpinning the cash management issues their business customers face. They can, and must, use this insight to develop new cutting edge products, and strengthen existing relationships. Innovative bank-led AR innovation can significantly drive out inefficiencies and allow businesses to fully take advantage of the new digital payments offerings.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?