With the launch and global roll-out of Apple Pay – most recently in China last month – and other market entrants such as Google’s Android Pay, the new era of contactless payments has come of age. However, with a number of rival contactless payments technologies jostling for market share, there will evidently be losers as well as winners.
The introduction of contactless payment technology from major players in the market has been yet another game changer in the payments industry. The transformation caused by mobile, near field communication (NFC)-based payments, blockchain technology and sound-based payments is continuing to influence the structures, customer behaviour and business models of the industry.
The past few years has seen significant investments in the digitisation of business-to-consumer (B2C) payments; and we are now witnessing the corporate customer demanding the same level of experience in business-to-business (B2B) payments as well. While financial technology (fintech) advancement in the B2B arena is still in comparative infancy, innovation in this sector will be driven largely by chief financial officers (CFOs) and treasurers, who, accustomed to the prevalence of technology in their personal lives, now expect the same capabilities and level of convenience for their corporate cash management operations.
While treasurers have traditionally been shy in adopting newer technologies – typically settling for predominantly Excel-based reconciliation and workflows – wider responsibilities and fewer resources have driven them to increasingly look into straight-through processes (STPs), increased visibility of cash positions and one-stop bank-neutral portals covering all these functionalities.
These changing customer demands have led to higher expectations from technology; be it real-time payments, flexible analytics systems, multiple access channels or other developments.
India’s payments platform
In India, the National Payments Corporation of India (NPCI) – an umbrella organisation for all domestic retail payment systems, set up under the guidance of the Reserve Bank of India (RBI) – has introduced a 24/7 all-year-round payments platform, predominantly to facilitate peer-to-peer (P2P) and low-value transactions.
Originally launched in November 2010, recent growth has been rapid. In less than two years, the volume of payments transacted through the Immediate Payment Service (IMPS) has grown exponentially with NPCI’s IMPS network handling over 80,000,000,000 rupees (INR) (US$1.2bn) worth of transactions per day.
IMPS is no longer restricted to retail payments, with an increasing number of treasurers exploring the service as a mechanism to pay agent commissions, incentives to sales staff or to initiate customer refunds.
Another key innovation expected to revolutionise the payments industry in India is the Unified Payments Interface (UPI), a next-generation payments system, which will feature a one-click authentication process across mobile phones – making payments as simple as sending a text message. UPI will leverage the IMPS infrastructure, but make the payment process more seamless and with fewer details related to the receiver’s bank account.
Apart from innovations in the retail banking space, there have also been significant investments in technology from banks and fintechs alike in areas such as cross-border payments and trade finance, with sophisticated supplier finance programmes. Other notable technology advancements could include virtual accounts to facilitate ease of reconciliation and greater visibility of cash; analytical tools to identity potential fraudulent transactions; and liquidity management solutions providing robust forecasting techniques.
The past few decades have witnessed technology being a game changer in various industries – with the transition from Walkman to iPod; typewriters to computers and tablets; and traditional cameras to digital ones, to give just a few examples. Today, what is expected of banks from corporate treasurers is not just new delivery channels or interfaces, but technology-enabled business models to help treasurers achieve the end-state of intuitive, accessible and flexible corporate banking solutions.
Agent of change
India is on the cusp of a digital payments revolution and it is clear that the impetus for this change has been the issuance of a12-digit individual identification number to each Indian resident by the Unique Identification Authority of India (UIDAI) for what are essentially national identity cards that carry the Aadhaar brand name and logo.
These cards form the know-your-customer (KYC) backbone for more than 200m bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme, which forms part of prime minister Narendra Modi’s programme for financial inclusion and direct subsidy transfers. With nearly one billion Aadhar cards in the country today, India’s central bank and the government hope to reduce the amount of cash floating in the system. This is estimated to still be about 18% of the country’s gross domestic product (GDP), making India one of the most printed currency-dependent countries in the world.
Given the increasing market penetration of smartphones and the growing popularity of wallets/virtual prepaid instruments in the country, RBI granted new licences in August 2015 for certain companies to act as payment banks – a paradigm shift from how banking has traditionally operated in the country – with the objective of bringing a larger percentage of the population within the banking ecosystem.
The Payment Bank licensees – which included telecommunication companies, fintech start-ups, non-bank financial institutions (NBFIs) and India’s postal department – are likely to leverage technology and to partner with banks in order to facilitate their access to the market. Corporate treasurers are hopeful that this partnership between traditional commercial banks and payment banks will reduce the incidence of cash payouts and bring more efficiency to ‘last mile’ payments.
While we have not yet seen the new business models rolled out, there is a surge of interest from fintech companies to partner with payment banks to provide technology-enabled solutions. From money transfers and payments using ultrasonic soundwaves to biometric-led selfie pay technology and other wearable products, technology is changing the payments industry in an unprecedented way.
In this dynamic industry, the onus is now on the banks to take a transformational approach, develop new operating models, implement STP systems to simplify the payments ecosystem, and deliver fit-for-purpose solutions to corporate treasurers.
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