Perhaps there has never been a more interesting time for payments. Just as technology is bringing contactless payment capabilities to consumers (the UK’s first mobile phone payments service was recently launched), corporate treasuries also have more payment options than ever before. SWIFT now offers easier corporate access, while payment services such as PayPal provide more online choice for companies. This year the European Parliament is due to set an end-date for domestic payment instruments, ushering in the switch to the single euro payments area (SEPA) Credit Transfer (SCT) and Direct Debit (SDD) for corporates, which will bring further change to the European payments market.
With so much going on, it’s no wonder that there was increased interest in the Payments Survey 2010, with 336 corporate respondents. The majority – 44% – were western European (28% were North American and 16% were from Asia-Pacific). Fifty percent of the respondents have revenue greater than US$1bn, with 20% turning over more than US$10bn. The most meaningful conclusions from the survey can therefore be drawn in relation to the larger corporates and those based in western Europe.
There were some surprising results too, with 30% of companies having already implemented the SEPA payment products and many respondents questioning whether SEPA would affect them at all (Answer: If you operate in Europe, yes it will). When it came to payment methods, the survey found corporates still favour the wire transfer over any other payment instrument, although in North America the corporate cheque is still used by an equal percentage of companies (80%).
Newer payment methods have yet to establish themselves firmly in the market, although the flexibility and security of purchase cards (p-cards) has won over corporates and many indicated increased interest in online payments in future. This article considers these findings and takes an in-depth look at the Payments Survey 2010 results.
Payment Methods: P-cards Offer Security and Flexibility to Corporates
Perhaps one of the most notable trends is that companies plan to increase their use of p-cards over the next three years. As is shown in Figure 1 below, while 35% of all respondents worldwide currently use this payment method, 51% of them are planning to take it up in the near future. In Europe a lower percentage of companies use p-cards (25%) but there is nevertheless an intention to start using them in future (31% of European companies plan to pay by p-card in the next three years). P-cards are widely used in North America (by 52% of the respondents) and 61% intend to use them for payments in future.
The increasing use of p-cards is no surprise to Elisabeth Bakker, head of marketing payments and cash management at ING, who has already seen the bank’s corporate clients seeking more control over their spending. The fact that p-cards can be personalised and controlled is a huge advantage, as Bakker says: “Having a granular approach to purchase control is important for our customers. P-cards provide more transparency, less risk and more flexibility, which is what corporates need right now.”
Source: gtnews Payments Survey 2010
Corporates Gaining Confidence in Online Payments
The only payment method for which western European companies have more appetite than their US and Canadian counterparts is online payments. Twenty-two percent of western European companies use online payment methods, while in North America this figure is 17%.
Western European companies show a modest move towards online payment methods in future, with 22% currently using them and 25% planning to do so in the next three years. According to Bakker, the number of companies using online payment methods is set to grow: “Since internet payments, for example via iDEAL, are becoming completely normal for consumers, this means the corporate market, particularly in the retail sector, is also taking up online payments. One of the factors holding it back is that there is no European standard yet. However, online payment instruments such as iDEAL in the Netherlands have been very successful and the European Commission [EC] is looking into expanding e-payments to the rest of Europe.”
Of the companies that have used an online payment method, such as PayPal or iDEAL, 30% of them indicated that they were either quite or very likely to expand their use of online payment services in future. Thirty-six percent said that increasing their online payments was possible, while 34% said they would not, or would be unlikely to, expand use of online payments.
Of the companies that indicated that they have not yet used online payment methods, 62% maintain that they will not be taking them up in future, or that this is unlikely. The other 38% are open to the possibility.
Wire Transfer Still Most Widely-used, While Cheque Use Continues to Decline
The survey found that the most widely-used payment method overall is still the wire transfer, used by 80% of respondents worldwide. Companies in western Europe and North America are in line with this trend, while 80% of companies in North America also pay with corporate cheques. When it comes to bigger companies, 85% with revenue greater than US$10bn plan to use wire transfers over the next three years (compared to the 90% who currently do so).
While the cheque’s slow decline would surprise no one, it is nonetheless confirmed by the survey results, which show that just 66% of North American companies expect to use it in future (compared to the 80% who currently do so). While 40% of companies overall currently pay by corporate cheque, just 28% of them intend to continue using cheques over the next three years.
SWIFT: Winning Over the Corporates
The survey found that, in 2010, 48% of companies surveyed use SWIFT, as shown by Figure 2 below. There is a greater take-up of SWIFT in Asia-Pacific, with 63% of companies making or receiving payments through SWIFT, while 45% of western European companies and 44% of North American companies use it.
Source: gtnews Payments Survey 2010
ING’s Bakker says: “The high number of users surprised us – SWIFT is becoming more popular, making it easier for corporates to access it through initiatives, such as Alliance Lite and the SCORE [Standardised Corporate Environment]. From our own clients, we see that corporate access to SWIFT is still limited, but it is rapidly growing.”
One reason for a slow SWIFT take-up is that companies need to migrate from their current systems, and this can be expensive. Sander Cok, ING’s senior strategy consultant, explains: “A SWIFT migration project needs to fit into a company’s investment cycle and, of course, budgets have been under huge pressure over the past two-and-a-half years. However, in future we will see further integration of the physical supply chain and the financial supply chain. SWIFT already plays a role here with its Trade Services Utility and is eager to expand this.”
The growth in the use of SWIFT services was affirmed by the survey, which shows that 80% of companies who do not currently use SWIFT services will consider taking them up in future. Cok adds: “There is a clear trend towards bank independence and companies who prefer open, multi-bank standards such as SWIFT. Nevertheless, the uptake overall is limited and we will continue to offer our host-to-host FTP solutions as long as our clients ask for it.”
The survey also shows that larger corporates are more likely to use SWIFT, which is to be expected. Sixty-three percent of companies with revenue greater than US$10bn use SWIFT services, in contrast with 44% of companies with revenue less than US$10m.
Ten percent of companies surveyed said they do not use SWIFT and would not consider doing so in future either.
SEPA: It’s Time to Get Ready
The 2010 survey found that take-up of SEPA payment products such as SCT and SDD is progressing, with 30% having implemented one of these SEPA payment options. The main reasons for implementing a SEPA product are shown in Figure 3 below, and these include:
- Cost savings (59%).
- The inevitability of SEPA transition at some point (52%).
- Centralisation of payments and formats (46%).
Just 12% said that their bank encouraged and helped them with the implementation. Bakker notes: “We think the banks’ role in advising and helping clients in their SEPA implementation is very important. Our aim is not only to pass on reliable and impartial information to our clients but also to make the transition as easy as possible.”
Source: gtnews Payments Survey 2010
In western Europe, where take-up of SEPA products is expected to be higher, 40% of companies have implemented SEPA payment products. Bakker admits that she has noticed a somewhat lower rate of SEPA take-up among the bank’s clients. “Of course it varies and smaller, domestic corporates are far less likely to have implemented a SEPA solution. It is more beneficial for international companies operating in Europe.” Thirty-four percent of western European companies intend to invest in SEPA within one year and 41% claim they will do so at some point.
Cok adds: “I think many companies are waiting for news of the official SEPA deadline and an end-date for domestic payment systems, which will be an important milestone.” The European Parliament is due to discuss this issue before the summer of 2011 and the market anticipates that the deadline for SEPA implementation will be 31 December 2012 for SCTs and 31 December 2013 for SDDs.
So should companies wait for more news, or should they start to implement SEPA payment tools immediately? ING’s Bakker advises companies to start investigating their SEPA options right away. She says: “Start a project to find out how much SEPA implementation will cost you and what the potential benefits are.”
Of the 25% of the European companies surveyed that do not intend to invest in SEPA at all, the majority believe SEPA is not applicable to them, as is shown in Figure 4 below. Bakker comments: “We can’t imagine why they would think SEPA does not apply to them, as it will affect all companies operating in Europe. I think awareness is still low, even among some high-end corporates. Some still think it’s just a matter for banks, or a political issue. I expect this to change as soon as an official deadline is approved by the European Parliament.”
Source: gtnews Payments Survey 2010
Seventy-six percent of companies polled (and 91% of European companies) think that their banks are the preferred conduit for information on the impact of SEPA and what preparation is needed. Twenty-one percent thought this role should fall to an enterprise resource planning (ERP) system supplier, while 17% said a consultancy firm was best placed to provide this information. Banks were favoured over both ERP suppliers and consultancies for providing services that facilitate the transition, such as IBAN-BIC conversion.
Banking Relationships, Systems and Payments Initiated Outside Central Treasury
The Payments Survey 2010 also asked companies about their relationships with their payment banks, the systems they use to access payments data and the way payments are initiated in the company. The companies surveyed had, on average, 8.1 banking relationships for their payments, although the average is slightly higher in Europe (9.4), perhaps reflecting the larger number of countries in which European companies operate.
ING’s Bakker says: “We are surprised the number is so high. Usually we see clients who retain between four and six banks for their payments per region. I think the number of banks will decrease though, as a consequence of SEPA.” In fact, 47% of respondents had between one and four banking relationships, as shown in Figure 5 below. Just 36% of western European respondents had four or fewer payment banks.
With regards banking relationships, ING’s Cok also outlines two eventualities: “We expect SEPA to consolidate the market on bank relationships and payment infrastructure, while at the same time companies will hesitate to completely rationalise their relationship banks because, following the credit crisis, they prefer to have credit facilities with multiple banks. The balance of power has changed since 2008. While there are benefits to rationalising your payment banking relationships, it can be difficult to find a bank with capabilities in all countries.”
Source: gtnews Payments Survey 2010
The survey also asked how many systems treasury uses to access and process payments data. Overall, the average number of systems was 3.6, with 51% of the respondents using one or two systems and 35% using between three and six systems. The use of SWIFT probably helps companies to remain bank-independent while having a low number of relationship banks.
The survey also found that in two-thirds of companies payments can be initiated by units outside central treasury, while 33% of central treasuries have sole control over payments initiation. Companies that allow other business units to initiate payments have on average 9.5 units outside central treasury initiating payments. Again, in Europe a greater number of business units – 12 – are able to initiate payments, perhaps reflecting the geographical diversity and number of national payment systems in Europe.
Cok comments: “Clients increasingly want to centralise their treasury structure to gain efficiency, visibility and control – and payments is a key area that can be run more effectively from a centralised position. However, centralisation is a complex process and the group treasurer has to get support from local business units.”
Overall, the Payments Survey 2010 found that market developments – from SEPA reforms to new technologies and easier SWIFT connectivity for corporates – are channelling companies towards more efficient payments, greater control and transparency. While the main payment method is still the wire transfer, old methods such as the corporate cheque are in decline and instruments that offer high levels of control and personalisation are becoming increasingly popular. P-cards are now used by more than one-third of corporates and more than half of the survey’s respondents intend to use them in future.
Take-up of SWIFT was also highlighted by the survey, with 80% of the companies who don’t currently use SWIFT planning to connect through it in future. This reflects the need corporates have to access multi-bank platforms, as well as the need to achieve efficiencies through co-ordination of the physical supply chain and payments messaging.
SEPA payment products will become obligatory in Europe in the next two to three years, and the survey shows that corporates are preparing for this, with 30% of companies having implemented SCT or SDD instruments (in western Europe implementation rates are higher, at 40% of companies). Companies want their banks to play a key role in supplying SEPA information to them, but the survey also showed that there is much work to do before the SEPA deadline. With 25% of respondents not intending to invest in SEPA products at all, it seems that the SEPA message has not reached all companies yet.
As the SEPA deadline draws nearer, there will be other changes for the payments market as well. SEPA will have an effect on corporate banking relationships, which are likely to be rationalised. At present, the number of relationship banks for payments is high – an average of 9.4 banks per corporate in Europe. This is likely to decrease as SEPA comes in and as the market recovers from the credit crisis.
Interest and use of online payments is growing, according to the survey results, with one-quarter of western European respondents intending to pay online in the next three years. This figure will increase if and when the EC rolls out a standard format for e-payments.
The hope is that the payments market, particularly in Europe, is about to become more standardised as corporates begin to use SEPA payment tools and gain access to multi-bank platforms such as SWIFT. Online payments and p-cards will provide more convenience and control. A set end date for SEPA adoption will galvanise the market and if a standard for e-payments can also be reached, the future will be bright indeed.
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