Keeping abreast of fast-paced change

Wim Raymaekers 

The payments industry is undergoing unprecedented change from the foundations up. Global infrastructure is being renewed to be fit for purpose for the digital age, as evidenced in this special report. And while some changes are regulatory driven, emerging technology, changing customer behaviour and new industry entrants are also encouraging a faster pace of change.

One example of infrastructural change is the international move to real-time, 24/7 domestic payments. Forty countries were live with faster payment schemes as of mid-2018, according to FIS’s Flavours of Fast report. Some are even working on version 2.0 of their real-time schemes. For example, the UK, which launched Faster Payments in 2008, is now revamping its architecture, scheme operator and access models.

Breaking borders

This global trend has already sparked discussions around how to make faster cross-border payments a reality. The industry is coming together in initiatives such as Swift gpi to overcome traditional challenges, such as foreign exchange conversions, cut-off times and real-time payment tracking. As Wim Raymaekers, global head of banking market at Swift, told The Banker in a recent video interview, “[Swift] did a trial in Asia in 2018, where payments from China, Singapore and Thailand were sent over gpi to Australia for clearing, and all of those payments were settled within 60 seconds. Now that’s pretty fast.”

In addition, emerging technology, such as application programming interfaces (APIs) and cloud, is supporting a payments services environment that is more open than it has ever been, and this is encouraging the development of new business models. Under regulations such as Europe’s Payment Services Directive 2 and the UK’s Open Banking, licensed third-party providers (TPPs) can gain access to account information; this approach is being explored in many other jurisdictions around the world.

According to Accenture’s Open Banking for Businesses Survey 2018, 85% of banks surveyed have already invested in open banking for commercial clients or plan to do so in 2019. Importantly, half of banks expect 5% to 10% of their revenue growth to come from open banking for commercial customers. However, the open banking opportunity comes with a need for improved security and standards.

One set of standards, ISO 20022, is coming to the fore and underpinning the infrastructure modernisation drive across the world. It has already been rolled out in several domestic real-time payments schemes and therefore lays the basis for international interoperability.

All of these changes in the payments space are also beginning to affect the cash management world. ISO 20022 migration, for example, will allow for much richer payment information and, therefore, greater visibility and improved reconciliation, leading to enhanced working capital management for corporates.

Opening up

By using open APIs, financial institutions will be better able to integrate cash management into corporate clients’ enterprise resource planning and treasury management systems, creating greater transparency and increasing straight-through processing. In addition, APIs can open banks up to a whole ecosystem of partners, such as fintechs and other TPPs.

On top of this, faster payments – operating 24/7, with a real-time settlement infrastructure and without cut-off times as well as real-time information flows – will fundamentally change the way banks manage their intraday liquidity buffers.

And while it may seem difficult for financial institutions to stay abreast of all of the changes coming down the pipeline, it is a good time to make the resources available, as cash management continues to grow its revenues among the world’s largest transaction banks. According to Coalition’s Transaction Banking Index FY18, revenues rose by 10% year on year in 2018. “Cash management revenues reached their highest levels in the past nine years, reflecting continued growth in liquidity management as well as higher transaction volumes,” states the report.

In addition, improved operating margins reflected revenue growth. Eric Li, research director at Coalition, attributes this to integrated coverage models, better know your customer procedures and disciplined risk profiling.

And growth looks set to continue, according to Mr Li. “Despite slowing down slightly in the first few months of 2019, the continued growth in transactional volume globally and higher net income in a few regions are contributing to the overall growth of cash management in 2019 so far,” he says.

This can only be good news for the big transaction players to obtain the necessary funds to invest in the future of payments and cash management.