Episode 5
An Evolution and Revolution in Digital Payments?
Although every market and region is at a different level of maturity in the digitisation of payments, digital payment methods and platforms are emerging globally, with an increasing focus on real-time settlement, rich data and an excellent customer experience. In this rapidly changing context, treasurers need to understand both the evolving needs of the business, and changing wider market opportunities, to help realise the company’s digital strategy.
For the fifth episode of the Journeys to Treasury podcast, Helen Sanders, speaks with (below, left to right):
Coralie van Zyl, Head of Product Development, Payments and Receivables, BNP Paribas;
Christian Mnich, Head of Solution Management, Treasury and Working Capital, SAP
Karsten Kohl, Principal, Financial & Treasury Management, PwC; and
Massimo Battistella, EACT.
What are digital payments?
In some respects, digital payments are simply the next step in the evolution of payments. We have seen a gradual shift from cash and paper-based methods towards electronic payments, such as ACH payments, over the past two decades. However, with the exception of cards, which are not prevalent in every market, it has mainly been businesses that have benefitted from these electronic payment opportunities. As a result, while there are still multiple innovations taking place in business-to-business (B2B) digital payments, whether improving the quality and richness of information, or accelerating payments, it is in the consumer space where the digital payments revolution is really taking place, inspired by the growth of wallet-based and digital payment methods to support eCommerce and online marketplaces.
To support this transformational shift in the way that people and businesses buy and sell, treasurers are tasked to manage the proliferation of customer payment methods without compromising process efficiency. Furthermore, ensuring a positive and cohesive experience, irrespective of the customer’s choice of payment method, is essential to creating competitive advantage and maintaining customer loyalty. As new direct-to-consumer (D2C) business models continue to flourish, including proprietary and third-party marketplaces, rentals and subscriptions, the number of incoming payments that a company needs to process, reconcile and post to customer accounts continues to increase. Treasurers therefore need to review any points of friction, delay or manual processing across the collection, bank connectivity, reconciliation and account posting process to avoid any interruption to clients seeking an instant, seamless experience.
The digital payment challenge
Given the acceleration of digital business models during the pandemic, it is no surprise that digital payments are a greater priority for treasurers than ever. Karsten Kohl, Principal, Financial & Treasury Management, PwC comments,
“According to PwC’s most recent treasury benchmarking survey, we found that more than 20% of clients are actively working on integrating digital payment methods into their systems, most notably in the B2C space. For outgoing payments, however, clients are still relying on traditional electronic payments, without exploring newer opportunities, such as instant payments, in part due to constraints on the payment value; however, we expect this to become a greater focus as the payment limit increases.”
Massimo Battistella, EACT continues,
Instant payments are likely to become the new normal in future, both for B2B payments, but also as an alternative to cards in the B2C and C2B space. There remain some obstacles today, not least that not all banks are yet reachable within the SCT Instant scheme. There is also a need for better standardisation around the information linked to each payment.
Integrating new payment methods brings a variety of challenges too, particularly for companies that operate in more than one jurisdiction, and/ or buy and sell cross border. Christian Mnich, Head of Solution Management, Treasury and Working Capital, SAP explains
In many cases, companies have to work with multiple payment services providers (PSPs) which do not necessarily share the same standards, unlike the payment card industry (PCI) standards we see in the card space. This creates particular difficulties when trying to create consistent, end-to-end processes across all payment methods, including in the way that customer data is handled.
Creating a digital payment experience
While there remain challenges to leveraging the full benefits of digital payments, there are a variety of ways to help overcome these challenges. For example, a growing number of companies are considering APIs to ease the connectivity between systems, to help create more coherent processes and data flows. In addition, dedicated solution providers provide a single source of connectivity to/ from multiple payment service providers. Coralie van Zyl, Head of Product Development, Payments and Receivables, BNP Paribas notes,
“While the needs and priorities will differ for each company, most of the pieces of the puzzle to creating a fully digital payment experience already exist. The priority is therefore to understand the use cases, and current and future business models. With APIs, digital payments and automated processes, the entire end-to-end process can be instant, from a customer buying an insurance policy, to reconciling the payment and issuing the policy. Achieving this level of digitisation and automation creates an excellent experience for the customer, but also efficient and transparent processes internally.”
Although treasurers do not drive the company’s digital business strategy, they have a fundamental role in enabling this strategy, from a technology and process standpoint, and their relationship with banks and vendors. Maintaining regular engagement across procurement, sales, finance, IT and legal teams is essential to help understand and realise strategic plans from end-to-end, many of which have been accelerated through the COVID-19 pandemic.
Future trends in digital payments
The trend towards real-time and digital payments is likely to continue strongly, with issues around cost, ease of integration, and the quality of the customer experience influencing which payment methods gain the most traction. In Europe, the creation of pan-European payment acceptance schemes will help improve digitisation and standardisation, which will in turn drive greater adoption of instant payments. However, for treasurers, it is not just the decision to adopt different payment methods that matters, but how these are connected into the wider value chain – not just the payment and collection process, but the entire order to cash or purchase to pay cycle. This will require better process integration and automation to share data consistently and in real-time from end to end. The development of digital currencies, particularly central bank digital currencies and possibly also cryptocurrencies, will also create new dynamics in the payments space. Treasurers therefore need to stay informed and up to date, to actively involve themselves in both internal discussions on future strategy, and wider industry conversations on future industry trends.
In the next episode…
Treasurers’ Strategic D2C Role