Today, payments are being carried out quicker than ever before, and are also far easier for treasurers to track and trace. Transactions are also becoming more seamless and invisible from a consumer perspective, thanks to the inventiveness of banks, fintechs, and payment service providers. Now is the time for treasurers to explore where and how they can further digitalise their payment flows to take full advantage of these developments.
Payments are critical to corporates, pumping the lifeblood of cash in and out of the organisation. For treasurers, payments are also one of the most exciting aspects of the role – not least because the space is full of innovation and business opportunity.
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Indeed, progress has even been made towards treating the longstanding headaches around international payment flows in recent years. Wim Grosemans, Head of Product Management, Payments and Receivables, Cash Management, BNP Paribas, explains: “One of the most challenging pain points here is the disparity in timing, visibility, and costs experienced with cross-border payments compared with domestic transactions.”
The major issue, he notes, is that: “Cross-border payments are a chain reaction. There isn’t one way to achieve a cross- border payment. Corporates and banks often decrease the problem to a sum of smaller problems and solve these individually. However, this creates single points of failure, which is where things can start to go wrong.”
Driving speed and visibility
Despite the challenges, several breakthroughs have been made in the past few years. For example, banks have found ways to create more STP internally and, in turn, between each other within the SWIFT network. “Banks have done some great work to speak to each other and have a synchronised, end-to-end view of every payment,” enthuses Grosemans. “Creating transparency makes payments go through faster. Most payments on the SWIFT network are now processed within half an hour from the initiating bank to the beneficiary.”
Increased speed in cross-border transactions has also resulted from greater visibility into international payments thanks to the ability to track and trace them. SWIFT gpi is a primary example of a payments tracking service, something that BNP Paribas has integrated across all its relevant e-banking channels as a self-service tool that clients can use free of charge. “For more and more companies, gpi is becoming the de facto standard – enabling them to verify where things may have gone wrong in case of a complaint from a counterparty,” notes Grosemans.
If a corporate chooses to have its own gpi access, via SWIFT g4c, rather than leverage a bank’s tool, treasurers can not only track outgoing payments but also see anticipated incoming payments that are on the network but have not yet reached their accounts. BNP Paribas has also built its own inbound payments tracking tool, called BENEtracker, that leverages gpi technology.
Inspired by and co-created with L’Oréal, BENEtracker provides their suppliers with real-time visibility on the progress and status of each of their receipts until their account is credited. It is a solution without any technical constraints for the beneficiary and it guarantees strong protection of sensitive data. “This solution is proving popular with our corporate clients, particularly in the context of a payments- on-behalf-of [POBO] set-up, where they send a payment confirmation to their counterparty that includes a track-and- trace link by default,” adds Grosemans.
These track and trace digital innovations offer huge potential cash management benefits, as well as the opportunity to refine existing processes and update behaviours. “It has taken 40 years for the industry to invent track and trace for cross-border payments, so it may take some time for people to stop the old habit of asking for a copy of a SWIFT message, but that’s what needs to happen,” reflects Grosemans. “And now the ISO 20022 migration is coming online, some customers are starting to ask for copies of the XML messages instead. So now is a good time to explain that this is not the nirvana – and there are much smarter ways to approach this.”
The quest for standardisation
On the topic of ISO 20022, another vital challenge today is standardisation around how payments are consumed and reported. There are very few bodies across the world that can draw up those types of standards.
Bruno Mellado, Head of Payments and Receivables, BNP Paribas, reflects: “Standards are arguably the biggest hurdle facing the payments industry today. When some countries or communities decide on a standard in isolation, or without global industry input, it’s often only beneficial at a local level or to a certain extent, rather than being revolutionary. With PSD2, for example, there were no standards on connectivity, so the regulation did not attain its full potential.”
Indeed, APIs – a key connectivity tool – are one area ripe for standardisation. While APIs have existed for a long time, the buzz around this technology has increased in recent years. With banks pushing out proprietary APIs to corporates, the lack of standardisation has created headaches for treasurers managing connectivity to multiple banking partners.
“At BNP Paribas, we are working with SWIFT to develop further standardisation of APIs specifically for corporates, for use cases such as e-commerce marketplaces,” highlights Mellado. “APIs are one of the few areas where we could see standardisation broadly adopted among financial institutions, and perhaps non-financial institutions. This can have benefits in terms of cash reporting, letting corporates know in real-time what liquidity they have available, for example.”
Moreover, the explosion in popularity of APIs has come at the exact same moment as the roll-out of ISO 20022. For many corporates, this has created the perfect opportunity to revise their corporate-to-bank connectivity, and consider how they could improve payments workflows and the data leveraged from them.
We are working with SWIFT to develop further standardisation of APIs specifically for corporates, for use cases such as e-commerce marketplaces.
Grosemans reflects: “With ISO 20022 we now have the format, the infrastructure, and the capability to make fast, seamless payments – even across borders. But plugging the payments flows into treasury systems like banking portals and TMSs has not yet become fully invisible. The challenge for corporates, together with their banks and tech vendors, is to utilise these new rails in the most seamless and efficient possible way, which is where standardisation comes in.”
Box 1
Partners and Clients: The Evolving Relationship Between Banks and PSPs
In the world of e-commerce, payment service providers (PSPs) are king. Indeed, over the past several years PSPs have become a significant part of today’s global payments ecosystem, offering various services to corporates and consumers in areas that banks once considered their own domain. But the relationship between PSPs and banks is not purely competitive. One reason for this is regulation – in Europe, PSD2 contains an article stating that banks must provide PSPs with access to payment services.
Another element bringing banks and PSPs together is the fact that PSPs need banks to protect their clients’ funds and access the clients’ systems, for example. This is a relationship that can benefit banks.
Olivier Praneuf, Head of PSP Business Development, BNP Paribas, comments: “PSPs process a significant number of transactions and require cash management services across Europe – and that is our bread and butter. Another important motivation for us to develop our PSP client franchise was to accelerate our level of innovation in payments through collaborative solutions.”
This is particularly interesting since PSPs service some of the biggest trends in the corporate payments space, one of which is the demand for financial services from marketplaces. This covers the opportunity to purchase goods or services online and a way to finance that purchase through embedded finance.
“The recent cost-of-living crisis has made it even more important for both businesses and individuals to have those solutions available to them to help finance the purchase at the moment of checkout,” notes Praneuf. “PSPs have been very active with this on the consumer side and now see room to develop this in the B2B space – which will be a key area of joint innovation going forward.”
Working together also enables banks and PSPs to deliver innovation by combining the best qualities of both sides to create new solutions for clients. Branching services, also known as indirect participant solutions, where a sponsor bank provides a payment institution access to the clearing system, is one example of this. This is typically seen with SEPA payments.
“That is a space where we’ve been very active because many of our PSP customers have business models that require them to provide their clients with accounts with actual IBANs and account holder status,” affirms Praneuf. “This is the case for PSPs working on embedded finance and banking-as-a- service, for example.”
The perfect way to do that is through branching services because the payment institution has its own BIC and can then allocate IBANs to its clients. The payment institution also gains control and visibility of its clients payments and becomes more independent from its banking partners as a result.
Driving change
Another area where the bank and PSP relationship is helping to drive cutting-edge services is API connectivity. “PSPs are all about API connectivity,” acknowledges Praneuf. “That’s how they deliver services to their clients. PSPs therefore have been demanding a similar channel to communicate with their banks. This has helped drive API innovation among banks –thanks to the experience and expectations of PSPs.”
Despite the exciting proposition of the PSP ecosystem, there are challenges unique to the sector. For example, while the diversity of PSPs is vital for innovation, the drawback is that there are now many proprietary solutions that lack the standardisation for which the banking world often strives.
“There is a real diversity of solutions from PSPs, but that means they are very complex to manage,” underlines Praneuf. “We are now seeing elements like orchestration and consolidation from PSPs, adding additional layers to the existing PSP landscape. This is something to watch very carefully as it will undoubtedly continue to shape payments innovation – which will impact everyone from consumers to businesses, including corporate treasury departments.”
Integrating instant payments into treasury
As Grosemans highlighted, with all parties in financial services starting to speak the same language with ISO 20022, the possibility to jump between the infrastructures and create faster and ultimately instant payments becomes more real. But do treasurers necessarily want payments to be instant?
Mellado recalls a recent conversation while visiting a large pharma client. “One of the client’s team mentioned they hadn’t thought about how to use instant payments in treasury – but understood that they could be using them to pay all the company’s salaries without losing one value day.”
But if the treasurer already knows the information the previous day, why would they elevate the risk to wait a day and make an instant payment? Is it worth the extra 24 hours of holding on to liquidity, and potentially investing it, but possibly risking missed salary payments if something goes wrong? “Treasurers need to think about whether instant payments make sense for how they operate within their organisation, and what their risk tolerance, or required certainty level, is around payments,” Mellado adds.
Indeed, from a treasury point of view, it could be argued that the use cases for instant payments are currently limited. Yet, from a corporate business point of view, real-time payments can close the loop on a business process and finalise a debt payment or a collection without needing to include or disrupt other services and workflows in the corporation. Moreover, the use cases for instant payments are not only limited to B2C businesses – but are also pertinent for B2B sectors.
With this in mind, Grosemans cautions: “Whether you’re a treasurer in a B2C or B2B business, real-time payments are here to stay. So, it’s a question of ensuring that all your banking relationships can manage the volumes, and all the 24/7/365 requirements for reconciliation and more.”
Aside from the real-time nature of instant payments, the around-the-clock availability of these payments could potentially be even more valuable for the treasurer. Mellado explains: “Treasurers with reduced liquidity needs and greater precision on how much liquidity they need available at any given time may require balancing their accounts during the weekend or overnight. The ‘always-on’ nature of instant payments therefore presents very interesting innovation opportunities – both for banks and corporates together, but also within treasury itself. This is a great opportunity to rewire and replumb legacy treasury processes.”
Seizing the initiative
Another opportunity to drive innovation in payments is the European Payments Initiative (EPI). This multi-country
European initiative is focused on creating a new digital wallet accessible to all consumers in the relative markets, covering several use cases. BNP Paribas were among the 16 founding EPI shareholders.
Grosemans elaborates: “The first use case is up for deployment early next year, starting with the pilot phase in providing peer-to-peer [P2P] payments. All consumers with access to EPI can send money to each other in a P2P use case, leveraging the SEPA instant payments infrastructure.”
Later in 2024, he says, a handful of additional use cases will be deployed with the aim of attracting greater volume and making EPI even more relevant for online payments. One of these is the capability to pay for e-commerce purchases. “On the checkout page, there will be the capability to make a payment through the EPI wallet, settled by an instant payment,” continues Grosemans. “Additionally, point-of- sale [POS] terminals will be equipped with QR codes that consumers can scan and essentially validate an instant payment to be settled from their account towards the acquirer, which will then send the money to the merchant.”
There’s an important wave of opportunities coming that we can work together on to create common value.
The POS QR code use case is a substantial evolution that is replacing specific existing local rails directly due to certain acquisitions made by EPI. Mellado adds: “EPI will eventually become a platform for Europe to pay and receive across several markets, making the most out of the existing schemes. That’s the critical thing – there are payment methods that work very well already, such as iDEAL in the Netherlands and Payconiq in Belgium – so it’s all about taking advantage of what works well. That will be the success factor for EPI.”
For treasurers in the B2C segment, the name of the game is to offer the most efficient, low-cost, and accessible payment method to customers buying their goods and services. “Today, e-commerce platforms and marketplaces include various new payment methods, whether it’s Chinese payment wallets or American or European payment methods,” states Mellado. “EPI is going to be one more method, but it is one that will have many existing users and potential new users, as well as the capability to improve the quality of the payment experience for all involved.”
The rise of request-to-pay
Elsewhere, just as EPI is a vital evolution to bring new ways for consumers to pay, SEPA request-to-pay (RtP) and similar schemes in other geographies are bringing new levels of innovation – in this instance, bridging the gap and linking an invoice to a payment for the first time.
Grosemans elaborates: “We see a great deal of regulation around digital payments, especially in Europe where
e-invoicing is becoming mandatory. Sending a digital invoice, along with a request-to-pay, to a counterparty gives corporates better control about when, how, and with which reference they will be paid.”
Adding financing options to that RtP workflow could also be exciting. Indeed, Mellado believes there is much potential for RtP schemes, particularly with the SEPA version, but ubiquity remains the Achilles heel that must be addressed. Fortunately, a growing group of European banks, including BNP Paribas, are working together to create a joint proof-of-concept with the aim of pushing the solution to a wider audience.
Interestingly, RtP is also a valuable tool in reducing invoice fraud, as treasurers can ensure that whoever asks them for payment is the correct beneficiary. Together with the e-invoicing regulation, the solution also offers the opportunity to use standardised data to help mitigate incorrect or fraudulent payments.
Mellado explains: “With a company’s unique legal entity identifier, the right address, and a few other basic security elements, it’s become much more difficult for bad actors to commit invoice fraud – when it comes through official channels. Also, with the fully digital flow, incoming payments then can be automated and more easily confirmed from a commercial risk perspective. So, the potential benefits are manifold.”
Get ready for take-off
In summary, the variety of innovation happening in the payments space today is helping to remove friction that can hamper efficiencies for both corporates and their customers. It also presents treasurers with a significant opportunity to digitalise beyond what is mandatory.
Grosemans suggests: “Whether we are talking about e-invoicing, ISO 20022, or bank connectivity through APIs, it is always better for treasurers to think about how they can benefit most from the change, rather than just seeing it as a compliance exercise. If corporates have to invest the money, they can think about how to extract the most benefits from it. There’s an important wave of opportunities coming that we can work together on to create common value.”
Of course, digitalising a treasury function requires time and money, but the results can deliver efficiencies that more than pay for themselves. Mellado concludes: “In many senses, the business cases for these investments are starting to write themselves. When we look at issues like rising invoice fraud or the cost of failed payments, these all cost the business time and money – not to mention reputational risk. If treasurers want to transform their operations, the opportunities are definitely there to build a strong business case. And BNP Paribas is on hand to assist with tried-and-tested solutions, as well as the willingness to collaborate and co-create on additional innovations.”
We see a great deal of regulation around digital payments, especially in Europe where e-invoicing is becoming mandatory.
