Technology can be leveraged as a powerful enabler. It can ease challenges around payments execution, reduce complexity across global organizations and improve treasury visibility. But amid fast-paced changes powered by disruptive innovation, the sheer number and sophistication of technology choices can seem overwhelming with a potential for costly and daunting implementation. Choosing the “wrong” technology can inhibit rather than enable progress by increasing fragmentation, creating friction and impeding an integrated view.
The pertinent question is which innovations best support an agile treasury function in step with business strategy? And how should banking partners be evaluated through the lens of emerging technology?
The convergence of four technology trends is reshaping the payments experience. Treasury now demands immediacy for both execution and settlement; building on speed is the expectation that it will be easy for anyone, anywhere to make payments. Ubiquitous payments are possible due to a new level of connectivity that enables systems to fit together in more contexts and across different applications. Greater interoperability, in turn, facilitates data synthesis and analysis, which can help make payments smarter by delivering actionable insights that improve decision-making.
Even alone, each trend has a transformative effect, but combined, they create a tipping point in the payments landscape. Historically, banks have delivered payments as a purely transactional service. Technology innovation, however, has dramatically redefined the essential characteristics of a payment and elevated its importance.
Banks should seize the opportunity to harness technology in expanding their payments proposition and explore ways to deliver additional value to their clients. It is a pivotal time for banks where they will need to transform how they engage with clients—starting with the solutions and services they offer—in order to meet new expectations and rapidly evolving needs.
The four technology trends (speed, ubiquity, context and synthesis) provide a useful framework for treasury to evaluate how their banks are embracing innovation:
The potential unlocked with blockchain technology exemplifies how the need for speed is hurtling towards real-time transactions. Through the use of a distributed ledger, blockchain technology allows a shared record of irrefutable events to be updated near-simultaneously across all parties to a transaction. One of J.P. Morgan’s primary investments in blockchain technology is developing a solution for the near-instant transfer and settlement of funds across the bank’s global branch network. Not only would this type of book transfer expedite cross-border payments, but it would also minimize traditional lifting fees and settlement inefficiencies.
There is another dimension to speed that focuses more on the concept of right-time payments to optimize liquidity management. Under Basel III, banks must allocate capital against their intra-day exposures, which could make the free intra-day liquidity (IDL) they currently extend to their clients a scarce resource. To prepare, companies need to take steps to understand their IDL usage and mobilize their own liquidity in order to self-fund payments made throughout the day. Therefore, tools that can help treasury better match inflows and outflows will increase in importance. For instance, automated cross-currency sweeps triggered by payment files or account balances are one way that banks like J.P. Morgan can help clients streamline liquidity and manage currency exposure by moving funds in the required currency and amount to the appropriate place at the right time.
Payments networks represent an integrated solution that connects payers and payees by facilitating their communication and transactions. Specifically, behind-the-scenes directories can securely link a payee’s email address or mobile phone number with bank account details to ensure privacy, while providing additional context in remittance details for convenience.
This development can be applied to small business-to-consumer one-time transactions such as refunds, rebates, incentives and claims reimbursement. With these payment types, the time and expense to securely obtain and store customer bank account details outweigh the benefits of migrating from paper to electronic payments. Now, companies can quickly reach consumers who already belong to a payments network—or make it easy for them to join a network—in order to transfer funds via email or mobile phone. These mediums also can include remittance details that provide the consumer with payment-related information.
Corporate-to-bank communication is an area of focus for many treasuries seeking greater synergy across the global banking network of their companies. In response, some banks are rethinking connectivity and shifting towards a client-centric approach. This translates to a more seamless experience for companies as their providers start to become increasingly organized around their individual business operations, including geographic span and organizational structure, and offer more options for data exchange.
This improved level of connectivity enables companies to quickly onboard new banks and implement products and solutions without heavy investment in IT development. Interoperability is fundamental to automating and accelerating payment functions from the transmission of instructions through reconciliation. A common pain point for companies is the need to send payments that meet their banks’ formatting requirements. If, however, banks allowed their clients to send host-to-host files in their preferred formats and took on the work of converting those formats in-house, companies would reap benefits such as greater ease when sending payment instructions, reduced likelihood of payment delays due to incorrect formatting and less time spent on inquiries. Moreover, it would allow treasury to prioritize actual solutions instead of formatting compatibility when evaluating payment providers.
Technology enables banks today to analyze vast amounts of data aggregated across product lines, surface patterns from the noise and distill meaning within a company’s unique context. The value-add for payment data is insight that transcends pure execution and reconciliation information. For instance, identification of unusual payment activity can help uncover and thwart fraud attempts and in the longer term, support cyber security measures.
The power of business insight is amplified by its level of accessibility. Today, data sources are fragmented, but emerging technology is helping companies tap into real-time information on demand from a single source. Payment errors and delays, idle balances and overdrafts as well as currency exposures are a few of the areas where banks can deploy holistic intelligence to help companies enhance their tactical and strategic execution. For treasury, understanding the intersection of a payment method with choices around funding, FX and cash optimization can drive operational efficiency and smarter decisions.
As a result of these converging technology trends, a faster, better, cheaper payments model is giving new meaning to the old adage. The new faster combines speed and ubiquity for an experience of real- or right-time payments. The new better drives smarter decision-making for companies at the strategic level. The new cheaper still includes cost efficiency but also emphasizes broader business effectiveness as an equally important contributor. Value propositions historically have delivered two out of these three elements at best, but harnessing technology innovation today can enable some banks to deliver the complete faster, better, cheaper equation.
The new faster combines speed and ubiquity for an experience of real- or right-time payments.
The new better drives smarter decision-making at the strategic level.
The new cheaper still includes cost efficiency but also emphasizes broader business effectiveness as an equally important value contributor.
The result of this expanded payments proposition is that the whole is greater than the sum of the parts. The new faster, better, cheaper strengthens treasury’s tactical and strategic delivery of value for cost, which has a powerful ripple effect on corporate objectives and the bottom line.
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