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the risks associated with payments but improve the speed of transaction and provide real time monitoring capabilities. Ripple and Smart Contracts are only two of the initiatives that use the block chain framework and which are garnering global traction from banks and financial institutions.
Payments infrastructure connects channels, applications, core systems and destinations
involved, along with the impact of core process can be substantial, if the best practices and best in-class solutions are not adopted.
3. Supply chain financing
Globalisation in the past few decades has led to the advent of internationally scattered supply chains where procurement as well as production has been moved to emerging or low-cost markets. Corporates are aware of the inherent risks associated with global supply chains where procurement or supply of critical components is dependent on third party suppliers.
Supply chain financing aims to minimise these risks by the use of financial instruments and technologies for optimising the working capital and liquidity. Recent innovations in the space include invoice discounting, dynamic discounting and reverse factoring.
4. Local payment services
Growing penetration of internet, ecommerce and digital payments is driving the trend for the need of local (region specific) payment methods for financial service providers. Expanding to newer geographies means the merchant and the payment processor need to adapt to the local payment options familiar to the end consumer. Existing traditional payment methods from outside a region may take time to establish.
E-commerce today is a global phenomenon that is highly dependent on local payment methods. Effortless checkout with integration of local payment options adds a factor of trust.
Government and central banks are coming up with payment initiatives to make the payments domain more robust, secure and interoperable. The national payment corporation in India recently launched the “Bharat Bill Payment Service” to bring all the billers on a single platform, while the PSD 2 initiative in Europe aims to integrate payments across the European Union to build efficiency.
5. Blockchain
Corporate and financial institutions could leverage the underlying infrastructure of Bitcoin to facilitate payments. The conceptual framework of blockchain could not only reduce significantly
In the early stages of implementations, the block chain setup could be limited within an ecosystem of trusted parties that could include the organisation, trusted pool of supplier and buyers and the bank. As the platform grows into a more robust and secure means, the ecosystem could be expanded. Blockchain technology, although promising, has some inherent challenges – for instance managing the ever-increasing length of the blockchain or complying to the regulatory requirements.
A live use case of blockchain in Cryptocurrencies is Bitcoin, which still faces many regulatory challenges as there is a need for a regulatory framework for messaging standards, risk assessment and classification as a currency or a commodity.
6. Open banking APIs
The emerging trend today is of open banking and open payments where banks are opening their APIs and allowing third parties, merchants or corporate to integrate payment functionalities.
The shift towards an open banking ecosystem is driving the API economy to enhance user experience. Banks are using different models to enable open banking, including sandboxes and app stores. For instance, Visa has opened up its retail payments network as an API. With unlimited access to banking capabilities, fintech will eventually lead the transformation of banking domains, enabling greater autonomy of operations.
7. Regulatory compliance
The increasingly complex regulatory landscape has challenged the corporate payments landscape. There has been increased focus on KYC, anti-money laundering and terrorist financing, resulting in a need for end-to-end compliance solutions.
The most convenient and obvious means of tackling such instances is customer identification and efficient management of high-risk customers. The banking and financial services industry is responding to this by focusing on information governance and data security solutions that aim to create inventory of high-risk customers. Eventually, the AML compliances focus will migrate to making sense of large volumes of data, eventually leading to a Big Data approach for AML fraud detection and KYC.
With the more sophisticated requirements for corporate payments, the ability of banks to ensure a seamless experience of payment transactions to customers is a critical differentiator for banks. We are likely to see significant investments by banks to upgrade corporate payment capabilities, and a number of new suppliers will emerge to benefit from these opportunities.
www.ibsintelligence.com | © IBS Intelligence 2017
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