Future-proof treasury: How to get the best out of the changing payments ecosystem
As the payments landscape changes due to changes in regulation, technology and client behaviour, the treasury function is also undergoing a major shift. While every change presents its share of threats and opportunities, certain points will have long-lasting implications on corporate treasuries around the world.
A smart, centralized treasury
Centralizing payments and rationalizing bank account structures has become quite widespread among the treasury community, especially in Europe. Banking technology solutions, particularly virtual accounts, significantly enable the adoption of both payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) structures and liquidity optimization into a few currency accounts while not losing the traceability and granularity of OBO payments and collections.
Usually, the decision to consider virtual accounts as a replacement to physical accounts is a consequence of a treasury transformation project. So while it is a confirmed trend on client requests, it is often a topic on the transformation trajectory of a treasury rather than a short-term objective.
If, on the other hand, virtual accounts are used as references for reconciliation, they can bring in very clear savings in terms of automation and in some real life cases, serving as a means to better managing cross-currency payments and collections in an in-house bank set-up. It is worth mentioning that machine learning technology could also be used within a centralized treasury structure to further improve reconciliation efficiency or for hedging suppliers' international payments. Algorithms can learn from past reconciliations about how future receipts should be handled. They can also learn about individual buyers' payment behaviours, thereby increasing the number of automated reconciliations.
Evolved payment highways
SWIFT gpi offers corporate treasurers same-day value, pricing transparency, and end-to-end tracking across their cross-border payments. Nearly 50% of SWIFT gpi payments are credited to end beneficiaries within 30 minutes, and almost 100% of payments within 24 hours.
Nevertheless, for these benefits to be sustainable, the industry must strive to build a veritable gpi highway, with as many participants on board as possible. As of April 2018, 150 financial institutions and more than 50 payment market infrastructures have signed up for SWIFT gpi. BNP Paribas was among the first 40 institutions to go live on the system. While not all banks have integrated the gpi tracker into their corporate banking platforms, BNP Paribas global e-banking channel is enabled to receive the latest gpi status and a copy of the message from each correspondent bank in the chain. This allows the beneficiary a more accurate proof of payment initiation.
Collaboration with fintechs
BNP Paribas has a global program with the explicit aim of identifying and selecting fintechs for agile collaboration in 'niche' sectors. A collaboration can either result in a product extension with a third party with access via BNP Paribas channels or simply serve to refer or contract the fintech separately. In the course of last year, BNP Paribas identified 250 relevant fintechs in cash management, and is currently engaged in active projects with 14 of them. The aim is to identify their true value propositions and to further define their integration into the treasury value chain while meeting the bank's standards for information management and security.
APIs and open banking
Simpler and cost effective connectivity has facilitated access to treasury services via APIs. This will result in better collaboration with the full ecosystem of fintechs, IT vendors and clients. However, as a result of PSD 2 and open banking, APIs are being used to bring different players in an ecosystem together. BNP Paribas believes that treasury opportunities abound when it comes to the growing and accelerating pace of API interfaces, especially with the advent of instant payments. APIs represent two main types of opportunities for treasurers:
- As a different way of accepting payments from customers via a credit transfer - and for making payments. Where e-commerce websites typically accept card and perhaps wallet payments, an API could be leveraged to easily offer payment by credit transfer on that website. Not only would this lead to a more inclusive range of available payment methods for buyers, it would also enable the merchant to receive funds instantly.
- As a means of extending treasury efficiencies by integrating more combined offers from banks and third parties into an end-to-end, secure client experience. This kind of collaborative approach enables corporates to benefit from the agility of new entrants, while still leveraging the robust standards and security protocols that banks adhere to.
Implementing an API strategy in a corporate treasury may require a move towards real-time treasury or a scenario where information is retrieved on demand. As yet, not all treasury functions can make a successful business case for real-time treasury, hence careful consideration is required when seeking to leverage APIs in this manner.
About the Author
Bruno Mellado is the Global Head of International Payments and Receivables at BNP Paribas. Based in Brussels, Belgium, he has held several senior positions within BNP Paribas since joining the bank more than a decade ago. Prior to that, Bruno has served as Project Management Consultant at the Canadian Border Services Agency and as Business Consultant at American Management Systems. He holds an MBA in Finance from Solvay Business School, Belgium and a BCOMM in Business Administration and Marketing from Queen’s University, Canada.