Technology, shifting consumer behaviour, new business models, and regulatory initiatives are propelling dramatic changes across the entire payments ecosystem. For corporate treasurers, successfully adapting to this changing world – whether it be embracing variable recurring payments, leveraging APIs, or harnessing the power of open banking – could provide a wealth of business opportunities.

Professionals working in the payments industry could easily claim it to be the most innovative area regarding treasury management right now – with new tools, technologies, and initiatives driving transactions to become faster and more transparent. One of these drivers has been the rate of change in consumer behaviour because people now want, and even expect instant information at their fingertips and the ability to receive payments in real-time.

This demand has put pressure on retailers and the new influx of e-commerce marketplaces, to focus on the user experience (UX) and how they engage with customers through their payment interfaces. Questions such as how many clicks are necessary in a payment journey or how easy the technology is to use – whether through hyperlinks or QR codes and on a mobile app or a desktop computer – are being carefully considered by both retailers and manufacturers embracing the direct-to-consumer trend as they look to put flexibility and convenience in the hands of the consumer.

Ritu Sehgal, Head of Transaction Services & Trade - Corporate Banking & Structured Finance, comments that consumer behaviour is also driving numerous instant payments use cases within treasury “When it comes to refunds, compensation or insurance claims, consumers want the settlement to be ASAP,” she says. “Corporate treasury has considered these behavioural changes, and we’ve seen a shift in their approach to real-time payments. Most treasurers now recognise the benefits of instant payments, whether for internal synergies or client benefits.”

One of the critical internal use cases is for cash flow forecasting, where cash visibility can be enhanced through the real-time data that comes with instant payments. Another is their beneficial impact on a treasurer’s working capital cycle. “Instant payments are forcing treasurers to question whether they want to keep some payments as batch and stick with the traditional scheduled payments cycle,” adds Sehgal. “Do they want to segregate payroll, for example, on a batch basis and a three-day cycle but consider open banking or APIs for making client or supplier payments in a real-time way? This rethinking is very much part of the working capital strategy trend.”

Technology and a treasurer’s systems infrastructure also play a role in the strategy because consumers (and indeed many global companies) increasingly expect 24/7 service. There is pressure on treasurers to update their systems to support the business in handling that consumer expectation. At the same time, some benefits come from having the technology in place. “Open banking account to account instant payments can also offer cost benefits for corporates because, in some cases, they might be cheaper than collecting payments through cards,” Sehgal continues. “And, at the same time, offering a seamless way of connecting to their consumer or business partners. What’s not to like?”

Another significant driver in the explosion of innovation in the payments ecosystem has been the impact of regulation, specifically through the advent of open banking. This has unleashed the power of the data associated with a payment. Simon Eacott, Head of Payments /Payments CoE, comments: “It is the data that goes with the payment that is really driving where the innovation and the customer proposition is, especially with ISO 20022 coming online.” This rich data can help to bring together the physical and financial supply chains or provide more information for automated, real-time reconciliation. “What’s happening across the globe is a drive towards standardisation of payment messaging, and we’ve been on a long journey as an industry to provide that standardisation.”

This evolution goes hand in hand with API usage and the shift towards automation – an existing open-banking-driven trend that the Covid-19 pandemic accelerated. Yet while open banking arrived to great fanfare with PSD2, it is fair to say that it did not immediately deliver a massive swathe of benefits for corporates.

Raffaele Brusco, Senior API Growth Manager, Bank of APIs, compares the time to maturity for open banking with the development of contactless payments, which were around six years old before they went mainstream. Nevertheless, open banking, and API-driven payments are now on the rise. Off the back of this increased usage, Brusco believes developments such as VRP [variable recurring payments – more on this later in the article] and the New Payments Architecture will drive even further usage, especially as account-to-account payments become a more mainstream strategic tool.

Added value services are also starting to emerge from open banking and APIs, leveraging the enriched data that Eacott referenced earlier. After all, customer data – beyond the bank account name and sort code – can help drive smarter payments solutions and solve wider business issues. For example, if a customer has bought alcohol online, the additional data sent with a payment, coupled with the appropriate API, can seamlessly let the retailer check the age group or the address of the customer before the order goes out for delivery. This example is just the tip of the iceberg when it comes to the opportunities around customer data on the back of ISO 20022, real-time payments, open banking, and APIs. “There are thousands of use cases, and that capability will continue to grow over time, so treasurers have a significant shot at reaping the benefits,” adds Brusco.

Another open-banking related payments innovation that will only add further upside for treasury, is VRP. In essence, a VRP is a payment instruction that enables customers to allow authorised payment providers to connect to their bank account and make payments on their behalf in line with agreed limits. The idea behind VRPs is that they will deliver a more seamless and secure payments experience.

“VRPs feed into account-to-account and instant payments, leveraging open banking,” comments Brusco. “This could be the tool to finally deliver a one-click payment experience, a seamless journey, which means a great experience for customers as well as a higher conversion rate for merchants and the associated cash flow benefit for the treasurer.”

For businesses, VRPs have the potential for being used in place of direct debits or card in file like payments, and the level of control they bring could reduce error rates and failed payments. Sehgal, who speaks with corporates daily on such topics, notes: “In time, VRPs may not entirely replace direct debits but will sit alongside them when there’s a scheduled recurring payments and card on the file for regular checkout payments. Costs comparison can play heavily into adoption rates. And while it is early days, and the benefits and use cases are still coming to light, we are already seeing traction on VRPs when we liaise with treasurers,” she affirms. “They are very interested to see how VRPs could lead to improved cash and liquidity management and consumer experience, through greater transparency and control.”

In terms of VRP development, in the UK, the Competition and Markets Authority has mandated nine banks, including NatWest Group, to implement a VRP open banking API to facilitate sweeping of funds from one customer account to another. As alluded to by Sehgal, aside from sweeping, VRPs could also potentially unlock the future of direct debits when linked to another industry initiative.

Eacott explains: “If you link VRP with Request to Pay, there is a future where the long tail of direct debits, which have done their job for decades, start to look and feel different, particularly in the context of the New Payments Architecture. This would put more control in the hands of the payer but also give more certainty to the biller – so benefits all round, not least for treasurers.”

Yet, while the framework for VRP is in place, and the benefits are becoming clearer, the market for it still needs to be built out. Brusco reflects: “While the banks are making headway around VRP and signing up PSPs [payment service providers] to help progress its proliferation, what we really need is for major corporates to get onboard. Once that happens, it should catalyse and accelerate all the necessary regulation and other corporates will follow suit.”

Once critical mass starts to build, VRP should start to mature and you’d expect future VRP use cases to emerge. “Thinking longer term, we’re looking at how we can further develop the VRP payment capability with our customer data,” continues Brusco. “I can see an end-to-end proposition in which customers don’t need to sign up for payment services via a laborious process, but banks leverage social data, or the customer leverages another data source to request approval. There is a lot that can be done by bringing together the data and the payment capability to deliver an almost frictionless experience to customers. And of course, all of this should make life easier for treasurers, too.”

Despite all of these positive innovations happening in the payments space today, the threat of incorrect or fraudulent payments is magnified in an instant world where the transaction is irrevocable. Maintaining or even enhancing anti-fraud measures is therefore essential in this evolving payments landscape – but in a way that ‘interrupts’ the transaction flow as subtly as possible. “‘Appropriate friction’ is the phrase I would use,” posits Eacott. “Confirmation of Payee was a good step forward in the UK, and treasurers have been embedding that into their systems, and bank systems are leveraging it to do their checks. But what the market needs now is more cross-border versions of this.” That said, there are several initiatives around fraud detection for instant payments, and the industry as a whole has become much more astute at tracing where money has gone following a fraud event. 

Thankfully, as innovation around fraud mitigation in the banking sector penetrates the corporate world, businesses are acquiring more tools to protect their end customers. For example, the strong customer authentication (SCA) required within VRP is a positive step in mitigating risk. “Speaking with a very customer-focused merchant recently, their view is that customers don’t expect a completely frictionless payment journey,” notes Brusco. “If there is no ‘good’ friction, the customer could drop off from the payment because they think something bad might happen – it doesn’t feel secure enough. It’s very much a balancing act that requires individual, corporate, bank, and wider industry collaboration.”

Although largely emanating from the retail world, as outlined, the dramatic changes in customer behaviour around payments will have a knock-on effect for treasurers in every sector. Not least since treasurers are used to a seamless and real-time payments experience in their personal lives and are now demanding the same on the business side – for reasons ranging from convenience and reduced cost, to increased efficiency and improved cash and liquidity management.

“It’s vital for treasurers to have a payment strategy that is completely aligned with their customers’ payment desires – and that means being fully aware of the latest developments at all times,” asserts Brusco. To ensure all the potential benefits are leveraged, treasurers would also do well to ensure that the technology stack in their department can handle the new requirements, says Eacott. “With a proliferation of different ways in which people and businesses make payments, it is critical that treasury teams can easily integrate these various channels with their own internal systems. So fully considering treasury’s API strategy and working with the wider business on the simplicity of the customer payment journey, are vital steps in maximising the benefits of payments innovation.”

Seghal agrees, concluding that: “Focusing on changing customer behaviours, whether operating in a B2C or B2B environment, and tapping into those trends as early as possible is essential in terms of securing competitive advantage. It’s also a great way for treasurers to differentiate themselves from their peers at a business level – and gain the visibility and recognition they deserve.” Finally, she highlights the critical role of having enriched data on tap, since “data and payments go hand in hand to drive real efficiencies at a treasury level, because one is not complete without the other.”

All six-parts of our “Essential Guide to Treasury Payments and Embedded Finance” will be published on our dedicated Hub, so do regularly check this for new instalments. They will also be published on the TMI website, with whom we have collaborated on this series.