Future of corporate payments
February 2024
Payments are an important enabler for running the day-to-day operations of corporates. This includes cross-border payments, vendor payments, supplier payments, salary payments, and forex payments. Corporates expect their banking partners to provide fast, secure, and reliable payment solution(s) that enable them to better manage their payables and receivables, thus improving their overall working capital positions. For banks, the drive towards corporate payments transformation has been relatively slow.
However, the corporate payments industry has witnessed an unprecedented change over the past 24 months. The outbreak of the COVID-19 pandemic affected almost all global businesses, which were reliant on human intervention or physical presence. These businesses had their operating models built on accepting traditional payments methods, such as cheques and cash, which were severely challenged due to lack of mobility. To sustain their day-to-day operations, including payments to vendors/suppliers/employees, corporates had to work with their banking partners to digitise the manual processes and re-define their operating models to start accepting additional digital payments methods. This led to a focussed transformation covering the entire corporate payment lifecycle and digitising as much of the value chain as possible, while also looking at new business and operating models to sustain the operations.
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This newsletter is a source of key insights relating to the evolution of payments systems.
Identifying key pain points
Lack of aggregated view of fund positions and bank accounts
Corporates have complex organisational structures, with regional offices spread across the globe. Each regional office prefers to use its local bank account for payments to vendors and employees, as well as for the management of internal expenses. In addition, corporates have multiple banking relationships and use different bank accounts to process their payments. Hence, keeping track of collections and payments. becomes a challenge, leading to a lack of aggregated view of fund positions across multiple banks accounts. Thus, corporates are looking for innovative solutions/interventions from ecosystem participants that can provide them with a single view of their positions across regions.
Inconsistent payments experience for corporates due to diverse payment needs
Corporates have complex payment requirements. They need to make payments to their suppliers, subsidiaries, and employees, as well as collect payments from their customers, all of whom can be spread across multiple countries. To support these diverse payments needs (real-time payments, cross-border payments, Foreign Exchange [FX] payments, etc.), which require different messaging standards (domestic and cross-border clearing and settlement), banks must set up multiple teams/payment systems, which at times could lead to inconsistent experience for corporate customers. Figure 1 illustrates such an example of a bank’s large corporate customer having complex payment requirements.
Insights into corporate payments transformation: Trends and implications to look for
Rise of non-conventional competition fuelling innovation and ecosystem collaboration
Banks have traditionally acted as the primary owners of corporate relationships for payment requirements. However, with the emergence of BigTech companies, FinTech platform players, and diversification by networks/payment processing companies, the market share for banks in the corporate payment domain is coming under immense pressure. While the initial focus of prominent payment companies was on retail payments penetration, these players have now started catering to corporates through platform- based business models (B2B e-commerce, cross-border payments), newer products (B2B BNPL, virtual cards, gateways), and value-added services (cloud solutions, invoice automation, disbursements, etc.).
Conclusion: The transformation journey continues
With the onset of SWIFT ISO 20022 implementation, we foresee more standardisation and efficiencies in corporate cross-border payment services, and the advent of similar standards for domestic corporate payments as well in the long run. This transformation journey has been running for a few years. However, it is just the beginning. The changing landscape of both cross-border and domestic payments will continue to change at a rapid pace, thereby putting immense financial pressure on banks/other payment service providers, who will have to continuously adapt to sustain their op-line and bottom-line growth. This will be critical for their future competitiveness. This transformation, which is more than a typical transformation programme, requires significant collaboration with external parties (as opposed to an inward-focussed transformation). Banks/others who open their doors to enable innovation across the value chain of corporate payments (both in terms of technology and business models), will have a greater chance of succeeding
