By Paul Fannon*, Deputy Managing Director, EMEA, Bottomline Technologies
If 2018 was the year that heralded the arrival of Open Banking, 2019 is set to be the year that businesses wake up to the payments revolution.
New market entrants, stimulated by legislation, regulation and fierce customer demand has nudged traditional players to offer better options too. Best of all, partnerships between the new arrivals and the traditional players is starting to transform how companies do business.
The implications of new techniques and technologies are broad, reforming everything from accounting to corporate treasury approaches. And while 2019 will see the emergence of a handful of these new solutions, it is likely to be the start of something far bigger.
For decades, businesses have spent significant time and money on reconciling payments with invoices and purchase orders. But new value-added services emerging in the industry offer the potential to put an end to the reconciliation headaches that have persisted for years.
The introduction of the New Payments Architecture (an infrastructure set to replace Bacs, Faster Payments and Cheque and Credit Clearing) makes it possible for a host of so-called ‘overlay services’ which allow for a variety of new, enriched, data to accompany payments. This could mean that key invoice or purchase order information will accompany payments in future, putting an end to the nightmare matching processes of the past. Beyond this ‘enhanced data’, other overlay services, such as ‘confirmation of payee’ or ‘request to pay’ will become increasingly prevalent in the future, giving greater assurances that payments will be routed as intended and making it easier for businesses to pay and get paid.
With an increased number of options for payments emerging, businesses are also considering the implications of real-time payments and quicker settlement. The modern payments era will throw open the doors for vast improvements to standard accounting practices. Companies have many advantages to gain from real-time payments including better liquidity and treasury management, the prospect of early payment discounts on invoices, just-in-time inventory management and broader foreign exchange choices.
A slicker corporate accounting function is just one of numerous benefits that is beginning to play out from the payments revolution. The arrival of more sophisticated artificial intelligence and machine learning techniques will increasingly help businesses get more from their payment data and processing patterns, resulting in an enriched experience, great transparency and improved visibility..
With a wider array of extended and augmented data available, artificial intelligence and machine learning will enable businesses to compare and benchmark their financial services in real time. For small businesses – which have historically shown almost blind loyalty to traditional banking partners – instant, more competitive options from other sources will soon become the norm.
In years gone by, corporations have made their payment choices from a menu of options offered to them by their primary bank, but that could all be about to change. In future, the way that a business makes, or receives a payment, will increasingly be dictated by the companies they trade with.
We have already seen from Open Banking, that it is now possible to view data from multiple banks on one platform, but we are approaching a milestone, where organisations will be able to serve up the same data from multiple sources in a consolidated format. Rather than rely on an incumbent bank to access and present this information, an individual or company might choose a trusted third party company to do so. This change could be seismic, and the traditional players know it.
As the traditional banks see an increase in demand for new, real-time, innovative solutions, and an increase in their customers embracing products and services from challengers and competitors, a more aggressive focus on client retention is likely.
2019 will see banks dedicating increased resources to API development and fintech collaborations to protect their market share. Many of these institutions have enjoyed a large and loyal client base for decades and have been tentative in their response to new market challengers. But this challenge is becoming business critical and these traditional players have vast resources to deploy when they need to.
Interestingly, some of the greatest innovation taking place in the market, can be seen on platforms, in ecosystems and through partnership models. The innovations which will be key to the digital transformation of business payments will emerge as a result of collaboration between the banks, the fintechs and the rise of payment processing by Google, Apple, Facebook and Amazon – aka ‘the GAFAs’. These digital giants have exceptionally advanced artificial intelligence and analytics to personalise the payments experience.
Sadly, the emerging payment trends are not entirely positive. With innovation and the faster transfer of enriched, and consolidated payment data, comes the heightened risk of fraud and financial crime. While corporates stand to gain huge benefits from Open Banking and the new payments landscape, far more education will be needed on risk prevention and the potential for criminal activity.
The data-rich, changing landscape creates opportunities for cyber criminals to learn, and exploit any flaws that there might be in financial flows, so it will be more important than ever to stay ahead of the fraudsters.
We are encouraging all our customers to use technology to monitor and detect any anomalous transactions or suspicious behaviour, to revaluate their payment processes and to ensure their teams are properly educated. Indeed, with transactions in real-time, it is important to have real-time fraud alert systems.
The more innovative and the more bleeding edge the technology, the greater the concerns usually are around adoption. A related key trend we expect to see emerging is for Sanctions checking by corporations.
Historically, a corporation traditionally facilitated a payment through a fintech, such as ourselves. That payment would go to the financial institution who would take responsibility for the governance around that payment and who is the beneficiary.
However, we are starting to see a trend where corporations are taking on some of this responsibility. This approach goes beyond fraud. It is about being responsible payers. There is a growing consensus that it is no longer sufficient to rely on the banks to accept all of the risk. This means a growing number of companies will invest more in their own in house Sanctions, KYC and AML solutions to manage the risk of doing business in a faster and more digital world.
The traditional roles of the sector, it seems, are shifting. But if harnessed correctly, businesses of all sizes are set to benefit from a multitude of new solutions.
* Paul Fannon – Deputy Managing Director, EMEA, Bottomline Technologies
With over 20 years’ experience of working in the financial and IT sectors, Paul’s specialities lie in strategic business development and execution, bringing innovative payments technology to market and driving world class customer service. Paul has extensive experience in cloud-based payments and cash management solutions, strategies for delivering profitable business growth, M&A.