For all that businesses recognise that cash flow is their lifeblood, payments is an area not widely understood.
When things go wrong in either treasury or payments, everything else can grind to an abrupt halt. All too often both functions rise to prominence only in times of stress – as we’ve seen recently.
But the good news for both the treasurers who depend on payments and the specialists who work in the payments industry, is that payments are big news right now.
So much so that we were inspired to write a book about all that’s happening. We think the richness and importance of payments makes them worthy of a reader’s interest at any time, but they merit particular exploration today because the ‘now’ in payments is more exciting than it has ever been.
Change is occurring fast – entire countries, indeed continents – are subverting customs almost overnight and money is pouring into the sector like never before.
All this is good news for treasurers. Innovation is happening fast; competition is rising; prices are falling; and efficiencies are growing. Remember cheques – and how they were always ‘in the post’, misdated or unsigned?
Or how it used to take the best part of a week, several phone calls, a good chunk of change, a healthy dose of guesswork and a wallop of (unspecified) commission before the humble repeat euro payment made it across the channel?
Likely today, it’s immediate (or as good as such), possibly free and even transparent. You probably know at the outset how much it will all cost, when it will arrive and you’ll even receive confirmation when the beneficiary is credited. The difference these (albeit small) changes make to a treasury function are (we humbly presume) hugely impactful.
Or consider application programme interfaces (APIs), which promise to greatly ease connecting treasury systems to banks. While much of the talk on the EU’s Payment Services Directive PSD2 and Open Banking is on the consumer side, the impact on the treasury side could be just as significant, as cumbersome host-to-host connections are replaced with simple API calls.
It’s hard to put an exact date on when payments started to get exciting to the outside world, but it was collision of the smartphone, the rise in e-commerce and the technology boom with the post-financial crash strictures that really proved transformational.
Unencumbered by regulation, legacy systems and the less profitable parts of payments, newcomers stormed into the industry, cherry-picking the richest business areas and client types.
Consumers have benefitted hugely from the advances in payments – it’s easier and faster to pay (and receive goods) – but it is really the merchant or corporate sector that has won the most from advances in payments.
As long as we have local payment preferences and national conventions, currencies and laws, there will always be frictions
Business operations that were previously unthinkable are now multibillion-dollar prospects.
Think about Amazon without digital payments or eBay without the leg-up it got from PayPal.
Think about Klarna, ClearPay and all the new buy-now-pay-later payment products that transform the desirable into the affordable.
Or the e-shops that have no tills; the supermarkets that can choose whether to staff tills; and even the humble café, which can be card only – or, for the more modern, QR only.
The move away from cash predated the COVID-19 pandemic, but was rapidly accelerated by it, allowing more businesses to reduce – and some even eliminate – their reliance on cash takings, presumably reducing huge overheads in cash management, transport, security, surveillance and the rest.
Of course, from a treasurer’s point of view all this change may look rather different. Faster payments means money moving faster out, as well as in. E-payments and remote payments mean cyber risk, card-not-present risks, insider fraud and more.
Overhauling systems is expensive, time-consuming and challenging. Alongside systems, there are standards – think ISO 20022 and all that will involve, regulations, such as AMLD-IV (and now V) and the rest.
For the importer or exporter there is Brexit and all that it involves, and now there’s the prospect of entirely new currencies – Stablecoins and central bank digital currencies – or, for those with more robust risk appetites, Cryptocoins.
Perversely, these ‘modern’ manifestations of money may present fresh challenges to treasurers, just at the time that technology promised to eradicate silos and presage a fresh new barrierless era.
Of course, the promises that technology offers could go only so far in payments. As long as we have local payment preferences and national conventions, currencies and laws, there will always be frictions.
The likes of TransferWise – now Wise – have done much to eradicate some of these, along with bank-led initiatives such as the SWIFT gpi – but the promise first held up by Facebook with its global currency Libra is (at best) light years away from reality.
Payments may be prosaic, painful and personal – but they are also potent and political. One country can cripple another by preventing its payments to flow easily – just think of the US and how it has repeatedly flexed its payments power doing just that.
Or it can use the richness of payment data to monitor its citizens, to build big data banks and huge artificial intelligence capabilities. Don’t expect governments to give up their control of payments any time soon.
Fintech, big tech, banks and central banks all have their eyes squarely on payments.
Some are in it quite literally ‘just for the money’, others to propel their businesses, to standard set or protect their bottom line. The resulting valuations are literally stratospheric; take Visa, which is now worth more than any bank!
Even the back office boys, the likes of Adyen, Square, Stripe and Paytm – unheard of less than a decade ago (and to some even today) – are worth tens (if not hundreds of billions) more than many banks.
That’s clearly good news for the payment tech sector and its investors. What’s more, there is plenty for treasurers to look forward to in the rapidly changing world of payments.
Gottfried Leibbrandt is the former CEO of SWIFT; and Natasha de Terán is a former journalist and former head of corporate affairs at SWIFT. Their book is called The Pay Off (Elliott & Thompson Ltd, 2021)
This article was taken from the Issue 3 2021 edition of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership
