Future of Payments: Payments Evolution & Implications for Treasury & Shared Service Centers
Payments evolution & implications for treasury & shared service centers
Global Practice Lead,
Digital Client Advisory,
Treasury & Trade Solutions, Citi
Asia Head, Treasury Advisory Group,
Treasury & Trade Solutions, Citi
Ecommerce Market Management Lead,
Asia Pacific and Treasury and
Trade Solutions Head, New Zealand, Citi
‘Regardless of where a company is in its journey, payments digitization is the new reality, offering significant benefits and the potential to transform business models.’
Every company is at a different stage in its journey of payments evolution, depending on their industry, business model, customer profile, the geographies in which they operate and their organizational culture.
Some have gradually moved away from cash and manual payments, but have found it difficult to re-engineer processes and leverage technology to facilitate the shift towards digital. Some are ‘in the middle’ i.e. they are keen to embrace alternate payment methods, but may be reliant on file or batch-based shared service center (SSC) processes, and therefore cannot move as quickly as they might like. Others e.g. digital natives, for whom digital payments and collections are core to their business model, have implemented automated processes and newer technologies such as application programming interfaces (APIs) which enable them to be more nimble and customer-centric.
Regardless of where a company is in its journey, payments digitization is the new reality, offering significant benefits and the potential to transform business models. At the same time, however, companies need to reflect the shift towards real-time transaction and data flows in their treasury and SSC processes.
Key considerations & roadmap to real-time treasury
As the use of instant payments, e-wallets and virtual cards accelerates for both payments and collections, there are a range of implications for treasury.
Process efficiency, visibility and accessibility of cash have always been treasury priorities, but increasingly, these activities need to be managed in real-time. For example, given that instant payments have a longer clearing window, treasury needs immediate visibility over this cash in order to reconcile and post to customer accounts, and manage the risk and liquidity implications. This requires a fresh look at the familiar structures and processes in treasury, from bank connectivity through to data analytics. Some of the steps towards the real-time treasury include:
1. Cash flow management
Treasurers need a strategic approach to supporting new methods, both for payments and collections, including instant payments, e-wallets, virtual cards, buy now pay later options and even tokenization. This includes processing flows in a consistent way, irrespective of payment or collection method, and the capture of rich data linked to each flow.
2. Bank connectivity and technology
The acceleration of flows means treasurers need to reconsider the way they connect with their banks, such as on-demand access to balance and transaction information through APIs. In addition, treasurers need to consider their internal technology infrastructure. Those who use spreadsheets or in-house developed systems will find it far more difficult to manage data dynamically than those using a modern treasury management system (TMS) and treasury modules of enterprise resourcing planning (ERP) solution. Likewise, companies using older versions of enterprise architecture will need to move away from batch and overnight transaction processing.
3. Dynamic working capital forecasting
Treasurers need sophisticated cash flow forecasting capabilities to optimize working capital and liquidity management. This includes scenario analysis and stress testing for working capital and liquidity planning, and analysis of speed and cost of payments.
4. FX and funding
Once treasurers have real-time or on-demand bank connectivity in place, and the ability to process the data within their own systems, they need the structures to manage liquidity flows efficiently. As settlement windows extend, or payments processed on a continuous 24/7 basis, the resulting liquidity needs to be managed more dynamically. Many treasurers already make use of liquidity management techniques such as pooling, sweeping, cross currency sweeps and integrated FX solutions to mobilize centralize and deploy funds when required. Increasingly, these solutions, together with investment and financing solutions, will become more dynamic and flexible to allow intra-day or even real-time liquidity management.
Flows in foreign currencies also need to be considered. In some cases, companies will be billing in local currency, so treasurers need look at how to monitor and manage exposures that arise. Increasingly, companies are exploring dynamic FX solutions so that customers pay in their local currency, based on automatically updated rates to reduce exposures.
The shift to real-time, with dynamic, on-demand access to data and transactions, will fundamentally impact the way that treasury functions operate, requiring new processes, solutions and data analytics. Given the complexity and pace of change, treasurers will need to work with their technology partners, banks and other third parties operating across the payments ecosystem with a view to increasing automation, efficiency and flexibility.
“In order to capitalize on the opportunities the next generation of payments promises to provide, it is critical that organizations work with their trusted advisors across technology, banking, and the broader enterprise. The shift to real time 24/7/365 and instant settlements is here and it is poised to deliver new business and efficiency opportunities for organization who are well prepared to adapt to thrive.”
Asia Head, Treasury
Treasury & Trade
Real-time payments and value creation opportunities for shared service centers (SSC)
The shift towards digital payments has a positive impact on SSCs, by improving visibility and cash forecasting, security and predictability of payments and the quality of information. SSCs need to consider several key areas to drive future value creation.
Focus on enhanced customer experience – SSCs will need to ensure that reporting and front-end customer management systems support omnichannel demands and a B2C-like real-time payments experience for their corporate customers – delivering immediately available funds, instant confirmation, settlement finality, and faster communication flows.
Readdress technology architecture for bank account structures, e.g. resident vs non-resident accounts, and payments and collections processing in real-time. This may require new capabilities within accounting, billing and invoicing systems and generate the need for shared data/ information flows across functions such as treasury, sales and marketing, procurement and HR. To help minimize differences and fragmentation in payment processing across countries, SSCs need harmonized and consistent information from payment initiation through to reporting, regardless of region, currency, platform or channel. Many banks have adopted global standards, such as ISO 20022 to reduce integration costs and leverage data more effectively.
Achieve greater economies of scale through technology optimization and use of new technologies such as APIs, robotics and artificial intelligence e.g. AIdriven algorithms can help identify early or late payers to improve cash forecasting. Reconciliation solutions such as AI-driven receivables matching and virtual accounts can streamline the accounts receivable process, aid credit control, deliver reduced days sales outstanding (DSO) and improve working capital.
Address new risk, control and regulatory considerations – access to real-time data on payment and collections flows will allow SSCs to more quickly identify customer and supplier risks, currency risks and liquidity risks. However, SSCs will also need to manage increased cyber and fraud risks by investing in bank-provided digital identity and payment outlier detection solutions.
Address staffing models and skill sets needed to support more dynamic and inter-dependent, knowledge-based activities vs transaction processing.
“Shared service centers will need to ensure that operating procedures, technology architecture and risk management practices are complimented by the right skill set and banking solutions… with a greater focus on payments digitization and new technologies to enable real-time payments transformation.”
Lead, Digital Client
Advisory, Treasury &
Trade Solutions, Citi
Treasuries and SSCs should be thinking now about what the shift to new payment and collection models means for their business, and how they will adapt. This has organizational and technology implications but just as importantly, these functions need to look at how they partner with the wider business, both on the supply side and customer side. By understanding the changing needs of the business and points of friction, and proactively recommending solutions and new opportunities, treasuries and SSCs can optimize the benefits of new payment and collection methods for the organization and help drive digital transformation and customer experience.