An Evolving Payments Landscape: New Payment Methods to Support New Business Models


Manish Kohli

Manish Kohli,
Global Head of Payments and Receivables, Treasury and Trade Solutions, Citi

Anupam Sinha

Anupam Sinha,
Global Head of Domestic Payments and Receivables, Treasury and Trade Solutions, Citi

Businesses around the world are transitioning to new business models. In many instances, their urgency has been accelerated by COVID-19 as conventional distribution channels have been disrupted. One hallmark of many new models is a need to engage more directly with consumers and the consequent prioritization of speed. Through new payment methods, such as instant payments or digital wallets, businesses can better meet consumers’ expectations.

Delivering an elevated payment experience is just one way in which business differs within a direct-toconsumer model. There is also an increasing need for service (often in real time and self-service) and fulfillment of data. Clients also want to mine data to help identify fraud. Nevertheless, payments are at the heart of a business’s goal of strengthening customer relationships. They have become more than just an aspect of commerce– they help to build loyalty, engagement and transparency.

One increasingly important focus among clients is the desire to offer choice to consumers. Corporates recognize that they need to engage with consumers in a different way than how they engage with institutions: consumers expect to be able to use a wide range of payments types and are less willing to give their business to companies that do not offer their favored payment channels. For corporates that have only just begun to transition to new consumer-focused business models, this is a big change: new business models require payment method flexibility and a fresh mindset.

The role of treasury

Some of the world’s largest companies are significantly expanding their consumer offerings as an alternative to conventional distribution channels. These companies are seeking to manage and own the customer experience, maintain brand integrity, build lasting relationships, and deepen their customer insight. In the past, direct-to-consumer was seen as viable only in specific market segments. Now, it is being introduced in sectors such as mainstream food and beverages that were previously considered too challenging.

To deliver a winning consumer experience, companies need to plan their strategy carefully and look at the challenges from a holistic perspective, encompassing merchandising, marketing, investment, sales and other functions. Given the importance of payments for eCommerce, treasury is increasingly important to delivering the overall experience: to make a sale, it has to be easy for consumers to click the buy button.

To remove potential friction, considerable planning and research on consumer behavior and preference is required. Finding the right partners can make a big difference in terms of shortening the learning curve and creating a better experience for consumers. It is also essential for treasury to be involved at an early stage to help ensure that cost-effective payment processes are built into any strategy. Treasury must play a strategic role if eCommerce is to deliver value for the entire organization.

Treasury can add significant value by choosing the right bank and bank account structure to mitigate risk. It can play an important role in establishing relationships with acquirers. Treasury also needs to be involved in managing settlement, FX exposure, and associated risks.

In particular, given its expertise, treasury should be involved in designing and implementing the checkout experience for the organization, which has a direct impact on the customer’s overall experience. Within the organization, treasury is likely to have the best understanding of the local payment landscape and the local regulation. It also has relationships with banks and can therefore source insights and best practice and bring that information back to the commercial and business organization. Given the centrality of treasury, it is becoming more common for treasury to have a digital lead who looks at eCommerce.

Globalization and the future of eCommerce

Consumers want the world and thanks to globalization and smartphones, they can now have it. It is indisputable that globalization has delivered economic growth for many decades while giving consumers greater choice, quality and convenience.

In recent years, there has been growing tension between globalization and protectionism. But while there may be political pressure to buy local, in many aspects, globalization is accelerating, with many national businesses seeking to internationalize rapidly.

Treasury can add significant value by choosing the right bank and bank account structure to mitigate risk.

Fig. 1

Go global, think local

To succeed with a direct-to-consumer model, companies need to be able to provide products in an accessible way (in the relevant language), deliver them within a reasonable timeframe, and offer consumers their payment method of choice. The last element of this has historically been very difficult to achieve cost effectively as compliance rules, tax regimes, FX and settlement periods vary widely around the world.

It is important to be aware of the significant differences between various countries’ payment behavior. For example, in China the rapidly emerging middle class largely skipped the credit card stage. Smartphones and other technology were already prevalent and therefore social media companies were able to leverage their presence into two of the world’s largest payment platforms — Tencent’s WeChat Pay and Alibaba and Ant Financial’s Alipay.

Equally, in the Netherlands the majority of online purchases are paid for using a bank transfer instrument called iDEAL, which was set up as an eCommerce payment system to allow customers to buy on the internet using direct online transfers from their bank account. The system took off because in the Netherlands — like some other European markets such as Germany and Austria — many consumers are credit-adverse and are therefore more comfortable paying using their bank balances. Likewise, India has Paytm while some markets in Latin America have adopted Mercado Pago. Companies need to take account of these local preferences when making decisions about payment methods.

The role of cards

While known as credit card companies, Visa and Mastercard are networks and technology platforms. They make multi-party commerce possible by setting rules to govern those interactions. The form factor — plastic cards — is largely irrelevant to these networks and technologies. This can be seen by the ease with which we pay by phone today or use other contactless methods rather than swiping a card or entering a PIN number.

Both Visa and MasterCard have recently made acquisitions in the open banking space in order to extend their reach and future proof their businesses. They are also innovating in the instalment and deferred payment space, which is growing rapidly in many markets. In Brazil, for example it is quite prevalent for people to make purchases using a card and then automatically spread payments over a set number of instalments: the merchant is funded the entire amount and the instalments are automatically scheduled

Over the next decade, deferred or recurring payments are likely to become increasingly important for consumers and therefore will received greater attention from payment providers. As eCommerce becomes a global phenomenon, innovation will accelerate with local payment products vying for attention with those of global providers.

The growing number of offerings will make products such as Spring by Citi more relevant as it will enable retailers to offer choice to consumers without increasing payments New complexity and overhead costs. By gaining global coverage (and an accelerated speed to market) through a single solution, corporates can focus on other areas that are critical to consumers such as the checkout experience or reconciliation.

Instant payments

Instant payments are likely to represent a larger part of the payments landscape in the future. Countries representing around 85% of the world’s GDP either have instant payments today or are in the process of building an instant payment network. Citi has direct access to over 25 instant payment schemes and has enjoyed a 200% growth in instant payment volumes year-on-year.

Historically, corporates have been reluctant to invest in instant payments because given their existing structures, such as payment factories or shared service centers, it was unclear what benefits instant payments would deliver. Now, there is greater willingness as a result of an increased focus on consumers, which is driving changes to their business models. Moreover, the enriched data and tokenization offered by instant payments (mobile numbers or email addresses can be used to facilitate payments) are increasingly seen as adding value and making reconciliation more straightforward.

In Asia, two billion more people have a bank account than a credit card, many of which can now be reached through near ubiquitous instant payment schemes in the region.1 Yet instant payments alone are not a panacea for eCommerce. The goal is to create a card-like experience using instant payment rails. So, for instance, online purchases might use a combination of a QR code with either instant payment or instant collection to create a frictionless experience.

Of course, local instant payment schemes will be just one of many payment methods including cards and wallets: different solutions will be applied in different use cases depending on the preferences of consumers. The future payments landscape may be considerably more diverse than is currently the case.

How to select a payment provider

There has never been a greater choice of payment providers or services. When selecting a payment service provider, scale and experience are critical: many emerging payment providers are non-banks and there have been some high-profile bankruptcies. Given the rapid growth of eCommerce, it is also important to choose a provider with omni-channel experience rather than a more traditional bricks-and-mortar offering.

Adaptability is a valuable characteristic. The payment sector is developing extremely rapidly, with numerous variations by geography and no clear winners or losers in terms of payment instruments. Consequently, the best payment service providers are those that recognize how the industry is changing and are flexible enough to be able to pivot and embrace various trends as they emerge.

It is essential to work with a payment provider that can seamlessly integrate into treasury and offer the functionality and information required to ensure low costs, efficient settlement and effective risk mitigation. However, any consumer-focused business model is dependent on a positive customer experience, and therefore a wide range of payment methods that customers want to use is essential. This may create some tension, as some payment methods that have strong support among consumers can be extremely expensive for merchants. However, within certain segments there is evidence that such payment methods widen the potential customer base and are therefore positive overall for merchants.

Given the large number of payment providers around the world and the fragmented nature of many markets, companies can find themselves with dozens of payment partners. One solution is to use a global gateway such as Spring by Citi, which provides access to a wide range of consumer-facing payment instruments around the world — providing customers with the flexibility and choice they need, with a wide range of alternative payment methods, card processing capabilities and instant payments — combined with bank-grade technology. At the same time, Spring by Citi is fully integrated with corporates’ cash management and liquidity structure while settlement, regardless of payment method, takes place within clients’ Citi bank accounts. FX is also fully embedded within the solution. For both corporates pursuing new business models and their target consumers, the future of payments looks seamless.

1 Global payments report, Worldpay, 2017