April 2019

With Brexit looming large and the need for digital transformation becoming ever more pressing, delegates at this year’s Universwiftnet looked to The Beatles as a theme to inspire the event, concluding that the way forward was to come together – driving collaboration, standardisation and innovation

Hello e-wallets, goodbye bank accounts?

It is the job of bankers to enable treasurers not only to adapt to today’s challenges but transform to meet the challenges of tomorrow.

And there were a number of initiatives that caught the eye over the course of Universwiftnet 2019 in Paris. Following the opening session, Deutsche Bank’s Head of Global Treasury Solutions, Benjamin Madjar, explored the possibilities of e-wallets. Increasingly popular in a number of countries – not least China, where giants Alipay and WeChat Pay contributed to a total of US$16trn processed via mobile payments in 2017 – e-wallets come in two forms. The first is known as the “leather wrapper”, which acts as a direct replacement for the cards in a wallet, letting users initiate payments at points of sale directly from their mobiles. The second, known as “stored value”, takes the concept further – with the mobile wallet acting as a substitute bank account – a repository for funds, rather than just a proxy for payments. In both guises, e-wallets can be used as alternatives to cards both in store and online.

Deutsche Bank’s Benjamin Madjar on stage with IATA’s Javier Orejas at Universwiftnet 2019

This proposition has prompted many consumers to shift away from card-based payments – a trend that expected to continue over the coming years. Already, traditionally card-dominated economies are beginning to yield ground, with the UK, Spain, Germany, France and Italy all seeing a considerable share of their e-commerce payments processed via e-wallets.

This raises some interesting questions for treasurers. Benjamin argued that, for most corporates in the B2C space, support for e-wallet payments is essential – with consumers likely to favour providers who can work with their payments preferences and abandon those that don’t.

This was a point neatly demonstrated by Pierre Boisselier, Senior Vice President, Group Treasury, Financing and Credit Management, Accor Group, who shared a video on Accor Hotels’ customer-centric payment services initiative during the pre-lunch plenary session. Accor was losing bookings and revenue because its clients around the world wanted to pay via a range of different methods, while the hotel company accepted just three. However, by accepting more methods, such as e-wallet payments, and tying these to additional non-room services, the business was able increase both its number and the amount of revenue generated by each guest.

Businesses employing a number of gig-economy workers might equally find themselves far more attractive employers if they can offer quick, direct payments into mobile wallets, while suppliers in certain countries may even appreciate being paid in this way.

Would businesses need to invest in their own e-wallets for this? Not necessarily. In China, the Nets Union Clearing Corporation (NUCC) has built a unified platform for payments undertaken by third-party providers such as Alipay and WeChat Pay – enabling businesses to make payments to these accounts from a traditional bank account.

Banks can also work with fintechs to facilitate transfers to e-wallets, and here Benjamin pointed to Deutsche Bank’s recent equity investment into fintech Modo Payments.

So this is not the time to say goodbye to traditional bank accounts. For certain businesses – those with significant e-commerce operations – e-wallet payments will be a necessary part of their offering to customers, but they still come at a significantly higher cost to corporates than other methods. Meanwhile, the gamut of payment methods available via traditional bank accounts continues to expand.

A push in the right direction

Foremost among these new options are push payments, which were explored thoroughly just before lunch. Benjamin Madjar was joined on stage by Javier Orejas, Head of Banking Management, EMEA & Americas at the International Air Transport Association (IATA) to discuss the company’s new push payment project, IATA Pay. IATA, which provides financial services for member airlines in 183 countries worldwide, processing US$400bn in payments in 2018, was conscious that its membership was spending considerable sums on fraud and transaction fees. These costs reached as much as US$8bn across the global airline industry in 2017 – prompting IATA to take action.

IATA Pay makes use of application programming interfaces (APIs) and the principles of Open Banking, as enshrined by the second Payments Services Directive (PSD2), to enable direct online payments between businesses and their customers, avoiding the card acquirer fees typically associated with online transactions.

A customer looking to buy a ticket from an IATA member airline will see IATA Pay listed alongside credit cards and debit cards as a new payment option. Having selected it, the customer then identifies the account and bank they wish to pay from, authorising IATA (through Deutsche Bank acting as a third party provider (TPP) according to PSD2 standards and guidelines) to contact that bank via API to request a payment. The customer’s bank then requests authorisation from the customer (via 2FA or two factor authentication) and, once approved, initiates an instant payment to the airline’s account.

For the airline industry, this model represents an end-to-end solution that hands them control over the ticket-purchasing process, while corporates in general stand to benefit from the solution’s high speed, low cost and excellent security against fraud – a compelling contrast to card and mobile-wallet payments. The solution even simplifies reconciliation, with the reference number on the invoice matching the one provided by the third-party provider confirming the transaction.

However, the next challenge for this type of solution is to ensure that it is equally attractive to consumers. While a lean User Experience is expected to be deployed, one option would be to offer rewards comparable to those provided by credit card schemes, but this, of course, will eat into cost savings. Alternatively, IATA member airlines may look into alternative incentives such as free priority boarding, which are valuable to the customer, but which incur no costs for the company. Beyond this, push payment schemes will also need to find a way to meet the needs of those travelling on business, where the de facto payment method remains the company card.

An end to black holes

Cross-border business, meanwhile, remains a particularly pressing concern. No treasury conference could go by without some mention of SWIFT gpi – and Universwiftnet was no different.

SWIFT has now processed more than US$40trn in gpi payments, with most processed in under 30 minutes – and others far quicker. In fact, 40% of all gpi payments are credited to the end user within five minutes, while 95% are completed within 24 hours.

Oliver Grandval, treasurer for global merchant firm Louis Dreyfus – one of the world’s largest traders of raw materials such as rice, cotton, coffee and oil – explained how the company manages numerous cross-border flows on a daily basis, making it a natural beneficiary of gpi. Its company motto “Amener au bon endroit, le bon produit au bon moment” (“Delivering the right product to the right place at the right time”) even serves as a fitting physical analogue for SWIFT gpi’s financial mission. Little surprise, then, that in the two months since going live with the service in January 2019, the company has already processed 2,400 transactions through the service. Reflecting on the experience so far, Grandval was impressed by the speed of payments and, of course, the vastly improved transparency.

Transparency was the primary motivation for Eddy Jacqmotte, treasurer of Boréalis Polymers as well. The Vienna-based producer and seller of polyolefins (small chemical bubbles used in the production of cars and cables) is active in 120 countries, sending and receiving regular cross-border payments as part of its daily flows. The problem with this is what Jacqmotte called “the black holes” – the gaps that arise in payment tracking where it’s unclear if you’ve been paid by a given buyer, and, for the payments you have received, it’s unclear who sent them or what they are for. The role of SWIFT gpi is in shrinking these black holes by providing a clear indication of where payments are and what they are for via the Unique End-to-end Transaction Reference (UETR).

The evolution of SWIFT gpi for Corporates has also given way to much-improved fraud prevention, with pre-validation – where recipients are screened and validated before a payment is sent – tackling one of the most common causes of fraud. On top of this, the rich data provided on incoming cross-border flows can be fed in to analytics programmes to optimise liquidity management and forecasting processes.

Enabled corporates can now use the SWIFT platform to track their incoming payments, stop and recall outgoing payments, carry out efficient investigations of missing payments via gCase, and discover the AI-determined optimal route for payments based on the time and cost involved.

For all this, challenges remain. As Marc Delbaere, Head of Corporates and Supply Chain at SWIFT remarked, not all banks are yet signed up to gpi – creating points along the chain where tracking is still held up. Possible solutions include obliging correspondent banks to pass on the UETR of a gpi payment, even if they are not using it themselves, or – better still – to make it obligatory for all participants in a gpi chain to use the UETR.

The transition to “smart” business models

While looming uncertainty put near-term developments at the top of the agenda, there was also time to look ahead to the more exotic reaches of innovation. Ahead of the afternoon’s concluding plenary session, Geert Matthys, Director of Digital Product Development at Deutsche Bank, took a practical look at how the Internet of Things (IoT) – the use of “smart” devices that share information via the internet and can trigger automatic actions and services – could soon drive changes in business models, affecting treasury processes at the same time.

If the concept still sounds like far-flung future-gazing, consider that there are already 25 billion IoT-connected objects in circulation worldwide – with 75 billion expected by 2025. The use cases range from smart car parks that take note of how many spaces are filled (and where) in order to regulate traffic, through smart agriculture that tracks the status of crops, the movement of cattle and the condition of machines, to smart healthcare, where regular devices can be used to collect and share data for large-scale analysis.

These developments stand to generate new business models – think selling a regular printing service, rather than a printer; selling access to a car, rather than the car itself; charging for an amount of water moved, rather than selling a water pump; or selling a core product at a relatively low price but charging for regular refills. Companies could also monetise IoT data – a car company could, for instance, collect data on driver behaviour (with the customers’ consent) and sell it to an insurance company looking to refine its risk modelling and pricing.

These models all either rely on, or are significantly enhanced by, IoT-connected products collecting, storing and sharing data. For instance, under the subscription model, the product can track its own maintenance level and notify the seller when repairs or upgrades are required, while under the asset-sharing model, the car can monitor the number of miles driven or the amount of time spent driving by a given driver. In the latter case, the car could also initiate a payment based on that data – requiring collaboration with treasury.

There is also the matter of a significant change in cash-flow patterns. For example, with income based on usage and outcomes, incoming flows will be much more volatile – requiring adjustments in terms of treasury, sales and operations. The good news here is that the additional data produced by IoT devices can help feed into these new models: artificial intelligence could, for example, identify and predict customer behaviour in order to inform more accurate and intelligent cash-flow forecasts.

There are impacts on the banking side as well, with banks able to make timely offers of financing, triggered by the expiry of an asset, as identified and shared via the IoT. Trade finance, meanwhile, stands to benefit too – with businesses able to track the location and condition of goods remotely via shared IoT data. This could eliminate much of the documentation that has long made trade finance a relatively slow and paper-intensive process.

Come Together

As geopolitical and macroeconomic tensions continue to take their toll, corporates and banks alike will need to draw together to drive the efficiency and flexibility needed to weather the challenges. Echoing the sentiments of the day’s opening remarks, consensus was that those in the industry will get by with a little help from their friends.

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