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2010 revisited: Looking beyond the traditional negotiated financial crisis

2010 revisited: Looking beyond the traditional negotiated financial crisis

As Sibos 2020 approaches, we look back to some of the predictions and forecasts made in 2010 and pick through what other lessons can be learnt from the post-financial crisis world to inform strategy in the not dissimilar economic environment of today.

JP Jolly, head of payments at JPMorgan, claims that the post-financial crisis world of the last 10 years has taught us the value of looking beyond traditional payments options and offering clients more flexibility in how they pay and how they collect from consumers.

“The benefits of focusing on how you handle your accounts payable, how you can be more efficient with your liquidity and how you pay suppliers, I think is one of the lessons companies will have learnt from the last 10 years,” he says.

“The banks that will gain market share in the years ahead will be those that can understand their clients’ whole ecosystem and how they can deploy technology therein.”

In this series of articles, Finextra Research looks at Capgemini’s 2010 World Payment Report to appraise their accuracy or lack thereof, with insights from expert voices in the payments space.

Prediction - “Banks need to decide to what extent payments are core for their business, since the reality might prompt banks to think far more radically, and perhaps more quickly, than expected, about their payments strategies.”

Over the last 10 years, banks have made payments revenue central to their business models, investing not only in traditional payments but providing clients with more payment options.

This can be seen from the more mundane offering corporate clients commercial credit cards specifically for booking travel or hospitality all the way to supply chain finance with services designed to offer greater flexibility in the settlement of invoices.

“Banks have definitely been investing in providing additional payment options, as well as embracing what has become more and more prevalent for us as consumers, such as the ability to take consumers through traditional P2P rails,” Jolly says.

He uses the example of sending payments to and from wallets, which providers like Alipay allowing corporates to both make and collect payments.

On the flip side, banks have been shoring up their solutions to satisfying their corporate clients’ desire to pivot away from traditional ways of collecting payments.

“In the last 10 years, banks have really looked at where they stand from a payments standpoint, and made significant investments in the new payment types that have become more significant, such as supply chain finance or merchant acquiring,” Jolly sums up.

Prediction - “The ‘Wait and See’ approach is passive and could result in the bank progressively losing clients and market share over time. Such an approach could ultimately prove more expensive than making a decision to invest and take proactive governance of this area of business.”

It is tricky to appraise this prediction, as there are numerous reasons for banks appearing to take a passive approach other than preferring to ‘wait and see’.

For example, smaller regional players may not have understood the amount of investments that would be required for them to compete with the top tier players like JPMorgan et al.

Smaller banks may have not had the opportunity to really invest in their front-end infrastructure - APIs, host-to-host, electronic secure files etc.

Another way of assessing the ‘wait and see’ approach is whether payment infrastructure has been made across the board or just in the traditional payment rails.

Therefore the banks that have been gaining the most market share in this area have been those have been able to bring together the different payment options, as well as combining both merchant services with traditional payment rails.

Prediction - “Partnerships can support revenue-focused strategies, filling the technological gap— and consequently addressing the more onerous customer demands. Insourcing/outsourcing can reduce running and compliance costs, improving efficiency and obtaining scale on specific segments, geographies or services.”

A major theme of the last decade has been banks partnering both with fintechs and also corporates’ technology providers.

As companies are investing in enterprise resource planning (ERP) platforms, they expect their banks to be able to connect with these technology applications that they are using.

“If you look at the large ERP platforms and treasury workstations, you can see that banks have been focusing on these kinds of partnerships and also engagement,” Jolly says.

“The question becomes whether they've been successful and really been able to bridge how they used to do things to how technology has evolved over the past 10 years.”

Prediction - “It may prove extremely impossible for banks to leverage partnerships and/or develop insourcing/outsourcing options without payment hubs. In fact, hubs fully enable the execution of revenue-focused and cost-focused initiatives, and both are required in order to achieve more with less.”

Payment hubs have evolved to the point of corporates setting up their own in-house banks, through the evolution of payments-on-behalf (POBO) and collections-on-behalf (COBO).

This has seen companies employ various legal entities and subsidiaries across geographies allowing them to be more efficient in how they manage cash, how they make payments and how they receive funds.

Jolly argues that another way payments hubs have evolved is in the development of virtual accounts, where corporates set up a number of virtual accounts to improve their efficiency in collecting and processing funds, for example.

“We see corporates setting up a virtual account for the entities that pay them, as well as setting up virtual accounts to manage their various subsidiaries,” he says.

JPMorgan CEO, Jamie Dimon, will be delivering the opening keynote at Sibos 2020 on October 5th. For more info, click here.

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