The European Council recently backed the creation of an integrated and instant system for retail payments, interoperable across all EU member states.
While this update gives the Commission strong political mandate for pushing forward initiatives across these fields, the industry is yet to see supervisory attention given to the corporate sector with the same fervour.
Adopting conclusions that respond to the Retail Payments Strategy presented by the European Commission in September 2020, the Council is pushing to ensure that market conditions for the development of EU-wide payment solutions are created to decrease the EU’s dependency on major global players in the area.
However, the Council also raised a number of challenges that must be addressed when developing and regulating this market, including financial inclusion, security and consumer protection, data protection and anti-money laundering aspects.
Also setting out four ‘pillars’ for strategic action, the Council notes that its priorities are to:
- address issues related to increasingly digital and instant payment solutions;
- address innovation and competitiveness issues;
- ensure access and interoperability of retail payment systems and other support infrastructures; and
- improve payments with countries outside the EU.
Interestingly, the Council considers that “legislative action may be needed to promote adherence to the SEPA Instant Credit Transfer (SCT Inst.) scheme and to its additional functionalities (eg requests to pay, QR codes and proxy lookup services), and that other ways to foster adoption could be explored.”
The Council names TARGET Instant Payment Settlement (TIPS) specifically and calls on the Commission to act, if necessary, following an impact assessment, in a phased and proportionate way, duly considering the appropriate scope and relevant exemptions.
Despite the opportunity instant payments presents to the corporate banking sector, this same level of attention isn’t being seen across corporate banking. Yet, if banks struggle to cater to the increasingly demanding expectations of corporates, they risk losing these clients who will inevitably seek out more efficient and innovative providers.
Capgemini’s World Payments Report 2020 found that 60% of treasurers expect their banking partners to provide enhanced treasury and corporate connectivity solutions, while 50% said they expect robust risk management services.
Instant payments are accelerating in the B2B space as treasurers consider them a differentiator, said Mark Buitenhek, head of transaction services, commercial banking, ING, in the report. “We worked with a large retailer in the Netherlands for QR-code payment based on instant payments for grocery delivery. The solution witnessed massive uptake as it solved reconciliation issues for the client and retailer.”
Highlighting geopolitical uncertainty, escalating cyber threats, interconnected supply chains, and inadequate treasury infrastructure and automation, the Capgemini report also noted that corporate treasurers are looking to digital as an antidote to B2B payment challenges. Inherent inefficiencies across cash and liquidity management that (without manual intervention) have led to errors, fraud and slow transaction processing, the increasing number of digital payment methods being adopted to mitigate such challenges seems a natural progression.
Solutions including API-based payments, B2B virtual cards, mobile payments/B2B wallets and instant payments, are gaining traction and are therefore on a trajectory of strong growth.
Sumit Aggarwal, EVP head of transactional banking services, Emirates NBD, stated in the report: “In B2B payments, payment execution is not the real problem. Most of the friction is in the pre-validation and after execution of the payment itself. End-to-end payments handing and turnaround time are far more important.”
Instant payments and its potential within corporate banking will be a core topic discussed at the Euro Banking Association and Finextra’s EBAday 2021. Running in digital format on 28-30 June for its sixteenth year, the event will welcome a host of board directors, chief executive officers and payments and technology heads from Europe’s leading banks, as well as selected fintechs and registration is now open.