Forging a Path to the Future of Payments
by Dominic Broom, Head of Treasury Services EMEA, BNY Mellon
The global payments business is being significantly and rapidly reshaped by a number of market forces and developments. Indeed, such changes are already in motion, and will usher in a new era of payments by 2020. Dominic Broom, Head of Treasury Services EMEA at BNY Mellon, examines these drivers and the need for banks to act now, if they are to grasp the opportunities on offer in the evolving world of global payments.
The payments environment in 2020 will look considerably different from that which we know today. Although change is multifaceted, a number of key factors are responsible, and the speed and extent to which they are altering the payments business is expected to gather momentum.
Firstly, post-crisis regulations and compliance continue to dominate headlines, and their current and future impact on the payments space shows no sign of dissipating. Secondly, the payments market is becoming increasingly competitive, transformed by a variety of new players entering the market and introducing innovative payments solutions. Thirdly, economic growth in emerging markets is leading to a geographic shift in payment flows, and is driving cross-border transaction volumes to ever greater heights. Finally, technological innovation is fuelling new payment possibilities – with regard to efficiency, accessibility, immediacy and reach – and influencing the way in which payment solutions are delivered.
Of course, all this presents both opportunity and challenges, and banks must be alert to these trends – and their wider implications – if they are to grasp the opportunities that the growing transactions market will present up to and beyond 2020.
The impact of regulation
Ongoing regulatory evolution will continue to impact the payments business in the coming years. In addition to those developments that are already in train, such as those around Basel III, the industry will also need to enhance oversight and control in line with growing cross-border payment flows. Indeed, cross-border transaction volumes are set to more than double from 9.9 billion in 2012 to 20.7 billion by 2022, requiring providers to navigate not only the complexities of global and local regulatory environments, but also the disparity between regional interpretations, as well as differing currencies, practices and payment formats.
While regulation provides the structure necessary to ensure the financial environment functions effectively and securely, its implementation will remain a challenge in terms of the cost and effort involved, and the mitigation of any unintended knock-on effects. That said, regulatory changes can be a great driver of innovation – giving the opportunity to reassess both internal and industry-wide practices, and ultimately create more beneficial conditions for banks and corporates alike.
The recent introduction of the Single European Payments Area (SEPA), for example, has been a huge forward stride towards achieving greater payment convergence. Through SEPA, payment borders have effectively been eradicated, and electronic euro transfers throughout the European Union (EU) can now be made with the ease of a local transfer. Furthermore, through rationalisation of processes and relationships (theoretically, corporates can now use just the one bank account for the whole of the SEPA zone), costs can be reduced and cash management improved.
Despite requiring significant implementation efforts, the transformational benefits created by SEPA could encourage other global regions to introduce similar integration initiatives. This would further facilitate payments and increase convergence – although differing political objectives will likely obstruct comprehensive global convergence of payment standards for some time to come.
Advantages aside, there is no denying that the recent barrage of new regulations has put a great deal of pressure on banks. This in turn has raised concerns that the strain on their resources and cash reserves could result in all-important investment into the development of new payment solutions and solutions being delayed: thereby hindering banks’ ability to respond effectively to transformational changes in the market.