Cutting-Edge Payments and Receivables
by Liba Saiovici, Latin America Product Management Executive, Bank of America Merrill Lynch
In Latin America, as elsewhere in the world, core treasury functions, such as payments and receivables, are being carefully looked at for improvement. Technological innovations being developed today could provide significant opportunities for companies seeking to increase efficiencies, reduce costs and enhance their reconciliation processes.
And, while these new solutions might be easy to ignore – as many are only now being explored for their potential – treasurers are taking the time to gain a better understanding of these developments. They can then position themselves to take advantage of these new solutions as they become available.
Three topics are of particular interest for companies operating in the region: the use of person-to-person technology expanding into the corporate space, the potential applications of blockchain technology and the arrival of automatic reconciliation solutions.
Over the last few years, banks have focused a great deal of attention on making existing payment methods easier, safer and cheaper. Nevertheless, there is still room for improvement.
A key area of focus is mobile technology. In the consumer world, mobile banking adoption has expanded rapidly in the last few years. Treasury staff who use mobile banking technology in their personal lives are eager to leverage similar functionality in the business environment. In response, banks, recognising the potential for mobile technology in the corporate space, are working to meet these demands.
One area which has begun to make the evolution from consumer to corporate banking is around the use of person-to-person payments technology. This technology helps eliminate the need to issue cheques by enabling companies to make payments to individuals using the recipient’s mobile number or email address.
In this scenario, the removal of paper cheques from the process is appealing, but the real benefits of a mobile payment approach go beyond simply paper-to-electronic and can be quite significant. For the company making the payment, end-to-end disbursement costs can be reduced by as much as 75% compared to traditional payment methods. Unlike other electronic payment methods, companies are not required to manage bank account details for their customers, resulting in reduced complexity and risk. The technology also brings significant benefits for beneficiaries, who do not need to provide their bank account details and can typically expect to receive funds sooner than with other, more traditional, payment instruments.
While this solution has yet to be launched in Latin America, it is already yielding significant benefits for companies in other regions – and it’s not too early for treasurers to begin exploring how this type of offering could benefit their business.
Building on the blockchain
Less imminent, but showing revolutionary potential, is the use of the technology behind cryptocurrencies such as Bitcoin, called the blockchain. This technology looks very promising, has the potential to trigger a transformation in almost every aspect of commerce, and could change the way we do business. Talking specifically about cross-border payments, with many Latin America corporations setting their sights on overseas expansion, demand for cost-effective, streamlined international payment solutions is growing and the benefit of the blockchain technology to make these cross-border payments faster - with more transparency and less cost - cannot be ignored.
One of the most exciting aspects of Bitcoin is the fact that each transaction is recorded in the blockchain, a public ledger which makes the flow of funds completely traceable. The blockchain creates a secure record of value while safeguarding the anonymity of individuals and companies involved in the transaction. Using blockchain technology, a universal digital ledger could be used to transfer funds between parties, thus removing the need for intermediaries and shortening the settlement time from days to a few minutes or even seconds. In addition to providing near real-time settlement, this type of transaction could eliminate many of the costs associated with traditional cross-border payments.
Among the most important challenges to be sorted out are regulatory and security issues - but these are not showstoppers. Financial institutions and technology companies continue exploring the possibilities with this new technology with an aim to make it easier for our corporate clients to do business and achieve greater efficiencies.