Driving Innovation and Embracing Opportunity

An Executive Interview with Jan Kupfer, Global Co-Head, Global Transaction Banking at UniCredit

This edition of TMI coincides with the EuroFinance conference, a major event in the treasury calendar, where we are likely to see a wealth of announcements of new solutions and innovative case studies. To coincide with this flagship event, Jan Kupfer, Global Co-Head, Global Transaction Banking at UniCredit talks to Helen Sanders, Editor, about some of the new opportunities for digitisation and treasury transformation. 

There have been a variety of new announcements around payments digitisation over the past year or two, so how is this informing the bank and corporate agenda?

Digital payments are firmly on the change agenda for banks, fintechs and corporations, but there remains a distinction between the convenience and flexibility of retail payments compared to corporate payments. Innovations in retail payments are largely motivated by the growth of e- and m-commerce, which will ultimately also impact corporations as they adapt their business models and supply chains. A prime example of this transformation phase is our collaboration with Alipay, the world’s largest online and mobile payment platform. The value added for customers lies within the familiarity through which users can purchase goods and services in Italy simply by using that app to which they have grown accustomed. In conjunction with this we are also the first bank in Italy to offer Apple Pay to its six million card holder customers, making it possible to pay using Apple Pay in shops, through apps and online. 

In addition to bank and fintech innovations targeted at the corporate space, the introduction of the second payment services directive (PSD2), which must be implemented into national law by the start of 2018, will accelerate the concept of a payments ecosystem. This concept is already familiar in countries such as Germany, with common communication standards across banks, which significantly enhances the flow of transactions and information between financial and trading counterparties. The development of instant payment schemes is also prompting all financial participants to review use cases for instant payments (such as M&A), while B2C organisations in particular will need to adapt their systems and processes to take into account the changing opportunities presented by instant collections. Just recently we have started testing instant payments with RT1, EBA Clearing’s pan-European, real-time payment platform, which is a key milestone for us in our preparations to roll out euro instant payment products. 

It is not only payments processing, messaging and formats where we see innovation, however, but also in the development of insight and intelligence around transactions. Banks such as UniCredit are responding to client need to build solutions that harness data around payments to develop insights around customer behaviour, refine liquidity and working capital structures and revise business models. For corporations, payment priorities differ from retail customers, as while speed and convenience of payment are important, multi-bank standards, security and control, and automation of processes such as reconciliation are typically the priorities. Consequently, many of the bank’s payment-related innovations are in these areas to meet evolving client demand, reflect market trends and harness new opportunities. 

You mention instant payments, which with the exception of the SEPA Instant Credit Transfer scheme (SEPA CTInst) are generally domestic initiatives. What about innovations in cross-border payments?

Absolutely, it is not only domestic payments where we are seeing innovation, but cross-border payments too. In particular, SWIFT’s global payment innovation (gpi) initiative offers considerable potential to accelerate and improve transparency of cross-border flows. Although there are a variety of other initiatives that are targeting cross-border payments, SWIFT gpi has the advantage that it leverages an existing highway, with proven scalability and security. As a result, 110 major banks that together have huge market leverage are now part of SWIFT gpi, with considerable interest from corporate customers.

UniCredit continues to be an active participant in SWIFT gpi. In January 2017, we successfully went live on a gpi pilot project with a financial institution client, and we are now processing thousands of gpi payments each month. Just recently we have joined SWIFT gpi blockchain proof of concept (PoC), designed to validate whether the technology can help banks reconcile their international nostro accounts in real time. We are also building gpi payment tracking capabilities for our corporate clients using APIs to meet growing demand. We will introduce these services initially in Italy, and then rapidly roll out to Germany and across our footprint. The speed with which banks support SWIFT gpi, and the trade corridors and currencies in which they provide gpi payments, will be key to its success, but with strong corporate demand, and the potential for banks to offer differentiating services to their clients based on gpi, we are likely to see considerable momentum.

What impact are new technologies, such as distributed ledger technology (DLT) or blockchain, having in the payments space?

There is a great deal of work under way in research and development of DLT-based solutions and experimenting with different use cases. A number of projects have progressed to the testing stage, particularly in payments and documentary instruments in trade finance, but no compelling DLT-based solutions have yet emerged to impact on transaction banking in the short term. The technology is proven, however, and the next stage will be to look at how it can be adopted and its scalability. This is likely to develop more slowly than some people expect, particularly given the regulatory issues around cash management and trade finance, but we expect to see definite if steady progress. 

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Collaboration is key to success, as critical mass will be essential, but all trade finance participants recognise the need to move away from today’s processes that are largely manual and paper-based. For example, UniCredit is working with seven other European banks on a DLT-based digital trade chain initiative for SMEs to dematerialise and accelerate trade finance, which is expected to become one of the first technologically and commercially viable DLT solutions for customers in this industry. There are also a number of DLT initiatives in progress to address banks’ own processes, such as nostro account reconciliation, which in conjunction with SWIFT gpi will bring advantages to the bank and its customers.

To what extent do some of the new technology opportunities we have discussed rely on collaboration with fintechs?

Banks have been quite apprehensive in the past about the growing influence of fintechs, and the risk of disruption or disintermediation. These concerns may have been premature as  both banks and fintechs now recognise the opportunities to collaborate, learn from each other and leverage each other’s strengths. For example, banks have become far more agile in the way that they develop and roll out solutions based on their experience of working with fintechs, while fintechs benefit from banks’ experience in scalability, security and regulatory compliance, access to capital, and ability to tap into a wider customer base. In a competitive and rapidly changing market, banks are all trying to identify the next big fintech innovation, and bring this to fruition through financing, coaching and commercialisation; however, there is inevitably some experimentation.

One of the biggest challenges that treasurers often cite is treasury automation: what opportunities do you see in this area? 

Automation and efficiency of processes is a constant challenge for corporate treasurers and finance managers, particularly as the role is continuing to evolve into new areas of responsibility, issues such as sanctions screening and tackling fraud become more significant, and treasurers are tasked to ‘do more with less’. However, banks and technology vendors continue to introduce a variety of innovations to help improve treasury processes, including reconciliation and tracking of payments and remittances. A growing number of corporations, for example, are introducing virtual accounts, both domestically and cross borders. Virtual accounts enable businesses to streamline reconciliation and account posting, rationalise account structures and reduce costs, whilst ensuring a positive experience for suppliers and customers.

One of the key regions in which we are seeing considerable expansion of treasury centres and activities is in Central and Eastern Europe (CEE), an area that UniCredit is particularly well-positioned to support. In addition to the universal themes we’ve discussed so far, are there any particular challenges and opportunities you would highlight in CEE?

As treasury centres in CEE were often established more recently than their western peers, both western multinationals doing business in CEE and expanding companies that are headquartered in the region, they have the opportunity to introduce efficient systems and processes with less of a legacy burden. Consequently, treasury and finance functions in CEE, and the banks that support them, tend to be highly innovative, with a well-educated, young workforce who are keen to embrace new opportunities. Many of the new developments coming through to optimise working capital and leverage PSD2 are originating from CEE, which can then be rolled out across other regions.