Today’s fast-paced payments industry uses the latest technologies to get the job done. But is there more to processing payments than simply moving cash from A to B? Raphael Barisaac, Global Head of Payments & Cash Management, UniCredit, is certain that there is.
With the global payments market valued at $2.64tr in 2023, and figures expected to reach $4.78tr in 2029, this is clearly a big numbers game. Indeed, volumes of cross-border payments alone is expected to accelerate up to $345.42bn from 2023’s $160bn valuation.
There are a number of reasons for this, suggests Barisaac. Among his list of top contenders are increased globalisation, favourable regulatory initiatives, and greater acceptance of digital formats across a wider set of channels.
But, he cautions, as payments tools extend their reach across geographies, channels, and end users, so the challenges for providers increase. With ongoing geopolitical instability, for instance, comes increased pressure for payment processors to monitor and comply with AML, sanctions and other watch lists from the US Office of Foreign Assets Control (OFAC), and the European Central Bank (ECB) et al. On top of this may be added a broadening scope of domestic regulatory requirements, sometimes at variance with each other, but all demanding compliance.
With the current payments milieu described by Barisaac as “dynamic”, the push for faster, and in many cases near real-time, processing speeds, especially for lower values, it may seem like an impossible task for many commercial end-users, such as treasurers, to keep pace.
Indeed, for many treasurers, with numerous perhaps more pressing demands competing for their attention, real-time payments for the most part are low on their agenda. But without an understanding of how fast all cross-border payments are being processed, Barisaac suggests it could open up an unwanted route to inefficiency. One such risk arises from how treasury manages its hedging policies.
“Every company has its own hedging policy, which is affected by payments. In client conversations, we may find a treasury looks only at its large value payments,” he notes. But in doing so, it calls into question how it manages the organisation’s long tail spend – large volume/small-value purchases, and one-off procurements from non-preferred suppliers – in currencies which are not hedged.
“Lower-value payments – those most likely to be within the faster payments realm – can still be of material significance by volume, and when treasury is able to control these centrally, it can bring new efficiencies, such as when managing FX spreads. And with a rising number of payment services providers in the market, the payments industry is becoming ever more competitive, enabling businesses to avail themselves of processing cost efficiencies.”
Within the dynamism of the payments space, it’s apparent that businesses are exposed to both opportunities and challenges. Of course, treasurers, especially those working for listed companies, will be conversant with the demands of payments compliance, and will understand the need to invest to stay ahead, says Barisaac.
But with payments opportunities there for the taking, continued exploration and investment here must similarly be on the menu. However, he continues, as with many large organisations, where treasury is deeply connected to core systems, the ease with which it may progress will be highly dependent upon the degree of evolution of those internal systems.
“Each company has its own priorities in terms of streamlining, simplifying and driving process efficiencies in payments, and there is no one-size-fits-all solution,” Barisaac says. “What’s more, treasury teams tend to be relatively small, even in large companies. As such, they will have limited resources available to make significant changes, simply because these projects have to run alongside their day-to-day work.”
This is why transformations typically take years to achieve, and also why, in payments terms, it’s fraud detection, as one of the most urgent issues of the day, that often pushes to the front of the queue.
With corporate clients taking a range of approaches to systems and structures – centralising treasury payments but decentralising local payments, for example – and treasurers exhibiting different levels of engagement with the tools available to them, UniCredit often assumes an advisory role from the outset, says Barisaac. “It’s about identifying where each client is in its transformation, and its priorities and its goals, before guiding it towards the most appropriate solutions. A positive outcome is as much about understanding people as it is about technology.”
Banking drivers
In delivering the right services to clients, banks face their own set of pressures. Barisaac notes that these stem from four common challenges, and indeed opportunities, around regulation, IT, business structure, and, increasingly, non-bank competition.
On regulation, he says the amount of time and effort banks need to invest in order to comply has increased in recent years. “This is a given for the entire banking industry; there are no exceptions. So we must try to understand how to operate within this framework without hampering our business development processes and goals.”
In managing this key challenge Barisaac comments that UniCredit has been able to “continually transform our infrastructures, while year after year deliver new services to various geographies and into diverse client segments”.
With IT at the heart of every financial organisation, he says the bank has invested considerable sums in digital transformation. Direction comes from the top, with CEO Andrea Orcel telling staff upon his arrival in 2021: “We need to increase our pace of digitalisation and adoption of new technologies. Technology will no longer be an afterthought ... it will be embedded in everything we do, central to every decision we make and every strategic choice that we take.” UniCredit’s ICT budget, as published in its 2022 – 2024 industrial plan, was more than €2bn.
But technology also needs to sit within the most appropriate business structure for it to deliver. Barisaac reveals that UniCredit sees payments as such a central theme that it has created a new Group Payment Solutions product factory which “encompasses the entire payments value chain under one roof, from corporate to retail”.
Within its European network, this new structure enables it to analyse and understand two sides of the same business: corporate payments and retail payments. “Having that information enables us to build an accurate view of where the payments industry is going, based on different client segmentations, from large corporates and multinationals, to small businesses and individuals. This view enables us to correlate various phenomena while providing real value to our clients.”
As an example of outcome, the Swift GPI tracking tool for international payments, normally used by corporates, has now been opened up by UniCredit to all of its retail clients, free of charge, across all channels. Tracking a high-value payment for a treasurer can be beneficial, at the very least in terms of managing cash flow. While consumers may not often need to track their payments, the facility is now available for all retail clients to track their cross-border payments.
Barisaac explains that this offer is motivated by much broader thinking on the bank’s part. With the arrival of near-real-time payments in many geographies, facilitated by flowing consumer-focused front ends, expectations of that same intuitive UX are filtering through into professional scenarios.
By gradually merging the best UXs of consumer and corporate clients, UniCredit is meeting expectations ahead of the general banking schedule. As Barisaac says: “It’s a psychological matter; treasurers want the same experience, or at least close to the same experience, with their payments. By facilitating different types of payment rails across all users, that development cycle is underway.”
A ’relentless phenomenon’
The proliferation of non-bank competition for payment services, facilitated in the main by open banking regulation (PSD2 in Europe), has different implications across user segments. In the retail and low-value payment space, the phenomenon is relentless, notes Barisaac.
PSPs such as Revolut, Wise, Stripe and Shopify have already carved out much of the traditional retail banking flow. When fintechs first entered the low-value retail payments space, they quickly understood the need for enhanced service levels. Banks responded in different ways, he notes, ranging from an admission of defeat and subsequent inactivity, to the acceptance of the challenge and thus a fully proactive facilitation of new services and fintech-style UXs defined by transparency and simplicity.
“On the corporate side, among SMEs, these fintechs are already very much present, attracting traditional banking flows. The competition is fierce,” says Barisaac. But for large corporates and MNCs, he does not see fintechs being able to take away entire payment flows. “A company sending a bulk file of 20,000 payments will place technical robustness and reliability above speed. What’s more, these firms usually depend on Tier 1 and 2 banks for their RCFs and other credit lines and are willing to share part of their payments volumes to keep the relationship balanced.”
However, Barisaac acknowledges that all corporate clients are increasingly sensitive to costs and spreads, and that their quest for enhanced value is likely to continue to impact bank margins, most accepting this process as “completely normal”.
Whether a bank has the motivation to respond to the new breed of fintech PSPs is a matter for the individual organisation. “Strategic vision will dictate the course of the action,” states Barisaac. “UniCredit is taking a proactive stance. We are working hard to compete with the fintechs, providing a similar UX, service and price. We want to make sure that we remain a relevant player in this game for many years to come.”
However, there is a key difference between fintech and bank that he believes corporate clients should review. As the fintech movement in payments continues to gather pace, a number of respected retail-focused players have emerged. “The truth is that sometimes impressions can fall short of the reality.”
A common perception is that fintech PSPs will be cheaper than a bank for FX, and for lower amounts, often they are, explains Barisaac. “But get a quote for the same pairing for a much larger sum from the same bank, and the bank will probably be much cheaper. And yet the widespread perception remains that the fintech will always be cheaper, regardless of value.”
This view seems to be embedded in public perception, and Barisaac accepts that no amount of bank marketing aimed at overcoming the price differential will succeed. “It’s not going to fly. Banks need to come at it from a different angle – at UniCredit we are investing to have instant cross-border with an advanced modern user experience at a fair price and start to change the public image based on that .”
Vision express
UniCredit’s payments and cash management business vision is addressing nuanced payments challenges such as this perception issue, the technological demands of all clients, and the refined UX that it hopes will underpin its entire banking and payments proposition for years to come.
“Our strategy is built on three pillars,” explains Barisaac. “First, we want to be a one-stop-shop for treasurers. This is about the quality of the advice that we provide to our clients, based on our experience of different corporate segmentations. When we discuss solutions with them, we don’t forget that it’s a ‘people business’ first. Because many transaction services, especially payments, are largely commodified, the success of a solution often ultimately rides on the strength of the relationship and the quality of advice.”
With connections built on understanding where a client is and wants to be on its journey, he adds that it is unnecessary to continually upsell and cross-sell products. “Sometimes a client just needs to be reassured that they are doing the right thing and should continue along that path.”
The second pillar is formed on “a strong client-agnostic-product approach”. This, for Barisaac, means “full co-operation between the Payments and Cash Management [PCM] function and Corporate Treasury Sales [CTS] on the different types of FX solutions we offer”.
There has been a valuable lesson learnt here, he comments. Until about two years ago, with both PCM and CTS teams in regular contact with clients, sometimes the same client would be offered the same type of solution from the two teams. It’s the same model in many banks, he notes, with needless internal competition for the same bookings and fees.
To resolve this, UniCredit created its product-agnostic approach, so now it makes no difference if the client chooses the CTS or PCM offering, as the revenues are split. It works well, with the model now live in mature markets such as Italy and Germany, a roll-out in Austria imminent, and full group roll-out proposed. “It’s about providing the best-fit solution for the client, not what’s best for us,” clarifies Barisaac.
However, he admits that it was not an easy approach to implement at cultural level. “If we still had people that are intent on being hyper-competitive, it perhaps wouldn’t work,” he comments. New staff were brought in, and training given to existing staff, to instil this new approach. “We’ve invested heavily to make sure that this would not be financially driven. We want the teams to see the client together, and then after discussion offer the best solution. It’s not about meeting next quarter’s budget; we’re looking eight quarters ahead and seeing how we can synergise our teams, products and services to the clients’ benefit.”
Barisaac and his CTS counterpart co-ordinate activities, with two managers appointed for each geography, each owning their unit’s local activities. With monthly checks on team progress, and accountability for actions, and KPIs in place to drive success, “it ensures that all the teams are really working together and not just talking together”.
Pillar three for UniCredit is about delivering, in Barisaac’s words, “the best cross-border payments services, to all clients”. Today, he says, it is possible to make payments in over 110 currencies, across all the channels, whether corporate or retail.
“We even created a special front-end for corporate treasurers, UC PayFX, should they want to obtain a quote for a payment in a certain currency. Through it they can access our global portal for all services, not just cash management.”
In practice, the UC PayFX engine integrates and automates currency conversions from cross-border payments or receipts, offering FX conversions from euros into more than 110 foreign currencies – and vice versa – at a pre-quoted spread. The user can either save the quote and use it when needed to make a payment directly in the portal, buy the currency at the time and place it in a virtual account for use in another application, or just let it expire.
People power
UniCredit’s USP has always been its footprint across Central and Eastern Europe. But now it has the ability to connect group services to deliver the same level of service throughout. “Maintaining our standing among clients is never taken for granted,” states Barisaac. “We urge clients to challenge us on the services we do not offer but which they consider to be important for businesses in the region.”
While he is confident that their core needs are all being met, not only does client engagement ensure no product or service is built in isolation, but he also says being able to leverage knowledge between the different geographies enables the bank to better understand how to calibrate these offerings.
“The companies that work with us are sometimes as complex as we are,” observes Barisaac. “It means we appreciate that their transformations can be challenging and take a long time. But sometimes, like us, they move surprisingly fast. The relationships we have are therefore built on trust; clients know that when they call, we answer. And even if we don’t have the solution ourselves, they know we will quickly find one.”
It’s a position that speaks very much to the idea that, while most stakeholders agree payments demand unerring efficiency, they also demand constant attention from people – and banks – that are prepared to understand why this is important.