Throughout history, people have flocked to cities to improve the quality of their lives. After all, cities are the engines of growth, the seats of power and hosts of many of the best-paid jobs. Today, this trend of urbanisation continues at an accelerating pace.

This migration to cities has been accompanied by the development of technology. What’s different now is that technology is transforming the city itself. Innovation in the city will improve life in the community. Governments and companies are harnessing the potential of new technologies to enhance standards of living. In essence, this is the concept of the ‘smart city’ ¹.

A completely connected, fully intelligent city is still a way away, but governments are working with businesses to apply technology with great success. Improving lives through technology is a long-term exercise. The UK’s Department for Business, Innovation and Skills describes the establishment of smart cities as an ongoing process. It foresees smart cities of many parts, none of which can be achieved overnight – in its vision, increased citizen engagement, hard infrastructure, social capital and digital technologies make cities more livable, resilient and better able to respond to challenges ².

For businesses and government entities, the advent of the smart city heralds changes to business models, operating models and payment flows, as described in our recent Smart Cities paper. The corporate treasurer’s role will be to support these changes. As cornerstones of urban economies, banks will become the treasurer’s partner in developing the financial strategies and implementing the financial plumbing that allows changes in city ecosystems. 

Evolving commercial opportunities
Companies from many sectors appear set to benefit from the advent of smart cities. They can do so by integrating new technologies into their current product offerings, adapting their business models and collaborating with both other businesses and public sector institutions.

The automotive sector is a good example. Car manufacturers are exploring how connected vehicles and autonomous vehicles will foster new revenue streams. Automated in-car payments appear set to become the norm – both micropayments, as in the case of parking and fuel payments, and larger, more occasional payments, such as insurance or maintenance and repair fees. Consequently, treasurers may need to manage an increased volume of transactions with a wider variety of partners.

Turning to telecommunications, these companies deliver the data that is the smart city’s lifeblood. They enable all players in the ecosystem to connect and communicate. Additionally, mobile operators are facilitating micropayments as mobile wallets become popular. Aware of their key role, telecommunications companies have been investing in their networks – from fibre-to-the-home, small cell and Wi-Fi hotspot initiatives, to powerful 5G connectivity. There are signs that they may wish to pivot their business models to become broader digital businesses, providing software, analysis and perhaps even business tools and consulting services.

The infrastructure sector, too, is beginning to leverage smart technologies to operate city assets more efficiently. By drawing on data on current usage patterns, real estate providers can plan how to minimise wear and tear, and conduct pre-emptive maintenance. This should extend the life of properties, reducing the need for new construction and the related capital expense.

The pivotal role of banks
As cornerstones of economies, banks can act as the financial enablers that facilitate the smart city’s financial flows. With the advent of open banking, they are in prime position to facilitate the new business models’ payment flows – whether B2B, B2C or B2B2C. Solutions built on real-time payments and open application programming interfaces (APIs) present opportunities for firms to handle increased volumes of micro-transactions. Similarly, accepting mobile payments for transportation and infrastructure utilisation will be vital.

Banks will also facilitate more streamlined disbursements – regardless of the number and size of counterparties. For example, the city of the future is likely to have more gig economy employees who may require small, irregular payments.

As business models change and new partnerships develop, firms will continue to require liquidity to finance growth. Banks’ new approaches to financing, leveraging technologies such as artificial intelligence, machine learning and blockchain allow banks to quantify and mitigate risks better. This enables them to make finance more widely available to businesses and individuals.

Finally, the role of banks as the conduit of financial flows puts them in prime position to collect, analyse and provide intelligence to members of the ecosystem in real-time. This will help inform individuals’, companies’ and governments’ decision-making.

Understanding the financial impacts early
As businesses adapt to the smart city, they need to understand the impact of new business models on their financial value chain. There may be changes in collection volumes and patterns, perhaps requiring treasurers to process and reconcile an increased number of lower value payments from end-consumers. There may be a need to manage payments to new suppliers and partners around the world, or manage liquidity in new or highly regulated markets.

For these reasons, experienced transaction banking partners have a part to play. Engaging with them early will allow treasury to offer strategic support for smart city propositions or partnerships.

1 https://www.rcrwireless.com/20160701/internet-of-things/smart-city-drivers-tag28

2 Smart Cities Background Paper, London: Department for BusinessInnovation and Skills