A wide range of themes relating to payment services, products and regulation were discussed at International Payments Summit (IPS) 2013, held in London this week on 9-11 April. The fast-approaching introduction of the single euro payments area (SEPA) and its repercussions for treasurers, technology providers and financial institutions was particularly of interest, reports Graham Buck and Neil Ainger.
The final demise of cash payments may still lie some years away, but payment by mobile and other non-cash alternatives will steadily increase in line with peoples’ expectations and advances in technology, with Intuit, iZettle and PayPal Here and many other new mobile-based payment technologies, discussed in bobsguide’s MWC 2013 show report, also up for discussion at the IPS 2013 show held this week.
While cash accounted for 55% of payments made in 2011, this figure will have declined to 35% by 2021, forecast Maurice Cleves, global head of cash management for Barclays, who was the opening chairman for this year’s International Payments Summit (IPS) 2013, held at the Hilton Tower Bridge hotel in London. Cleves cited the recent forecast in the ‘World Payments Report’ from Efma that mobile payments will account for 17bn transactions this year, compared with only 141m in 2011.
Barclays also had Eimea O’Connor, head of its corporate strategy for the bank’s peer-to-peer (P2P) mobile m-payment platform, Pingit which enables payments to be made with mobile phone numbers alone in the UK, talking on day two of IPS on 11 April, where she illustrated how the bank is now rolling this service out to businesses and not just serving consumers anymore.
“If I can initiate a payment as a consumer why can’t I as a corporate customer of a bank?,” asked O’Connor before going on to explain that now you can with the expanded Pingit for corporates service. The Royal Bank of Scotland has also recently launched its own RBS mobile P2P UK payments service as well, although this is still consumer-focused.
Regular live polls of the audience of payments providers, technologists, banks, corporates and other attendees at IPS 2013 were held through the event, with a vox populi conducted on the first day on how delegates foresaw the future of the eurozone.
Given five different options, ranging from collapse to strong survival, 40% of those polled voted for the option that the eurozone ‘will muddle through indefinitely, with one agreement after another’, suggesting that last month’s bailout to prevent Cyprus’ financial collapse is not yet the final crisis management exercise, with more developments still to come.
Searching for Value
The overall theme for the first day of the three-day IPS event was ‘The Search for Value in International Payments’. According to Richard Jaggard, head of transaction banking Europe and managing director at Standard Chartered Bank, corporate treasurers, one of the key target audiences of the show this year, continue to regard payment services as a core provision from their banking partners. The banking sector is, however, now one in which its payment services are increasingly being commoditised or disintermediated, pricing is weakening, and its banking participants are capital constrained, opening up the way for Inuit Pay and other technology based companies to compete.
Increasing disintermediation has seen new competitors steadily chip away at banks’ share of payments business and increased regulation, such as SEPA compliance costs which was also addressed at the Summit, is deterring bank investment in their payments services provision.
Global Perspective and Regulation
Yet interesting developments lie beyond Europe’s depressed operating environment. Not least there is the introduction of the China International Payments System, which is expected within the next year. A genuine “game changer” it will firmly establish the renminbi (RMB) as an international currency.
“There is also the conventional view that regulation constrains capital and increases costs, that technology is a disruptor and that commoditisation is destroying the payments industry’s traditional pricing model,” said Standard Chartered’s Jaggard, who suggested an alternative, more optimistic view is at least equally valid: “Regulation increases the value of the payments business; technology is a source of innovation and efficiency, and a new differentiated and value-based pricing model is emerging.”
The ‘mountain of regulation’ faced by payments businesses was a theme developed by Dermot Turing, a partner in the international financial institutions and markets group at law firm Clifford Chance. He said that it was aggravated by a “governance soup” of regulatory bodies that too often decline to speak to their peers and can compete with or contradict one another. Turing added that the transaction bank of the future was being shaped by four main trends:
• Capital and liquidity rules.
• Business and legal fragmentation.
• An increased volume of regulation.
• Corporate clients’ diminishing need of a bank.
Turing also highlighted four “regulatory hot picks” from a long list of new and impending measures, these being version two of the Payment Services Directive (PSD II); cards regulation and pricing; the Cyber Security Directive; and the Recovery and Resolution Directive (RRD).
Turing concluded that transaction banks needed to be more proactive in explaining their importance and the services they provide to policymakers who, in turn, needed to tone down the demands a little or risk persuading many players to exit the market and letting a few remaining ones dominate.
Polling Priorities: Treasurers
A panel of corporate treasurers was also convened on the first day of IPS. Comprising Martin Schlageter, head of treasury operations at Swiss pharmaceuticals group Roche; Jörg Bermüller, head of cash and risk management at German chemicals and pharmaceuticals group Merck KGgA; Ronald Mulder, director of ICL Finance, part of the fertilisers and phosphates group; and James Lockyer, development director for the Association of Corporate Treasurers (ACT).
Schlageter said that as a multinational, which managing cash around the globe, Roche was still bound to its banking partners as payments were not yet fully commoditised. “The more centralised your work, the more you must work with your banking partners,” he suggested. Both he and Bermüller said that with many different subsidiaries across the European Union (EU) within their organisation, preparing them for the advent of the single euro payments area (SEPA) next February occupied much time and significant resources.
The ACT’s Lockyer said that a growing divide was evident between multinational corporations (MNCs), which still enjoyed relatively easy access to funding and the small to medium-sized enterprises (SMEs), which were really struggling by comparison. The ACT has also noted a clear link since the 2008 financial crisis between credit facilities and ancillary business, with many corporates unable to secure the former from their banks unless they offered them the latter.
The session was punctuated by several polls of delegates, who were asked ‘What corporate treasurer needs should the banks focus on most?’ The most popular option was credit and liquidity, with cash pooling and sweeping awarded second place and balance and transaction reporting in third. Trailing at some distance was supply chain finance (SCF) and cross-border payments, with the least popular choices trade services management and domestic payments.
The question ‘Which value-added services do corporates rate most highly?’ produced two clear winners. Enterprise resource planning (ERP) services, followed by transaction reporting services were evidently ranked much higher by delegates than the other available options of format translation services, electronic mandate services and identity management services.
A Wider World: Santander & Standard Chartered
Another notable trend, revealed by Greenwich Associates’ in a study discussed during the afternoon of day one at IPS 2013, was the continued growth of emerging and alternative markets, especially in the Eurozone where the crisis is forcing corporates to look further afield.
Jan Lindemann, a principal at Greenwich Associates, discussed this and the impact of the eurozone crisis on buyers of cash management services in Europe, alongside the widening of the continent to include central and eastern Europe (CEE) as key marketplaces of the future. A study revealed by Lindemann also showed that companies with annual revenues of over €2bn, were increasingly leaving cash on deposit at their cash management banks, as consistently low interest rates since the 2008 financial crisis has reduced the perceived benefit of other short-term investments. It is also evident that “the notion of Europe increasingly extends beyond countries of the West to include those in CEE,” said Lindemann. It pays to be a big cash management bank in these circumstances as they typically secure a disproportionately large share of the overall corporate wallet.
Other afternoon sessions included a study by Dámaso Cebrián, Banco Santander’s head of product management GTS Europe, of the growing convergence between cash management services and trade finance. This could be regarded either as “a marriage of convenience” for the banks, or a development of real benefit to treasury departments.
Cebrián argued for the latter, describing supply chain finance as “the love child of cash management and trade finance”. He suggested that the union combined the benefits of trade finance (good risk management, balance sheet management and working capital optimisation), the broad scale of cash management in transactional services, industrial scale volumes and straight-through processing (STP) and added leverage on efficient processes.
Ashutosh Kumar, global head of corporate cash and trade for Standard Chartered Bank, focused on managing cash generated by the dynamic growth of the emerging markets. He noted that the nominal gross domestic product (GDP) of the global economy, which in 2010 stood at an estimated US$62 trillion, was set to increase nearly fivefold by 2030 to reach US$308 trillion. The emerging markets would be the main engine of this growth and companies should take advantage of their potential. However, before venturing into these new markets they should take account of their hugely diverse geographies and cultures, their widely-differing regulations and their infrastructures.
The single euro payments area (SEPA) and the 1 February 2014 deadline for compliance within the EU was the subject of an IPS 2013 strategy roundtable in the afternoon. The panel of three consisted of Andreas Resei, European treasury manager for packaging and paper group Mondi; Massimo Battistella, manager of accounts receivables, administration services at Telecom Italia; and Kostas Evangelidis, senior manager, global treasury at the PwC consultancy. [To see a report on the dedicated SEPA stream on day two of IPS click HERE -Ed].
Both Resei and Battistella on day one of IPS 2013 confirmed that migration to SEPA ahead of the deadline was proving both a lengthy and costly process for corporates, but at least their companies had begun preparing in good time. “The terror is increasing among those who are only now waking up to the size of the problem,” said Batistella. According to Resei, there is a very real chance that some companies will not be ready for SEPA when the 1 February 2014 end date arrives. Is it possible that some employees will find that the salaries cannot be paid as a result? “Salaries will continue to be paid, but some companies will be struggling to maintain their business,” warned Resei.
All three agreed that as the SEPA project goes back so many years, it has never been clear at which point banks should have begun conversations with their clients in making preparations. “In a complex financial environment, SEPA could be better and more simply defined – and what exactly corporates need to do could be clearer,” said Evangelidis. “If they have not already done so, banks now need to take their corporate clients by the hand to guide them.” There is business there to won by the banks.
Technology and good customer service were the weapons that could be deployed to win back business for the banks and prevent disintermediation, concluded the panel, but the size of the task facing banks to prevent disintermediation and meet the various regulatory and financial challenges facing them was not underestimated at IPS 2013.
• To see the day two IPS show reports on SEPA and Regulatory Pricing Impacts click on the highlighted sections.