The evolving need for centralised payment solutions

By Frank Nolden | 15 September 2015

Payment systems around the globe are undergoing fundamental changes. The financial industry is disrupted by Fin-Tech companies and these startups are threatening traditional institutions with serious competition. The startups are easing payment processes, saving users money, providing customers faster with new mobile experiences and thus are moving the financial industry forward quickly. It is clear that the digital revolution in financial services is happening, but the impact on (large) corporates is not as well defined. Through the years, corporates have always been searching for the ideal solution to manage their payments. In the last five years corporates have developed a greater need for centralised payment solutions. What is driving this increased need? In this blog, we discuss the top three factors that impact and drive this evolving need of corporates.

1. The transformed banking landscape
The first factor driving the need for centralised payment solutions is the changing roles of banks. In the past, banks were able to serve their customers with the right products and services, but in the current landscape banks are struggling more and more with servicing their customers. Technology is developing faster than the bank itself and banks are under threat from digital disruptors, such as the Fin-Tech Startups. These startups are more flexible and can easily develop solutions with the newest technology, whereas banks cannot keep up with the technological innovation.

As competition increases in the payments market, banks need to create competitive differentiation, either in-house or in a shared model. They should work together with these Fin-Tech startups to develop customer oriented solutions, but most of all, banks need to reshape their focus and keep a consistent client focus. A recent example of a bank that needed to reshape was the withdrawal of RBS from a large number of countries and focusing on the UK home market. RBS has made the choice of being a consumer bank for the UK and say goodbye to the earlier acquired Global Transaction Banking corporate customers.

If the financial crisis has taught us anything, it’s that no matter how big, banks can go bankrupt. Corporates want to decrease their risk on financial counterparts, because these counterparts might no longer exist in 5 years. Most of the time, multi-bank solutions are used to overcome these bottlenecks and potential credit inefficiencies found within the use of single banks. Naturally, the changing banking landscape has driven corporates to become more bank-independent. Connecting to multiple banks via a centralised solution means lowering the risks of having to change and select new banks in the future and allowing corporates to have greater financial performances.

2. Embracing the cloud
The second factor driving the need for centralised payment solutions is the increased adoption of cloud computing. Cloud Computing enables corporates to implement centralised payment solutions without installing large software packages internally in the organisation. Cloud computing is not just used as a cost-saving tool for IT by corporates; it has enabled the transformation of entire (IT) business models. According to IBM (2013), the cloud drives down capital expenses (fixed costs) and delivers flexible operating expenses (pay-as-you-go) benefits (see figure 1). Cloud Computing has become a driver for corporate innovation and has changed the way corporates do business. With (private) cloud computing, the provider is responsible for managing the technology and thus the security and operations. Corporates can gain a higher level of data protection, fault tolerance and disaster recovery without the corresponding high investments they used to do.

Embracing (private) cloud technology is also becoming more and more important for a bank. SaaS is a must-have cloud technology that sets apart the pro-active banks that are looking to add more corporates to their long-term portfolio by offering them value added services on top of the standard banking products like financing, netting and pooling and payments processing. By offering SaaS services to their customers, banks optimise their buy, market, sell, and services portfolio. Figure 1 shows that Software-as-a-Service offers more standardisation, more OPEX savings and faster time to value in comparison with traditional on-premises as well as platform-as-a-service software. Recently, we have seen a growing trend in the adoption of SaaS by corporates and banks. This increased adoption “allows” corporates to select (private) “Cloud Solutions” for their financial processes.  Cloud computing is on course to become an everyday part of the way companies operate in the digital economy. 

3. Simple connectivity
The third factor driving the need for centralised payment solutions is bank connectivity. Corporates are often confronted with different payment file formats requested by each of their banks (even in SEPA banks still require different flavors of XML formats).

Moreover, corporates have multiple technology systems, platforms, communication standards and formats for each bank and payment type. Today, many corporates have to connect to a myriad of bank portals with numerous security tokens to handle their treasury operations; a risky and time-consuming process. Corporates are dependent upon these bank-specific channels and more importantly, the multiple systems and channels have high (maintenance) costs. To improve operational efficiency and to gain more control, corporates need to simplify (bank) connectivity albeit direct host2host connectivity, a bank specific channel for high volume data transfer between banks and their corporates, or SWIFT connectivity, a network that enables corporates to automate and standardise financial transactions with thousands of financial institutions worldwide (see figure 2). All internal and external connections need to be consolidated onto one platform. This simple connectivity is mostly achieved with a centralisation solution.

Managing payments centrally
Despite the continuous changes in the payment landscape, executives are always on the hunt for ideal operating models to manage their payments. All the above factors are of huge influence in the current payments sector and drive corporates to centralise their payment processes in order to be able to respond quickly to these rapid changes. The transformed banking landscape has driven corporates to decrease their risk on financial counterparts, and to improve control of their payments. The (private) cloud-computing trend has then provided corporates with cloud solutions that enable corporates to optimise and centralise their payments processing against a lower cost. This trend is supported by the rapid adoption of SaaS solutions by banks. Banks have realised that in order to fulfill the needs of their customers, it is important to partner up with third parties that offer these Cloud solutions.  And finally, the maintenance of all the different multiple technology systems have driven corporates to opt for simple hub connectivity through centralised solutions.

To sum up, the changes in the payment landscape combined with advanced technology are evolving the need of corporates to build more stable and centralised payment structures that will prepare them for the future.

By Frank Nolden, Founder, PowertoPay

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