Open Banking’s Potential to Bring Treasurers’ Dreams of Real-Time Payments into Reality

What are you seeing as the most important corporate payments trends affecting treasurers right now?

Perhaps more than ever, corporate treasurers are navigating uncertainties and opportunities created by 1) global growth and 2) emerging technologies. The challenges of the current environment largely stem from the fact that corporations are now evolving into international businesses at an accelerated pace. Some studies have shown that more than a third of corporations now have operations that span 11+ countries, rely upon six or more different banks, and deal with payments in six or more different currencies. The corporate growth driving these circumstances is often the result of acquisitions, which means integrating unfamiliar IT systems and infrastructures within existing payments systems and technologies.

This reality places tremendous pressure on corporate treasurers from two directions. First, treasurers need to cope with the technical conflicts and associated challenges of getting disjointed IT systems and payment data stores distributed across the world to cooperate. Second, the rapid pace of growth requires treasurers to wrangle this breadth of global portals, accounts, clearing systems and formats while finding ways to achieve greater efficiency. This means adopting modernised payment solutions able to support seamless operations – even across cross-border, cross-system, and other operational frictions where the seams are all too apparent.

Payment volume also continues to rise; some studies show that nearly half of corporations are generating more than 10,000 global payments every month. That unprecedented volume and complexity not only means daunting workloads but also increases in formatting errors and other inaccuracies which can result in delayed payments and increased fees and costs. Corporate treasurers are well aware of the challenges and opportunities of this predicament and are actively pursuing solutions and technologies that enable simplified, error-free straight-through processes and real-time payments.

Studies show that nearly half of corporations are generating more than 10,000 global payments every month.

Additionally, the introduction of ever-more regulatory compliance requirements demands that corporate treasurers stay on top of the latest changes. For a specific example, the National Automated Clearing House Association (NACHA) in the US is challenging corporate treasurers with strict requirements around account verification practices. This can include maintaining beneficiary account lists and closely vetting beneficiary matches, with the purpose of defeating dangerous account takeover attacks. The new regulation is reshaping practices and forcing change, a reality that smart treasurers are embracing as an opportunity to introduce new and more effective security protections.

In the same way, the European Union’s Second Payment Services Directive (PSD2) has strict compliance restrictions requiring multifactor authentication for all online and credit card transactions. Under PSD2, financial institutions must provide third-party payment services with customer account access (if customers consent to it). Those requirements are being leveraged by corporate treasurers to move their businesses toward open banking APIs that ensure the required access, as well as biometrics and other highly trustworthy authentication technologies.

What's next for real-time payments?

The technology behind real-time payments is here, albeit largely in a development stage. However, corporate treasurers’ keen demand for the advantages of real-time payments is speeding up that development process.

The aforementioned global growth, corporate M&A, and increasing payments volume is also important here. Corporate treasurers are outgrowing standing relationships with their banks, dealing with a larger array of financial intuitions, accounts, currencies, payment formats, and connections. Real-time payments offer a welcome respite from this mounting complexity, simplifying and expediting payment processing. The automation and straight-through processing that real-time payments have to offer are a form of wish-fulfilment for overworked treasurers. Ideally, corporations would leverage real-time payments to deliver instant and error-free payment processing and confirmation, immediate confirmation of cash fund availability, and transparent visibility into the payments process at all points in the pipeline. The drive for treasurers to adopt solutions that deliver on these needs is immense, and any and all technological advances in this area will be adopted and celebrated as soon as they become available.

Ideally, corporations would leverage real-time payments to deliver instant and error-free payment processing and confirmation, immediate confirmation of cash fund availability, and transparent visibility into the payments process at all points in the pipeline.

What do you think the future holds for open banking?

Open banking has every potential of bringing treasurers’ dreams of real-time payments into reality. While only a limited collection of financial institutions are active participants in the open banking initiative today, the demand is there. That said, the technology behind open banking solutions will need to improve (and there needs to be a standardised approach to protocol and format across banks) if it’s going to realise the mass adoption it has the potential to earn. I’ll give you an example. Today, some bank APIs are limited by restrictions on total transaction volumes. Others have restriction on settlement networks that disallow certain payments from being processed through API networks. Athe technology grows to offer a wider array of solutions, a wider breadth of banks will be in a position to embrace it.

With corporations sure to increasingly champion open banking as a means of streamlining banking connections, realising real-time banking, and commanding more control and visibility into payments, banks will have clear competitive reasons to be a part of these solutions. Open banking APIs will similarly enable treasurers with self-service options that connect and play nicely with internal treasury management systems and other solutions, expediting what have been month-long integrations down to mere hours. I foresee an industry of the near future where the chance to introduce stunning new efficiencies like these will capture the imagination of banks and corporate treasurers – enough to become commonplace.

What are you seeing as some of the biggest challenges to accurate cash forecasting?

Handling the day-to-day duties of cash flow management is so manual right now – and necessary at such a volume – that businesses are limited in their abilities to create reporting that rises to a level of providing accurate foresights. Compounding the challenge is the fact that forecasting must gather data across disparate business units and, as we’ve established, are often global and involve a multitude of operational factors.

Cash forecasting currently requires a tremendous administrative lift on the part of corporate treasurers. To overcome this challenge, treasurers require solutions and automation intended to more easily orchestrate all pertinent data. Treasurers can also find benefits in solutions that leverage historical trends and produce multiple forecasts based on potential scenarios and outcomes, refining forecasts as reality exerts its influence.

Are you finding that companies are prepared for the transition away from LIBOR?

Corporations are at various stages with their preparedness for a world without LIBOR. Some are ahead of the game and actively making provisions for the new reality. Others know they are behind where they ought to be. The pressure will only intensify.

Do you have any advice about how businesses should prepare for their LIBOR transition?

Businesses should begin by taking an inventory of their standing loans, investments, and credit connected to LIBOR. Then, they need to conduct a thorough review process. This means contacting their lenders and servicers as appropriate to negotiate fallback provisions and replacement rate settings to take effect once LIBOR is no more. At the same time, any new contracts must include similar fallback provisions. It’s also wise for treasurers to become well-versed in the ins and outs of operating in a post-LIBOR environment.