A new report from financial services company Nordea says corporates are waiting for their banks and other FinServ providers to standardize payment processes.
According to Nordea research, a quarter of corporates say their largest payments challenge is a lack of standardization across formats between banks — and 60 percent said this is one of their top three challenges. But in today’s corporate banking sphere, standardization is an ongoing uphill battle.
The majority of companies surveyed by Nordea for its Future of Payments report said they are working with at least five banks for their payments and collection needs. But, researchers explained, each bank that works with thousands of its own customers will prefer to use its own payment format, usually developed internally.
“This creates a potential deadlock: Do banks risk losing business by insisting on using their own formats?” the report questioned. “Or do corporates limit their choice of bank by insisting on their preferred format?”
Enter: ISO 20022. For a few years the corporate banking space has been discussing the potential for ISO 20022 to streamline payments, with industry forces like SWIFT and SEPA promoting its adoption. But, according to Nordea, obstacles remain for ISO 20022 to take off as a payments messaging standard and provide corporates the efficiency they need.
In the eurozone, for instance, there remains disparities of format. Further, not all internal banking and corporate systems can support the XML format that has gained traction in promoting ISO 20022 standardization.
But perhaps the most complex chlalenge is awareness. Treasurers have limited knowledge of ISO 20022 standardization efforts, with more than a third reporting little or no awareness whatsoever of the payments messaging standard.
On the payment collection side, corporates are demanding streamlined solutions, too.
According to Nordea, centralized collections are a key demand from corporates, with 82 percent saying centralization is essential. The majority of businesses told Nordea that a single credit and collections platform is critical to a consistent, streamlined collections process. But like payments standardization, collections centralization comes with its own set of hurdles.
Among this rising demand among corporates for their banks to standardize and centralize payment processes, Nordea noted that there has been a coinciding rise in FinTech innovation, from real-time payments to collaborations.
In discussions with surveyed corporates, Nordea identified four key drivers of corporate banking innovation: changing needs and behaviors among corporate customers, increasing dependence on technology, regulation, and the impact of new market entrants.
And according to Nordea analysts, three trends will have the most immediate impact on the evolving shape of corporate banking: real-time domestic payments, cross-border payments initiatives likes SWIFT’s gpi and APIs that enable open banking.
For corporates today, mobile payments, ISO 20022 and real-time payments enjoy the greatest familiarity among these business customers. But there are other high-profile corporate banking innovative efforts that are surprisingly low on corporates’ list of familiar trends. For instance, just 3 percent of companies said they are very familiar with blockchain. Only 5 percent said they are very familiar with open banking via API.
Even virtual cards and virtual accounts lack understanding among corporate treasurers.
Collaboration between FinTechs and traditional banks will not only be critical in getting innovations off the ground, Nordea noted, but will also promote greater understanding of these solutions among corporate clients. Businesses today, large and small, need greater quality of information linked to a payment and need that payment to be fast and simple. These drivers are accelerating and guiding the direction of corporate banking innovation.
“Over the next four or five years, we expect the experience of corporate payment users to differ in three key ways compared with today,” explained Nordea’s Head of Cash Management Customer Solutions Claus Richter. “First, payments will be faster and often real-time. Second, there is likely to be more choice, and therefore more complexity, in payment partners, including both banks and third parties. Third, we expect to see more intelligence analytics and value-added services beyond the payment itself.”