Picture this. Corporate treasurer is walking along the street, at lunchtime, in busy midtown Manhattan.
Corporate treasurer gets an alert via smartwatch that a payment is due to a supplier. Payment is due at 5:00 p.m. – in England. Which means 15 minutes till the bank closes in New York, which means … gotta get it done now.
Payment is done, B2B, with literally a flick of the wrist.
No muss, no fuss, no paper chase.
We’re a long ways off. But in the world of contextual banking, we’re likely a lot closer than we’ve been, even in a world where corporate payments still cross borders and move from bank to bank through what is largely a black box process.
Shifting the B2B Mindset Beyond the Fallacies
In the latest in a continuing series of discussions on the ways “how” can shift to “when” and “who” and “why” in banking, iGTB’s EVP Barry Rhodes told Karen Webster that fallacies abound when it comes to B2B payments.
The most important attribute of payments may be, via conventional wisdom, perceived to be speed. But that is only conventional wisdom.
But to the swiftest goes the payments race? Maybe not. The case for context, for information – for not just data, but useful data – is one that is stronger than just the time it takes money to go from point A to point B.
Thus, the case for contextual banking, where data is used intelligently, and optimally in an automated fashion, to understand why payments are being made and, as a result, the best way to get them where they need to go.
Efficiency, said the executive, “is about the information we can pass along with the actual payment, ensuring that the history of that information means we find a way to better connect those individual line items.”
The desire, in short, is to know where things are when it comes to cross-border, cross-bank activity. Know where a payment is, and when it can be expected, and that knowledge helps to free up finance professionals to make cash flow plans with visibility in hand, so that each dollar is optimized.
That visibility problem has been around forever, said Rhodes, “and we are just starting to make some headway.” The model that some may seek when it comes to boosting that visibility is akin to a FedEx experience, where one inputs a tracking number and can view the progress of a package as it moves from doorstep to doorstep. He surmised that a key to a greater level of visibility will be how quickly local schemes can migrate to ISO 20022, and non-integrated networks and non-integrated payments rails can be connected. That connectivity, Rhodes stated, is one that remains a goal of iGTB, with software in place for digital banking that can help transform cash management – and that the bank need not rip and replace all of its legacy assets.
Against that backdrop, said Rhodes, iGTB has been debuting a new architecture driven by APIs. The portal gives the payment characteristics and returns the options for payment delivery connected to that particular bank. “And it does that for not only corporate channels, but all other channels as well,” he said. Rhodes maintained that iGTB’s offering is different from other firms’ traditional hub offerings that have generally taken information up-front and determined the routing paths – the latter often determined by explicit agreements and parameters of banks themselves.
“Moving that flexibility to the customer requires coordination between the service hub and the channel,” he said. However, he added, the optimal level of a transaction’s visibility will not happen until there is a consortium of banks, providers and settlement systems willing and able to share data.
Amid such fragmentation, the advent of APIs and other technologies can foster an understanding of what businesses need (and need to do) as they navigate cash flow management on a day-to-day basis.
A Mismatch Where a Match Is Needed
The mismatch under the status quo is stark. As Webster noted, for the seller, the business sending an invoice that has a set of payment terms (think net 60, for example) may not have a vested interest in a transaction’s trackability. Consider the fact that the seller of a $10,000 good or service knows he or she is going to get paid on day 60. The sending and management of that payment is no concern of theirs, but rather is the purview of the buyer and the banks.
“The flip side of that transaction is the buyer,” said Rhodes – and the buyer does care about what happens between day 0 and day 60. And he wants to know if he can pay on day 60 with 15 minutes left in the day and keep his money until the last minute, explained the executive.
“If they don’t understand what is going on in the mystery data, in the black box, they may not have the flexibility with their current cash flow as they otherwise might,” he noted. “They do not need to understand it. But what if, during that 60 days, I can do something with that $10,000?”
Many Paths, One Destination
Said Rhodes, if choices abound amid networks for how to get payments between buyers and sellers – if there is a Ripple path, if there is a corresponding banking path, if there is a closed-loop agreement path – the corporate treasurer has flexibility. He or she can take advantage of a software and data package, brimming with options – what it costs to route a payment a certain way and with what timing – and then there are dictates of what the response messages themselves will show, illuminating which bank is getting paid and when, leaving the corporate professional to determine why.
Thus: context, choice … and cash flow, visible and maintained with some degree of flexibility.
What the Bank Must Believe
To get to this next level of transparency, of course, the banks have to be on board. For, as Rhodes maintained, a true payment happens when money is moved between bank-owned accounts. This means banks must be willing participants in the move to transparency.
“The bank has to believe that it is a good thing to let corporate customers be more autonomous,” said Rhodes. “They have to be willing to let customers make choices about that business of payment flows that used to be made only by the bank. They have to understand that it is not about releasing total control, but it is also a cost-saving measure for them,” because straight-through processing improves as well.
“They are concerned over the cost of a major program,” said Rhodes of banks shying away from traditional clearing and settlement processes. But if they do this, they will not be disintermediated by FinTechs, because they will be able to offer the same payment flows across devices and services as do those tech-rich startups.
The crypto argument? No discussion of payments visibility is complete without a discussion of cryptocurrencies. And, as Rhodes stated, it may be the case that firms like Ripple get the media attention and indeed do have new networks that can displace banks. But the reality is that though the building blocks of journaling, tracking and near-instant settlements are there, cryptos offer a haven that is “no different than other payments rails, as there is still a collateralized account that has to fund the network somewhere … And it is one of the reasons why you have not seen a crypto-based true payment network really take off in the market. Because when it gets right down to the details of how that money actually moves, people realize what they have actually done is create a real-time network that basically settles after the fact.”
Back to the Future
The economics may have to change, the banks may have to adapt and adopt to a new level of openness, the visibility of payments flows may get turbocharged … and then? What might we see in a contextualized world?
Go back to the opening visual we’ve given. The day may come when wearables take their place as a cash flow management tool, when – as Rhodes stated – “you don’t have to worry about [physical] real estate that shows all of the data … even though there will be regulatory things that you cannot show on a two-inch screen.”
Here comes, then, the treasurer who literally wears his profession everywhere he goes.