Banks Must Have ‘Relentless’ Focus on Cost, Speed, Convenience and Transparency of Business Payments

Hindsight, as they say, is 20/20. And hindsight about 2020 — well, that’s something else entirely.

After the initial mad dash of the great digital pivot, the compressed timeframe where years’ worth of innovation was accelerated and adopted in a span of mere months, there’s finally time to take stock and think about what might have been done differently.

Manish Kohli, head of Global Liquidity and Cash Management at HSBC, told Karen Webster in an interview that he thinks traditional financial institutions (FIs) would have moved into their digital transformations a bit more quickly.

“There was always a view that the ‘North Star’ for financial services has been digital banks,” he told Webster.

Before the pandemic, he said, there may have been debate surrounding the speeds at which banks should make the leap to digital, with some executives pushing initiatives out a year or two. But as the pandemic disrupted pretty much everything, banks realized they should have become a bit “pushier” about the digital pivots, as they would have been able to assist their enterprise clients, especially smaller ones, a bit more nimbly.

Now, as banks are busy helping clients navigate rocky economic times and supply chain pressures, said Kohli, they must be even more relentless in their focus on the cost, speed, convenience and transparency of payments.

“Those guiding principles need to be in the design of every new payment, with client-centricity and the desire to provide a seamless 24/7 digital experience,” he added.

Banks, including HSBC, are having daily conversations with clients about the optimal ways to make and receive payments — and to leverage the footprints those payments leave as ways to gain more insight into their operations.

As the trends are in place for the reimagination of business payments for the digital economy, finance and treasury teams are doing their own reimagining of payments flows to leverage the digital economy for their own advantage.

We’re seeing a confluence of factors — the intersection of economic challenges, new technologies and a collaborative spirit bringing buyers and suppliers together — which gives those executives the opportunity to not just reimagine B2B, but to actually change the way those payments take place.

The Supply Chain

The urgency is there, given the snarled supply chains that are forcing buyers and suppliers to re-examine and recalibrate their own interactions. The headlines accumulate every day, and beyond the threat of empty shelves, the buyers and suppliers are themselves navigating cash flow disruptions.

Kohli contended that the supply chain issues may not have been all that unexpected, given the healthcare crisis that led to an economic crisis.

“The next evolution of that is a supply chain crisis,” he said, and what’s been surprising is the severity of the supply chain pressures.

Many of HSBC’s own enterprise clients have been reconfiguring their supply chains to include new geographies and partners to alleviate those pressures. But they (especially smaller firms) are also looking for new financing and liquidity solutions to help them make and collect payments in those new regions.

Kohli noted that HSBC has been seeing more demand for pre-shipment solutions to help smaller, export-focused enterprises manage liquidity. Larger buyers are showing a growing interest in supplier financing to help keep supply chains functioning.

The Collaboration

Underpinning it all is a collaborative spirit between buyers and suppliers to help one another. And, as Kohli told Webster, there’s a “massive desire” for FinTechs and banks to collaborate, reshaping finance well beyond the confines of supply chain dynamics.

Those partnerships are leveraging infrastructure to bring new solutions to treasurers and chief financial officers (CFOs). Kohli pointed to HSBC’s recent announcement that it would work with Oracle’s NetSuite to launch Banking-as-a-Service, where (among other things) enterprise clients can automate accounts payable (AP) and accounts receivable (AR).

Read more: HSBC Will Roll out BaaS Platform

At least in part, said Kohli, the automation of back-office workflows is among the “basic hygiene” of financial services’ transformation. The flight toward automation has indeed been in place for some time, well before the pandemic, but as new technology has come into play, treasurers have been streamlining cash flow functions, which leads to new business models.

“There are new opportunities to engage consumers and business customers in different creative ways,” Kohli noted.

As a result, larger firms are tweaking their own business models to include direct-to-consumer (D2C) options, and brands are becoming platforms themselves. Big Tech is branching ever more broadly into banking and offering flexible loyalty and rewards programs.

One area where we might see further innovation: blockchain. Kohli was quick to separate blockchain from cryptocurrencies like bitcoin (which HSBC and other FIs do not see as payment instruments). HSBC and other FIs are actively working with governments to discuss and develop central bank digital currencies (CBDCs).

In the meantime, blockchain holds promise in demonstrating and cementing trust in commercial payments, said Kohli, and verifying that enterprises are engaging in “arm’s length” interactions.

The Consumerization

Along the path of payments innovation, Kohli said we’re moving inexorably toward the consumerization of B2B payments — as enterprises, FinTechs and FIs take a cue from B2C and even P2P to reimagine commercial payments.

As Kohli said, “How consumers choose to pay influences how businesses choose to collect.” That means new methods of exchanging money, of getting and being paid, such as real-time payments, will continue to gain scale.

Of real-time payments, said Kohli, we need not expect that they are the be-all and end-all for B2B’s transformation, giving rise to a super app. But real-time payments have value in giving treasurers and heads of finance robust data and visibility that improves cash flow management and planning.

Generally speaking, he said, real-time payments serve a noble cause: to help customers and large corporations change their business models and allow them to create products and solutions that “speak better” to a digital economy. Real-time payments can help power the economy, allowing for instant redemption and a range of other value-added experiences.

“The enhanced information of real-time payments, converted into an interactive experience embedded with” application programming interfaces (APIs), can power new business models that monetize speed and payments choice, he noted, adding that “the biggest form of monetization is client delight.”