Borderless Payments Seen as the Prize at EBAday 2013
A seamless payments chain, payments innovation, mobile payments and treasury and payments processing centralisation all featured at the Euro Banking Association’s annual EBAday forum in Berlin, Germany, on 21-22 May. Despite the commonly-held complaint of many delegates that they feel “all SEPA’d out”, inevitably the fast-approaching single euro payments area (SEPA) was also again high on the agenda. With the 1 February 2014 migration end date now just eight months away, there were also some wry comments that next year’s forum, which moves to Finland’s capital city of Helsinki, can shift its focus to the SEPA aftermath.
A session on ‘seizing the new opportunities’ presented by technology innovations in payments and transaction banking was originally to have been presented by Commerzbank’s divisional board member for banking operations, Christian Rhino, who was called away on other business. Colleagues Thomas Egner, Commerzbank’s director of group services for banking operations and an EBA board member and Reinhard Furthmayr, the bank’s head of financial institutions took to the stage instead.
Furthmayr observed that some had judged the demise of correspondent banking to be imminent, but he contested that assumption. “I think that instead it will redefine itself, as it has one in the past,” he suggested, although the industry needed to confront the problem of peoples’ declining trust in banks. Commerzbank also saw few signs of growth in the western Europe market, where economic doldrums were reflected in declining income streams from European payments. The bank was therefore focusing more of its attention on areas where payment volumes will continue to rise, such as Latin America, Africa and Eastern Europe.
Banks needed to collaborate in the tasks of restoring the public’s trust, organising payments and responding to the growing volume of regulation. They also needed to question their continuing support for cheques and paper-based business, where a fresh perspective was needed.
Egner selected standards, co-operation and innovation as the three key factors vital to the future success of transaction banking, and ultimately of the service it provides to retail and corporate treasury clients. These three elements will need to be in place to fight off disintermediation from PayPal, Square and other new payment players now entering the marketplace.
The ‘borderless world’ involves standards, which presents banks with both pros and cons, and tended to be more popular with the major transaction banks than with their smaller competitors. Co-operation and collaboration were also not always easily achievable, as Commerzbank’s own 2009 merger with Dresdner had proved with each bank having its own opinion on certain issues. Treasurers and ordinary customers on the High Street, however, don’t care about internal bank politics or collaboration discussions, they just want good service.
As for innovation, was the banking industry ready to innovate? “No, because we’re prisoners of regulation, as are our legal departments and the frameworks within which we must work,” Egner suggested. “It’s not because we’re lacking in good ideas.”
Egner added that innovators had to accept the probability that, in the early stages of developing a new and unfamiliar concept, they would lose money and at present the banking industry had no money to lose. This point was echoed in a later session, where it was reported that a study of 400 different innovations devised for the mobile payments sector during the tech boom of the late Nineties showed that only a handful survived the subsequent ‘bust’, of which only PayPal had gone on to successfully establish itself.
Session moderator Ashley Down, chairman of the SEPA Consultancy, suggested that in today’s vastly-changed operating environment banks were unlikely to ever again be as collaborative as they had been in the past. They were having to consider new potential partners with more innovation-driven staff. “Banking has traditionally not been transparent, but transparency has become critical – particularly when banks’ rivals are increasingly collaborating with one another,” he said.
“So innovation will take place through non-bank entities before gaining momentum – and banks will then gain access to it through a merger or takeover with that entity.”
Opening up the session to questions from delegates raised the issue of real-time payments, which have been a catalyst for a new ‘instant loans’ market in the UK. Would real-time payments and a supporting infrastructure become established in mainland Europe? Egner responded that, as yet, there were few signs of demand from corporate customers although he had no doubt that this new market would develop.
He also, controversially, suggested that regulation should be regarded as “a protector and enabler”, whereas the banking industry was more inclined to regard it as a threat. Egner cited the ‘World Payments Report’, the annual publication produced by Capgemini, RBS and European financial marketing group Efma, which was of the opinion that banks lacked a framework that could enable them to covert regulation into a ‘positive’ force.
E-commerce and Added Value
A later session at EBAday 2013 on the challenges of building a seamless end-to-end payments chain included contributions from Stefan Scheidgen, head of cash management and accounting at Deutsche Post and Francisco Tur Hartmann, an adviser in the market integration division of the European Central Bank (ECB). Scheidgen said that robustness of payments processing was a priority for the postal group and to leverage its investment in this area it was seeking to also leverage its partnerships with the banks. One of the major areas was pension payments, which were still paper-based.
Tur Hartmann, noting the accusations levelled against banks of not being innovative enough, said the electronic commerce (e-commerce) market was developing but the focus was more on card payments than electronic payments at the moment. This had produced some conflicts of interest and legislation was still hampered by being fragmentary. In addition, although e-commerce was booming thanks to the proliferation of iPhones and iPads, there were as yet relatively few initiatives in the sphere of electronic e-payments.
Laura McGortey, managing director for Bank of New York Mellon (BoNY Mellon) said that banks’ willingness to invest in the new payment infrastructures needed to support e-payments was dependant on whether the investment was matched by opportunities for new revenue streams. “We can’t justify the investment unless we also have the scope to add new value-added services,” she suggested. BoNY had used both collaborations with strategic partners and also a few acquisitions in order to provide such new services, she asserted.
Payments Centralisation and the Treasurer
A session entitled ‘Treasury payments – the journey towards centralisation’ saw Monie Lindsay, managing director of consultancy group Treasury Strategies Inc (TSI), suggest that from a corporate perspective treasury payments are steadily becoming blended with other payments. “Centralisation has being occurring for a while and both the 2008 financial crisis and SEPA have merely accelerated the trend,” she said.
The need for increased efficiencies, increased visibility and control, fraud reduction, improved supply chain management and lower transaction costs had all acted as drivers. This had been accompanied by the increased importance within most organisations since the 2008 financial crisis of the treasury department. “The treasurer plays a much more strategic role and is more integrated within the organisation,” said Lindsay. “He or she no longer lives in an ivory tower.
“Treasurers require faster and better access to payments data. They look to their providers for visibility and transparency, accuracy, simplicity, certainty of execution and near real-time visibility.”
But to stay in the game, banks had to respond to these requirements and also determine the impact of new incoming legislation. TSI estimated that the corporate world’s total spend on payments and liquidity was in the region of US$1.8 trillion, but of that total no more than 10% to 15% went to banks as providers. Of that total spend, payments and receivables accounted for around 60% although risk controls and risk management were growing in importance.
Customers Setting the Pace
Javier Santamaria, chairman of the European payments Council (EPC) suggested that the comprehensive review that EBAday 2013 provided of the current payments landscape and the future world of borderless payments allowed room for optimism. “We can successfully meet the challenges,” he declared.
However, Christian Westerhaus, global head of cash product management at Deutsche Bank, said that the discussions had also revealed the unintended consequences of some regulation – for example, charging for intraday liquidity, which reflected regulators’ wish for payments to be made earlier but was likely to have the exact opposite effect by pushing them back.
Vincent Brennan, head of group payments for Bank of Ireland suggested that in the areas of e-payments and other alternative payments, customers rather than service providers “are determining what their experience should be”. He drew an analogy with the development of the mountain bike industry, which grew from the demands of customers for tougher, more robust bikes and to which manufacturers promptly responded. The same pressure for more robust, customer-focused payment systems is now being applied to the banks.