Global Payment Trends: From Innovation to Fraud
Managing payments processes is a fundamental part of the treasurer’s role. The dynamic nature of the payments space means it is an area that should be constantly reviewed.
A packed session on the first afternoon of the Association for Financial Professionals’ (AFP) annual conference in Washington, DC examined global payment trends from a number of industry perspectives.
Steven Bernstein, senior automated clearing house (ACH) market manager at JP Morgan, illustrated some of the different payments challenges that global corporates face.
Looking outside the US, ACH and electronic funds transfer (EFT) are the most popular payment methods in Europe and Asia Pacific. Development and standardisation of platforms, spurred on government and co-operative institutions such as SWIFT, has accelerated the move to more efficient payment methods in a number of these countries. Bernstein noted that the same is not true of Canada and a majority of the countries in South America, where cheques still play a leading role.
In the US itself, ACH and cheques dominate the payments landscape, together accounting for 82% of payments by value. Bernstein said that the country has also seen a rise in debit and pre-paid cards, which has been primarily consumer driven. The shift in the balance from paper to electronic methods of payment is continuing in the US, with Bernstein saying that both ACH and debit cards are experiencing 15% growth year-on-year.
When it comes to US cross-border payments, wire payments dominate, accounting for 69% of such payments. However, Bernstein noted that wire payments only accounted for 12% of total payments by value, so there is scope for this to grow.
In terms of innovation in the payments space, Bernstein noted that in 2015 there would be a trend of accelerated growth of mobile payment methods.
Innovation Through SEPA
In Europe, the realisation of the single euro payments area (SEPA), through instruments such as the SEPA direct debit (SDD), SEPA credit transfer (SCT) and SEPA card clearing (SCC) will allow for greater innovation due to their standardised nature.
For the same reason, Bernstein said that Common Global Implementation (CGI) and ISO 20022 will drive innovation, and noted the global reach of both.
Commenting on SEPA, John Christensen, treasurer at Braintree, a PayPal company, noted that there are some issues in its early stages that are holding back further developments.
Christensen pointed to SDD returns as one issue, noting that around 50% of these returns come back with a code listing the reason for the failure as ‘Other’. In addition, he said that the lack of a European-wide eMandate solution is seen as prohibiting wider adoption of cross-border SDD. The bottom line for Christensen was that there won’t be such a thing as ‘real-time SEPA’ until these and other similar teething problems with SEPA are ironed out.
Payment fraud is another significant trend in for the industry. Jay Simmons, director, corporate treasury at insurer MetLife, explained how his organisation is very focused on risk management, and that the risks can vary depending upon the product or payment that his organisation is managing. The fraud threat is particularly high in the insurance sector that MetLife operates in.
Simmons said that the US insurance industry faces fraud losses of an eye-watering US$80bn annually. The threats include issues such as fraudulent claims, money laundering and insider trading. As technology in the payments space evolves, the threats that organisations face progress at an equal rate.
Looking to the future, Edward Chung, treasury and financial operations manager at Square, explained his organisation’s Square Cash solution. A peer-to-peer (P2P) product that can be downloaded onto a smartphone, the app allows consumers to text money to their contacts. The transfer goes between banks automatically, and most payments are deposited in minutes using the person’s existing debit card.
Chung joked that the app meant that his friends had become his ATM.
With solutions such as the Square app, and with innovations such as Faster Payments in the UK and other similar schemes around the world, payments are moving faster. Braintree’s Christensen said that treasurers need to understand how to manage fluid liquidity, particularly across different time zones. This will be a key trend heading into 2015.