In an era of instant global commerce, the financial infrastructure underpinning it is racing to keep up. Find out how the rise of agency banking, new regulatory pressures for transparency, and the immense technical challenge of 24/7/365 liquidity are creating a new digital treasury, one where payments are not just a back-office function, but a strategic tool for growth, liquidity, and brand identity.
In the bustling halls of Money20/20, where the future of finance is debated and designed, a quiet revolution is taking place in the back-office. What was once a landscape of legacy systems and operational necessities is now a frontline of innovation. At the heart of this transformation is the clearing and settlement infrastructure – the invisible bridges that connect the global economy.
To understand this evolving world, The Global Treasurer sat down with Michael Boel, Director Head of Clearing and Product Execution at Banking Circle, a man who has had a front-row seat to this change for over a decade.
“I see the digitalization…the payment ecosystems needs to follow on this one here. And I actually think that it has lagged behind, especially on cross-border payments for a while,” Boel states, capturing the core challenge many treasurers face. In an era of instant gratification, where a shirt can be ordered from Milan and delivered overnight, the expectation for payments to follow suit is immense. This consumer-driven demand, he argues, is the primary engine of innovation.
Recent partnerships, like Banking Circle’s collaboration with Visa Direct, are not about replacing traditional rails but augmenting them. “I don’t see the clearings as a direct competitor to Visa or MasterCard in that sense. I see it as a supplement,” Boel clarifies. It’s about creating a multi-faceted ecosystem where businesses can be serviced the way they need to be, in the region they operate in.
This drive for optionality is fuelling a proportional growth in payment volumes. As cash and checks are phased out, digital transactions, even for micro-amounts, are becoming the norm. For small and medium-sized enterprises (SMEs), this shift is critical. “Cash flow is everything for small merchants,” says Boel. “The quicker they can get the money, instead of having it delayed in five-day settlement cycles… the whole liquidity need… it’s actually essential.” Instant, cross-border payments are not just a convenience; they are a vital lifeline for business liquidity and growth.
One of the most significant shifts in the treasury landscape is the move towards agency banking. This model allows Payment Service Providers (PSPs) and other institutions to offer payment services using their own Bank Identifier Codes (BICs) and IBANs, while leveraging the direct clearing access of a licensed bank like Banking Circle.
Boel sees two major drivers for this trend. The first is regulatory pressure. The era of “nesting” – where a PSP’s transactions were hidden within a larger bank’s corporate account – is ending. Regulators, particularly in the UK with the advent of new Authorized Push Payment (APP) fraud legislation, are demanding greater transparency. “That hits reality, and then sanction screening and compliance people are sitting saying, ‘Where is the money originating from? We can’t see’,” Boel explains. The push is for full transparency on the payment chain, which can only be achieved if the PSP is identifiable on the wire.
The second driver is commercial. As PSPs grow from startups into household names, their brand identity becomes a valuable asset. “They want to be identified,” Boel notes. “When you key in an IBAN over at your bank, they don’t want to see the name of Banking Circle or Barclays… pop up. They want to see their own name. It has a branding value for them.” This builds credibility and provides a better, more recognizable experience for the end customer. It also offers flexibility; if a PSP is not getting the service they need, they can, in theory, move their BIC and business to a competitor. “I don’t mind the competition,” Boel remarks candidly. “They would move their business away from us if we don’t stay sharp.”
The transition to an always-on, real-time payments world presents immense technical and operational challenges. For Boel and his team, the conversation has moved far beyond simple functionality.
“The whole availability and the whole stability is a big, big thing for us,” he stresses. “We cannot have maintenance. There is no such thing anymore. It’s 24/7, 365.” This requires a sophisticated, active-active or even active-active-active infrastructure, with services running across multiple data centres to ensure zero downtime.
This constant operational demand is mirrored by a complex liquidity management puzzle. As a payments bank, Banking Circle’s model is distinct. “We need to be ultra-liquid,” Boel states. Unlike traditional banks that might lend out a significant portion of their deposits, Banking Circle holds onto the cash. This strategy is fundamental to their ability to operate in a 24/7 environment without facing a liquidity squeeze.
Their solution lies in diversification and the use of central banks as a safe haven. “After the Lehman Brothers crash… some people started thinking, ‘Hmm, if I place all my money with a commercial bank, what would actually happen if they went belly up?'” By holding funds directly with central banks like the Bank of England, the European Central Bank, and the Swiss National Bank, Banking Circle mitigates counterparty risk. From a regulatory perspective, these holdings are considered a “zero weight” on the balance sheet, providing a stable foundation for their liquidity operations.
For all the technical elegance and regulatory necessity, the greatest challenge can often be articulation. How do you explain the intricate value of clearing infrastructure to decision-makers who may not have a deep technical background?
“It’s ongoingly difficult,” Boel admits. “We’re trying to standardize as much as we can, but every country is the same, but a little bit different.” Each market has its quirks, its preferred payment schemes, and its unique regulatory landscape. Communicating these nuances, and the limitations as well as the capabilities, is a constant effort.
However, the most powerful sales tool, Boel concludes, is the success of their clients. “Some of our clients are our greatest ambassadors here… people are looking at what this guy is doing.” As one client leverages a new capability, others in the market take notice, creating a ripple effect. It’s this organic, proof-in-the-pudding demonstration of value that is ultimately paving the way for the adoption of the invisible bridges that will underpin the future of the global digital treasury.