For banks & financial institutions (FIs), there’s only one issue that will impact the success and growth of their institution: competition. Banks & FIs will need to compete for customers; to do that, they need to be aligned with their clients’ priorities and can deliver on their demands for new functionality. They can do this by accelerating their digital payments transformation and continuing to evolve their solution offerings.
It may seem like a daunting task, but this article will reveal the top corporate priorities for 2023. It will also enable banks & FIs to benchmark themselves against their competition in meeting and delivering on these expectations.
Zhenya Winter: 55% of banks & FIs said adopting new payment rails, such as real-time payments, was their top priority, followed by mitigating payment fraud at 53%.
My main takeaways are that it is very dramatic to see that adopting new payment rails, such as real-time payments, has increased by 15% since 2021. Incidentally, it was 19.5% before the news broke from the European Commission in October 2022, tabling the proposal to ensure all EU & EAA citizens with accounts in the region can receive Instant Payments in euros. The results before October 2022 can be credited to increased customer demand, schemes providing more accessible access models for banks & FIs (NPAs, Target2, etc.), as well as the link to creating new revenue streams using digital overlays such as Request to Pay and Variable Recurring Payments, etc. Therefore, the business case for real-time is no longer in doubt, whereas previously, banks were concerned about having enough volume and value to justify the spend on implementation.
The 15% jump in mitigating fraud risk between 2022 and 2021 is also notable and is linked to Faster Payments – Faster Fraud. With real-time payments becoming the new norm, fraudsters will look to take advantage, especially when a new real-time payment scheme appears. Criminal organisations that use well-developed mule networks are all too ready to take advantage of the speed of real-time payments by moving the money frequently to avoid tracking.
However, it isn’t the real-time or instant payment rail itself that is the issue, as it is as safe as the regular credit transfer; it is simply that the money is gone faster and so there is less time to react. Instant payments are also irrevocable.
It is a great question to ask about whether banks & FIs have aligned their priorities with what their corporate customers are demanding. Improving cash forecasting & liquidity management would always be at the very top of a corporates list of priorities – it ranked 7th out of 9 options with only 30% in this banking and FI survey.
But Bottomline’s annual Payments Barometer survey for corporates found that cash flow reigns supreme as a critical focus for companies of all sizes, with 69% of businesses in GB and 73% in the US saying that the way they receive money has never been more critical. Additionally, in Bottomline’s CFO Dive Industry Report 2022, 80% of CFOs say that they need a more complete vision of business cash and liquidity and better access to real-time payment data analytics and insights.
However, the same Payments Barometer report also said that the adoption of real-time payments globally is ranked in the top ten as one of the key drivers of change across businesses, with 75% of organisations also having a need to make international payments.
Finally, I am delighted to report that corporates are aligned with the banks on the priority they place on Mitigating Payments Fraud, with 55% of corporates in the UK & 68% in the US concerned about Authorised Push Payment Fraud. Additionally, this sentiment is supported in the Strategic Treasurer & Bottomline Fraud and Control Survey 2022, where 84% of treasury and finance professionals across the globe see the threat of fraud as increasing from the previous year.
The point is that if the key to competitive advantage is exceeding their customer’s expectations, then banks & FIs should place more focus on cash flow and continue to develop their fraud protection and prevention tools for their corporates.
Which of the following are your top priorities regarding payments over the next 12 months?
Vitus Rotzer: Let’s take fraud prevention first: 56% said the improved data from ISO 20022 would improve fraud monitoring and management, and 53% said it allows them to better utilise data analytics to improve compliance with payment standards.
ISO 20022 makes a significant difference in the fight against financial crime. Being able to enrich data and the ability to better structure that data contribute to a better quality of data compared to legacy formats. From a payment fraud point of view, structured data and standardised messages make it easier to ‘mine’ that data and then provide better fraud detection and prevention analytics with fewer false positives. The quality of data and how banks leverage the insights of that data make the difference between improving the customer experience and stopping payment fraud.
I also agree with the 53% who said it would help with data analytics to improve compliance with payment standards. However, there will be other data challenges that will take time and good partnerships to fix. The structure of ISO 20022 on the international payment message side will evolve during the following year. Therefore, how you maintain your data, update it, and manage it is becoming a big part of what makes your payment processing and screening much more efficient and accurate. Not all banks have the tools to manage the additional data that comes with ISO 20022.
Initially, this data will be mainly on their central platform because many banks will have a hybrid legacy digital infrastructure. Without the correct data, we have a lot of empty boxes within the ISO format. By partnering with fintechs, banks can send, receive, and screen the new enriched messages. But on the core system, until that migration has taken place, we’ll still have the good old empty box, which is, unfortunately, light on information and will continue to pose challenges to better STP rates and effective sanction screening.
Then let’s look at cash positioning; 34% said ISO would improve intraday management & enhance cash visibility position, and 25% said it would optimise business cycle cash flow.
Operations & Treasury will be delighted as it will reduce their workload - having the data right and the compliance filter being set correctly, seeing lower risk scoring. This means not only fewer false-positive hits, but it also lowers the chance of missing a cut-off time for a payment mechanism.
For real-time payments, 37% said ISO 20022 would reduce transaction costs. Additionally, when we asked what the most significant barriers to adoption were for real-time payments, 31% said legacy infrastructure. Here it is important to note that legacy infrastructure is not limited to payment systems because if you want to enable instant payments as a bank, you need to also take into account real-time limit checks, real-time sanctions, real-time booking, and so on. All these processes will be enhanced via being ISO Native across your whole ecosystem. In a world of 24/7/365, you can’t just focus on the payment system; you need to think about your end-to-end secondary infrastructure process too.
VR: 35% called out lack of visibility on payment status, 23% said the slow or unknown speed of arrival, and 6% poor quality or loss of data – that equals 64% of pain points that can be partially solved by having ISO 20022 front and centre of your processes.
Make sure your financial institution is on track to maximise the changes impacting the payments ecosystem and accelerate your digital payments transformation strategy today – that is where true competitive advantage can be leveraged. Read the report and take the real-time benchmarking survey.
Zhenya Winter is the Global Head of Financial Messaging Marketing at Bottomline. She has more than 22 years of experience in the Financial Services sector, specialising in payments over the last 10+ years. Key areas of focus within payments messaging and connectivity include; Real-Time domestic & cross-border payments & ISO 20022.
Vitus Rotzer is Chief Revenue Officer – Financial Messaging Global at Bottomline. Vitus is a versatile senior executive with strong leadership, management, and business development skills. He has over 20 years’ experience in financial services and software technology within leading and international companies, encompassing sales management and senior executive roles.
Bottomline delivers a single SaaS platform for payments, securities, and messaging that helps financial institutions and corporations to achieve lower costs, wider reach, speed-to-market, greater security, and improved risk management.
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