Global payments trends: Considerations for corporate treasurers

Corporate treasuries are navigating a period of great changes, opportunities, and challenges. The convergence of digital technology, changing business models and an evolving regulatory environment, all three of them intensified by the Covid-19 pandemic, require treasurers to future-proof their business.

This is a big ask. Treasurers must digest issues of technology, strategy and changing customer behaviour, as failing to do so exposes them to risk. But corporate treasuries that position themselves well today will reap the benefits tomorrow.

Customer behaviour is driving growth

The modern payment environment is undergoing dramatic growth. According to the World Bank, the Covid-19 pandemic has spurred financial inclusion, driving a large increase in digital payments amid the global expansion of formal financial services. Further, as of 2021, 76% of adults globally now have an account at a bank, other financial institution, or with a mobile money provider, which is up from 68% in 2017 and 51% in 2011¹. Additionally, the distribution of this growth was evenly distributed across many more countries, which better supports the World Bank’s drive for greater financial inclusion globally.

The pace of this growth adds urgency to the need for corporate treasuries to adapt. They must centralise liquidity, re-engineer processes to reduce costs, address supply chain inefficiencies, optimise their reconciliation processes, and embrace straight-through processing and real-time payments. They must do all these while elevating cybersecurity measures and improving their environmental, social and governance (ESG) position.

Regulation and payments

Technology will help them do so, but any changes corporate treasuries make must take place within the parameters of fast-changing regulation. Regulators have an important role to play and around the world, there are examples of regulators addressing the potential risks within the payments landscape.

The G20 has made cross-border payments a priority. To address its concerns about financial inclusion, costs, speed, access and transparency, the Financial Stability Board has in place a roadmap for the modernisation of payments infrastructures around the world, as well as the adoption of the ISO 20022 format, which aims to bring richer and better structured transaction data into payment messages.

The European Union seeks to promote instant payments in Europe, and legislation is expected to set a timeline for its adoption. In the United States, the Federal Reserve has implemented its FedNow service to offer instant payment services for banks and credit unions. And in Asia, Singapore is an example of a jurisdiction and regulator seeking to build links to other real-time payment schemes in the region, notably Thailand, driving efficiency across borders.

Looking at Asia, regulators have and continue to be active in shaping the next generation of payment infrastructures, impacting the wide scale deployment of real time payments, the rationalisation of payment rails, the migration to SWIFT ISO 20022, as well as the emergence of Central Bank Digital Currencies (CBDCs) and their use cases. The motivation of the regulators, if we look at real time payments for example, is to promote social inclusion of the unbanked population, but equally ensure the development of digital commerce and innovation in a holistic and sustainable manner.

Treasuries must also adapt to the fact that their own customers are changing their behaviour. Consumers embrace digital channels for purchasing products and expect a seamless payment experience in doing so. Demographic shifts – such as the leapfrogging of cards in emerging markets by consumers who migrate directly to mobile wallets – will accelerate the need for inclusive digital payment channels.

With regulation moving in the right direction, corporate treasuries can assess the latest available technology and the key drivers to emerging global payment trends, which includes:

• Application Programme Interface (API) - Some technologies, notably API systems, have already become entrenched in the modern treasury environment. They provide real-time connectivity between a corporate and its bank, including the instant initiation of secure payments. They embed banks in corporate ecosystems, bringing efficiency, speed and control to treasury teams. APIs help address weak spots on customer processes from data collection to reconciliation.
• Generative Artificial Intelligence (Generative AI) is increasingly being used in treasury functions for a host of reasons, including identifying data patterns that can assist with cash flow forecasting and FX exposure management. Generative AI is also already in use, allowing investors to generate bespoke financial market analytics useful to treasury teams, by utilising HSBC’s proprietary AI Markets, a neuro-linguistic programming (NLP) engine, to access the latest market insights.
• Distributed Ledger Technology (DLT), for example, is best known as the underlying infrastructure supporting blockchain and CBDCs. HSBC has been using the technology to support foreign exchange transactions and settlement. The FX Everywhere DLT solution has been in use since 2018, and in 2019 settled more than 150,000 payments worth $250 billion, reducing the reliance on external services for settlement.
• Web 3 & the Metaverse, and even the apparently esoteric idea of the metaverse may have implications for the corporate treasury world. So long as transactions take place in a virtual reality realm, there will be a need for payment services within them. As various industry sectors explore the use of the metaverse as a distribution channel for products and services, there is a need for effecting payments efficiently within these virtual reality platforms.

A modern corporate treasury must stay apprised of these shifting patterns in digital technology, business models and evolving regulation. It must use technology today to lay the foundations for the environment they expect to see in the future.

The move to digital business models has created a stronger demand for payments to settle in real time. As individuals can send payments to friends and family instantly through a mobile device, so too are companies looking for the same experience when making time sensitive treasury payments, payments to vendors, and receiving payments from customers. With over 60 countries worldwide providing real-time payments, the volume of real-time transactions is expected to grow. Asia best illustrates a key trend for the future: taking the progress that has been made in domestic instant payment systems and applying them to cross-border transactions. And with the large number of real-time payments networks globally, it is a natural next step to attempt to get them to work with one another.

CBDCs are a new form of digital money issued and regulated by a country’s central bank and represents a digital expression of the country’s fiat currency. They aim to harness the benefits of digitalisation whilst maintaining the stability and security of the national currency. One of a central bank’s top priorities is ensuring the country it serves has access to useful public money. As digital payments replace cash usage in many countries, central banks must look at new ways to facilitate these digital transactions, and CBDCs may help answer this mandate.

The convergence of expanding emerging payment trends, digital technology, changing business models and an evolving regulatory environment is creating great opportunities for corporate treasuries. As companies look to future-proof their business models and supporting technology, it is important to consider the expectations of where its business will go in the medium and long term. Forming the groundwork today with treasury technology that supports this business growth is critical in building for the future and leveraging future business opportunities.