Moving towards ubiquity of international payments
Nicolas Cailly and Frantz Teissèdre, Managing Director Payments & Cash Management and Head of Interbank Relationships at Societe Generale, respectively, agree that certain obstacles still have to be removed so that ubiquity can become the norm. They also discussed the changes this brings about.
Driven by the development of international trade, consumer and business needs, new technologies and digital transactions, ubiquity appears to be an inexorable trend in the global payments landscape. All payment players (banks, corporates, individuals) will access their funds and execute transactions (issue or receive) 24/7/365 worldwide from any medium in complete connectivity. The smartphone is a perfect example of this as it gives individuals the ability to access their banking services whenever and wherever they want. Within a corporate framework, the Chief Financial Officer or Treasurer now wants to live and consume banking services in the same way as they do privately.
Obstacles to ubiquity
However, it has not yet become the norm because of the frictions that are still present. Not all players operate 24/7 and in real time. Payments remain predominantly subject to “batch” processes in banks, and capital and foreign exchange markets are not open 24/7. International and national market infrastructures must therefore adapt by interconnecting in order to execute payments in real time. As do foreign exchange markets, in order to make them accessible 24/7. Taking advantage, for example, of the technical opportunities offered by blockchain or API-type connectivity.
However, today, the main obstacle in the execution of payments is regulatory and tied to legitimate needs to verify the ethics of transactions. The problem is that the rules in force, including flow analysis and compliance, are not harmonised from one State to another. In Europe, outside domestic borders, intra-European transactions carried out as euro instant payments are filtered, and sometimes stopped, which may result 5% to 10% of transactions being rejected depending on the market. Only a strong political will to harmonise filtering rules can remove some frictions. In Europe, discussions are underway in the context of instant payment in which Societe Generale participates actively within the European Payment Council and various working groups led by the European Central Bank. As such, the European Payments Initiative* aims to create a unified and innovative pan-European payment solution for consumers and retailers across Europe. It aims to become a new standard of alternative payment to existing international card payment solutions and systems. Europe thus retains sovereignty in this area. An initial service is expected to be accessible by 2022, and a complete solution by 2025.
The evolution towards ubiquity and real time payments, which must first and foremost take place within a secure framework, is a real paradigm shift for corporate treasurers. The overall management of their cash is changing, implying a structural overhaul of the processes and potentially of the company’s organisation. However, with abundant and inexpensive liquidity, the latter do not consider real time to be sufficiently crucial to commit the investments necessary to implement it. Unlike management, which, depending on the activity, can see competitive advantages in this area, incentivising it to expand more quickly. As such, the Covid-19 crisis acted as an accelerator for digitalisation, transparency and real-time payment process projects. The banks’ priority was to allow companies to make payments. In four weeks, Societe Generale has extended electronic signature capacities for payment and cash management to all corporate clients around the world through its SG Markets eSign and docuSign solutions.
For bank treasurers, ubiquity involves organising themselves based on the “follow the sun” principle by having offices in Asia, America and Europe to work 24/7 in order to always secure and facilitate exchanges. In addition, there are liquidity management constraints to ensure client transactions. While banks have statistical models and security buffers to manage liquidity peaks, the risk for bank treasurers is losing control of this liquidity, because tomorrow payments can be initiated by anyone at any time. The authorities may therefore ask that the buffers be strengthened to cope with certain stress scenarios.
The trend towards ubiquity of international payments will generate considerable human and technical investment, which is contrary to the requirement to reduce the costs of cross-border payments.
Towards a bipolarisation of the payment market?
As one of the leading payment players in Europe, Societe Generale has made transaction banking (correspondent banking, payment, trading) a strategic activity and one of its high-growth areas of expertise to which it allocates significant financial resources. In terms of instant payments, the bank is present in all its locations in the eurozone and the United Kingdom. In France, it has a market share of more than 20%. In addition, Societe Generale continues to invest in the SWIFT gpi service, allowing it to credit 60% of its cross-border transfers in less than 30 minutes. Societe Generale has been 100% compliant on gpi quality indicators since the inception of this service in 2017. This makes the bank stand out and meets the current expectations of customers and authorities, particularly in terms of speed and transparency.
The payment market is indeed changing. And ubiquity and real time are key advances. This change requires banks to invest more and more, year after year, in order to remain competitive. This can lead to the bipolarisation of the sector. On the one hand, the major global payment players will continue to invest hundreds of millions of euros per year and have sufficient processing volumes to meet their commitments and make this business profitable. On the other hand, those who do not have this critical mass will probably have to join the former.