By Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon
Through industry cooperation – with banks at the fore – new technology can be channeled for a revolutionised payments space. Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon, explains.
The rapid growth of fintech influence, increasingly sophisticated technology capabilities, growing client expectations, as well as new regulatory requirements, are fuelling the need for modernised payment systems and the development of cutting-edge digital solutions. Undoubtedly, the payments space is experiencing a period of rapid evolution, with technology presenting opportunities for the industry to transform how transactions are processed.
One area of development is the advancement of real-time settlement. Over recent years, 30 countries have introduced – or have made plans to introduce – real-time domestic payment schemes. The US Real-Time Payment (RTP) initiative – the first significant change to US payment platforms since the Automated Clearing House (ACH) was introduced in the 1970s – is due to launch during Q4. Meanwhile, Australia’s own New Payments Platform (NPP) is also set to be implemented by the end of this year.
With RTP settlement the restriction of business hours is becoming somewhat redundant. Domestic schemes are creating a 24/7/365 instant payment service and allow both the payment beneficiary and originator to have real-time access to payment information. In terms of cash management, transparency and reconciliation, the benefits are immense. Not only can immediate payments save time and costs with respect to tracking and reconciling payments, such transparency can also speed up value and supply chains by enabling the more efficient settlement of commercial transactions including expediting the shipment of goods.
Real-time systems are increasingly becoming the norm for domestic payments – changing the culture of how and when customers and businesses perform transactions.
The next step: cross-border payments
While substantial progress has been made when it comes to domestic payments systems, cross-border payments are yet to fully experience the benefits that improved technology could bring. Certainly, there is room for improvement in the cross-border infrastructure, with payments taking up to three to five days to clear. As the volume of cross-border payments grows at a rapid pace, banks will need to apply the same improved speed, efficiency and transparency to international payments.
This is no small feat, and the payments industry is working hard to make real-time global payments a reality. It’s clear that collaboration across the industry will be crucial if change of such scale is to be successfully implemented, and if technology is to be leveraged in full.
Harnessing technology for cross-border payments
SWIFT’s global payments innovation (gpi) initiative is a prime example of industry collaboration – and could potentially transform international transactions. SWIFT gpi, which seeks to streamline and increase the transparency of cross-border payments, has so far attracted support from over 110 banks, with the capability to channel payments into more than 224 countries – representing approximately 75% of cross-border traffic .
SWIFT’s established regulatory structure, technology and standards (that are recognised by over 11,000 banks) are playing a fundamental role in the programme’s broad acceptance. And it is this cross industry collaboration that will allow new developments – including SWIFT gpi’s cross-border payments Tracker – to be absorbed and applied to the mainstream more rapidly in the future. Moreover, SWIFT gpi’s cross-border payments Tracker will enable gpi banks and their clients to view the status of a payment, and any fee deductions, at any stage in the payment process, throughout the correspondent banking model.
Another current topic in the payments industry is “blockchain” – distributed ledger technology that has the potential to enable a cross-border payment to be processed within minutes . Blockchain’s ability to streamline the payments process could not only help to enhance transparency, speed of settlement, trust and security; the technology could potentially improve efficiency by cutting the number of stages involved in processing a payment.
Unlike SWIFT gpi, however, blockchain is starting from scratch. And substantial development is needed before it can play a larger role in global payment schemes, as well as gain the trust of regulators. Currently, SWIFT and a number of banks – including BNY Mellon – are collaborating to establish proofs of concepts (PoCs) and explore how blockchain could complement existing processes, such as nostro account reconciliation.
An industry aligned
Industry collaboration is undoubtedly playing a key role in shaping the future of payments. Banks, clients and fintechs are increasingly working together to develop new solutions, which can enable them to potentially be put into practice far more quickly.
Neither banks nor fintechs can address global payment market needs alone. Although fintechs have proven aptitude for technological development, they often lack the industry expertise, working capital and established client trust that banks have acquired over decades. It is through partnerships – banks and fintechs leveraging each other’s strengths – that payments can be optimised through digitalisation.
Moreover, collaborating with clients from an early stage is of great importance when developing innovative solutions. Given this, innovation centres – physical hubs where banks, fintechs and clients can work together to identify and develop transformative solutions – are pivotal to fostering client-centred collaboration.
Close collaboration with clients is important for delivering digital solutions with real added value. APIs (application programming interfaces), for instance, help clients connect and integrate with banks’ products and services in a far more efficient and streamlined manner. A key enabler for digital transformation, APIs contribute to changes in infrastructure and act as seamless, interoperable interfaces.
BNY Mellon’s new NEXENSM technology ecosystem, for instance, is a digital platform that integrates solutions and data from BNY Mellon, clients and select third-parties in one place. Currently, over 100 APIs are available in the API store for clients to choose from – with many more under development. Through customising APIs, clients are able to build their own services and systems – all the time enhancing their experiences and offerings.
Certainly, payments innovation should centre on the client. And by leading from the front, banks are initiating an industry-wide push for digitalisation, creating a chain reaction for fuller transparency and efficiency for payments.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.
KBC Bank chooses Finastra for LIBOR transition
Fusion Loan IQ Alternative Reference Rate module and Fusion LIBOR Transition Calculator will help the bank move away from LIBOR
KBC Bank, a Belgium-based bank with operations across Europe, US and Asia Pacific, has chosen Finastra to help manage its transition through the upcoming interbank references rates changes. It has selected Fusion Loan IQ Alternate Reference Rates (ARR) module to manage new rates and to expand its lending business. The bank has also opted for the Fusion LIBOR Transition Calculator to help calculate rates ahead of the transition period.
Melinda Christens, Business Program Manager LIBOR Transition at KBC Bank said, “We’ve been using Fusion Loan IQ for a number of years, and have been impressed with the way the solution is able to continuously adapt over time, adding new functionalities in line with changing regulations. The transition away from LIBOR is daunting for most banks, but with the help of Finastra’s solutions we’re able to continue to calculate rates and embark on a smooth transition.”
Fusion Loan IQ is Finastra’s solution for commercial lending, powering 71% of all syndicated loans around the world. It alleviates the high costs of system and process redundancy within commercial lending operations, as well as increasing transparency, improving risk management and simplifying entry into new markets or business lines. The latest version of the solution, enhanced to support ARR, provides banks with core capabilities to issue new loans using the replacement rates, allowing them to begin to transition their existing LIBOR portfolio safely.
Fusion LIBOR Transition Calculatorwill help KBC Bank manage the transition before the ARR module is rolled out. It enables market participants to calculate their own ARR or Risk-Free Rates (RFR) and interest accruals. The calculator service independently accesses the ARR/RFR from external official sources, such as the Federal Reserve Bank of New York, for the secured overnight financing rate (SOFR). It then calculates compounded in arrears rates and daily non-cumulative compounded rates, along with corresponding interest accrual amounts for a set of inputs. Depending upon the rate method chosen, the calculator has the flexibility to calculate the daily compounding rates for the whole period or only for the end date. It follows Finastra’s Fusion Loan IQ ARR calculations, which gives market participants consistent and accurate results.
Built on FusionFabric.cloud, Finastra’s open innovation platform, the calculator’s open API facilitates the integration with systems that don’t yet have a solution in place for calculating ARR/RFR rates. This significantly reduces operational risk.
“The shift away from LIBOR is the biggest change the market has seen in lending over the last three decades. It is also a once-in-a-lifetime opportunity to innovate and serve customers better, and so the need for a flexible service that can expand over time is a must,” said Robert Downs, Global Head of Corporate and Syndicated Lending at Finastra. “Our Fusion Loan IQ ARR module and the transition calculator are designed to keep pace as ARR methodologies and conventions evolve, protecting our customers from risks associated with complex system changes and ultimately future-proofing their businesses.”
How contactless payments helped a pizzeria survive
By Kaushalya Somasundaram, Head of Payments Partnerships & Industry Relations at Square, UK
The Covid-19 pandemic has caused continued uncertainty for the hospitality industry. Many have been forced to pause operations or adjust the operations so they can keep trading.
Businesses are continuing to address social distancing rules by rapidly accelerating their digital capabilities. From bakeries to pubs, we have witnessed businesses shift to selling online, offering click and collect services to making their goods available for delivery.
But one of the most integral ways technology is aiding these businesses is on the payment front.
Contactless payments and cashless businesses have been around for years, gaining popularity for the ease and convenience it offers businesses and customers alike. However a new significance has been placed on all technologies that reduce physical contact and time needed to complete a transaction.
It’s no surprise the number of cashless businesses in the food and drink sector is skyrocketing, from 8% in January 2020 pre-lockdown, to 33% in July 2020.
Contactless payment technology has played a vital role in the survival of many businesses, including a pop-up pizza business based in Cambourne, Cambridgeshire.
From hobby to hub
When Sam Corban first tried his hand at pizza-making, it was out of interest. But after moving to Cambourne, he decided to turn what had quickly become a hobby into a business.
Sam approached local council offices to seek support in getting his idea for an artisan pizza pop-up business off the ground. And in February 2017, 400° Pizzeria fired up its oven for the first time, trading every Friday night at the Cambourne Cricket Pavilion.
Prior to the pandemic, Sam’s trademark 24-hour slow proof dough – which had taken him almost nine months to perfect – had garnered him a fond reputation around the village. It wasn’t long before his popularity meant he could hire his first staff member.
However, fostering a close relationship with his local community has been equally essential to Sam’s success. He has several pizzas named after customers – from the classic Nduja to The Debbie – and often asks his regulars for feedback regarding new recipes.
The success of his pop-up has influenced other local artisan street food providers, who’ve since joined him at the Pavilion on Fridays which has helped create a local hub for Cambourne locals.
Once the pandemic hit and a new normal descended on the world, Sam knew he had to react quickly and intelligently if he was going to continue doing business and be a positive force in his community.
And that all started with how he took payments.
The unexpected virtues of contactless
Despite accepting cash, Sam has always encouraged his customers to pay with card whenever possible, even pre-pandemic. It’s simply a quicker way to complete a transaction, especially now most bank cards have contactless chips.
After trying out a few contactless terminals, Sam decided to use the Square Terminal, an all-in-one card machine for everything from managing items and taking payments to printing receipts and getting paid. Once the pandemic started it was a no brainer to become completely cashless. “As all my payments are processed seamlessly through the Square Terminal, I’m cash free,” explains Sam. “This means I can process orders faster and don’t have to deal with hygiene issues posed by taking cash.”
And, the peace of mind this offers customers can’t be overstated. It means they can get a slice of community and normalcy (along with pizza) in a time where they’re cooped up at home and need to keep contact to a minimum.
As a result, Sam was able to keep operating safely and successfully throughout 2020.
A future-proofed pizzeria
Sam’s success is closely linked to how he connects and engages with his local community. As well as his weekly pizza pop up, he’s also started stocking his van with dry goods such as flour and pasta to deliver goods to those who can’t leave the house. He has even started offering home pizza making kits – giving local families a fun way to jump on the lockdown home baking trend.
These acts, plus the digital transformation he’s undergone over the course of the year, will resonate positively for the pizzeria long after this pandemic is past. Not only has he cemented his place in his local community, but the technology he’s adopted has helped him flex his operations.
As Sam shows us all, with a sprinkle of technology and a healthy serving of community spirit, every crisis can also be an opportunity to grow and evolve.
Ahead of expected IPO, Deliveroo recruits Next’s Wolfson to board
LONDON (Reuters) – Britain’s Deliveroo said on Tuesday it has beefed up its board ahead of an expected initial public offering this year with the appointment of Simon Wolfson, the veteran boss of clothing retailer Next, as a non-executive director.
The food delivery company said on Sunday it had raised a further $180 million from existing investors, including minority shareholder Amazon, in a move that values the business at more than $7 billion.
Deliveroo is set to hold an IPO in the coming months, in what would be the biggest new share issue in London for three years.
Wolfson’s appointment comes after Deliveroo named Claudia Arney as the company’s first chair in November.
Deliveroo founder and CEO Will Shu said Wolfson would bring “great knowledge and insight” to the board.
Wolfson has been Next’s CEO since 2001.
He is also a peer of Britain’s ruling Conservative Party, sitting in the upper house of parliament.
(Reporting by James Davey and Paul Sandle; editing by Sarah Young and Pravin Char)
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