3 Focus areas to unlock promise of digital payments for businesses, consumers

*The value of cross-border payments is expected to rise above 5 percent a year to about $30 trillion by 2022, says Accenture

*Experts identify multi-lateral collaboration as the way forward for the industry to regain consumer trust in digital solutions

Isola Moses | ConsumerConnect

The world is moving towards a cashless future as a critical feature of digital transformation.

The benefits for both consumers and businesses, in terms of convenience, cost and speed are indisputable, reports Bloomberg.

So, why is it that business-to-business (B2B) digital payments are still lagging behind their business-to-consumer (B2C) cousins, and what concrete actions can we take to close that gap?

Report says experts addressed these very questions and others September 2020, when Standard Chartered brought together practitioners from leading banking, financial technology (Fintech) and infrastructure providers across the globe in a series of virtual industry think-tanks.

The forum was organised to propagate a multilateral effort with a view to driving concrete business outcomes.

According to report, the interest and engagement of the stakeholders were evident from the depth and breadth of interactions among the participants.

A reason being that rarely, if ever, participants across the entire B2B payments value chain have the opportunity to meet and look at the issues together and from different perspectives, the report said.

The guiding principle of the discussion at the forum was to identify common pain points and commit to concrete actions to resolve them.

Julia Streets, a leading industry expert and commentator on payments innovation and capital markets, moderated the discussion spread over two-and-a-half days.

Experts identified one of the benefits of work-from-home policies and practically inexistent business travel imposed by the pandemic.

Anurag Bajaj, Global Head, Correspondent Banking at Standard Chartered, said: “To move the digital payments needle, we wanted to break through the noise of conflicting objectives and overabundance of opinions, and focus on actionable outcomes that will benefit every part of the value chain.

“I am extremely pleased that we were able to bring together such a diverse and senior group of decision makers and get their commitment to push in the same direction.”

Participants in forum also successfully pinpointed key areas that can be collaboratively addressed in both the near and long term.

These include lack of standardisation around digital cross-border transactions.

Cross-border instant payments were highlighted as one of the most significant obstacles. They are also believed to be among the most important, as they are central to everything from expanding digital commerce to the emergence of a real-time corporate treasury-management environment.

It was gathered that the value of cross-border payments is expected to rise more than 5 percent a year to about USD30 trillion by 2022, according to an Accenture study.

Cross-border shopping alone will account for an estimated 20 percent of all e-commerce by 2022, with annual sales of USD625 billion2.

Experts stated that explosive growth like this requires efficient payment rails, yet international payments remain intrinsically inefficient and often expensive, primarily because of the lack of a standardised global payments or messaging system (though the group agreed that the latter should be addressed with the implementation of ISO 20022).

Report further indicated that in many markets, the national banking infrastructure is not well set up to handle efficient cross-border transactions.

However, the participants disclosed that this gap has been filled by Fintech companies who offer cheaper, faster, and smoother systems.

As a concrete next step, think tank participants, therefore, committed to identify corridors where all parties would agree to promote instant payments solutions for serial payments by lobbying relevant local authorities.

Two, is non-uniform regulation across markets, which the participants agreed is a fact.

Regulations can significantly vary by jurisdiction, which does not help the case of improving efficiencies, they said.

Compliance requirements relating to Know Your Customer (KYC), anti-fraud and anti-money laundering, for example, are far from uniform, often resulting in cumbersome and repetitive processes across the payments value chain, stated the report.

There is also a perceived unevenness that sees nimble Fintechs subjected to lighter regulatory burdens than banks, despite the fact that Fintech payment operators are reliant on banking infrastructure.

In time, the lack of collaboration has led to a fragmentation of the payments landscape, with several consequences, participants said.

According to them, the first has been a proliferation of technologies, leading to a wide diversity of options and solutions across different markets, geographies and languages.

While this has delivered choice to consumers, participants said it had as well complicated the task of creating a more unified global payments ecosystem.

It is believed that different payment hardware and software systems often lack a cooperative interface.

This development, they stressed, results in processing delays, missing transactions and high fees.

The challenge is to develop real-time solutions that integrate systems, cut delays and maintain payment integrity, they said.

Again, multi-lateral collaboration has been identified as the solution identified to this problem.

Philip Panaino, Global Head of Cash Management at Standard Chartered, also stated: “The industry has to accelerate the engagement with regulators across the world, and it has to think more globally in a way that results in cooperative action.

“Together with other think tank participants, we plan to start approaching regulators as a group – potentially through the Bankers Association for Finance & Trade – and present solutions for such issues as cross-border instant payments and international settlement standards.”

The third focus the experts identified is lack of data integrity and optimisation.

According to them, no digital payments discussion would have been complete without acknowledging the importance of data.

This remains a complex challenge, they said.

While financial institutions are almost drowning in data, most of them don’t have the infrastructure and processes to analyse and utilise it effectively.

An industry-wide consensus on agreed data standardisation protocols could go a long way towards overcoming regulatory hurdles and improving payment efficiency.

The industry must collaborate on collecting, storing, sharing and consuming data to unlock the payments process and make it faster.

The mushrooming of payments services has also raised the risk of expansion outpacing security, and a concurrent rise in cyber-attacks and fraud.

The industry has to regain consumer trust in digital solutions.

While the digital payment think-tank acknowledged that creating a seamless digital payments ecosystem will never be a monolithic, one-size-fits-all equation, participants committed to setting up a working group that will work across existing industry forums to address the agreed upon common challenges.

Report further stated that participants maintained the multi-lateral collaboration is the way forward.

Streets also commented that “it was heartening to see such open collaboration among senior decision makers across the industry.

“Identifying what was in our gift to fix allowed participants to look beyond their organisational imperatives and focus on achieving a common goal.”

The positive response to these think-tank sessions and ongoing commitment from participants showed that much can be achieved when everyone is willing to overcome group think.

Standard Chartered is committed to playing an active role in bringing the industry together to lead the next stage of the digital payment evolution, stated the report by Bloomberg Media Studios in partnership with Standard Chartered.

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