For banks worldwide, payments services are an increasingly important source of revenue and driver of loyalty among both retail and corporate customers. For consumers, advances such as mobile and contactless payments have transformed the payments experience. And for corporates and small and medium enterprises (SMEs), expectations around the efficiency and convenience of payments are growing fast.

As banks strive to deliver against these requirements, they know there’s no time to lose. Emerging regulations are reshaping the payments market and driving existing providers to adapt their offerings, while also paving the way for new entrants. If banks themselves don’t move fast to seize the corporate payments opportunity, then somebody else will do it first—thus relegating banks to back-office utilities running accounts for others’ front-office payments offerings

With this in mind, let’s look at seven of the biggest payment challenges for corporates and the opportunities they present for banks.

1. A mismatch between retail and corporate payments

A glaring mismatch of expectations has opened up between corporate and retail payments, with corporate customers’ experiences as consumers giving them expectations that existing corporate payment solutions rarely meet. In recent years, improvements in the customer experience of retail payments have far outpaced those in corporate payments, as investments in innovation and digitalization have seen retail payments evolve rapidly in terms of process, channel and technology.

Millions of people all over the world encounter this mismatch every day. An individual might conduct a cashless transaction using a mobile wallet to purchase pens and pencils for his children on the way into work. But when he gets to the office, he’s still using traditional procurement payment methods to buy stationery for the workplace. The contrast is stark—the personal purchase takes seconds using a mobile app, but the end-to-end corporate payment process can take weeks.

2. Fragmented products and relationships

Many corporates still have fragmented banking relationships and payments products—and most banks still approach corporate clients through different business lines such as trade, cash and treasury business. The results include relationships based on product silos and standalone payment solutions at the relationship and business level rather than one common payment solution at the corporate level.

3. Rising regulatory costs

Since the global financial crisis, regulators across the world have imposed an increasing weight of regulation demanding changes to systems and processes—and corporates face heavy costs in meeting these requirements within the given timelines. Being mandatory, regulatory changes invariably take precedence over other corporate initiatives, and corporates expect their banks to help implement them quickly, effectively and cost-efficiently.

4. Outdated, rigid and paper-based processes

Years of under-investment means many of today’s corporate payment processes are paper-based, old-fashioned and inflexible. Manual processes are still prevalent in reconciliation between purchase orders, goods received notes, bank accounts, Accounts Receivable, Accounts Payable and customer contracts. In many corporates, manual checks are also needed to verify the legitimacy of clients, trading partners and goods changing hands. These physical processes are difficult and costly to change for corporates wanting to boost efficiency or comply with new regulations.

5. A lack of a visibility into payment flows and individual payments

Effective reporting is key in trade, treasury or any banking transaction. And corporates need to monitor and report on payments data in many ways—financial, non-financial, regulatory, commercial and more. Yet siloed systems and fragmented processing mean payments data is often captured in different forms and in different systems, leading to errors, inefficiencies and higher headcount. Corporates need automated financial reporting tools that work across their systems, enabling 24×7 tracking of every payment.

6. Challenges around cross-border payments

Cross-border payments remain relatively slow compared to the fastest domestic payments. In many cases there’s also little ability to track and trace them, no confirmation of receipt by the beneficiary and a lack of validation that a payment has the right configuration—account number, currency and so on. They’re also expensive, with fees often being deducted en route from the principal amount, requiring an additional payment to the beneficiary to correct the shortfall.

Banks are taking action to address these issues, most notably through SWIFT’s Global Payment Innovation Initiative (GPII). Over 70 banks have signed up to the GPII, which provides a set of common cross-border payment rules and capabilities for:

  • Same-day clearing of funds.
  • Transparency and predictability of fees.
  • End-to-end payments tracking.
  • Transfer of rich payment information.

Another initiative is the adoption by several banks of a new network using Ripple’s distributed ledger technology for real-time cross-border payments.

7. Pent-up demand for change

In recent years, as corporates have switched their focus toward investment and growth, their payments systems and processes have generally continued to operate as before, albeit handling rising volumes. However, ever-improving payments experiences for consumers are driving up expectations in the workplace and creating pent-up demand for change. This pressure is now irresistible, as underlined by the move to real-time payments in more and more countries.

For banks looking to transform the payments experience for corporate users, the challenge is to balance innovation with handling “run-the-bank” issues such as regulation and the inflexibility of legacy systems. Those banks that can execute on both fronts most effectively will win in the race to forge durable, profitable relationships with their corporate customers.

In my next post I’ll explore six key trends in corporate payments that banks need to be aware of.

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