The irresistible tide of change: adapting to a new era of payments

It often feels like payments are changing everywhere and all at once. While opportunities abound, the fragmented drivers mean that managing global payments will remain complex. Treasurers must adapt to minimize the inevitable costs of change, and understanding local payment trends is essential.


10 minute read

Key takeaways

  • The approach to instant payment varies widely across the globe, with some countries relying on market forces while others mandate rapid change.
  • A lack of coordination of new payment technologies and growing regional variations means that the complexity of managing global payments is likely to increase.
  • Treasuries that aren't ready for new payment technologies may find they incur additional costs as their ecosystem adapts and processes are forced to change.

Through regulatory and market forces, the convergence of multiple era-defining trends is driving a historic shift in global payment infrastructure. Consumer behavior and the need for speed and transparency are primary forces. To various degrees, we have seen a rapid uptake of instant payments and exciting innovations in digital wallets and tokenized payment systems, which we have discussed in previous articles. It is clear that the tides of change are irresistible, and despite the underlying consumer focus, all corporate treasurers will be impacted.


Managing global payments has always been challenging because each region and country's standards, regulations, and payment technology vary widely. Despite ambitions to harmonize standards, the priorities and development of new instant payment infrastructure are not coordinated, and the existing complexity is likely to worsen if the financial world becomes more regionalized.


In the rollout of instant payments, some countries have taken a top-down approach driven by regulations and mandates. India is such a case, and the results have been impressive. Its Unified Payment Interface has seen extraordinary growth. Other countries, like Australia, the U.S., UK, and Singapore, have allowed market forces to drive the change. While progress may be slower, the results will inevitably be the same as a growing range of use cases add value and appeal to users.


In all cases, central banks are actively managing the move to instant payments to ensure stability, continuity, and the role of the central bank in payment infrastructure. Some regulators, concerned about the oversized role of certain commercial payment rails, have moved from ‘carrot to stick’ with additional mandates to promote instant payments.


Planning for parallel technologies

When the tides of change converge, standing still is not an option. Early adopters will have a strategic advantage, and those that hesitate will ultimately need to move at some point. As we have discussed in our ‘on-time’ treasury series, the move to instant payments doesn't require a sudden switch to everything ‘instant’, but rather is about shifting to the payment types that will drive opportunity; be that revenue gains or operational savings. Treasury batch processes will remain for the foreseeable future, but the complexity of processes is increasing and often requires integrating a number of older and newer technologies. More than ever, detailed planning and a technology roadmap are needed for investing in the right technology at the right time.


As more firms look to differentiate themselves through payment capabilities, nuanced local payment infrastructure needs to inform the development and capabilities of core systems so that consistent services can be provided to suppliers and customers regardless of location. Enterprise resource planning systems will become key as treasury systems are updated to support ISO 20022 and instant payments. This also affords corporations the opportunity to differentiate themselves by ensuring their treasury systems can support the move to instant payments.


Treasurers need to know what questions to ask, particularly when planning the feature/function and data capabilities that will underpin future treasuries. How will systems process real-time payments? What business and risk processes will be needed to support instant payments and data? What approach will they take to international data and data security standards?


Given that businesses prefer to invest in front-end systems rather than fundamental treasury infrastructure, securing buy-in and funding for the current levels of change takes work. That is why forward planning is critical, particularly for multinational companies. Forward planning ensures treasurers understanding the complexities across regions and leveraging the right feature functionality to evolve while minimizing additional, costly changes to core systems.  


Your processes are already changing

For some, the inclination may be to resist change to treasury processes that have been fine-tuned to run perfectly. After all, stability is a fundamental expectation of a treasury. Nevertheless, the rub is that you could incur additional costs by just standing still.


No company evolves independently of its ecosystem. You may not want to operate your treasury on a 24/7 basis, but if your suppliers or customers begin to operate on that basis and your processes, technology, accounting, and reporting are not ready, you may quickly incur costs. For example, an increase in incoming instant payments may lead to higher call center volumes if receivables systems aren’t able to update in real-time.


The implications of not adapting systems should inform new business cases. Rather than focusing incentives solely on traditional revenue opportunities and operational savings, business cases need to consider the technology, operational, and human resource costs of being forced to adapt to supplier or customer changes, as well as the impacts on credit facilities, payables, and receivables. 


Where will this end?

Australia’s current trajectory is just one example of what the future of payments may hold. Australia is setting out plans to shut down its traditional bulk payment system, ending the use of checks and transitioning all payments to the newer instant payment framework by 2030. With clear cost savings from not running multiple payment infrastructures and a richer user experience, the question is how quickly this trend will catch on in other countries.


Whether the change is driven by regulation or market forces, payment systems are being propelled towards modernization. The future is data-rich and 24/7. Yet, this is not about a single technology or trend but the convergence of consumer, technology and political forces. While the potential capabilities for payments are exciting, they are likely to remain complex and inconsistent from jurisdiction to jurisdiction for some time. 


System flexibility and payment optionality are critical for treasurers needing to adapt to the increasing pace of change. Making the right choices in this complex environment requires an informed strategy. To help you navigate these tides of change, you also need a global banking partner who understands the regional and local trends in payment infrastructure and technology.


At Bank of America, we are investing in local payment systems through a comprehensive infrastructure that prioritizes the flexibility, optionality, and connectivity that will allow our customers to adapt to this new era of payments. Speak to your relationship manager today to understand how we can help you make the right choices at the right time and leverage the automation and data benefits of new payment infrastructures.