Increased digitization of corporate B2B payments affects regional trends - report

Released today by Capgemini, the World Payments Report 2017 estimates that volumes generated by emerging economies will grow by 19.6%, or three times the rate of mature economies. Emerging Asia, led by China and India, is projected to grow 30.9% in volumes. Worldwide non-cash wholesale transactions by corporates, mid-sized enterprises and public authorities are estimated to record a CAGR of 6.5% from 2015–2020, or more than 122 billion wholesale transactions.

Global non-cash transaction volumes grew 11.2% to reach 433.1 billion during 2014-2015, the highest growth in a decade. Developing markets drove this growth with a 21.6% increase. Mature markets increased by 6.8%, a nominal rise of over 6% in 2014.

Despite increased adoption of digital payments, cash remains in the mainstream, especially for low-value transactions. This year’s WPR states that mobility, connected homes, entertainment, and media are expected to boost non-cash transactions in the future, as will alternate channels, including contactless, wearables, and augmented reality.

Increased digitization of corporate B2B payments is affecting regional trends. In Mature APAC4 markets, small and medium-sized businesses are using digital invoicing, virtual cards, and cloud-based finance and accounting. In Emerging Asia, charge cards are popular among corporates to simplify and secure supply-chain payments.

The WPR 2017 highlights the emergence of a new payments ecosystem driven by a number of converging factors. The dynamic regulatory landscape including the requirements of PSD2 compliance, fintechs, changing corporate and customer expectations for value-added services, and an increase in payments-enabling technologies represent some of the forces creating change.

The report also looks into the value proposition – as well as the challenges – for corporate treasurers from the new ecosystem, based on findings from the interviews carried out. Corporate treasurers’ demands for better, more reliable end-to-end services are impacting the payments ecosystem. In this time of intense competition, banks can seize the opportunity to nurture business with existing corporate clients and also acquire new clientele. Treasury management is going digital as repetitive task automation allows treasurers to focus on cash forecasting and fraud prevention. In trade finance, banks and fintechs are exploring blockchain-based smart contracts to optimize processes. In cross-border payments, banks are experimenting internally with blockchain to develop scalable digital payments platforms.

Collaboration and open systems pose security threats within corporate treasuries; however, corporations now expect their banks to help them improve their security infrastructures. In the new payments ecosystem, third-party developers interact directly with a partner banks’ customers, raising questions about data privacy, security and identifying attackers.

The report also highlights a key challenge in the new payments ecosystem: the lack of standardization caused by national regulators’ different standards and individualized interpretations.

Key regulatory and industry initiatives (KRIIs) aimed at competition and risk reduction are called out within the report as complicating the regulatory landscape, by stimulating service provider competition and disrupting traditionally inert segments of the payments value chain. However, KRIIs have the potential to improve standardization and transparency, which are expected to bring substantive and long-term innovation to customers. KRIIs introduced since the publication of World Payments Report 2016 focus on digital currency, reduction of cash, fintechs, and APIs.

The report also covers the challenges faced by stakeholders while implementing PSD2 regulation in Europe. When the revised PSD2 is rolled out in January 2018, Europe will take an important step toward becoming a fully interoperable digital market. Far-reaching effects across banks, payment service providers (PSPs), fintechs, and corporates are expected. However, the WPR 2017 highlights that a lack of regulative coordination and integrated data management among EU banks may create conflicting objectives and competing agendas while diminishing expected standardization and transparency. KRIIs around instant payments, cash reduction, and cybersecurity could act as catalysts for payment services providers to create solutions that enhance customer satisfaction.

This year’s World Payments Report offers insights on the payments markets in the following regions grouped by geographic, economic, and non-cash payment market maturity criteria: North America: Canada and the US, Europe, Mature Asia-Pacific, Emerging Asia, Latin America and CEMEA7. Primary research for WPR 2017 included an online survey that was distributed to industry participants across banks, fintechs, non-bank FSIs, and corporates in June 2017. Executive interviews were also conducted. Findings from the survey and interviews have been incorporated into analysis throughout the report.