Payment Infrastructure and Collections

Transcription

1 Payment Infrastructure and Collections

2 Payment Infrastructure and Collections Companies in the consumer brands, retail and healthcare (CBRH) sector face a broad range of collections and accounts receivables (AR) challenges. In many cases these arise from the diverse geographies they cover, coupled with a customer base that can range from retail to large multinational corporates and anything in between. Nevertheless, as Hans van den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management at HSBC explains, changes underway in payment infrastructures could help these CBRH companies enhance the efficiency of their collections and accounts receivables processes. The Challenges Data quality, costs and speed are probably three of the principal areas where many CBRH treasurers would like to see innovation that could enhance their collections and AR processes. The capacity to improve the quality and preservation of data could add value in multiple areas. In the retail space, being able to collect and attribute additional data to specific customer transactions would aid the development of deeper and mutually beneficial relationships with customers (e.g. better targeting of special offers and loyalty programs). In the SME space, similar functionality opportunities could arise, especially where customers currently pay with an anonymous medium such as cash. In the case of larger customers, better functionality in areas such preservation of remittance information could improve automated reconciliation rates. Anything that can reduce the costs associated with collections and AR would be similarly welcome. In the retail space, card payments have (in many countries) largely replaced cheque and cash payments, but the costs associated with some types of card can still be significant. SME customers in some countries still make extensive use of cash payments, with obvious cost and security implications, while with larger customers much of the cost burden is associated with manual reconciliation of invoices and remittances that do not obviously match. The speed challenge also takes on various guises. In some cases, the time that payments take to clear can add several days to corporate days sales outstanding (DSO). In others, delays in clearing and/or reconciliation can result in additional client business being blocked unnecessarily due to credit limit capacity being exhausted. 2

3 Potential Solution A growing number of countries around the globe have been introducing new immediate payment systems, with others in the pipeline. Although some media focus has been on the word immediate, from a CBRH treasury s perspective the key points of interest are not so much the speed of the payment, but more the additional amount of data that these new clearing systems might carry. Historically, payments infrastructures have delivered payments very efficiently, but in a one dimensional manner. By contrast, some newer clearing infrastructures deliver much more than just payments, to the extent that the payment almost becomes a secondary consideration. A very simple and traditional example is the ability to transmit a greater amount of remittance information in a standardised and structured format (e.g. ISO XML). This helps address the historical issue of remittance information becoming truncated or lost (due to the limited amount of additional character information some clearing systems could carry) and AR resources being wasted in trying to recover that information to reconcile payments. However, while resolving an important historic issue, this merely scratches the surface of what may be possible in terms of the type of data that could flow across these infrastructures and also their directionality. For example, rather than just payments and limited information flowing from A to B, B could also send data to A before a payment is sent, such as a request for payment. Taken to its logical conclusion, multiple bilateral data transactions could flow along this clearing channel, opening the door to an extremely high degree of process automation, all the way from purchase order to payment reconciliation. Expectations In the light of the potential opportunities that the new wave of payment infrastructures offer, CBRH treasury s expectations are also changing rapidly. Major expectations are centred on connectivity and convenience, while more generally corporate clients are looking to their banks to support them in ways they haven t in the past. For instance, convenience of payments in the context of changing payment mechanisms is an important consideration here. Cards have increasingly supplanted cheques and cash, but they in turn may be supplanted by new payment mechanisms, such as wallets and mobiles. How will banks support that transition, while still delivering a homogenous data experience? Can they do that consistently on a global basis across multiple markets where end customers choice of payment mechanism may vary radically? How effectively will they be able to deliver that in an environment where multiple other technologies such as cloud computing and blockchain may also be connected to the new payment infrastructure? The extent to which a bank can successfully answer these questions will depend heavily upon its attitude to others, such as financial technology companies ( Fintechs ), who are increasingly involved in the payment ecosystem. Some banks still regard these entities as competitors and are resistant to co-operating with them, even if their client s best interests are at stake. Fortunately a few, more innovative, banks see these third parties as potential partners and that close collaboration with them is all part of maximising the quality of the client experience. 3

4 Request to pay One of the most important innovations that becomes practicable over the more advanced new payment infrastructures is request to pay. This functionality is applicable across multiple different categories of CBRH customers. At the retail end of the spectrum, a company can issue a request to pay to an individual customer, using their mobile number, address or other unique identifier as the initial contact channel. The customer could then immediately send the payment via any one of a range of mechanisms, such as mobile or digital wallet, but the payment would ultimately travel back through the clearing system along with the identification data from the original request to pay, so reconciliation and order processing efficiency are maximised. One long term possibility is that retail customers could potentially be directly connected to the clearing system, so the original request to pay could be sent via that channel and then forwarded to the relevant contact medium (e.g. address or mobile number). A similar opportunity applies in the SME space. SMEs with credit accounts with a CBRH company could be automatically sent requests to pay on the due date of invoices. If this is integrated into their business accounting software and their bank has integrated their electronic banking platform with that software, then an extremely efficient process becomes possible. The SME can receive the request to pay via or mobile, but if it is sent by the clearing system and appears in its integrated online banking then it also appears its accounting system. If accepted, an immediate payment could be triggered in the accounting system that would flow back via electronic banking and the clearing system with all the relevant remittance information attached. The use of virtual accounts could potentially provide additional benefits. If a company has provided a virtual account number to each of its buyers for payments, then completely automated AR to both the customer and item level becomes possible. 4

5 In certain jurisdictions, there is an additional SME opportunity for CBRH companies. It is commonplace in certain Asian/African markets for large consumer brands to sell direct to small SME retailers. This usually consists of a salesman with a van loaded with products driving around visiting individual retailers and making cash sales and deliveries simultaneously. The significant downside to this arrangement is that these customers often pay the salesman with cash. This raises all the usual issues of security and fraud, plus the high costs of processing the cash and reconciling stock levels and transactions. In addition (unless the salesman is issuing itemised electronic invoices, which is not commonplace) valuable customer data is being lost because the cash is anonymous. If by contrast retailers gave the salesman an order that was entered into an electronic invoice that automatically triggered a request to pay, then when the customer paid the salesman there would be a complete audit trail. Apart from efficient processing and removal of security/fraud risk, valuable customer data on purchase patterns and trends would become available. In view of the popularity of mobile telecoms linked payment mechanisms in many of these markets, this is an entirely practical possibility. Request to pay may even have an application amongst the largest CBRH customers. One possible scenario is that a CBRH company could issue a request to pay (including virtual bank account details) for outstanding invoices via its ERP system to a large customer s ERP system. These could then be pre-matched with invoices that the customer had already approved for payment. In the case of a 100% perfect match, the payment would be released (possibly subject to final customer approval). However, in the case of an imperfect match, both parties could have immediate advance notification of any discrepancies. 5

6 The retail space Apart from the specific example of request to pay, the retail space more generally has much to gain from the new immediate payment systems now emerging around the globe. The inherent flexibility of these systems and their additional data handling functionality open the door to integration with multiple types of payment mechanisms, both those already extant (such as digital and mobile wallets) and those as yet to emerge. The efficiency of the new payment systems means that the overall costs for retailers of processing retail customer payments could fall dramatically, plus they could additionally benefit from access to far richer data sets that could offer substantive new business intelligence. Retailers have a further opportunity here because the characteristics of the new payment systems mean that their payment processing destiny is far more in their own hands than previously. The new generation of immediate payment systems have been designed to be open from a technological perspective from the outset and therefore typically offer well-documented open APIs. Specialist Fintechs have been quick to pick up on these opportunities, so larger retailers engaging with the right Fintech partner will be able to benefit from very direct control of the customer payment experience and data, potentially to an even greater extent than they do today with their own store cards. Plus of course possibility reducing their processing costs into the bargain. 6

7 The critical role of regulators Regulation such as PSD2 is playing a major role in opening the door to more efficient, less costly and more flexible financial technology. By providing access to customers bank data (with their consent) to third party providers, a whole raft of new products and services becomes possible. These will have the potential to transform the way in which businesses operate in terms of enhancing workflow and reducing unnecessary costs. In some cases, regulatory change of this sort has also been directly linked to new payment infrastructure, such as with the Unified Payments Interface (UPI) in India. Here, the regulator (the Reserve Bank of India) has mandated that banks wishing to use UPI can only do so as both originator and collector of payments. So retail customers have to have the option of being able to embed their bank accounts in third party providers applications, as well as their own banks applications. The key point is that by enforcing these interoperability rules the regulator has effectively driven the emergence of a highly compelling financial ecosystem far more quickly than it would have evolved if left just to market forces. This example is unlikely to have gone unnoticed by regulators in other jurisdictions where new payment systems are either already in development or planned. 7

8 Conclusion The wave of new payment infrastructure currently rolling around the globe has profound implications for the CBRH sector and its customers, including richer data, faster payments and lower barriers to new types of convenient, feature-rich and fully-integrated payment mechanisms. This brings the prospect for CBRH companies of major advances in collections and AR that will drive cost reductions, processing efficiencies and better business data. Apart from the potentially vital role of regulators in this space, another critical consideration will be choice of bank. That bank should ideally combine an open-minded approach to technological collaboration with third parties, with the widest possible coverage in terms of both network and payment mechanism support. If it does, then the CBRH treasury will be able to enjoy the various benefits outlined above, without having to worry about the proliferation and diversity of payment technologies across its worldwide customer base. Published: November 2017 For Professional clients and Eligible Counterparties only. All information is subject to local regulations. Issued by HSBC Bank plc. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England No Registered Office: 8 Canada Square London E14 5HQ United Kingdom