Among all that has happened over the past few years following the COVID-19 pandemic, transformations within various areas of business have been seen here and there.
The payments landscape is not exempted from these shifts, what with the current talks of digital transformation and technological advancements.
Beyond these changes and shifts in the industry, the questions that arise are leaning towards the way of payment efficiency. How can this be achieved, especially in the coming year? What should be done to combat possible challenges? Is payment efficiency even attainable?
Edward Metzger, vice president for payments efficiency at LexisNexis Risk Solutions, supports this, as he thinks that among the changes is the acceleration of the existing trend of digitisation in payments.
“COVID just accelerated a trend,” Metzger says, noting that given the situation, people were pushed to send payments digitally, away from traditional channels like physical locations and branches, which they have been used to for the longest time.
Changes in regulations
Apart from the rather obvious digital transformation that came to be following the COVID situation, Metzger says regulators around the world have been seen to be pushing for an instant payments system to impact real-time co-settlement.
“We’ve seen some absolutely transformative projects in India… and everywhere around the world,” he points out, adding that they have seen a consistent trend of regulators moving transactions away from next-day or next-three-days into instant payments.
Customer expectation shifts
Metzger also views that customer expectations have shifted over the past few years in terms of the payments landscape.
Although this has been a continuing trend, the COVID-19 situation propelled the changes as customers have now been keen to do their transactions online.
He points out that customers expect such digital transactions to work and be hassle-free the first time they try it, and the turnaround is instantaneous.
These, together with the digital transformation and changes in regulations, created the “perfect payment storm” for people in the industry, Metzger believes.
Spotting payment challenges
As with the impact of the said changes in the finance team of an organisation, Metzger thinks that real-time payments are a challenge, albeit this is not the main hurdle for corporates.
“I think the main thing is corporates wanting to have control of their payment infrastructure.”
He believes that companies are leaning toward prioritising this sense of control, both for processing payments for their customers and doing payments in their name.
“The key challenge there is efficiency. It’s about how do I know that payments are being executed correctly?” Metzger says.
The rise of fraud
As the payments industry reels from being forced into the changes in digitisation following the pandemic, one of the challenges faced by the finance team is the rise of fraud.
This is another thing that the LexisNexis Risk Solutions Payments Efficiency executive thinks is challenging for corporate specialists, taking note of push payment fraud, which serves as a consequence of digitisation and the rise of instant payment systems.
For Metzger, recognising that businesses these days often interact with a huge number of customers, the key to this is having the right data for payments and ensuring that these are going to end up at the rightful destination, when and how the customer wants it.
He points out that customers reach out to them, asking about how they can get the right data and have it validated as quickly as possible.
Metzger says that one of their key hypotheses is that they need to enable their partners and their customers to confirm and validate the data they receive to combat fraud.
This is the reason why LexisNexis Risk Solutions launched a new service called Safe Payment Verification, which checks the name of the payment against the destination account. He says this is being rolled out country by country after being initially set up in the UK.
Metzger stresses the importance of being able to verify information in combatting the rise of fraud in the industry, spanning from the institution to which the payment is being sent, as well as the lenders.
Addressing constraints
Metzger believes that one of the constraints CFOs tend to operate under an ERP system, which does the accounting and creates the payments for them.
He says that companies do not typically do this on their own and that they usually have a vendor who will provide help for them through various platforms.
The executive says this is the reason why LexisNexis Risk Solutions has a database of every bank in the world, which allows all verification and validation services. “We have created a version of those files, which is optimised for uploading into systems,” Metzger adds.
Through this, CFOs can manage the existing system through the available data in the system. In turn, the system does the verifications and validations needed within the existing platform for the transactions.
“We need to make sure we don’t create more complications here. We want to enable that straight-through processing within the existing platform.”
Edward Metzger
This, in itself, is a mechanism for optimising liquidity, Metzger says.
Managing costs and improving efficiency
For chief financial officers, one of their concerns is the balancing act between cost management and payment efficiency improvement. This has been particularly challenging for finance leaders in an organisation, considering that a big chunk of the business is involved here.
To face this dilemma, Metzger thinks that efficiency branches out to several different parts of the value chain within a company. One thing that can be of help for this is the optimisation of liquidity, which is related to ensuring that finance leaders do not have too many exceptions.
He says having pools of unused liquidity was not that important before, considering the past years when money was “cheap” or “free” because of zero interest rates.
“Now, you can do something else with money, you can invest in treasuries or bonds,” Metzger points out.
He notes that what matters for finance leaders is that they can optimise their liquidity position using such avenues.
Intensification of trends in 2024
“Every year brings new challenges,” Metzger says, “I think the main thing here is we would just see an intensification of the trends we’ve seen today.”
He highlights that the trends seen in 2023 and the last few years, such as digitisation, instant payment systems, and shifts in customer demands, will be intensified in 2024.
Metzger also forecasts a growing set of cost challenges for CFOs in the coming year, with high-interest rates and other predictions saying these will stay high.
Continued high levels of investment are also expected in 2024, and technology, such as data services usage, is forecasted to optimise payment journeys for better customer experience.
As for regulations, Metzger thinks there will be some interesting movements across the world, especially in the APAC region, taking note that some markets are currently experimenting with various types of liability shifts. He believes that CFOs must be aware of these, as well as the expectations in each market.
In addition, Metzger expects the rise of open banking in 2024, as this is now being rolled out in many geographies, serving as another opportunity for the industry.
