Corporate payment processes are transforming rapidly amid explosive technological and economic change. Ather Williams, head of Business Banking at Bank of America Merrill Lynch, discusses what financial institutions must do to deliver. See below for a summary of his recent paper, Pay It Forward, Globally.
Globalization and digitization are accelerating rapidly, and drastically reshaping 21st century commerce. Consider these facts about today’s digital, on-demand global economy:
The result of these changes, Williams notes, is that “companies throughout the world are seeing their supply chains rapidly digitize and elongate to include vendors that…either did not have access to global markets or were too small to be dealt with directly.”
While companies are taking advantage of these trends to source labor and materials, the global payments infrastructure is just beginning to catch up.
2. THE NEW COMPETITIVE ENVIRONMENT
As companies demand faster, cheaper and more efficient payment solutions, financial technology—or “fintech”—firms have begun competing with banks. Despite the large growth in recent fintech investment, banks have their own advantages.
“Fintechs will likely never approach the scale, breadth and depth of relationships that banks have with their customers. By partnering with a bank, a fintech can remove some of the risk from the equation for the shared client, and potentially provide a key new capability within the appropriate regulatory framework,” says Williams.
3.THE IMPORTANCE OF THE SWITCH
Many companies are embracing these global megatrends and technologies to pivot toward a new operating model in which they become a “switch” that connects buyers and sellers, rather than buying and selling physical assets themselves.
Industries from retail to lodging have shown the transformative potential of such “vaporization.” Similarly, banks recognize the need to change and are now exploring how to leverage their physical assets and relationships in a similar way. According to Williams, vaporization will enable banks to drive “efficiency, scalability and flexibility, while becoming the switch enabling efficient cross-border commerce.”
4. THE NEW VALUE OF BANKS
In addition to these trends and technologies, banks will be able to create value by using existing technologies in new ways—particularly for low-value, high-volume transactions. “All these technologies are about taking manual or semi-manual processes and making them simpler, faster, more self-contained and, ultimately, more intelligent and self-actualizing,” Williams says. “In many ways, this is the ultimate ‘new bank value’ in the bank value stack: the ability to utilize the information we already derive every day and organize it to provide greater insight and value for clients.”
This means using the new, low-value payment types to mine instructions, remittance information, frequency and location, and then helping treasurers extract new levels of analysis to improve cash-flow forecasts, liquidity management and spending patterns.
1. Digital Globalization: The New Era of Global Flows, McKinsey Global Institute (2016).
2. Digital Globalization: The New Era of Global Flows, McKinsey Global Institute (2016).
3. Digital Globalization: The New Era of Global Flows, McKinsey Global Institute (2016).
4. 2015 Internet Trends, KPCB.
5. Digital Disruption: How Fin Tech is Forcing Banking to a Tipping Point, Citi (2016).
- Forces such as globalization and digitization have disrupted business models, creating new opportunities and efficiencies except when it comes to payments
- Companies are gravitating towards business models in which they become a switch – connecting with people across a network
- The new value in the bank value stack is using information we already have and organizing it to provide greater value