The world of global payments is in a period of transition. A host of factors, including technological innovation, economic shifts, heightened regulations, and the increasing number and influence of non-traditional payments providers, are rapidly reshaping the payments landscape making it harder than ever to navigate. Now, with a new type of competition and evolving customer trends driving innovation in the payments arena, it is vital that banks understand the impact of these factors and act accordingly if they are to capitalise on new payments opportunities.

Technological innovation

Undoubtedly, it is the rise of new technology that is fundamentally fuelling change, with heightened customer expectations for accessibility, immediacy and flexibility becoming the new normal. The widespread use of smartphone and tablet technologies is already significantly shaping the way in which retail transactions are conducted, and the need for such capabilities is filtering into the corporate payments world influencing the preferences and demands of corporate clients.

The evolution from traditional payment mechanisms to emerging innovative solutions and providers is occurring at different rates between developed and developing economies. Without the constraints of legacy systems, emerging economies are overtaking their more developed counterparts by implementing sophisticated, market-leading solutions that are reaching a whole new market of previously unbanked clientele.

Modern and efficient alternatives

Technological change has also enabled new types of non-bank providers to enter the payments business, and these new players are taking full advantage of this opportunity, steadily expanding their presence across all client segments and geographic locations. CEPayments, for example, is a UK company that provides third-party payment solutions specifically for businesses in Latin America and the Caribbean (LAC).

Certainly, an extensive range of businesses from various industries — including telecommunications, social media and online retail — are vying to secure a foothold in the payments space, with innovative, straightforward and attractive payment propositions. Indeed, companies such as Google, Amazon and Apple are hoping to capitalise on their key competitive advantages. With global reach, convenience and established commercial offerings already part of their arsenal, they could be perceived as a threat to banks which, in comparison, are understandably perceived as relatively conservative and quite slow to adapt to change.

PayPal’s global success is an illustration of the extraordinary growth potential of electronic platform-based payment solutions. The number of payments processed in the first quarter of 2015 alone was 1.12 billion — a year-on-year increase of 22 per cent, with the number of active customer accounts rising by 11 per cent in the same period to 165 million. What’s more — demonstrating the soaring demand for convenience payments — PayPal’s mobile payments now make up 25 per cent of the company’s total payment volume.

It is important to remember, however, that while such companies can create payment channels that offer improved client access and convenience, they don’t execute the actual payment itself; this is done via the infrastructures of banks and card schemes. Therefore, while non-banks are venturing into the payments arena, banks remain the very nerve centre of payments.

Economic reorganisation

The constant recalibration of economies across the globe is another important factor influencing payments, with substantial changes in global demographics playing a vital part in shaping payment flows.

The world’s middle class population, for instance, is predicted to soar by nearly 150 per cent to five billion by 2030, stimulating trade, capital and investment-related transactions globally, and it is the emerging markets that are driving these shifts. Interestingly, income growth rates in the poorest 40 per cent of LAC’s population were higher than those of any other region in the world (relative to the total population) between 2000 and 2010. This could indicate a degree of reduction in the huge chasm between the upper and lower classes that has been historically evident in the Caribbean, and help to boost growth across the region.

In line with the expanding middle classes, and in turn consumer demand, the increase in south-south trade is already boosting cross-border transactions, with volumes expected to jump from 9.9 billion in 2012 to 20.7 billion by 2022. Indeed, south-south trade has been a substantial driver of LAC trade performance, with exports to southern hemisphere destinations growing at a higher rate than exports to northern hemisphere markets; a trend that holds true for nearly every country in the LAC region. Approximately 70 per cent of Barbados’s exports, for example, are south-south.

As LAC nations continue to diversify their export destinations, facilitating effective and efficient cross-border payments (and providing flexible solutions in terms of currency, geography and channel) is becoming ever-more important.

Exercising control

Heightened levels of regulation seen in recent years, such as requirements introduced through the Dodd-Frank Wall Street Reform and Consumer Protection Act and Foreign Account Tax Compliance Act, have had a significant impact on the banking industry. And evolving regulatory and reporting requirements will continue to impact the payments business, with the boost in cross-border transactions in particular fuelling the requirement for enhanced control and end-to-end visibility.

Indeed, as companies look to expand their footprints and leverage the transaction opportunities from increasingly far-flung corners of the globe, providers will not only need to adapt to and become familiar with the intricacies of global and local regulatory environments, but also the disparity between regional interpretations, as well as differing currencies, practices and payments formats.

Not only are the ever-growing, complex regulatory requirements a challenge for banks to traverse and comply with, but they could also be placing banks at an unfair disadvantage as more non-bank payment providers step into the payments space.

Indeed, non-bank service providers are not currently subject to the same level of scrutiny, capital constraints and reporting requirements as traditional payment providers, and can enjoy more freedom and flexibility in terms of focus, resources and methods of and capacity to innovate. However, it is believed that as their presence in the payments industry becomes more pronounced, non-bank providers will attract greater focus from central banks and regulators, leading to regulatory standards between banks and non-banks becoming more aligned.

Valuable propositions

The global payments evolution is already under way, presenting a host of challenges and opportunities. But if traditional payment providers are to thrive in the new payments landscape and leverage these opportunities, they must act now.

First and foremost, it is essential that banks across the LAC region recognise and understand all the dynamics reshaping the payments universe, which will enable them to anticipate and react to changing market trends and client needs more effectively and efficiently.

New financial technology-friendly strategies will need to be adopted with value-added payment solutions that enhance the overall transaction experience — a key component of bank offerings. Indeed, driven by expectations trickling in from the retail space, Caribbean clients are increasingly expecting user-friendly, convenient solutions, so banks must pursue a truly client-centric approach that reacts to changing market developments.

Furthermore, with the payments landscape transforming so dramatically, with a rate of change that is only expected to increase, implementing a technology infrastructure that is flexible and able to adapt to the shifting environment will be a huge competitive advantage.

Finally, establishing strategic partnerships, both with non-bank market entrants and specialist global providers, can present a number of benefits. Indeed, sharing knowledge and experience, garnered from different sectors and industries, can be particularly advantageous with regard to enhancing end-users’ transaction experience and providing far greater value. Certainly, with the impact of technology innovation on the payments space, inevitably set to increase in the coming years, aligning with non-banks and technology providers alike will help to position local banks at the forefront of unfolding payment developments.

Today, those banks wishing to thrive in the payments landscape of the future will do so by developing value-added propositions and establishing strategic alliances with key players. While it cannot be predicted exactly how developments in the payments space will unfold, it is clear that strategies implemented now — strategies that actually enable further change — will be key to determining banks’ ability to outperform their rivals and to continue meeting ever-evolving client needs.

Jean-Pierre St Victor is managing director and head of sales & relationship management for Bermuda & the Caribbean, BNY Mellon Treasury Services. However, the views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.

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