In an age where Venmo has become a verb and Mobile revenue is expected to grow to US$1 trillion, treasurers will recognise that Fintech is changing the payments landscape.

Although this is not yet signalling the death of cash, digital payments from customers to businesses and from business to business are evolving faster than ever.

Not only is Fintech influencing how, when and where payments are made, it is also affecting who it is that facilitates them. The technology available to companies must be examined and leveraged to suit corporate needs. The payments industry is being tested by the evolving technology, including the role that banks will play in the future.

The latest technological advances within the financial industry not only provide new payment solutions, but also allow the creation of new competition to the bank’s traditional role as processors of payments.

Major impact

Companies, including banks, will have to choose between buying in services or developing their own treasury systems to incorporate the latest Fintech products. There is an ever-growing stable of options, including new solutions in digital currencies such as Bitcoin and biometric security.

So far, the major impact of the new technological solutions has been seen in the retail and consumer sectors, but their potential within the corporate sector has not gone unnoticed. This should not come as a surprise since corporate and wholesale payments will always want to use the technology to drive improvements in standardisation and centralisation of payment solutions.

An indication of the potential impact of Fintech is the amount of money being invested in companies providing such services. Global investment in Fintech continues to grow exponentially and shows little sign of slowing. More Fintech companies are developing from start-ups to multi-billion-dollar companies, and this is a clear sign that the impact on payments will be unrelenting. Even non-payment industry operators such as Apple have had their interest piqued.

The result is the emergence of new payment options transforming how transactions are processed and initiated. These choices aim to improve payments by increasing speed but also making the process more efficient via multichannel access.

Treasury departments

Although as mentioned above the retail sector is seeing the most significant changes, treasurers involved in the foreign exchange (FX) market should be aware that non-traditional providers are taking advantage of potential cost saving in the corporate payments sector. Improving market standards and harmonisation have been helped by new initiatives such as SEPA and TARGET2.

The problem for banks is that the new regulations imposed post-2008 have meant they are falling behind in the race to a new payments landscape. This is due to the funds they have had to divert to compliance projects and away from their research and development departments. They do retain some attraction for corporate treasury departments, however, since improved regulatory standards mean the banks can offer a greater level of security and offer savings in risk management and mitigation.

Fintech firms are reluctant to match the regulatory measures the banks have been forced to adopt, and of course to use their services you will need to have a bank account. As such, there is a balance to be considered when looking how best to cope with the impact of the new technology available.

The banks themselves will have to show willingness and ability adapt to the changing climate in payments, which traditionally they have failed to do. They may have to deal with the disruptive influence of Fintech and digital currencies on settlement mechanisms. Should they fail to do so, they are likely to fall behind alternative payment and settlement competitors who may be able to offer leveraged opportunities to companies across the payments sector.

There has thus been a significant change in the payments business, and companies will remain keen to see how they can harness the power of Fintech to improve returns. Although the future direction of change is unclear one certainty is that technology is radically redefining the settlement landscape. Furthermore, traditional forms of payment may soon fall far behind as banks and businesses adapt to the opportunities inherent in Fintech.

Payments have always been a traditional element of any company’s infrastructure, but treasurers will now have to grapple with the challenges created by Fintech. Otherwise, they risk allowing their companies to fall behind. For some, the mandate is to adopt a Fintech-friendly approach and propel their firms to the forefront of this exciting and revolutionary environment, not only netting value for shareholders but benefits for clients.

Simon Lynch is the owner of Treasury Talent.
Treasury Talent is a specialist treasury talent provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact simon@treasurytalent.net