Technology is rapidly changing the way people, companies and nations work and communicate. For the financial services world, this has translated as expectations of immediacy, efficiency and accuracy in banking, and to address these needs, fintech solutions have been proliferating across the industry. Nowadays, technology has created a culture which is attached to far higher expectations of user experience and much less tolerance for errors or delays.
Many of these new fintech startups have claimed that they are superior to traditional banks, however, the banks are still required to transfer the credit behind these types of companies, so a large number of them rely on legacy banks anyway. In this way, the cultural change is very much a behavioural one – largely driven by front-end technology and consumer experience. The back-end money transfer process remains pretty much untouched.
When it comes to the industry perception, the difference between a payment and a money transfer needs to be more clearly defined. In the consumer space, for example, ApplePay is a simple money transfer; something like a peer-to-peer transaction or a small retail purchase. A payment, though, is a serious transaction – such as a salary. This is a type of payment which carries far higher personal value, with a far higher level of emotional attachment to its delivery than a small one-time purchase or transaction. With payments, it’s the guarantee of the timeliness of the payment which is crucial; it is essential to pay the right person the right amount at the right time.
In the UK, the BACS payment method is extremely efficient – trillions of pounds worth of transactions are processed across the UK every day. The challenge is, the money doesn’t leave the remitter’s bank account until the point at which it credits the receiver’s account – in the UK, it’s usually a quick process so it doesn’t cause too many problems. But when it comes to global payments, the challenges are even more complex.
Platforms which improve capacity of global payments by offering instant locked-in currency exchange rates and the fastest transfer method available (via ACH), are making cross-border payments far more accessible. Where traditionally, wire transfer has been the primary payment method for international payments, it is also a slower process, and as banks have been the main providers of this type of service, can often incur fees for delayed or returned payments which is a financial impingement on the remitter.
Technology is certainly changing the way global payments are made, especially when it comes to resource and efficiency. Relying on banks to process payments is one thing but for payroll departments to process large volumes of payments to multiple countries around the world is a challenge, and involves a far higher risk of human error. Bulk file uploading and automated data verification is changing this – in the age of artificial intelligence, technology is enabling improved accuracy.
Automation can also mean a reduced reliance on workforces; technology can handle capabilities such as account verification, data input and complex operational processes which speed up transactions, because of the lack of human mediation. For the payments world, this is big news. Errors are a costly business for companies and automation can almost eliminate the chance of payment mishaps.
Technology has been labelled as an industry disruptor, and for consumers, mobile banking, peer to peer lending, international payments platforms, bitcoin/cryptocurrency and social payments are all affecting how money is managed on a day to day basis. Bitcoin has been earmarked as the ‘next big thing’ in finance and yet ironically, it’s a bit like a stone-age currency – it’s just an intangible unit and it’s only worth whatever you call that unit. Whether it will ever replace conventional currency is questionable but it occupies a space in the evolving financial world and it will be interesting to see where it goes.
In the very consumer-driven landscape which we see today, the expectations of the consumer are high and the industry has seen a considerable move towards addressing this. It means that fintech companies are having to meet the demands of immediacy, with relatively little margin for error, and the same ethos is being adopted across the B2B environment. Business transactions are getting slicker and internal processes are more streamlined. With the growing advancement of artificial intelligence, this pace is only set to proliferate.
The global payments market is considerable but a cultural shift needs to take place, and it primarily involves educating businesses on what is available and how cost saving and operational efficiencies can be made. It’s encouraging that the advent of more global payments services which are supporting medium sized corporates are operating in an industry which is dominated by multinationals, as it means global payments services are more widely accessible. Providing the right education and accessibility will be a big step forward in opening up new global growth opportunities across the industry.
By Andy Brown, Managing Director of Equiniti International Payments.