Editor’s note: This post kicks off our new series “2024 Business Payments Trends” that brings influencers, Bottomline partners and other subject matter experts together to set out their vision for the coming year. The first in our series is from Naresh Aggarwal, Associate Director Policy & Technical at the UK’s Association of Corporate Treasurers where he helps the profession follow and influence key areas of change with a focus on ESG, Brexit, cash management and payments. He has over 30 years in the financial services business including his post at PwC where he was the UK lead for cash management and payments.
This time last year, we were gripped by the cost-of-living crisis and higher fuel bills. In the UK, we welcomed the 3rd prime minister of the year and the first COP summit in the mideast region. So, what is the link with payments? Some of the developments in 2023 have been well trailed and others are new. What do I think 2024 will offer? I have decided to look at the next year through three different lenses.
Opening hours: During the year, the Bank of England opened consultations over an extension to the opening hours of the sterling CHAPS system. We’ve all seen the benefits at a retail level of 24/7 payments, but how does this translate to the business ecosystem? So, I predict we will see more discussions and socialising of the concept, but I don’t think we will see anything change in 2024. It’s a great opportunity for treasurers to consider the risks and rewards of extending opening hours to support domestic and cross-regional activities.
Sustainability: The increased focus on identifying opportunities to reduce carbon footprints is relentless. Whilst payments themselves (especially the electronic ones) may have a limited footprint (accepting the importance of using renewable energy), the goods and services that sit behind a payment may have significant greenhouse gas emissions. One opportunity may be to help consumers and businesses understand the carbon footprint at the point of sale. So, I predict that we may start to see payment providers and sellers working together to provide more information to buyers of goods and services, and treasurers can play a role in defining what would be useful for them.
ISO 20022: After 19 years, 2023 heralded some important changes in the deployment of the ISO 20022 payment standard. The European Central Bank and the Bank of England both switched over to the new standard in 2023, without a hitch. We are now in a period of parallel run with Swift still planning to withdraw the old MT protocols in 2025. Treasurers should be aware of the new standard, and banks, payment providers and the Association of Corporate Treasurers (ACT) have all created significant resources to help the payments community understand the competitive opportunities that will be available. So, I predict that we will start to see some practical use cases and would encourage treasurers to make sure their company is taking advantage of the changes underway.
Faster Payments: Whether it’s called faster, immediate or real-time payments, more countries are deploying solutions to enable payments to move quickly. In the US, FedNow went live in the summer of 2023. Treasurers now have more choices when it comes to selecting payment options and this choice will only increase. 2024 will see more countries coming on-line (such as the UAE) and others going through a material upgrade (such as Switzerland). So, I predict that as the number of countries and transactions increase, progressive treasurers will see the benefit of developing a comprehensive payments strategy for their business.
Open banking: Many of us will have experienced the benefits of open banking at a retail level, such as being able to view balances across multiple banks. However, the spread into the B2B space has been slow. Technology developments and deployments (such as APIs and ISO 20022) are creating a more accommodating infrastructure for technology companies and banks to devise customised / sector focused solutions for corporates. An example of which is Variable Recurring Payments – a variation on the direct debit. More efficient working capital management and improved cash forecasting should be of specific interest to the treasurer. So, I predict we will see more solutions being developed which, whilst not transformational, will help a number of businesses and their treasury teams to reduce costs, improve the efficiency of key processes and enhance the customer experience.
Crypto payments / digital assets: As the regulatory framework in various jurisdictions becomes clearer, confidence in their application and use is growing (albeit slowly). A number of traditional businesses are exploring areas such as the metaverse and non-fungible tokens (NFT) and looking at the role that digital assets can play to either supplement or replace the use of fiat currencies. So, I predict that we will see a slow increase in the use of digital assets as benefits such as transparency and speed, and their connectedness to the virtual world become more important and treasurers should be aware of any corporate plans to enter the digital world.
Fraud: The encryption and tokenisation of identity and credentials are a cornerstone of the security supporting our payments processes. Quantum computing has the potential to compromise cryptographic algorithms, disrupting existing security protocols. The scale of the investment into this area is significant, and the possibility of a breach of security remains a real possibility. So, I predict that whilst it may not happen in 2024, treasurers, payment professionals, technology specialists and boards should be made aware of the potential risks that could lie ahead.
Still talking about it
Central Bank Digital Currencies (CBDC): CBDCs are not new and, in fact, have been in discussion since 1993. During 2023 we saw several new countries run pilots (such as Japan and Ukraine). In addition, both the Bank of England and the European Central Bank (ECB) started detailed work on the design specifications of a retail CBDC even though they haven’t yet decided if they will go ahead and launch a CBDC. In 2024 I think we will continue to read about further developments, domestic and cross-border pilot studies. For most treasurers, it would be prudent to keep abreast of general developments and the ACT’s quarterly blog on CBDCs should be a useful resource. So, I predict more talk and more developments but nothing that requires the treasurer to take immediate action.
Embedded payments: This term has become more widespread, and the opportunities can be significant. However, there remains a lack of clarity about what this means in practical terms. The need to join up different parts of a corporate technology landscape (customer information, payment channels, accounting ledgers, etc) coupled with the need to have sufficient market appeal makes this still a way off. So, I predict more use cases and lots of investment into this space but limited tangible deliverables, particularly for the treasurer.
Overall, I think I can say with confidence that the payments ecosystem will continue to change in 2024. As projects like ISO 20022 mature, new features and opportunities will arise. Depending on the nature of the business, anyone dealing with payments – and that includes payables, receivables, refunds and treasury teams - may identify opportunities to reduce risks, improve efficiencies and enhance the customer experience. Some initiatives may take longer than expected to come to market or achieve critical mass. In addition, although the scale of investment in the Fintech payments space has dropped, changes will continue to come, and treasurers can play a key role in shaping some of these and ensuring their business benefits