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John Gaffney: Hello, and welcome to the Payments Podcast. My name is John Gaffney. I will be your host today for the first in a series of episodes that will unpack the latest iteration of Bottomline’s Payments Barometer.
Since 2016, we've been taking the pulse of key finance leaders in the UK. This year we've added the US for the first time, gathering 800 responses per country. The result is a fascinating snapshot of the current state of business payments in both countries, as well as a look into the issues that will define the next few years.
In the report and in coming episodes of the podcast, you will gain insights into managing cash flow, fighting fraud, and adopting new payment formats, but for now, we're going to focus on the key findings of the report as business payments meet the forces of change.
In the spirit of the report, our expert commentators come from both sides of the pond. From Bottomline’s London office, we welcome our Product Leader, Colin Swain. Colin has been leading strategy, product design, and operations teams in a range of different companies, from Tier 1 banks and global business payments businesses, through to start-ups and retailers, for more than 15 years. Welcome, Colin.
Colin Swain: Thanks, John, great to be here.
John Gaffney: From our US headquarters in the great state of New Hampshire, please, welcome Chief Product and Innovation Officer, Curt Raffi. Curt leads a global product and engineering team across the US, India, and Europe, focused on digital banking solutions. That team is focused on SaaS products for portfolio growth, go-to-market strategies, and product monetization. Welcome, Curt.
Curt Raffi: John, thanks very much. I appreciate you allowing the US, finally, to be a part of this, not just those cool people from the UK.
John Gaffney: I know. It's about time, and we're going to take advantage of it.
Curt Raffi: There you go.
John Gaffney: We're going to take advantage of it. We're going to declare our independence again. The report leads off with drivers of change. There's a list of 12. If you read it, it ranges from the aftermath of COVID to geopolitical uncertainties. Then there are more traditional payments and financial services issues in there.
I want to take a section from the report, that section from a business payments perspective strictly. Curt, I want to start with you. One of the drivers on the US side of the drivers of change so far is payments modernization. Now, it covers everything, from real-time payments to ISO 20022, to open banking, but, when you think about payments modernization, how do you put that in the context of the general economy?
Curt Raffi: Yes, that's a good question. There’s a lot going on in the economy right now. We’ve gone through a lot, so just let's put some simple things together and say we've just gone through a pandemic, which doesn't happen that office – often, rather. That drives and has driven a whole lot of change to do things digitally, so that's playing out.
If you look at some of the payments’ leading firms out there, just looking at the pandemic, 3X, 5X, and 10X increase in digital payments use and a desire to live in an e-commerce world. So, that's transforming things. That's a big one.
The other big change is speed. Everything is moving faster. I want to make my payments to you, to Colin, to others faster, so that's a major macro change that's going on. The third: that is it's a worldwide change. I don't know if it's a business or macro change, and it's an old one, John, is the consumerization of the enterprise.
What we're seeing move into the corporate world of payments has been brewing in the consumer world for a while. All of that is set at a backdrop of the economy rapidly changing, with higher interest rates and everything else, so we're set for some interesting days over the next 6, 12, and 24 months, but there are a whole lot of things that are fostering change.
John Gaffney: Yes, interesting. Let's look at the list of drivers for the UK. They're a little bit different. Colin, when you look at those drivers, how do you interpret payment monetization, and do you think we land on that for the UK drivers of change?
Colin Swain: Yes, I think we do, John. I think if you look at the drivers in the UK, so, as well as COVID, very focused around better access for cloud and pay-as-you-go services, obviously continue to look at mobile payment’s technology, and improvements around security and prevention of fraud.
Now, I think if you overlay payment modernization for the last decade to that, particularly in the UK, whether it has been a combination of regulatory changes, new entrants, and new tech, all of those things have really focused on allowing for more competition and choice.
Now, I think, as Curt said, a lot of that started with consumers, but it's very much now looking at corporates, so whether that’s open to new schemes, allowing the instant payments and improving fraud prevention as well.
If you look at those corporate key drivers, there are real options and choices now for those corporates in terms of the tools and the providers they use to enhance and protect their business. So, whether it's real-time payment access, whether it's how they want to receive money from consumers through mobile payments, whether it's cash management and fraud tools, such as Confirmation of Payee, corporates now have, really, a marketplace of tools to access and to help them run their business, which three/five years ago simply didn't exist.
John Gaffney: Yes, interesting. Curt, you mentioned the consumerization of business payments. I'm wondering if you think this all comes under the heading of ‘The Need for Speed.’ Is that an accurate way to describe all the new payment initiatives in the US? What issues do you think companies are going to face as they try to match the expectations of their clients?
Curt Raffi: Yes, I think ‘The Need for Speed’ is a great statement, but it also plays on something else: the need for cash. Oftentimes, what you see – and Colin called out the corporates and their desire to get in payments – when we talk about corporates, and consumers, and real-time payments or faster payments, oftentimes it's into a corporate. A corporate is receiving payment from a consumer. It's easy that way.
Ultimately, that need for speed on the corporate is they know their cash position much more quickly, and their cash position is enhanced much more quickly. So, the need for speed is driven by the need for cash and cash-flow enhancement, oftentimes.
I think that is seen most in the corporate segment. If you look down, maybe, into the small business segment, there may be a hesitancy. Ultimately, it will be convenient, so I think that will go away, but there may be a hesitancy to pay you, John, as my supplier, or to Colin as my supplier, because I like to sit on my cash a little bit longer. I want to slow down my cash flow.
So, oftentimes, the beauty of faster payments and the need for speed is to get money into that corporate. Maybe it's for a month. We’ve certainly seen it in the United States in wireless and utilities, where those are big use cases for faster payments, but yes, I think the need for speed is really the need for cash that comes together.
John Gaffney: Well said, well said. Colin, in the UK we call them ‘instant payments’, right? Does that fit into the priority slot that Curt described here? Do non-financial service companies need to stay current with that kind of innovation?
Colin Swain: Yes, absolutely. I think Curt nailed it when he said, “The need for speed is very much about getting cash into the business,” and not necessarily as much in terms of getting cash out of the business, and paying suppliers as well. Certainly when you look at the world of B2B trade and B2B payments, obviously that's more of a challenge.
I think if you look at instant payments, you really have to then look at the use case for it, as well. I think, as a market, we can do a far better job of this. The real benefits come when you focus in on where it is absolutely critical to have immediate movement of funds.
Some of the use cases could be things like e-commerce and recurring payments, where, as Curt described, the need to get the money in before that good or service is sold to the consumer is critical. Or you could look at things like on-demand payroll and the gig economy, which continues to grow, as well as improving payment flow.
I remember a time, three/four years ago, when prepaid cards were huge, particularly in the payroll business, because there wasn't the ability for instant payments in any other way. So, corporates can really benefit from instant payments, to help their employees and their staff and get them their pay sooner, so I think it's really- Go on, sorry.
John Gaffney: No, I was going to say, “Do you think that non-banks, non-financial services companies, are prepared for instant payments and other new initiatives that are coming down the line?”
Colin Swain: I think it's a really good question. I think they're ready for the ones where they can see a real benefit for them. I think that's the market’s job to actually help them to drive education, to drive understanding as well, John.
If you look at the report, and particularly for the UK, there was a figure which absolutely astounded me. It was, when you look at adoption of real-time payments in the UK, around 50% of corporates have adopted real-time payments. Of the other 50%, 32, or about a third of them, said they didn't really have a need for real-time payments. Around another 30% said they didn't want to adopt real-time payments, because they wanted to keep their cash for longer.
Now, if you think about that statement, that's fundamentally saying, “The market hasn't done a great job, in some ways, of explaining what instant payments is,” because it actually aids cash flow and aids the ability to keep your cash for longer.
So, I think, actually, when you talk about readiness with corporates, I think they'll focus very much on their business and what's important in their business. Our job is to educate and drive the benefits of how some of these new payment initiatives can support them.
John Gaffney: Good points, excellent points. Curt, let's move into your strike zone here. We don't have as many new initiatives over here. The UK is completely redoing their entire infrastructure.
Curt Raffi: They’re awesome. Let's just face it. Yes, they are way better than we are, no.
John Gaffney: We do have the Fed coming online, with their own flavour of real-time payments. We do have a move toward SaaS-based platforms, which I know is your wheelhouse. So, if you're running a midsized or a big corporation these days, how do you tell them to approach the need to innovate?
Curt Raffi: Yes, I think it goes back, John, to what Colin said are the use cases. Why would they want to innovate? Why do they want to make a move? If they can see a benefit to receiving cash faster into their business, enhancing their cash flow, there's a reason for making that move.
If it's just because you can send a payment out faster, that's not a reason. That's a threat, actually, and I think we've… It's funny. I heard a friend of mine has a FinTech start-up in the United States that's really about invoicing, and helping small businesses invoice and get paid. He turned the argument upside down, whereas every bank and payment company was about, “Send your payments with new tools.” He was like, “No, no, no, no, receive payment. Get cash into your small business or your midsized business much more effectively.
That’s where I think the argument begins to make more sense for a business owner, but once again I think there's stratification of the marketplace, just like in the UK and the US as well, where small businesses have different motivations, perhaps, than enterprises do.
When you look at RTP, real-time payments, and what's coming with FedNow and all of those things, we’ve got to play there, because at least, and certainly in my business, we're serving the enterprise down to the SMB. So, it's imperative. The federal government knows that. We know that, so all of those innovations are healthy and important, but you’ve also got to make sure it's an innovation that is valid to the end user and the use case.
I think the other lens on that is we are seeing things happen in the consumer space. I tend to be a macro market watcher, and I love to see how products are influenced by behaviours. We have a lot more cheque use in the United States than exists in Europe and, perhaps, in the UK. They have James Bond. We have old cheques. Tell me the answer to that one. I don't understand, but anyway
John Gaffney: They have a queen, too. Don’t forget.
Curt Raffi: Right, exactly, and just had a jubilee on top of that, but I think when you talk to my kids and they'll go, “What's a cheque? Huh? What? Why?” the use cases of instant payments are very important to them.
They are now going to be, and are, working at enterprises. So, when my daughter is splitting the bill with Zelle with her friends, out at some restaurant that they're at, or Venmo or whatever else, they're doing instant settlement. They need it because they don't necessarily trust the counterparty, (Laughter) their friend, at the dinner table.
So, they are now moving and expecting those same types of use abilities, and products, and functionalities to exist. Then to see very, very old ACH, wire, or other payment mechanisms seems anachronistic, old-school, to them. So, that is really changing. That's, I think, also forcing evolution from an innovation perspective as you see more millennials and Gen Zs in the enterprise space and as business owners.
John Gaffney: Curt, let's stay with you. Let's switch gears a little bit, though. Let's talk about cash flow, which we have hit on, both of us, both of you guys have hit on, but let's go right after it, because neither countries’ respondents were very confident in their ability to forecast cash flow. Is this consistent with what you see in the marketplace, and how do we fix it?
Curt Raffi: Huge, yes. That is actually true up and down the spectrum of business size. You've got small businesses and micro-businesses that ride cash flow. If I don't get that payment in, I may not be able to pay my employee, Colin, tomorrow, so that's really important.
At the enterprise level, if I've got a large FP&A staff and I'm a CFO of a large corporation, I need to know my cash position, maybe across many, many bank accounts as well. It's the same issue, just with a larger lens at the enterprise versus the SMB level.
What we're seeing now is exciting. I know FinTech is going through a lot of transformation right now, but we're seeing a lot of companies coming in that are applying machine learning and AI. We're even partnering with a couple of really cool ones right now that we’ll say, “Okay, we're going to look at, perhaps, the GL connection or something else, or your bank account, and we'll look at all the ins and outs into your business. We'll begin to understand those.”
I'm even on the board of a bank in the United States that's now doing that for their retail customers, that we call it ‘Future Look’ to say, “By the way, Colin, you're going to be out of money in two weeks, so maybe cut back on your spending a little bit.”
That exact same model is being applied to all of these new FinTech tools. That’s just cash-flow positioning, which is really important. I think you're going to see many, many more of those, and there’s a whole bunch of really interesting ones coming out now.
I will also add on, that presents other interesting opportunities because, if I'm a banker, or I'm a business owner, or I'm an owner of the cash-flow analysis SaaS platform and I know, John, that you're going to be out of cash flow when it comes time to make payroll for your 100-employee staff in another 20 days, maybe it's time you got a loan, a bridge loan, to cover that.
So, there'll be interesting contextual lending and contextual product opportunities that come out of that cash-flow analysis, that I think are also really cool, so it's not… There's definitely innovation going in cash-flow analysis. The tools now, and the big data analytics, can make those products much smarter, but there are also interesting add-ons to that that come out of that, with other lending-style products.
John Gaffney: Well said. Colin, I didn't think we'd have to defend your personal liquidity on this podcast, (Laughter) but apparently we do. Are you okay there?
Colin Swain: Yes, Curt did give me a fair warning on this, so I was expecting it.
John Gaffney: I know when we talked before that you were. This comes back to basics for you, cash flow.
Colin Swain: Yes, it does.
John Gaffney: Whether management or forecasting, so could you talk about that a little bit?
Colin Swain: Yes, sure. I think, first of all, the whole point of cash positioning, cash-flow forecasting, I completely agree with Curt. I think this is going to be one of the next, if it isn't already, one of the next big things in terms of FinTech, and FinTech investment as well.
Having spoken to a lot of CFOs, both in the US and UK, whilst being at Bottomline, I've heard stories of major enterprises and their CFOs who couldn't do cash-flow forecasting, actually couldn't tell their own board how much cash was in the business. So, it gives you some sense of where some corporates – as Curt said, big small, all those in between – where they are in terms of managing their cash.
As you said, in the survey, over half of corporates don't have accurate cash-flow forecasts today. 25% of them still use Excel, as well, as a vehicle to do that. I think if you look over the last 2½ years, whether it's in the macroeconomic state we are right now or through COVID, the need for short- and long-term cash flow, and ‘what if?’ scenarios and stress testing around that, couldn't be more important.
The reason it's important, as well, it's not about saying, “Oh, great, you're going to have X or Y cash position in two to three months’ time.” That's not the point of it. The point of it is it allows CFOs to proactively put in place plans, tactics, to track and make changes before they happen.
The other thing we hear a lot from CFOs is that they're very reactive. They're looking at the next week or the next few weeks, apart from those quarterly reports and processes they have. They can't be more strategic and more proactive with their board.
Part of the reason for that is they don't have the information and tools at hand to do that. So, I think this is going to be massive. I truly believe the combination of actually putting the data together to get a cash position and then, as Curt said, actually building out the models, the scenarios, the stress tests to support finance leaders is going to be huge.
John Gaffney: Here's the last question. I'm going to ask both of you to look into your respective crystal balls on either side of the pond here. Part of the report asks respondents to look out over the next three years. What will the drivers of change be over the next three years? Fraud is at the top of the list. We're going to cover that on our next podcast, but are there any issues that should be more important that are missing? Colin, I'm going to start with you.
Colin Swain: Yes, sure. If you look at the report, I think third on the list is driving efficiency around paying suppliers, which is absolutely critical. I think just following on, John, from what we were just talking about, and given where we are with the economy, having tools and processes that are going to drive the ability for corporates to get cash into the business will be one of the most important things for the next three years.
So, whether that is actually initiatives like Request to Pay, whether it's a combination of that and instant payments, I think there are a huge number of tools that corporates will be able to use, but I see that as becoming far, far more important for the business as a whole, but also the finance teams and CFO.
John Gaffney: Interesting. Curt, you're going to have the last word here. New technology came up big on influences for the future, but CBDCs came up pretty high, too. I know you've done a lot of work on that. Your reaction to how high the respondents in the US put the importance of CBDCs.
Curt Raffi: Yes, I think CBDCs will be interesting. By the way, if you're new to CBDCs, it’s Central Bank Digital Currencies. Ultimately, I think what those enable is faster and easier settlement of payment, so whether that's cross-border, you will see in the future. I'm going to put on my crystal. You said it was a crystal ball, so I'll put on my… What would I put on, my fortune-teller’s hat or something like that?
John Gaffney: One of those big Uncle Sam hats, maybe.
Curt Raffi: Yes, okay, whatever. What I see as really being needed over the coming months is we're entering a very unsure time in the economy, so the ability to settle payments fast is imperative.
Oftentimes with unsettled macro times also come an opportunity for governments to make changes, so could the US Government, with the collapse of some crypto empires, begin to say, “Okay, it's time to do it right. Here's our CBDC. We're going to support unique, cross-border, instant settlements with FedNow and beyond”? Yes, I think all of that is potentially in the crystal ball.
In addition to that, everything Colin said: you've got people who are going to need to… Their businesses, with inflation and, perhaps, loan payments and debt service, they're going to need to make sure their cash flow is in a good position, so faster payments around that will be demanded by everyone.
I think you've got demographic changes, where every young person starting a business, running a business, as I said earlier, will demand better technology, not creaky, old, sloshy payment systems that offered five days of settlement. Heck, ACH is pretty old.
John Gaffney: Did you call it ‘slush settlements’ the other day?
Curt Raffi: I did, slush settlement. It’s funny. People now are like, “We can get your payroll in two days earlier,” because they’ve got a five-day window to settle that ACH in the United States. It is humorous, but I think that will also change.
Then let's even prognosticate a little further. If things get really unsettled from an economic perspective over the next year or so, debt service coverage ratios on loans, and loan covenants, will suddenly become things that we have to deal with.
Remember that we've lived through a number of years of very easy money. That has gone, so what's happening now, I'm going to have to, as a CFO, make sure I know my cash position instantaneously at any one time, so I think that will be a huge motivating factor.
Then my loan covenants, I could have my loans called if my debt service coverage ratios or my cash flow is not where it needs to be. All of those things portent change and, I think, us supporting both cross-border, digital money movement, whatever we want to call it, and a faster future that I think is on top of us right now, so buckle your seatbelts. It's going to get interesting.
John Gaffney: Yes. Hey, that's a wrap. This episode of the Payments Podcast covered the key findings from our Business Payments Barometer to 2022. You can find a full copy of the report at ‘bottomline.com’. Curt Raffi, I would like to thank you very much, very insightful. Colin, I want to thank you very much for representing the UK. Hopefully, we'll talk to you again soon.
Colin Swain: Of course. I'm just going to pop down and see the Queen now, so I’ll send her your regards.
Curt Raffi: I’m going to watch very James Bond movie I possibly can, to try to practise my accent to be as suave as Colin.
John Gaffney: Alright, before we start an international incident, I'm going to encourage everybody to tune in next time, when we talk about the findings on fraud. Gentlemen, once again, thank you and see you next time on the Payments Podcast.
Curt Raffi: Cheers.
Colin Swain: Thanks.
Listen to the Payments Podcast episode on Better Cash Management and Forecasting, for SMEs through to Enterprise Treasury teams.
In the 1/3 episodes, Marcus Hughes, Head of Strategic Business Development at Bottomline, shares his insights on the current adoption the evolution of Open Banking to Open Finance and the process behind the information sharing and payment initiation services.
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