Corporate Banking and navigating the complexities of Payments Modernisation

The future of corporate payments is being built on modern technology and agility, not legacy. The emergence of platforms offering single API access to multiple payment rails, including instant payments, signals a decisive break from legacy systems. ClearBank, for example, has pioneered this model, empowering fintechs and non-banks to reshape corporate payments. The pandemic accelerated this shift, exposing the digital vulnerabilities of traditional banks and highlighting the crucial role of cloud-native, API-first infrastructure. This wasn't just innovation; it was a requirement for survival.

Rising Corporate Payment Revenues and Emerging Competitors

The corporate payments arena is no longer a bank-dominated stronghold. While revenues are soaring, projected to reach $1.61 trillion by 2028¹, the playing field is radically shifting. 3.4 trillion transactions in 2023¹, and growing, proves the size of the prize. New payment methods are empowering nimble players to disrupt the traditional. Fintechs, challenger banks, and even commerce aggregators (e.g., Stripe, Square and Toast) and marketplaces (e.g., Amazon and eBay) are aggressively carving out their space, offering innovative platforms and embedded solutions. This signals a fundamental change: the future of corporate payments belongs to those who embrace agility and innovation.

Multifaceted needs of Corporate Payments

While the revenue potential of corporate payments shines brightly, the path to capturing it is paved with intricate challenges. This is no simple game; it's a multifaceted puzzle that requires a deep understanding of the unique needs of corporate clients. Only by unraveling these complexities can banks truly capitalize on the immense opportunity at hand.

1. Multi-Channel Payment Acceptance and API Integration

Imagine a global retailer. Customers are shopping across mobile apps, online stores, and physical locations.  How do you ensure a seamless payment and checkout experience at each touchpoint? This is the reality corporates face today. They must seamlessly accept payments across a dizzying array of channels – mobile apps, desktops, point-of-sale, IVR, agent assisted and more.  This is where a single API for payment acceptance from their banking partner becomes a game-changer. It acts as a universal translator, eliminating the need for complex, point to point integrations.  Imagine it as central hub, connecting all payment channels. This seamless integration translates into a frictionless customer journey, fostering loyalty and driving revenue growth.

2. Bulk Payments – Managing Formats, Volumes and Controls

For corporates, bulk payments are the lifeblood of operations – payroll, supplier invoices, direct debits – efficiency is paramount. But the reality is, it's not a one-size-fits-all world. While ISO20022 is rightfully hailed as the future, with its structured data capabilities, businesses will continue to grapple with a patchwork of formats: CSV, Excel, proprietary systems, and more. Imagine trying to reconcile thousands of transactions when each arrives in a different language. That's the challenge. Now, let's talk about ISO20022's game-changer: structured data. Unlike basic formats, ISO20022 (pain.001 and pain.008) embeds crucial details – addresses of all parties, invoice breakdowns, and more – directly into the payment instructions. This isn't just about speed; it's about accuracy, automation and compliance. Think of it as adding GPS coordinates to every package, ensuring it arrives at the right destination, with all necessary documentation. However, many corporates are still using legacy systems, customized to their old systems, which means they are missing out on the automated reconciliation, and compliance benefits. But even with the best formats, handling the sheer volume of bulk payments demands robust controls. Imagine processing thousands of transactions within tight deadlines. This requires secure, high-volume processing capabilities, including efficient upload and transmission channels within the bank. Digital signatures become non-negotiable, acting as digital seals of approval. And when errors inevitably occur, efficient exception handling and manual controls are critical to amend incorrect bulks or individual payment instructions without compromising security. This includes the ability to grant granular approvals by authorized personnel. The ability to handle diverse formats, while leveraging the power of structured data, coupled with stringent controls and high-volume processing, is the key to unlocking true efficiency and security in corporate bulk payments.

3. Flexible Multi-system Integration for Seamless End-to-End Payment Automation

Corporates rely on a constellation of specialized systems – ERPs for accounts payables and receivables, treasury platforms for liquidity management and cash forecasting, bookkeeping and reporting tools for insights. Each plays a vital role in their financial operations. But these systems, while essential, exist in isolation when it comes to payment processing. The real challenge lies in bridging the gap between these internal ecosystems and the external banking network. Imagine trying to manage payments when your ERP speaks one language, your treasury system another, and your bank yet another. That's the reconciliation nightmare. To achieve true end-to-end payment management, these disparate systems must seamlessly integrate with the bank's infrastructure. APIs, ISO20022, and even proprietary format support become the essential connectors. They enable the automated flow of data – payment initiation, status updates, and reconciliation – between the corporate systems and the bank's platform. This isn't just about automation; it's about creating a unified payment ecosystem. Think of it as building a network where every node – ERP, treasury, bank – communicates efficiently. Without this integration, corporates are left with fragmented processes, manual reconciliation, and limited visibility. The ability to provide the right data, structured remittance information, and payment status reports through these integrated channels is the key to unlocking seamless, automated, and efficient payment management.

4. Real-Time Visibility and Control of Corporate Cash Flows

Corporates, navigating the complex currents of global finance, demand a clear, real-time view of their cash flows. Without it, they're essentially flying blind, vulnerable to unexpected liquidity shocks and missed opportunities. This isn't just a 'nice-to-have'; it's a critical operational necessity. The onus falls on banks to provide the solutions that empower corporates with this essential visibility. Banks must deliver real-time insights into cash positions across currencies and accounts, both within and beyond the bank's own network. For global corporations, this means seamless consolidation of data from multiple banking relationships, requiring sophisticated technology and robust connectivity. Furthermore, banks must provide the tools for real-time payment tracking, including confirmations of processed transactions and the status of in-flight payments. This allows corporates to proactively manage their liquidity and ensure funds are available when needed. The liquidity solutions offered by banks should extend beyond simple visibility, encompassing intelligent tools for working capital optimization. This includes automated cross-currency and investment sweeps, just-in-time funding, notional pooling, and cash concentration, all supported by a robust, API-driven payment system. In essence, banks must become strategic partners, providing the technological infrastructure and expertise that enables corporates to achieve complete, real-time control over their financial destiny.

5. Optimizing KYC Due Diligence to accelerate Corporate Payment Onboarding

Corporates open bank accounts to facilitate payments. However, complex KYC due diligence, crucial for preventing financial crime, often delays onboarding. This directly impacts bank time-to-revenue. To optimize, banks must leverage digital onboarding and automated data aggregation from utilities for KYC compliance. Implementing progressive KYC, allowing initial access for domestic payments with lighter KYC  while conducting thorough checks for international payments, accelerates onboarding. Furthermore, robust transaction screening and AML checks during payment processing can lighten upfront KYC requirements. Streamlining these processes is essential for banks to rapidly capture corporate payment flows and maximize revenue.

6. Smart Routing Solutions and Multi-rail support for Corporate Payments

Corporates demand payment optimization, not just transactions. They need their banks to enable access to the fastest and cheapest payment rails, tailored to their business needs. This requires banks to offer dynamic routing across multiple payment rails: instant, RTGS, ACH, SWIFT, etc. based on speed, cost, and counterparty agreements and SLAs. Banks must provide multi-rail support, empowering corporates to control their payment flow and drive strategic financial outcomes.

Incumbents: Burden of Legacy systems

Incumbent banks face a critical payment system challenge: legacy infrastructure. Decades-old systems hinder their ability to meet modern corporate payment demands. This results in an inability to support complex corporate banking requirements, leading to lost market share. Payment system modernization is essential, but complex and costly. Extended payback periods and intricate upgrades pose significant hurdles. Failure to adapt means continued loss of corporate clients to agile competitors.

The Role of AI in Modernising Corporate Payment Systems

The relentless evolution of technology, with Cloud and AI now central to banking, makes corporate payment system modernization a critical imperative. AI is not just an option; it's the driving force behind this transformation. AI offers several impactful applications in corporate payment processing:

• Customer Service: AI agents empower corporate clients with instant support, handling inquiries and providing payment updates. When complex issues arise, RPA seamlessly integrates with case management systems, routing unresolved queries to specialized teams for swift resolution, significantly reducing the workload of human agents.
• Fraud Detection & Prevention: AI, leveraging its ability to analyze massive datasets in real-time, fortifies payment processing by proactively detecting and preventing fraudulent activity, ensuring secure transactions.
• Predictive Analytics: AI provides valuable insights into payment trends, helping corporates forecast cash flows for efficient working capital management.

Key Takeaways

In summary, navigating the evolving landscape of corporate payments demands a strategic and agile approach. Here are the critical insights:

• The corporate payment revenue pool presents a lucrative and rapidly expanding opportunity.
• Consequently, the corporate payments arena is witnessing significant disruption from fintechs, challenger banks, and intermediaries, all aggressively capturing market share from traditional banks.
• Corporate payment processing is inherently complex, with unique requirements:
  • They require multi-channel payment acceptance capabilities with easy and secure API integration.
  • They need support for processing high-volume bulk payments in various formats (including ISO20022 and proprietary formats) with efficiency, security, and robust controls.
  • They require seamless integration with multiple internal systems to achieve automated end-to-end payment management, reconciliation, and accurate bookkeeping.
  • They need real-time visibility of cashflows and payment status confirmations for efficient working capital management.
  • KYC due diligence during corporate onboarding presents significant complexities and time constraints. Potential mitigations include progressive payments onboarding (domestic first, followed by international) and robust transaction screening and AML checks during payment processing.
  • They need multi-payment rail support with smart and dynamic routing based on cost, urgency, and counterparty agreements.

Recommended Actions

To effectively navigate the complexities of corporate payments, banks must strategically align their infrastructure modernization efforts with their business objectives. The following actions are crucial:

• Prioritize solutions built on modern technology—API-first, secure, cloud-agnostic, and AI-enabled, capable of handling evolving payment formats and methods (e.g., ISO20022, new payment rails like instant payments and request to pay). Ensure the solution supports execution excellence (high STP, automated exception handling, least-cost routing across multiple rails) and robust risk management (payment pre-validation, confirmation of payee, payment control center), while enabling seamless integration with corporate client systems for payment management and reconciliation. The solution should be future-ready with ecosystem integration capabilities, seamlessly integrating with new products, fintech solutions, and other service providers, and maintain continuous investment in new technology and regulatory compliance to address payment market challenges.
• Implement a phased modernization approach, commencing with a specific payment method or rail, and gradually expanding to distribute investment and realize rapid benefits.
• Forge strategic partnerships with challengers and fintechs to co-innovate and develop value-added service offerings.
• Reimagine your business model and expand your value proposition to fully leverage the investments made in payment modernization, ensuring long-term competitive advantage.

1. The 2024 McKinsey Global Payments Report