Trends for digital transformation and disruptive technologies are making an impact on international payments and the work of treasurers. But what specific aspects are relevant to treasury today, and how specifically are they going to influence international payments tomorrow?
Cyber security and big data
Someone might receive an incoming email apparently containing an urgent payment request from the CFO or even the CEO (CEO Fraud) – but it would actually be a scam that looked deceptively real. Once processed, it is rarely possible to reverse such payments and get the money back. Fraud attempts such as this one are on the rise and have turned the issue of cyber security into a top priority for treasurers and banks alike. For banks, big data analytics and artificial intelligence (AI) are providing a pivotal role, and payment solutions making use of them are gaining ground. Deutsche Bank is currently in the process of implementing a self-learning IT system that is able to recognize unusual transaction patterns based on an analysis of large quantities of customer transaction data, for example a new account number or an odd amount triggering a verification. Treasury software providers have also started offering similar solutions that aim to detect instances of fraud even before any data is transmitted to the bank.
Real-time payments – fast, efficient but also irrevocable
Payments being credited to the beneficiary within a minimum amount of time is a growing treasury requirement that will be accelerated this year, with the introduction of SEPA Instant Payments. Using standardized interfaces to exchange data, so-called “APIs,” real-time SEPA payments can help optimize and simplify business processes. This could for example be used in the processing of customer complaints. Once the validity of a claim has been established, the company can complete the process with an automated real-time payment. Nevertheless, treasurers making use of real-time payments should be aware of the fact that this also carries a certain risk, as there are no longer any corresponding bank services to reverse a transaction. Treasurers should not neglect to assess the risk presented by a payment being processed that should not have been made. Moreover, each company should evaluate to what extent real-time payments make sense within the framework of their business setup.
New technologies – blockchain and cryptocurrencies
Every minute, banks worldwide process millions of payment transactions. For now, there is an established process in place, but there is a chance this soon could be replaced by a technology that has the potential to transform traditional payment setups for good: Blockchain. This database technology digitally records transactions on a distributed ledger. The transactions are visible to all blockchain participants and can be accessed simultaneously at any given time, making transactions verifiable and temper-proof; theoretically removing the need for a central control authority.
Blockchain presents many opportunities. However, when it comes to payments, the technology is still in its infancy. At the moment, blockchain payment solutions are most commonly associated with the unregulated cryptocurrency Bitcoin. However, main challenges with these cryptocurrencies to date include slow transaction processing times, considerable rate fluctuations compared to “real” currencies such as EUR and USD, and the corresponding high transaction costs.
Deutsche Bank is a member of the “Utility Settlement Coin” consortium which aims to use Blockchain technology to represent real fiat currencies on a distributed ledger. Furthermore, Deutsche Bank participates in the “We.Trade” project – a market collaboration with the aim of developing a digital marketplace for trade finance, greatly simplifying domestic and cross-border trade for commercial clients.
It is evident that blockchain technology harbors great potential when it comes to payments. However, to become really successful in the financial sector, there are not just legal issues that need to be addressed, but two other important topics: digital identity and how to represent ‘fiat’ money, e.g. EUR or GBP on a distributed ledger. For now, it is impossible to anticipate how and when solutions employing this technology will start having an impact on treasury, but it is clearly a space to watch.
Conclusion: there is a lot of change coming to tomorrow’s treasury – partially fueled by technologies that could potentially revolutionize some established processes. In this context, cyber security is of prime importance and calls for a swift implementation of appropriate measures by companies. Treasury functions should start familiarizing themselves with this subject and the corresponding new technologies, so they are always one step ahead.
Director | Messaging, Integration & Conversion Products