Predictions from Tim Moncrieff, the senior director of strategic initiatives and cross-border solutions at Visa
Convergence between retail and business payment systems
In 2024, expect a convergence between the convenience of personal finance and corporate financial systems. Businesses will increasingly demand payment solutions characterised by speed, ease of access, transparency and cost-efficiency, mirroring what we’ve grown accustomed to in personal banking. This evolution will not only streamline business operations but also fuel competitive advantage. Companies quick to implement these sophisticated payment platforms will secure a first-mover advantage, potentially redefining industry benchmarks for financial transactions.
This ‘consumerisation’ of institutional payment experiences is likely to be a significant focus in cross-border. Cross-border already plays a systemic role in business activity, as evidenced by its robust growth and scale with flows forecast to reach about $250trn by 2027. The demand for improved performance and accessibility in cross-border, however, will drive a focus on systemic interoperability and straight-through processing—to ensure the digital experiences enabled through domestic instant-payment schemes and digital wallets can be replicated in cross-border.
The rise of ‘Platform-as-a-Service’ (PaaS) models
The last 20 years in payments have seen huge innovation in the front-end user experience, from payment form factors, messaging standardisation and digital experiences. However, the core settlement infrastructures that underpin these enhanced experiences have not substantially changed. We believe this will start to change in 2024, with an industry shift towards enhancing the back-end infrastructures that manage settlement, reconciliation and liquidity. This will be partly inspired by economic demand (rising interest rates, liquidity optimisation) and from market demand (FSB imperatives, consumer expectations) which will drive a need to focus on operational efficiency.
Expect a convergence between the convenience of personal finance and corporate financial systems.
Such innovation is vital in an era increasingly moving away from cash, demanding payment systems that are as agile as they are robust. Looking ahead, disconnection from traditional accounts and reliance on technology may bring forth PaaS models, reshaping customer experiences and payment processes.
Compliance and security are the key
As business payments evolve, compliance and data security will take centre stage. The complexity and scale of corporate transactions necessitate a heightened focus on regulatory adherence and data protection. The Financial Stability Board (FSB) is taking significant steps in this direction. This trend underscores the need for robust security protocols and compliance frameworks, ensuring that as payment system interoperability progresses, the necessary attention is given to legal, regulatory, and supervisory frameworks and cross-border data exchange.
Regulators get serious about CBDCs
With the potential introduction of central bank digital currencies (CBDCs), which over 114 countries are exploring, the need for public-private sector collaboration and robust regulatory frameworks becomes even more crucial.
These CBDCs, a digital representation of fiat money issued by central banks, require careful consideration regarding privacy, security, and interoperability—most significantly with digital private money (commercial bank money). Expect significant advancements, redefining the very nature of money in a digital age, with the need for increased public-private sector collaboration.
2024 will spotlight the need for enhanced settlement efficiency in financial transactions. While current systems facilitate rapid payments, the settlement process, involving multiple intermediaries, remains sluggish. The focus will be on streamlining this aspect, reducing time lags and trapped liquidity, and improving overall transactional efficiency. This shift is crucial for businesses where speed and reliability in financial dealings are paramount.
2024 will spotlight the need for enhanced settlement efficiency in financial transactions.
The U.S. Securities and Exchange Commission (SEC) has made significant strides in this area, proposing to shorten the settlement cycle for certain securities transactions from two business days to one business day after the trade date, known as “T +1”. This change is expected to provide numerous benefits, including quicker access to transaction results, reduced risk of unsettled trades, and enhanced operational efficiency.
However, there are operational risks associated with a shorter settlement cycle, such as less time to address errors and deal with unexpected trading losses. Ensuring a smooth transition requires significant investment, systems changes, and operational testing among various market participants. Detailed planning and process adjustments are essential to mitigate risks and ensure readiness for this change.