Financial Services Trends Driving Innovation

The rate of change influencing the way companies do business is accelerating across multiple fronts, encompassing customer expectations, business models, and technology advancements. Payments have emerged as a significant differentiator in every sector. Evolving regulatory frameworks, payment infrastructure and the geopolitical landscape are also shaping business strategies.

To assist treasurers in navigating this change, the HSBC team has rounded up industry insights and best practices.

1. Real-time payments are now the new norm: Corporations are increasingly considering instant payments to complement or replace traditional payment options like ACH and checks. This shift is evident in areas like instant payroll, mobile wallets, reward points funding, and across the manufacturing value chain. The case for treasury infrastructure modernization has never been stronger. Harmonization of ISO 20022 XML payment format standards, advancements in Application Programming Interface (API) technology and the emergence of instant payments options are empowering treasurers to lay the foundation for successful digital transformation.
When embarking on digitalization initiatives, treasurers need to think about future proofing the treasury function whereby working capital management incorporates real-time "end-to-end" solutions, this includes connecting bank account management, payments operations and liquidity management into a frictionless experience for employees and customers.

2. Innovations in cross-border transactions: Technology innovation is unlocking a suite of opportunities in cross-border payments. Adoption of ISO 20022 standard for financial messages enables interoperability between financial institutions, payment infrastructures and treasury technology. The XML-based format transmits detailed and structured data compared to older format SWIFT MT messaging, which helps improving communication and reducing the risk of errors between financial institutions.
Foreign Exchange and Treasury APIs make cross-border payments easier, faster, and more secure for corporations with international operations. These APIs provide access to real-time FX rates and automated transaction data, helping to improve the accuracy of cash flow forecasting. Treasurers can better predict cash requirements in different currencies, aiding in more effective liquidity management. HSBC Treasury API and Global Disbursements API, as the ubiquitous payment initiation APIs covering all types of payments, drastically reduce corporate’s integration effort.
International payments providers are offering multi-currency accounts to simplify cross-border transactions. Platforms, such as HSBC Global Wallet, allow businesses to hold, manage, and transact in multiple currencies, therefore reducing transaction costs, FX exposure and the need for multiple accounts across geographies.

3. Using artificial intelligence to prevent payment fraud: Payment fraud prevention is a major challenge for corporate treasurers globally due to the complexities of the relevant data and technology. Existing methods, which are often based on manual rules, generate numerous false positives, leading to inefficiency. HSBC developed Artificial Intelligence that provides risk scores based on transaction data, accounts, know-your-customer (KYC) information and previous suspicious activity. These models help to understand variance and explain the user payment patterns, supporting the prediction of fraudulent transactions. Using the AI tool HSBC experienced a 60% reduction in false positives.

4. Financial crime risk: Global financial institutions are leveraging their local market expertise to help businesses mitigate financial crime risk and comply with complex regulatory requirements, such as anti-money laundering (AML) checks and know your customer (KYC) procedures. In the US, payment innovations like Request-for-Payment (RFP) help safeguard consumers from the risk of fraud by allowing a business to send a bill directly to a customer via their mobile banking app or portal. In the US, the collaborative efforts of the banking community have resulted in innovations like Request-for-Payment to empower customers to approve payments, reducing the risk of unauthorized claims. Further, comprehensive safeguards that complement existing regulations ensure a robust framework for secure and regulated transactions.

Central Bank Digital Currencies (CBDCs) are also being explored by central banks worldwide. HSBC has participated in a number of industry-wide initiatives to prove the feasibility of regulated digital asset settlement platforms, including the Federal Reserve Bank of New York’s Regulated Liability Network, the collaborative Project mBridge, and the Hong Kong Monetary Authority’s e-HKD initiative. As blockchain and DLT technology become part of the payments infrastructure globally, corporates will benefit from these developments focused on making payments more efficient.

6. Working capital management: Efficient working capital management emphasizes accounts payable engagement to ensure timely payments and capitalize on trade discounts. Many firms are incorporating corporate card solutions to assist in optimizing payables management. These solutions not only facilitate punctual payments but also utilize the repayment grace period of the corporate card to conserve working capital and decrease external borrowing needs for meeting payment obligations. For example, HSBC Virtual Cards can streamline invoice management, reduce errors, and optimize the payment cycle.

7. Liquidity forecasting: Amidst macroeconomic uncertainty, treasurers are increasingly turning to liquidity management and cash flow forecasting (CFF) tools to enhance the accuracy of future cash requirement predictions and help ensure adequate liquidity. By analyzing historical data patterns, these tools help anticipate market fluctuations, customer behavior changes, and market changes that can affect underlying business models.

8. Centralization: As companies adopt new treasury technology, there is an opportunity to review the company’s account structure, consolidate accounts, and streamline liquidity and cash flow management processes. Solutions like virtual accounts can streamline reconciliation and improve the cash application process while actively reducing bank fees associated with maintaining multiple physical bank accounts. The adoption of real-time treasury technology opens opportunities to centralize operations, improving the efficiency of payment processing, transparency, and control.

Continuous innovation, adaptability, and customer centricity is key to success in the dynamic world of commerce. Treasury teams are prioritizing financial partners who understand this. At HSBC, we help our clients to understand these market and technology shifts and adopt innovative treasury best practices. Contact your HSBC representative to learn how your business can embrace these trends.