Payments is a hot area for FinTechs and those that back them with the result that it has become a big and complicated business likely to be worth more than $2 trillion dollars by 2020. Going back to the late 20th century payments have also been recognized as an area of systemic risk for the financial system leading to task forces, core principles and all matter of multilateral wisdom, including the definition of SIPS - or systemically important payment systems.

Core treasury function

For the treasurer, payments have always been a core function of the treasury, essential to the enterprise which needs to collect money from customers and pay its vendors in order to stay in business. With options often limited to check, wire or ACH, payment strategy often decided itself based on commercial convenience and local custom. This is definitely not the case now. Checks are mercifully receding as a payment method of choice, but in their place have come various mobile solutions, digital wallets, cryptocurrencies, platforms, card solutions and contactless systems - virtually none of which follow any of the core principles of SIPS.

Vital questions

A bubbly environment and systemic importance - to the financial system and enterprise - create risks ranging from settlement failure to poor market uptake. These risks are best managed through a formal process of strategy development. This takes time and effort but promises the reward of new customers through convenience, lower costs through technology and reduced overall risk of financial loss. If you’re still not sold on the idea, here are vital questions that may challenge you into action:

• What happens when the music stops? Do you have maps of each payment method you use showing the human, technology and banking elements? What would you do if there were a fail in one of the elements? Would you be able to demonstrate a viable legal claim to the funds?
• How much do payments cost the company? There are the explicit costs of bank fees, the buried costs of fx and float and the internal processing costs of each payment channel.
• Who is making the decisions on payment matters in the company and what criteria do they use? Could the decision to add a mobil channel survive a proper analysis from treasury? Do payment practices allow you to reach all corners of potential markets?

Four steps in developing your payment strategy

Now that you’re convinced, the process of developing a payments strategy is relatively simple. Here’s one that takes four steps:

1. Assemble a project team with representation from the business functions impacted by payments including accounting, HR, business operations and marketing.
2. Develop a complete inventory of all current payment methods and map each method including type, technology and human interaction.
3. Identify the risks and opportunities in the current processes and potential new methods and processes that will allow you to minimize the risks and maximize the opportunities.
4. Obtain buy-in from the business functions and executive management and implement the new strategy.                

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The payment environment is more dynamic than it has ever been. A cogent, coordinated analysis to review your current strategy and processes to identify ways to improve them will pay big dividends.