A new payments paradigm

In today's digitally-advanced age, there is greater pressure than ever on corporate treasurers to keep abreast of digital developments, especially those that have potential to enhance the efficiency and security of treasury operations.

Even in the past few years, there has been rapid development in many different areas from new payment trends and technologies to settlement systems and mobile and digital payment methods, all of which are powerful forces in forming a new payments paradigm.

Specifically, treasurers are beginning to engage with and experience real-time payments and digital wallets, cryptocurrencies, stablecoins, central bank digital currency (CBDC), as well as the application of distributed ledger technology (DLT) or blockchain technology and biometric security (see Seven paradigm-forming trends section below for descriptions).

To navigate these emerging payment trends effectively and leverage the benefits from adopting technology to support their organisation’s growth strategies, treasury executives need to proactively prepare themselves and their organisations.

In the first instance, treasury teams need to understand the various digital payment types available and their implications for financial operations.

This includes familiarising themselves with mobile payments, contactless payments, peer-to-peer (P2P) transfers, and other forms of electronic payments. By understanding the strengths and limitations of each payment type, treasurers can make informed decisions about which solutions best meet their organisation's needs.

In addition, the growing popularity of digital currencies, including CBDCs, cryptocurrencies and stablecoins, presents both potential future opportunities and challenges for corporate treasurers.

Treasurers need to understand the unique features of digital currencies, cryptographic security, and instant settlement. They should also assess the potential risks associated with volatility, regulatory uncertainty, and compliance requirements when considering the adoption of digital currencies for payments and treasury management. A careful understanding is required to assess the value these new forms of currency will bring to their organisation.

Real-time payments – Real-time payments represent a paradigm shift in transaction processing, offering near instantaneous settlement and 24/7 availability. This trend is revolutionising liquidity management and cash flow forecasting for corporate treasurers.

Digital Wallets – These virtual repositories for payment credentials facilitate convenient and secure transactions across multiple channels. For corporate treasurers, integrating digital wallets into their payment strategies streamlines collections, enhances customer experience, and mitigates fraud risks.

Cryptocurrencies – The decentralised nature of cryptocurrencies offers potential (but as yet unproven) benefits such as lower transaction costs, faster cross-border payments, and enhanced financial inclusion. Yet trading volatility, regulatory uncertainties, and security concerns pose risks that treasurers must carefully evaluate. Importantly, many banks – including HSBC – and other financial institutions, do not facilitate or support transactions involving cryptocurrencies.

Stablecoins – These combine the potential (as yet unproven) benefits of cryptocurrencies with perceived stability pegged to fiat currencies or other assets. Stablecoins could potentially hold promise for facilitating international transactions, optimising liquidity management, and simplifying cross-border settlements, albeit with ongoing regulatory scrutiny and risk management considerations. Similar to cryptocurrencies, HSBC has no appetite for stablecoins at this stage.

Central bank digital currency – This type of sovereign digital currency is issued and regulated by central banks, and can potentially enhance financial inclusion, reduce transaction costs, and combat illicit activities. For corporate treasurers, CBDCs introduce opportunities to streamline payment processes, improve liquidity management, and enhance visibility into financial transactions, contingent upon regulatory frameworks and interoperability standards.

Distributed ledger or blockchain technology – This technology underpins many emerging payment innovations, offering immutable, transparent, and decentralised transaction networks. By leveraging blockchain, treasurers can enhance security, reduce reconciliation efforts, and streamline cross-border payments. In addition, smart contracts, which are powered by blockchain, can automate payment processes, enforce contractual agreements, and enable real-time settlement.

Biometric security technology – Biometric authentication, artificial intelligence, and machine learning, are reshaping payment security and fraud prevention strategies. Biometric authentication methods, such as fingerprint scanning and facial recognition, enhance transaction security while improving the user experience. AI and machine learning algorithms analyse vast data sets to detect anomalies, predict fraudulent activities, and enhance decision-making in treasury operations.

Blockchain and DLT have gained attention in recent years for their potential to revolutionise payments processing by providing transparency, immutability, and enhanced security.

Corporate treasurers could look to explore how blockchain and DLT solutions can optimise their payment workflows, reduce transaction costs, and mitigate risks such as fraud and errors. This may involve collaborating with banking and technology partners to pilot blockchain-based payment initiatives, integrating blockchain into existing systems, or participating in industry consortiums focused on blockchain and DLT adoptions.

As digital payments become more prevalent, corporate treasurers must prioritise security and compliance measures to protect their organisations from fraud, and cyberattacks.

This includes implementing robust authentication protocols, encryption techniques, and monitoring systems to detect suspicious activity. Treasurers should also stay informed about regulatory developments related to digital payments, such as anti-money laundering regulations and data privacy laws as they apply to their own organisations and industries.

Corporate treasurers are navigating a dynamic landscape of emerging payment technology trends, each offering unique opportunities and challenges.

By staying informed, adaptable, and willing to explore the application of new technologies, treasurers can harness these trends to optimise liquidity management, enhance operational efficiency, and drive sustainable growth in an increasingly digital and interconnected financial ecosystem.