The winds are shifting around the payments business. Payments and the related settlement and clearing capabilities that support all commercial, treasury and trading activity—once the core of banks' offerings—had come to be viewed as commodity-like utility functions, differentiated by little other than price. However, as the treasury and cash management disciplines have evolved, along with the relevant technologies, payments and clearing once again represent a key component of the banking services value proposition.

Shifts in Buying Criteria
There is renewed focus on payments capabilities and feature functionality as buying criteria, in addition to price, connectivity and formats. Several driving factors are behind this shift:

• The intraday treasury and cash management action horizon
• Growth in cross-border and cross-regional funds flows
• Advances in liquidity management and information reporting tools
• Global Real Time Gross Settlement (RTGS) touch points
• Evolution of enterprise resource planning (ERP) and treasury workstation platforms

As corporate treasurers continue to pursue maximum effectiveness in their working capital management, they will increasingly seek products that best position them to achieve these efficiencies—and payments are vital in this pursuit. Among the value-added developments are:

Timed payments. Clients are given the option to specify when the payment should be executed.

Conditional payments. These are only released upon receipt of one or several payments specified by the client.

Reference pattern matching. This capability triggers a service upon finding certain client-defined patterns in a payment instruction.

Embedded cross-currency/foreign exchange. A bank handles the client's payment flows in currencies other than the US dollar.

Regulatory and compliance requirements are also becoming ever more important. Anti-money laundering regulations, PATRIOT Act provisions, Basel II and Sarbanes-Oxley have all raised the bar on payment screening, filtering and reporting. Bank investments have helped meet these requirements without negatively impacting the speed and accuracy of payment execution. In fact, banks have continued to improve payment timeliness and quality while meeting various regulatory mandates.

A Broadening View
Corporate clients are increasingly looking to centralize and standardize their global payments operations. There is tremendous demand to communicate on a wider scale, while simplifying and automating the execution of payments. Standards and interoperability provide the critical path to payments efficiency.

As industry straight-through processing (STP) rates have improved dramatically over the past years, the payments proposition has been increasingly more structured around the synergies with other aspects of the cash and treasury management landscape.

The evolving payments value proposition is best leveraged in the context of a bundled array of complementary services. Other components of a packaged approach include liquidity management, short-term investments (both passive and active), electronic invoicing and payment management, receivables management and short-term/asset-based financing. As providers continue to invest and bring differentiated offerings to market, there must also be recognition of greater value and consideration of a pricing model more closely tied to the value provided.

A Course for the Future
Following the rapid move from paper to electronics and the growth of file-based transaction delivery, transformation will become even more widespread as settlement and clearing processes become standardized on a global basis. The synergies between client technologies and applications with bank transaction platforms are only beginning to deliver the benefits the emerging opportunity space offers. The providers who most skillfully blend the economies of scale with the value of differentiation will be those that position their clients for success.