It’s easy to get carried away by dazzling innovations and futuristic concepts in finance, but what companies usually crave more is a dose of reality to make planning pay off sooner, not later.
Speaking with PYMNTS for our “Executive Insights Series – The Next Three Years,” Doug Houser, managing director at Bank of America (BofA), said he sees this as an exercise in separating what’s going to stay the same and what’s going to change in the next three years to keep efforts grounded.
Saying BofA is investing in the payments tech of the future, including central bank digital currencies (CBDCs), he told PYMNTS that “when you think about that three-year window, our clients really want to know two things. They want to know what’s going to stay the same and what’s going to change, and how do they plan for that in the cash management space?”
On what will stay much the same in the 36-month view, Houser said the globalization of commerce is now firmly rooted and will continue to grow. Calling many BofA clients “accidentally global” by virtue of global demand for products and services, Houser said: “They’re going to either source or sell globally whether they want to or not.”
As part of that, BofA is working to “shrink the globe” by leveraging its worldwide presence in ways that enable clients to operate globally without making huge investments of their own.
Noting that BofA has been doing cross-currency automated clearing house (ACH) for years, he said: “What we look to do now is expand on that using real-time rails locally, our technology partners, and even bilateral arrangements and extending those agreements so that we can do real-time payments via what we call IXP. We think driving global digital payments is going to be very important.”
Payments localization is another area that will stick to its current strong trajectory.
That’s what stays the same — more or less. He said the changes he sees coming in the next three years rely on real-time and deep data being deployed in new and innovative ways. Fraud is another aspect of finance that will still be with us in three years, requiring better tools as time goes on.
See also: Integration and the Future of Financial Services
Doing More With Less
With many estimates pointing to either outsized inflation or a full-blown recession gripping the world economy until 2024, the allocation of resources is one area of change for banks.
Doing more with less was more of an option in prior years.
“We’re talking about constraints on the human capital side, we’re talking about constraints on the working capital side, we’re talking about the cost of borrowing,” he said.
In that climate, new payment routing through innovations like Pay by Bank that BofA introduced in Europe in 2022 allows consumers or businesses to pay directly from bank accounts in real time without the frictions of payment methods like credit and debit cards.
“It’s great for clients who can now offer their own customers another payment option,” he said. “But if you look at what’s happened over the last 18 months, it also means that if you’re converting card payments, which settle in two to five days, to immediate real-time payments, now that’s become real money.”
Along with innovations like Pay by Bank, banks must improve data flows with real-time messaging using technologies like IXP for greater security of real-time payments and the data insights they hold.
This improves cash position as well as forecasting, which are closely tied.
“We should be able to provide real-time insights to allow our clients to maximize their working capital and improve their forecasting,” he said. “That’s also what we’re looking to invest in jointly with our clients to deliver, either via [application programming interface (API)] or through an online solution.”
Read also: BofA Extends ‘Pay by Bank’ to Euro Payments
Practicality Is Prudence
Acknowledging that demand for real-time payments will expand significantly, he said “one of the most important changes that real time has versus other types of rails like ACH is that you get your cash now. You don’t have to validate if it’s in the account.”
“That’s powerful for clients,” he added. “That cash upfront now has a lot more value.”
On the outbound side, real time enables payers to hold cash longer and still be assured that payments will be received on time without multi-day settlement waits and associated delays.
“Real-time payments as part of a larger real-time treasury ecosystem are going to be very powerful for the industry, and I think it’s only accelerating in this environment,” he said.
With a “do more with less” ethos in the background now, he added that companies should be less concerned with disruptive technologies and instead focus on perfecting what they have.
“When you have a complex structure that has treasury and cash management staff, a shared services group and IT group — along with pressure on hiring — you need to optimize what you currently have,” he said. “You want to make practical gains. The integration of disruptive technology really doesn’t align with optimizing scarce resources.”
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