1

perfection in detail.

WhitePaPer

the future of payments – will new infrastructures replace existing systems?michaela odebrecht, product manager, hanse orga ag

contents

1 introduction...................................................................................... 3

2 why are new infrastructures emerging? what are the drivers?..................................................................................................3

3 new payment systems: what do they do better and what are possible risks or limitations?......................................................4

4 where do we stand today?.................................................................4

5 real-time payments in europe: instant payments.............................5

6 will there be payments without banks in future?..........................6

7 modern technology for modern payments offered by hanse orga group...........................................................................6

3

1 introduction

if you look back at how payments were managed 20 years ago you will find punch tapes, handwritten checks, paper credit transfer notes or other payment methods depending on the country you are looking at. today, payments have been widely “electronified”. paper is hardly used anymore, and instead payment information is processed within the blink of an eye via digital data highways.

so, if the payment methods of 20 years ago seem rather ancient today, how will our current payment me-thods be considered in 20 years into the future? how will we process and manage payments, then? there is much talk about new initiatives such as fintech start-ups and how they are growing and becoming a challen-ge for the traditional payment systems that are based on banks. will they replace banks in the future? what are the drivers for such new payment systems and what are the benefits of such new developments? what will new technologies mean for corporate ar and ap departments? will they replace banks in the future?

let’s have a look at these questions here in this whitepaper: what kind of initiatives are there already, where they are heading and what that will mean for the current payment systems?

2 why are new infrastructures emerging? what are the drivers?

payment systems are ever evolving. imagine the times when sending fax was a great technological invention for simplifying the bank communication in the 90s and look at where we stand today! so, what are the key drivers for change today and what kind of systems will we use in future?

Technological opportunitiestoday, there are entirely new technological capabilities that simply did not exist years back. for example, there is now widespread use of electronic communications enabled through host-to-host connections and other banking protocols which is reducing the use of paper in payments processing. new capabilities leve-rage opportunities for improvements and drive development.

Faster processesprocesses in all areas of business have become so much faster, more mobile and digital in the last few years that all seems possible. people have become used to have fast access to information and systems so that expectations are rising.

Demand for real-time paymentswith the technological advancements that enable faster processes, it is only natural that financial professio-nals expect payment systems to be available and ready at all times. while the “traditional” banking in many cases still follows the routine of 9 to 5, five days a week, new systems and online communication are quick to respond to the demand for real-time payments.

Need for guaranteeswhat also spurs the development of alternative payment methods is a rising desire of companies for guaran-tees: once a payment has been effected it can no longer be revoked as soon as the bank has transferred the amount. this gives the payee greater operational and planning security.

4

3 new payment systems: what do they do better and what are possible risks or limitations?

new payment methods are increasingly programmed for smartphones and tablets, which are more attractive to the digital natives of generation y.

processes are much faster and enable real-time payments. new payment systems often operate at lower ser-vice fees, as they do not maintain costly branch networks and as they minimize costs for exchange rate dif-ferences thanks to pooling any payments that members make by country and currency and thus save costs.

some systems, however, have a national focus and are only available for one currency. moreover, there may be limits to the amounts that can be transferred.

while banks have a longstanding history and have subsidiaries which you can contact directly, the providers of new schemes need to build and maintain customers’ trust. they need to convince their customers that they can reliably identify payees and payers and protect them against fraud or cybercrime. moreover, with quite a few new fintech initiatives coming and going, they need to demonstrate that they are there to stay.

banks are increasingly challenged by fintech companies who can often be more agile than banks with their complex structures. does that mean, however, that banks will disappear from the screen in the future? this is a question that we will look at further below.

4 where do we stand today?

there are different initiatives growing in different countries. a widely known global payments alternative is, for example, paypal. paypal offers virtual accounts to members. payments are transferred immediately and are not limited by the typical processing times of banks. consequently, processing times can be much faster.

in the uk, for example, the system faster payments has been around for a few years now. it supports same-day processing of payments and is available day and night 365 days per year. it works just like any establis-hed payment systems but has the benefit of faster payments and irrevocable payments.

there are similar initiatives for real-time payments in denmark, norway, finland and poland, among others that reflect the growing demand for more speedy processes.

5

5 real-time payments in europe: instant payments

to counter a possible fragmentation of real-time payment system across europe, the euro retail payments board (erpb), a group chaired by the european central bank that brings together associations of providers and users of payment services, and the european central bank (ecb) are pressing ahead with a move to-wards a unified system: instant payments. this will be the next big thing after sepa and it is likely to be again a challenging project for all stakeholders involved.

instant payments will cut down the number of processing steps just like the faster payments scheme in the uk and accelerate payments significantly. instead of going through the long chain of typical payments – payment initiation, credit transfer, clearing through the central bank (i.e. collecting all bookings during a day until a set time), netting the amounts amongst the different banks, transferring amounts to the receiving bank and from there to the payees account – instant payments will cover only three key steps: payment initiation, messaging, settlement.

with instant payments, it will not matter which payment media is used. the customer can choose what suits him best, be it the traditional online banking of his bank, a banking app, or other initiatives such as paypal. via any of these routes, provided they are offered by the respective banks, the payment service providers et al., each payment needs to be immediately settled, transferred and credited to the payees account, which is what makes payments processing so much faster and available in real-time. instant payments will cover different market segments including e-commerce, point of sale, person to person, taxes and other public payments.

the details of the planned instant payments scheme are being developed right now. Questions that need to be addressed in the development of the scheme include the following:

• how are buyers going to be protected?

• how do i identify the payee and the payer? via iban, anonymous or other identification?

on 27 november 2015 the erpb announced in a press release that it “has invited the European Payments Council, a body representing the payment service providers in Europe, to develop a scheme for instant pay-ments in euro by November 2016 and to implement it by November 2017”.

according to the statement the scheme will be voluntary, however, if payment service providers decide to offer instant payments they will have to adhere to the scheme. for companies it will be advisable to follow the future developments of the instant payments scheme.1

6 will there be payments without banks in future?

in the light of increasing numbers of fintech companies introducing new payment schemes in internatio-nal financial markets, this is quite a legitimate question. customers today want to be able to order quickly and receive their goods fast today, ideally on the same day. Just like same-day delivery is becoming the cutting edge for e-commerce, so is immediate payment processing getting increasingly important for b2c and b2b customers. fintech companies have recognized this demand and are very agile in responding to that demand. banks are generally more complex with extensive branch networks, and with rather traditional decision-making they are somewhat slower to act when it comes to progressing financial technology. more and more banks, however, are partnering with fintechs or actively supporting new initiatives to get a share of the fintech cake. this is important for them to stay part of the game. nevertheless, the banking system has been in existence for a long time and it is to be expected that due to the long-term experience and es-tablished networks, the traditional payments effected via banks will remain a major component in the world of payments for quite some time.

1 check out our blog where we will post updates on this issue when they arise.

6

7 modern technology for modern payments offered by hanse orga group

hanse orga group is a leading provider of financial software that helps customers succeed. our solutions for the areas of payments, cash application, account statement management, cash, liquidity and treasury management, ebam and working capital management are renowned and used by over 1,200 industry-leading companies worldwide.

our solutions are available either as sap-integrated solutions (offered via our entity hanse orga) or as erp-independent and web-based technology (offered via our entity cogon). we deliver up-to-date solutions that help customers solve their challenges and that offer an added value to them.

for more information on our solutions for your accounts payable, download our product brochures:

FS2 Payments the sap-integrated software offers powerful functions for small and medium-sized companies that seek to centralize and streamline their payments as well as all features that are necessary for global players that seek to establish a payment factory.

CPWeb (cloud solution)the easy-to-install cloud software helps customers simplify their accounts payable worldwide.

both software solutions are flexibly configurable to the different corporate needs and equip customers with all they need to handle modern payments effectively.

© Copyright 12/2015 Hanse Orga AG. All rights reserved. SAP® is a registered trademark of SAP SE. All other trademarks are registered trademarks of their respective companies.

hanse orga, founded in 1984, is an independent and experienced software and consulting firm for financial supply chain management processing within sap®. hanse orga is sap® software solution and technology partner; the products are certified by sap®. hanse orga’s financesuite offers proven added value for cash application and reconciliation, liquidity planning projects, working capital management, corporate payment factory, cash management, electronic bank account management, and treasury. as the entire financesuite is programmed in abap, the software may be directly installed in sap®. the financesuite has been deve-loped by finance professionals for finance professionals with a strong focus on the end-user. the custo-mer-focused approach before, during and after the implementation has resulted in more than 500 satisfied customers worldwide such as basf, bmw, honeywell, ibm and philips.

hanse orga ag

oldesloer straße 63 22457 hamburg Germany

tel: +49 (0)40 / 51 48 08 - 0 fax: +49 (0)40 / 51 48 08 - 188

email: office@hanseorga.de http://www.hanseorga.de

hanse orga france s.a.r.l

36 avenue de la république 92130 issy-les-moulineaux France

tel: +33 (0)1 46 42 01 05 fax: +33 (0)1 47 36 06 41

email: office@hanseorga.fr http://www.hanseorga.fr

hanse orga international b.v.

nieuwe prinsenkade 9 4811 vc breda Netherlands

tel: +31 (0)76 578 05 00 fax: +31 (0)76 578 05 50

email: office@hanseorga.com http://www.hanseorga.com

hanse orga international corp.

205 n. michigan avenue / suite 4110 chicago, illinois 60601 USA

tel: +1 (312) 620 1200 fax: +1 (312) 620 1201

email: office@hanseorga.com http://www.hanseorga.com

your experienced and reliable partner: hanse orga

hanse orga schweiz agthurgauerstrasse 40 8050 Zurich Switzerland

tel: +41 (0)44 2146197 fax: +41 (0)44 2146198

email: office@hanseorga.ch http://www.hanseorga.ch

hanse orga international b.v.20-30 wilds rents, london, se1 4Qg, United Kingdom

tel: + 44 (0)20 375 110 81 fax: +31 (0)76 578 05 50

email: office@hanseorga.com http://www.hanseorga.com