Bank payment flows — often called “Pay by Bank”, “Open Banking”, or “account-to-account (A2A) payments” — are gaining traction. It’s not just hype. Governments and regulators are pushing the industry to develop alternative, cheaper, and more secure payment options, and technology is making that possible.

Key terminology explained

Account-to-account (A2A) payments are a process whereby money flows between sender and recipient bank accounts via established bank payment rails such as SEPA transfer, ACH, and Faster Payments.

Open Banking pertains to technical and regulatory frameworks that help non-bank participants move money and access data, often enabled by fintechs through their secure API protocols. A2A payments can be enabled through Open Banking service providers.

Pay by Bank is a method of payment offered by merchants to their customers. For example, a Pay by Bank payment button can be included at an e-commerce checkout page alongside credit cards and other payment methods. The Pay by Bank feature can be implemented by merchants through Open Banking fintechs or PSPs that enable A2A payment flows.

So, why does this matter? And what should businesses be doing about it right now?

The rise of Pay by Bank: Why now?

Across the world, businesses and consumers are demanding cheaper, faster, and more secure payment options. This has led to a growing adoption of open banking and real-time payment rails that bypass traditional card networks.

Here’s why Pay by Bank is at the center of this shift:

• Regulatory-driven innovation
  New regulations, particularly in Europe and the UK, are mandating banks to open their infrastructure to fintechs, allowing for seamless and direct payments between accounts. This removes the need for card networks, reducing fees and improving speed.
• Cost savings for businesses
  Businesses accepting card payments pay processing fees (also known as swipe fees), which include card interchange. These fees may range between 1-4% of the total cost of the sale, depending on the market and card type. In contrast, Pay by Bank transactions often come at a fraction of the cost as there are fewer intermediaries taking their cut of each transaction. For high-volume and high-average order value merchants, this represents a major opportunity to cut costs.
• Reduced fraud and chargebacks
  Unlike card payments, where compromised sensitive data can be more easily exploited, Pay by Bank transactions require biometric authentication and bank-level security, reducing fraud risks. Plus, reducing the false disputes and chargebacks often associated with card payments unlocks improved revenue predictability for merchants.
• Customer service
  If an order is canceled, or returned, a refund of the original payment can be processed faster through account-to-account transactions. In some cases, the refund could be instant once keyed by the merchant. Integrated Pay by Bank solutions processed via API carry richer data, enabling faster more accurate order look-up and reconciliation processes. This can improve customer satisfaction and brand loyalty.
• Faster settlement and liquidity benefits
  Traditional card payments can take days to settle. Open Banking-enabled Pay by Bank flows enable funds to move instantly or within hours, improving cash flow, reducing working capital constraints and improving reconciliation accuracy. ACH in the US can take a little longer to settle and carries increased risk of post-confirmation errors and returns – however the benefits often outweigh the risks when enabled via a comprehensive implementation framework.

Who benefits most from Pay by Bank?

Pay by Bank has universal applicability across industries, but certain sectors stand to gain the most:

Merchants

• E-commerce & Retail – Lower transaction fees mean higher profit margins. Merchants can also incentivize customers with discounts for choosing Pay by Bank.
• B2B Payments – Businesses processing large invoice payments can significantly cut costs compared to wire transfers and corporate cards.
• Subscription Services & Bill Pay – Utility companies, telecom providers, and SaaS businesses can improve cash flow and reduce failed payments.
• Luxury & High-Value Transactions – High-ticket merchants, from automotive sales to fine jewelry, can avoid excessive card fees while ensuring secure, real-time payments.

The customer

• The buyer also stands to benefit from cashflow certainty, with some options baked into the service as standard, including:
  • Bank-grade security
  • Faster refunds
  • Cashflow certainty
• Incentive to purchase via Pay by Bank instead of other payment methods is a challenge that merchants will need to tackle through development of their own custom strategy. There are a variety of methods by which this can be achieved, of which merchants will need to select an approach that suits their business model and buyer profile.

It is important to note that Pay by Bank may not follow every business model and payments environment. To determine whether it may add value requires careful analysis.

Implementation: How hard is it?

One of the most common questions from merchants is: “How difficult is it to implement Pay by Bank?” The answer broadly depends upon the maturity of the business’s technical change management processes and the facilities available from their existing payment providers.

For most businesses, integration falls into one of three categories:

1. Simple: If your company already works with a PSP that offers a range of local and alternative payment methods, Pay by Bank may be a relatively lighter lift to implement.
2. Moderate: If your PSP doesn’t support Pay by Bank, you’ll need to evaluate new providers, integrate APIs, and adjust operational and financial workflows.
3. Complex: If your business sells in multiple markets or is undergoing a full-scale payments transformation — such as replacing acquirers, fraud systems, or tokenization services — Pay by Bank may be a piece of a broader strategy.

Regardless of complexity, the key first steps to take include a thorough business case assessment, including risks and opportunities. Redbridge helps merchants analyze potential savings, operational impact, and customer adoption strategies to determine whether Pay by Bank is a viable addition to their payments ecosystem.

The Redbridge perspective: Why now is the time to act

There’s no doubt that Pay by Bank is one of the most-discussed topics in payments today. But despite the buzz, many businesses remain hesitant to act.

That’s understandable. Payment innovation always comes with uncertainty — especially when it involves regulatory shifts and new industry players. However, those who wait too long risk being left behind.

Companies that implement Pay by Bank today can:

• Gain a competitive edge with lower payment costs
• Improve security and fraud protection
• Enhance customer experience with seamless, real-time payments
• Future-proof their payment strategy as adoption accelerates

The opportunity is here. The question is: Is your business ready to take advantage of it?

Let’s talk. Redbridge is helping businesses navigate this transformation, from assessing feasibility to executing strategy. We have helped enterprise businesses selling B2B and D2C implement Pay by Bank, including ACH in the US, Open Banking-enabled flows in the UK and Europe, and more.

Contact us today to explore how Pay by Bank can fit into your payments roadmap.

Could you briefly describe how Decathlon Group’s treasury department is organized?

Decathlon is primarily a retailer of sports and leisure equipment, operating in 60 countries. The Group generates annual sales of €16 billion through a business model that, in addition to retail, encompasses real estate, logistics and factories. In several of the regions in which we operate, Decathlon has three or four local entities, each of which is subject to distinct business cycles.

Our treasury organization employs 144 people, both full-time and part-time, across the various geographical regions in which the Group operates.
The diversity of treasury practices worldwide, coupled with the challenges posed by different time zones and bank cut-off times, makes it impossible for us to centralize all our treasury functions. Our treasury organization is therefore based on the principle of subsidiarity. However, the evolution of the treasury function has created the need for greater specialization among treasury team members, prompting us to pool our resources at the regional level.

What benefits do you expect to result from pooling treasury resources at the regional level?

There are two main benefits. First, risk reduction – cash centralized in accounts in a politically stable country is less exposed to risk than assets dispersed in more uncertain regions. Second, from the point of view of the treasury team, there is a refocusing of missions and a strengthening of skills.

Three years ago, we examined the benefits of pooling our treasury resources for the APAC region in Singapore. The study highlighted the advantages of centralizing our cash and pooling card-acquiring flows. It also highlighted the limitations of our decentralized organisation, in which our team members are generalists, performing a variety of tasks. Over the last few years, Decathlon had developed an internal cash management tool with advanced functionalities, but which proved to be little used by our operators.

Initially intended as a proof of concept, this analysis paved the way for an internal reflection on our target operating model.

Why did you enlist the services of a consultant to define the target operating model for your treasury department?

Undertaking this kind of project in-house is always challenging as it’s natural to stick with existing structures and underestimate the scale of change that’s required. We therefore felt we needed the views of an external expert who could push us out of our comfort zone by challenging our ideas about our target model, processes, the technical aspects of treasury and the technology and tools we should be using.

We chose Redbridge, a long-standing partner of Decathlon’s finance department. We value their expertise in treasury matters, but above all we knew they had the intellectual rigor and strong views to help us make this change a success.

What was Redbridge’s contribution to the development of the new target operating model?

The Redbridge consultants helped ensure we took structured, long-term decisions that would enable our treasury operators to enhance their skills. The treasury team’s objectives were revised to account for the constraints associated with banking communications – an issue that is often unfamiliar to treasury teams. Together, we decided to abandon our internal treasury tool in favor of a widely-used third party platform. Redbridge helped us distinguish between the sales pitches and the real capabilities of the treasury tool vendors we considered.

Redbridge also helped us to set out a timeline for the transformation project by sequencing and coordinating the various stages. Their consultants played a key role in managing our relationships with all partners and ensuring that everyone honored their commitments regarding delivery.

How will this project transform Decathlon’s treasury organization?

As a result of this project, Decathlon is abandoning its proprietary treasury system, which is currently being used in 10 countries, and replacing it with two more standardized modules: one dedicated to the central treasury and regional treasury centers, and the other for local treasuries.

Initially, the tool for regional treasury centers will be deployed in a lighter version, focusing on payment management. Forex, which is mainly managed by the central treasury, will be handled separately. For local treasuries, the tool will include a dashboard that provides our financial directors and controllers with a real-time view of their cash position, debt and forecasts.

In Europe, Decathlon has decided to locate its regional treasury center in Portugal, where we already have an accounting division and treasury teams. The aim is to establish a fluid organization that promotes effective communication between our accounting and treasury teams so that we can respond quickly to requests from local financial managers.

How far has Decathlon progressed in implementing its new model, and what are the next steps in the project?

We have selected the treasury tool we will be using. We are currently conducting proof of concept tests within our regional cash centers and carry out beta-testing of the initial modules.

By the end of 2025, the goal is to have deployed an initial cash module covering the Group’s holding company and the APAC regional cash center, which will be based in Singapore. At the same time, we will be conducting proofs of concept in local Asian treasuries – notably in China, which is a complex market for cash management, and in a second, easier to operate environment, either Malaysia or Hong Kong. In Europe, we will be carrying out tests in Belgium, and in Switzerland.

We will roll out further modules gradually, beginning with forex and then financing. The aim is to The aim is to complete the project by 2026.

How will the new treasury model transform the Group’s financial management?

We will have more data at our disposal to guide our financial management. Seven members of our IT team are dedicated to treasury, and they report directly to the Group’s finance and treasury department. Previously focused on technology, this team is now shifting towards an approach in which the accessibility and quality of data play a predominant role in their activities.

Through this data-oriented approach, which is at the heart of the project, the objective is to equip the Group with a high-performance treasury tool that will be able to produce accurate forecasts and adapt to changing economic conditions and geopolitical shocks.

In addition to the new technology, the project aims to refocus treasury resources on analysis and strategy. It will also help us optimize operating costs. For example, Decathlon conducts foreign exchange transactions totaling €8 billion every six months. The cost involved are currently not challenged. The project therefore opens the door to the potential for us to make significant savings.

Once our new data-driven treasury organization is in place, it will be up to the teams to identify new sources of savings and propose strategic projects in line with our senior management’s expectations.

BNPL has seen massive adoption, but how has the landscape evolved recently? What are the key trends shaping the sector today?

Many things have changed regarding Buy Now, Pay Later (BNPL) since we talked about it in 2022. BNPL has evolved from a disruptor to a mainstream payment option. Once driven by ecommerce fintechs, it now faces competition from banks and payment giants. Regulatory scrutiny is increasing, especially in the EU, the UK, and the US, with stricter consumer protections, recently exemplified by Dutch government efforts.

The focus has shifted from rapid growth to profitability. Rising funding costs and defaults are forcing BNPL players to refine risk models and raise prices – some doubling in less than a year. Partnerships are deepening, with BNPL embedded in checkouts, banking apps, and B2B financing (e.g., the partnership between Klarna and Adyen or J.P. Morgan, two of the main global processors). The market is also seeing a divergence between interest-free, short-term BNPL models and longer-term instalment plans with interest, which align more closely with traditional credit.

Rising funding costs and defaults are forcing BNPL players to refine risk models and raise prices – some doubling in less than a year.

BNPL is often associated with retail and ecommerce, but can it be a game-changer in other industries? What factors determine its success for different merchants?

BNPL’s potential extends beyond retail, with strong use cases in travel, hospitality, and healthcare, where instalment payments make high-ticket purchases more accessible. Even B2B transactions are adopting BNPL-like financing to improve cash flow. Success depends on ticket size, payment behaviour, and regulations. High-ticket, infrequent purchases (e.g., travel, medical) benefit more than everyday goods. Industries with predictable repayments and low default risk attract BNPL providers, while stricter lending rules may limit its applicability. Industries or merchants with tight margins often find BNPL solutions too costly and instead choose to pass fees to customers (a compliant approach, as surcharging currently doesn’t apply) or develop in-house alternatives. Some also turn to white-label providers, who offer a balanced solution by managing most of the IT workload and assuming the risk.

With increasing regulatory scrutiny and profitability concerns, what are the biggest hurdles BNPL providers and merchants face today? Can the model be sustainable long-term?

Regulatory scrutiny is the biggest challenge. Governments and financial regulators are addressing concerns around consumer protection, particularly regarding transparency, affordability assessments, and credit reporting. BNPL providers are now being required to conduct stricter credit checks and disclose terms more clearly, which may slow adoption and increase operational costs.

Embedded Finance will expand BNPL’s reach beyond traditional ecommerce checkouts, integrating it into banking apps and digital wallets.

Profitability remains another key issue. The original BNPL model, where providers generate revenue primarily from merchant fees, is under pressure due to rising funding costs. Many providers are exploring alternative revenue streams, including interest-bearing instalment loans, subscription-based models, and late payment fees. However, an overreliance on penalties could damage brand trust and lead to regulatory pushback. When it comes to sustainability, I believe it mostly depends on balancing growth with responsible lending. Providers that can develop robust risk models, diversify revenue streams, and operate within regulatory frameworks will be better positioned for long-term success. Merchants, on the other hand, need to evaluate BNPL partnerships carefully, ensuring they do not create unnecessary financial burdens for consumers while still benefiting from increased sales.

What’s next for BNPL? Will we see consolidation, innovations, or a decline in adoption?

I would say that the BNPL market is likely to undergo significant consolidation. Larger financial institutions and payment players are acquiring or partnering with BNPL providers, and smaller, unprofitable fintechs may struggle to survive independently. Regulatory pressures will also force weaker players out of the market, leaving a handful of dominant providers.
Innovation will continue to shape the space. AI-driven underwriting models will improve risk assessment, reducing default rates. Embedded Finance will expand BNPL’s reach beyond traditional ecommerce checkouts, integrating it into banking apps and digital wallets. BNPL could also evolve into broader financial services, offering credit-building features and savings tools. Adoption may slow in regions with stricter regulations, but demand for flexible payment options will persist. As long as BNPL providers can adapt to changing market conditions and consumer preferences, the model will remain an important component of the payment ecosystem, albeit with a more responsible and sustainable framework.

This is likely to remain the case until the structural barriers to its development are addressed. Removing these obstacles would be beneficial as supply chain finance offers some significant advantages for both large companies and their suppliers.

Implementing a reverse factoring program requires significant effort from the ordering party, including extensive communication, internal training, updates to information systems, considerable support from the management team and careful selection of financial partners. That’s not to mention the considerable challenge of onboarding suppliers.

However, these operational challenges are only one part of the equation – more fundamental issues are hindering the adoption of reverse factoring. France is the second largest-market for factoring in the world after China, but factoring companies show little interest in supply chain finance.

French factoring companies reported net banking income of EUR 1.24 billion and a combined net profit of EUR 379 million in 2023. Paradoxically, it is their exceptional profitability – in excess of 30% – that is hindering the development of reverse factoring.

Factors have little incentive to promote this type of structure unless they are responding to a specific client request. Traditional factoring is a well-established business that involves limited risk and low capital requirements and is used by around 30,000 companies in France. Reverse factoring lacks these advantages, primarily due to the central role played by the ordering party.

French factoring companies have made little effort to promote reverse factoring to large corporates. Over the past decade, their investment in this product has lagged those of their British, Spanish and American counterparts, and also those of many European and US fintechs.

Optimizing working capital isn’t the right objective

In most cases, an ordering party initiating a reverse factoring program is aiming to improve their payment terms somehow. For instance, the ordering party (buyer) may negotiate longer payment terms with suppliers in exchange for access to the reverse factoring program, which offsets the delay by enabling suppliers to receive early payment.

The ordering party may also waive payment terms, but in this case, its debit is deferred – the financial institution absorbs the delay until the deferred debit occurs. This arrangement can be seen as a quid pro quo offered by the funder in exchange for its role in the program, or simply as a form of soft retrocession. While the financial objectives of improving working capital – enhancing cash flow, reducing net debt and optimizing financial leverage – are legitimate, they have also led to the abandonment of many reverse factoring programs.

Asking suppliers to extend payment terms can be difficult. It may be impractical to do so when dealing with thousands of suppliers, risky due to regulations governing payment terms, or simply met with resistance from the suppliers.

If the arrangement only involves deferring the payment to the funder, who has already paid the supplier, it may be problematic for the outstanding amount to continue being presented as supplier debt. Doing so would require proof that the substance and characteristics of the debt have remained unchanged.

Factoring’s ability to add value in a deconsolidation scheme involving receivables tends to be less evident in the case of reverse factoring involving payables. Using a program to improve the buyer’s working capital requires significant resources to secure the support of all parties, especially in a context in which the Financial Accounting Standards Board and the International Accounting Standards Board have tightened accounting regulations in this area.

This means a paradigm shift in which ordering parties are invited to abandon their exclusive focus on optimising cash flow, and that instead they adopt more responsible and sustainable ambitions.

The right objectives to pursue

By leveraging their credit profile, large companies can provide their suppliers with access to more affordable and flexible financing than what is typically available in local markets. This support strengthens the stability of the entire supply chain.

A well-designed program can be seen as a responsible approach, helping to forge closer links between the company and its suppliers. This climate of trust helps foster lasting partnerships.

By offering even more attractive terms to suppliers who commit to ESG initiatives, principals can align their programs with their commitments to corporate social responsibility and at the same time encourage their partners to adopt more responsible practices.

Approval times for supplier invoices can vary significantly depending on the business and organization in question. A reverse factoring program, which relies on payment orders, can help streamline and improve approval processes over time.

A gold mine in the accounting department

Only the accounting department of the principal knows which invoices are due for payment and when. This information is worth its weight in gold if it is shared with a financial third party responsible for paying suppliers in advance as it ensures that the payment will be made with certainty by the client.

Almost all factoring programs operate without the debtor’s prior approval of the invoice purchased, the amount it is for, its currency and its settlement date.

The principle of invoice approval is not a detail: with factoring, the factor has no certainty that the assigned invoices will be paid on the due date, whereas with reverse factoring, any advance payment to a supplier will be made in the knowledge that the buyer will pay on the due date.

Facilitators of success

A reverse factoring project involves change, so it will inevitably face obstacles. However, a few key principles can simplify its implementation.

The objective of improving working capital must be ruled out, even if factoring companies suggest otherwise. Upstream, the client must consider why it is often reluctant to participate in such programs as a supplier. Reasons might include unattractive pricing and a lack of time.

The goal must be to secure the most competitive pricing terms for suppliers. There can be a substantial difference between the terms typically offered by financial partners to suppliers and those provided under the proposed program – often several hundred basis points.

Finally, close attention must be paid to the terms of program membership and participation. In this regard, the paying agent model, which is based not on the assignment of receivables but on the transfer of cash flow rights, merits further investigation and application in areas in which it has already been successfully tested.

Press clipping – First published February 5, 2025 by Frédérique Garrouste –L’Agefi.

According to Pauline Lion, Associate Director at Redbridge, “Optimizing FX fees and gaining full visibility into transaction costs is typically a privilege reserved for companies with high trading volumes and sophisticated FX management systems. “Large corporations that use platforms like FXall and 360T can create competition between banks to secure better rates. However, for smaller companies handling FX operations directly with their banks, fees can be ten times higher or even more.”

The costs spike even further for account-to-account transfers where banks apply automatic exchange rates. “In some cases, fees can reach several percentage points,” Lion explains. She recalls working with a large company that, despite having advanced treasury operations, only monitored its FX transactions periodically. “For certain automated transactions, the bank’s margin was as high as 220 basis points. That didn’t align with our client’s profile at all,” she says. “We renegotiated the terms and cut their FX costs by 75%

Bringing Transparency to FX Pricing

That’s where Redbridge steps in. The firm helps businesses analyze their spot and forward FX transactions to uncover hidden fees. “We can reverse-engineer the bank’s margin using transaction confirmations, something banks are required to send to customers, combined with our deep market intelligence,” explains Lion.

The results speak for themselves. “Our clients have significantly reduced their FX costs after renegotiating their terms with our help,” Lion say. “More importantly, they’ve built stronger relationships with their banks by fostering more transparency and constructive conversations around FX pricing. Bridging the information gap between companies and banks is always a win.”

Making the transition will involve work

While legacy MT940 statements will not be discontinued for now, banks will be obliged to adopt newer formats like Camt.053.  Continuing to use outdated formats may become increasingly expensive, and whether it will be possible to do so over the long term is unclear. And is it in your organization’s best interests to cling to outdated formats?

Transitioning to Camt.053 will involve some work. For example, it will require companies to reconfigure their ERP, TMS and reconciliation tools to ensure they can interpret the new messaging format. Most ERPs and TMSs are equipped to deal with Camt.053, but companies will need to define how they process the data. For instance:

• how should the ERP match bank transactions with accounting entries, like invoices, to post a new entry into the General Ledger?
• how should the TMS reconcile cash forecasts with actual cash flows?
• which cash flows should be tracked to enhance working capital reporting?

The answers to these questions are not pre-set by software vendors – they need to be determined by the treasury team.

Banks may not be willing to put up with old formats forever

Banks are investing in automation to process ISO 20022-compliant payment formats efficiently, but how long will they tolerate receiving incomplete or incorrect payment files from companies? Will they maintain extensive back-office teams to correct or enrich your files – and if they do, at what cost?

If migrating to ISO 20022 isn’t a priority for your organization today, consider:

• the number and cost of rejected payments each month
• the number and cost to your company of payments your banks have to manually correct.

Tracking these metrics can help you identify the tipping point at which it becomes vital to take action.

Migrating is a potentially lengthy process

If you’re considering migrating, it’s important to bear in mind that implementing changes takes time. Procurement teams are often extremely busy already, and onboarding suppliers can be a complex process. Addressing issues with missing payment data (such as address, invoice number, etc.) may require an agile, iterative approach involving several updates of supplier records.

You may also need to develop your ERP to prepare ISO 20022-compliant XML payment files. Limited consultant availability – especially during SAP’s S/4HANA migrations – could cause delays. Securing budget approvals and allocating resources to the migration might also conflict with other projects your company is undertaking.

The benefits of migrating

Is it worth it? We believe migrating represents a great opportunity for you to:

• automate and enhance your reconciliation processes
• improve your reporting on collections, payments and cash forecasts
• optimize your working capital management
• clean up your third-party database (clients & suppliers, for instance).

It may sound like a lot of work, but choosing not to transition would mean forfeiting opportunities to improve or develop capabilities such as direct cash flow forecasting, working capital analysis and / or cash conversion cycle monitoring.

What’s more, if you don’t transition you may face some difficult questions from your team about why reconciliation is still manual and not consistent with the objective to speed up the closing activities.

If you adopt the right approach, migrating could add considerable value for your company, and even turn compliance into a source of return on investment.

ISO 20022 migration – Redbridge is here to help

The choice is yours: will migration be a burden or an opportunity? If you’re looking for a trusted advisor to guide you through what the transition would involve, please get in touch.

London, 27 January 2025 – Redbridge, an independent advisory firm providing comprehensive treasury operations and debt advice to corporations around the world, is pleased to announce the appointment of Hugh Paterson as Managing Director – Global Head of Payments.

Hugh joins Redbridge from Farfetch, a luxury clothing and beauty products marketplace generating several billion dollars in gross merchandise value, where he was Director of Payments – Fintech Operations. During his tenure, Hugh developed a world-class payments organization to support the company’s growth. He has also held leadership roles at PaySafe, Omio, Huawei, Visa and Worldpay. He has expertise in payment optimization, fraud prevention, risk management and the selection of cutting-edge payment technologies.

Reflecting on his new role, Hugh Paterson stated: “I’m delighted to join Redbridge, an organization that shares my vision of bringing transparency to the relationships between merchants and stakeholders in the payment industry. We are investing to build cutting-edge data-driven software to improve our services and this is a pivotal moment as our new platform will provide richer data insights for our clients, leading to improved operational performance and savings. I’m looking forward to using my experience to strengthen Redbridge’s leadership in analytics and advisory services, providing expertly crafted industry intelligence”.

Patrick Mina, Chief Executive Officer of Redbridge Debt and Treasury Advisory, shared his enthusiasm about Hugh’s appointment: “Hugh’s extensive knowledge of the payments ecosystem is a tremendous asset to our clients and teams in Europe and the United States. His experience in building world-class payments organizations for merchants and selecting payment methods, gateways, payment service providers, acquirers and fraud prevention vendors will add great value to our company. His appointment underscores Redbridge’s commitment to accelerate strategic investments that enhance our ability to provide unmatched advisory services and data-driven insights in the payments space.”

About Redbridge Debt & Treasury Advisory
Founded in 1999, Redbridge is an independent advisory firm providing comprehensive treasury operations and debt advice to corporations around the world. With offices in Houston, Chicago, New York, London, Paris and Geneva, Redbridge helps companies optimize their financing and treasury operations, from the design of treasury organizations to the creation and implementation of operational solutions. The services we provide include providing advice on bank and merchant processing fees, treasury systems and debt financing structures.

About Redbridge’s Global Payments advisory practice
Redbridge’s Global Payments team helps companies navigate the rapidly evolving payments landscape, enabling them to adopt advanced payment architectures and stay at the forefront of innovation and client experience.

We’re using proprietary technology to provide high-quality advisory and analytics services, helping our clients increase their revenues, acquire new customers and cut costs.

Our areas of expertise include:

• Cost of sales, fees and pricing
• Authorization rate optimization
• Fraud and chargeback strategies
• Global and local payment methods
• Data analytics, insights and reporting
• Payments and risk provider selection, RFIs and RFPs, renegotiation
• Provider agreements and terms
• Scheme compliance management
• End-to-end processing flows and architecture.

Redbridge serves some of the biggest brands in the world and is growing fast.

To learn more:
www.redbridgedta.com
www.redbridgedta.com/payments-advisory

———————————

Media contacts

Europe
Emmanuel Léchère
elechere@redbridgedta.com
+ 33 6 08 21 69 53

United States
Michael Denison
mdenison@redbridgedta.com
+1 346 207 0250

At SMCP, Jean-Christophe Sautereau regards relationships with banks as strategic partnerships founded on transparency. His group allocates its cash management activities to banks based on their lending commitments. “It’s about acknowledging mutual interests: the company must be fair,” explained the Head of Treasury and Financing, who oversees a financing pool consisting of 13 banks. In his role he also collaborates with six other banks that do not finance the group to help meet its local treasury needs, particularly cash remittances.

The company perspective: measuring and evaluating the relationship

At Air Liquide, banking relationships are governed by the principle of allocating ancillary business based on lending commitments. Chloé Audrin uses an advanced quantitative tool to analyze these relationships.

“RAROC, or Risk-Adjusted Return on Capital, is a metric that assesses the estimated profitability of Air Liquide’s banking relationships. For each bank we partner with, it calculates the bank’s profitability of its activities with the Group by determining the revenue and net margin generated per euro of capital requirement mobilized. This comprehensive analysis covers all the banking products and services we use. We conduct the analysis in the first quarter of every year using data from the previous year,” she explained.

Audrin shares her findings with all decision-makers within Air Liquide, presenting them with a highly visual graph that makes clear the commitments, profitability and business volumes associated with each banking partner.

Air Liquide complements this analysis with a qualitative assessment conducted across the Group’s various departments that work with partner banks. This assessment evaluates criteria such as the banks’ geographical presence, understanding of the Group’s needs and approach to social and environmental responsibility. The combined qualitative and quantitative efforts involved require the equivalent of one-and-a-half full-time staff members over a three-month period.

“Not every company is willing or able to undertake the same amount of work, but it is always possible to establish a quantitative monitoring process for banking relationships. The key is not that the model is perfectly accurate or comprehensive, but that it is consistent and enables us to make meaningful comparisons between banks,” she concluded.

SMCP does not conduct such detailed analysis as Air Liquide, but Jean-Christophe Sautereau shares a similar perspective: “We need to be able to make it clear to our top management which banks are generating the greatest added value. Our quantitative monitoring relies on statistics covering flows and compliance with banking quotas based on allocated credit lines, applying different weights to various instruments such as guarantees, forex and overdrafts”, he explained.

The banks’ perspective – what they are looking for?

Arnaud Morgant outlined the key factors driving credit decisions and pricing at banks in general, and SGCIB in particular. These include revenues, broken down by type and tracked by customer on an annual or even quarterly basis; and the consumption of capital, assessed in terms of Risk-Weighted Assets (RWA). RWA is influenced by the customer’s credit rating, the maturity of the financing or market transaction, and the type of loan, such as market guarantees or financing.

Deposits and ancillary business, such as cash management, are also factored into the analysis. Finally, alignment with the bank’s CSR policy is becoming increasingly important, according to Arnaud Morgant, and plays a significant role. So to do the history of the relationship and customer satisfaction, measured in terms of Net Promoter Score, which SGCIB has been using for several years.

The profitability of the relationship naturally plays a crucial role in financing decisions. “A bank cannot sustain a long-term relationship that is unprofitable overall. However, the decision to participate in a financing operation is not made solely on the basis of the risk/return ratio of the operation or the overall profitability of the relationship,” he explained.

If a relationship is deemed likely to prove unprofitable, key considerations for the bank include: is the low overall profitability due to structural reasons, or is there potential for improvement? What alternative options does the customer have if the bank declines? And finally, is this a strategic operation that the bank cannot afford to turn down?

Understanding your bank rating

A balanced banking relationship undeniably relies on thorough mutual understanding of the objectives and processes of the two financial partners involved. In addition to factors such as the allocation of ancillary business, a company’s bank rating is a fundamental element that is often overlooked in discussions with bankers.

As Arnaud Morgant highlighted, this rating plays a critical role. It directly influences the decision whether to provide credit: the higher the perceived risk, the more senior the decision-making body required. It also has a significant effect on the amount of capital mobilized through the calculation of RWA, which impacts pricing and, ultimately, the bank’s return on equity.

However, a live survey conducted during the round table revealed that half of the treasurers that responded were unaware of their internal bank rating, and another quarter only had partial knowledge of it. According to David Laugier, Chief Operating Officer at Redbridge and moderator of the discussion, “There is no doubt that internal ratings should be systematically requested and form the basis for discussions with the bank”.

Redbridge’s debt advisory team frequently observes discrepancies between the ratings assigned by different banks to the same company of up to three notches. These different ratings can have significant consequences, particularly in the context of major loan syndications. From this perspective, aligning lenders’ perceptions of the risk a company involves with the actual risk is vital to effectively manage the company’s banking relationships.

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What is payment optimisation?

Before we go any further, what do we mean by ‘payment orchestration’? Payment orchestration is software that allows merchants to simplify payment processes, helping businesses reduce costs, increase revenue, and improve operational efficiency and resilience. It connects payment providers, gateways, and methods into a unified system. This allows businesses to handle transactions more effectively, routing payments through cost-efficient and reliable channels. By doing so, payment orchestration reduces transaction fees and minimises the risk of failed payments, which increases revenue.

In today’s payments landscape, where merchants must juggle numerous payment options and technologies, payment orchestration stands out as a powerful tool. While it is not suited or required for every company, everyone should closely watch this technology and assess whether it can help their business stay competitive and thrive.

What benefits and challenges does payment orchestration bring?

As for most payment-related topics, there is a lot of literature and marketing content out there about payment orchestration – and many companies sell themselves as such, while they lack the main benefits that such a tool could bring.

That said, what improvements could a merchant observe following the implementation of a payment orchestration layer?

1. Ensure business continuity and resilience: payment orchestration consolidates all payment processes and ensures automatic smart routing to the most efficient provider. One may say that this centralisation also creates a single point of failure, which is true. Therefore, to ensure uninterrupted business operations and resilience, it is crucial to select a robust provider and have a backup strategy.
2. Bring visibility and insights: once data is centralised and harmonised into one single platform, the orchestration layer provides valuable insights into transaction trends, performance, and costs. This visibility helps businesses make informed decisions and optimise their payment strategies.
3. Benchmark cost and performance: if all data is in the same place, and we can run a deep analysis on top of this, we can easily compare metrics across different payment providers, making it possible to identify the most efficient routing options. This optimisation typically reduces costs and improves transaction approval rates.
4. Improve checkout experience: with low or no-code solutions, payment orchestration can enhance the checkout process with secure input fields and UI components to collect payment data – making it smoother and more customisable without requiring extensive IT resources. It reduces the complexity for IT teams, which usually translates into fewer PCI DSS requirements.
5. Easily change or add payment providers: the orchestration layer simplifies adding or switching payment providers and third-party services, requiring minimal IT involvement. This flexibility helps businesses quickly adapt to market changes and maintain optimal payment performance.

Payment orchestration also has potential downsides. Centralising payment processes can create a single point of failure, making the system vulnerable if the orchestration layer encounters issues. Additionally, implementing and maintaining an orchestration layer can be complex and costly, requiring significant upfront investment and ongoing management. For example, integrating with multiple payment providers and systems may lead to compatibility issues or increased complexity. There may also be concerns about data security and compliance, as handling sensitive transaction information through a centralised system requires stringent measures to protect against breaches and ensure regulatory adherence. Finally, payment orchestration was born to serve ecommerce and digital transactions but it still struggles to play in the physical world, particularly when it comes to POS terminals – something we covered in our Tap-to-Pay article .

Key takeaways

Payment orchestration is a solution for merchants facing today’s complex payments environment. Centralising and streamlining various payment methods and providers into a single system simplifies transaction management, reduces costs, and enhances operational efficiency. Merchants can benefit from improved business continuity, better visibility into transaction data, and optimised payment routing, which can increase revenue and smooth the checkout experience. Despite its advantages, it is not without challenges. The centralisation of payment processes can create a single point of failure, and implementing such a system can be costly and complex. Compatibility issues and data security concerns also need to be addressed. Additionally, while payment orchestration excels in digital and ecommerce transactions, its adoption in physical retail and POS systems remains limited.

Ultimately, while payment orchestration holds great promise, businesses should carefully evaluate whether its benefits outweight the potential downsides and determine how to integrate it best into their operations to stay competitive.

What are the main challenges related to FX in payments?

FX directly impacts transactions by influencing the amount received due to exchange rate fluctuations, affecting costs and timing. From a customer perspective, whether in B2B or B2C environments, the primary concerns are ensuring that transactions are conducted with legitimate sellers and understanding additional fees. When the buyer and seller operate in different currencies, the need for currency conversion introduces potential volatility and FX fees, which must be managed by one or both parties – the same logic applies between a platform and its sub-merchants.

International exchange rates can be very fluctuating, making it challenging to predict the payment’s value in the currency of the recipient at the time of the transaction, and it can shift unfavourably. Moreover, international payments are usually more expensive than domestic ones, and banks and financial institutions may charge additional fees that will impact the final amount settled to merchants. Additionally, these fees are generally quite opaque, so all parties involved in the transaction are unaware of how much they will actually end up paying for this operation. Without clear visibility into the entire transaction process, businesses may face challenges in accurately monitoring and managing their cross-border payment activities.

How can merchants turn challenges into opportunities?

Discover FX solutions used to boost merchant revenue. For frequent transactions in specific currencies, some may choose to open an account in that currency, benefiting from favourable pricing conditions. However, this solution is less practical for occasional or low-value transactions, where additional costs might not be anticipated or not worth the effort. In such cases, the decision of who bears the risk of currency volatility and FX conversion fees becomes critical, with several solutions available:

1. Merchant currency – the merchant may choose to maintain transactions in its local currency, passing the risk and cost of FX conversion to the buyer. While straightforward for the merchant, this approach can negatively impact customer experience, particularly for those without multi-currency accounts or favourable FX conditions. Moreover, transaction fees can still be high for cross-border operations.
2. Dynamic currency conversion (DCC) – available for both online and physical transactions, DCC offers buyers the choice to pay in either the merchant’s currency or their own. If the buyer opts for their currency, a commission is disclosed before confirming the transaction. The merchant may receive a portion of this commission, becoming a new source of financial revenue, which offsets part of the high costs associated with international transactions. On top of that, offering DCC may reduce chargebacks, which are often triggered by customers not recognising foreign transactions on their statements. Paying in local currency may also have a positive impact on acceptance rates.
3. Multi-currency pricing (MCP) – merchants can offer MCP, allowing buyers to pay in their own currency. This enhances customer experience – but transfers the FX risk and fee burden to the seller. A potential mitigation strategy is for the seller to open a multi-currency account or a local entity (when this is worth the investment), enabling it to sell and receive payments in the same currency (also called ‘like-for-like settlement’). In certain cases, merchants can also monetise this service and receive a kickback from the FX provider.
4. Payouts – the same logic applies to platforms when sending payouts to their sub-merchants, where the platform can turn FX into a value-added service by proposing payouts in local currency, and therefore improving its value proposition while generating additional revenues out of it.

Key takeaways

In conclusion, the intersection of payments and FX is pivotal in today’s global economy, as businesses increasingly engage in cross-border transactions. The complexities introduced by FX, such as currency volatility and transparency issues, present significant challenges in managing transaction costs and ensuring smooth operations.

FX Solutions like DCC and MCP offer innovative ways to address these challenges, allowing merchants to enhance customer experience, reduce chargebacks, and potentially generate additional revenue. However, the effectiveness of these solutions depends on careful implementation and understanding of the associated risks. Leveraging these strategies can help businesses navigate the intricacies of international payments and optimise their operations. This is typically what should be assessed as part of your payment strategy and the resulting target payment architecture.

Europe Lags Behind

Across the Atlantic, Fannie Mae stands as the world’s largest issuer of green Mortgage-Backed Securities. Energy transition securitisation is also widely utilised by photovoltaic panel installers (a), who securitise their operating leases or the future cash flows from Power Purchase Agreements (PPAs) (b). More recently, securitisation has encompassed loans provided to individuals to finance their solar installations (c). In 2022, green securitisation accounted for 32% of all green bond issuance in the United States.

In China, green securitisation accounts for 8% of green bond issuance. Since the first green ABS were issued in 2016, a diverse range of asset classes has been utilised, including wind turbine revenues, energy equipment leasing, and ‘green’ trade receivables.

In Europe, securitisation represents just 2% of green bond  issuance. While the volume is growing, it remains far from sufficient. In 2023, securitisation volumes doubled compared to 2022, reaching €2.4 billion, but this figure is still well below the annual €300 billion estimated by AFME (d) as necessary to fund green construction, energy-efficient home renovations, and the transition to electric vehicles.

A Growing Market

In Europe,  green securitisation transactions have mainly been initiated by bank issuers. For instance, Landesbank Baden-Württemberg recently raised €350 million to fund solar power plants and wind farms, with support from the European Investment Bank (EIB).

Non-bank issuers, though less common, are becoming increasingly active:

• In 2022, Perfecta Energia, a Spanish solar panel installer, launched a €133 million securitisation fund to support the development of residential solar energy.
• In 2023, Enpal GmbH, a German solar installer, established a €365 million warehousing programme to finance 12,500 installations.
• In January 2024, Powen Group securitised a diversified portfolio of Spanish solar assets—encompassing loans, leases, and PPAs for both residential and industrial projects—raising €120 million.
• In November 2024, Enpal executed the first-ever public securitisation of solar assets, raising €240 million. The ‘AAA’ tranche was priced at 40 basis points above the 1-month Euribor, while the ‘AA-’ tranche was priced at 85 basis points.

Many energy companies rely on project financing through ad hoc entities, injecting capital into each venture individually. This fragmented approach often makes it difficult to secure funding at the holding company level. Securitisation offers a potential solution by pooling multiple projects—particularly those in the production stage—into a single refinancing structure.

The green securitisation market has significant potential for growth. The European Commission is currently working to relax regulations, which should help facilitate such transactions. (For further details, see our previous article: “Securitisation: A Necessary Revival of the European Market.”)

However, securitising assets tied to energy production presents unique challenges compared to other forms of securitisation, notably:

• Default and early repayment risk: Assessing these risks is complicated by the limited availability of historical data and, in some cases, the small size of asset portfolios.
• Non-financial risks: These include the risk of contract renegotiation, technological underperformance, inadequate facility maintenance, and climate-related vulnerabilities.

Redbridge, together with its partner Accola, brings extensive expertise in securitisation, including operational leasing transactions. We firmly believe that securitisation has a pivotal role to play in achieving the ambitious goals of the Green Deal, whether the underlying collateral consists of loans, lease streams, or offtake contracts.

Securitisation Scheme for Solar Energy Leasing Contracts

Notes

a/ Sunrun, a leading solar company, has installed 5 gigawatts of solar panels since its founding in 2007. Remarkably, 41% of these installations have been financed through securitisation.

b/ Power Purchase Agreements (PPA) are a common mechanism, acting as offtake contracts between electricity producers and consumers.

c/ The PACE programme (Property Assessed Clean Energy) provides another innovative financing option, enabling property owners to finance energy-efficient upgrades through property tax assessments.

d/ For more insights, refer to AFME’s December 2022 report: European Green Securitisation Regulatory State of Play.

Artificial intelligence in treasury: hype or reality?

The mention of artificial intelligence in treasury often conjures up visions of a utopian future – a world in which machines take over mundane tasks, freeing up treasurers to focus solely on analysis and strategic, value-adding activities, and in which they finally earn the recognition and favor of company management. But is this likely to be the reality?

Groupement Les Mousquetaires: pioneering the use of AI in cash flow forecasting

The story of Groupement Les Mousquetaires stands out as a rare example of how artificial intelligence can deliver a real, measurable positive impact to a treasury’s operations. Groupement Les Mousquetaires, the umbrella organization for retail brands such as Intermarché, Netto, Bricomarché, Brico Cash, Bricorama, Roady and Rapid Pare-Brise, has successfully integrated artificial intelligence in its cash flow forecasting processes. The initiative, which was launched in 2019, was spearheaded by Sébastien Schweickert, data analyst, and championed by Laurent Bonhomme, Director of Financing, Treasury and Investor Relations at Groupement Les Mousquetaires.

At a client breakfast hosted by Redbridge’s Treasury Transformation team in mid-November, Schweickert and Bonhomme shared some insights on the project. They emphasized the challenges of integrating artificial intelligence in cash flow forecasting, including the need for significant long-term resource allocation and ongoing oversight of the data set. This kind of vigilant monitoring ensures that the model can become more accurate over time and avoid stagnation or the propagation of inefficiencies.

Thanks to their efforts, Les Mousquetaires has successfully reduced the margin of error of its 12-week forecasts from 3% to just 1% – a level that Laurent Bonhomme describes as “acceptable for making financial decisions.” The Group estimates that it is making annual savings of €1 million thanks to its more efficient allocation of available cash and more precise calibration of bank borrowing and commercial paper issuance (NEU CP).

The background to the project

The project to enhance cash flow forecasts using a predictive AI model known as Cash Flow Management (CFM) began with the establishment of a data lab aimed at “realigning the planets between business expertise and data“, according to Laurent Bonhomme, who elaborates:

“Data was the first step in launching our project. The second was determining whether the effort was justified. For Les Mousquetaires, the answer was a clear yes given the significant difference between the cost of short-term financing and the return on cash investments. The third step involved ensuring the sustainability of the cash flow forecasting model through robust governance and making it accessible to all of the group’s departments. Finally, the fourth step focused on testing the model against our historical forecasts.”

The CFM project involves direct modelling of no less than €15 billion in cash flows over three months. Beyond this timeframe, the Group’s cash flow becomes too unpredictable to forecast due to various external factors. The project relies on a dedicated team consisting of 1.5 full-time equivalent data scientists and 0.5 data engineers. They are guided by the “third musketeer,” Sébastien Schweickert.

According to Schweickert, the group’s previous cash flow forecasting model, which was built in Excel, struggled to detect recurring patterns in cash inflows and outflows. “Although it was time-consuming and prone to long-term errors, the old model worked. Our challenge was to make the data more usable and eliminate the inaccuracies,” he explains.

Three years after the launch of the CFM project, Les Mousquetaires continues to compare its AI- and machine-learning-based predictions against the backtest results of its legacy Excel model.

Interface with treasury tools, enterprise resource planning (ERP) software and external data sources

The team began by developing an interface with its treasury software (Kyriba) to provide the model with streamlined, recurring access to raw treasury data. Without any external assistance from a software provider, the team developed two forecasting models.

The first is a business model, which replicates the firm’s previous Excel-based approach. This model relies on predefined business rules, such as annual pricing provided by central purchasing bodies and estimates for more volatile elements like how oil prices affect fuel sales.

The second is a predictive AI model that incorporates a much larger volume of external data. It includes variables such as oil prices and basic commodity prices, enabling the system to refine its forecasts through machine learning.

“The project’s success required several important elements,” explains the team. “These included efficient daily cash pooling, cash flow modeling with a focus on the income statement view (excluding inventory) and a seamless gateway between the accounting ERP and the treasury management systems”.

To ensure the model’s accuracy and reliability, the team monitors it daily by comparing its forecasts with actual cash flows from the previous day. This involves analyzing cash flow patterns and how data is sequenced, particularly payment timings by flow type. They also verify the stability and granularity of data allocation rules, with a minimum of five years of historical data required to support the model.

10,000 input lines processed every day

After a successful proof of concept in 2019, Groupement Les Mousquetaires officially launched the CFM project during the 2020–21 lockdown period. Its new cash flow forecasting model became operational in 2022.

“The COVID crisis was an exceptional event that we excluded from the learning phase,” notes Sébastien Schweickert. “However, it is still reflected in the evolution of behavioral data as consumer habits have changed profoundly in response to societal shifts like remote working.”

In the current model, COVID-related data can be re-entered by the treasurer at any time, treated as a replicable event. The system processes 10,000 input lines every day, and the team is now focusing on incorporating new explanatory variables into its predictive models. These include factors such as the impact of the energy crisis following the outbreak of war in Ukraine and the acceleration of inflation.

“We caution against making hasty changes to the data tags as this could cause the model to lose its ability to learn,” warns Schweickert. “Once the rules for classifying different flows are established, they must remain immutable and protected. This is especially important for the classification of operating costs and the analytical breakdown of food supplier costs.”

He also emphasizes that artificial intelligence is not infallible. “There are times when discrepancies persist for several months before being identified and corrected by humans.”

Greater accuracy and compelling financial benefits

The predictive model has evolved alongside the group’s business practices, particularly with the introduction of new rules on rebates. Initially confined to the group’s operations, the scope of the model was expanded at the beginning of 2024 to include entities affiliated to Les Mousquetaires.

What have the results been? The model has helped reduce gross debt by providing more accurate forecasts. Specifically, it has lowered the margin of error in cash flow forecasts to a maximum variance of €100–150 million – less than 1% of sales, which amount to €15 billion – compared with 3% previously.

“However, ROI isn’t just about financial savings,” notes Laurent Bonhomme. “Since our cash flow is cyclical, with significant downturns between January 15 and June 15, followed by a rebuilding phase from June 15 to January 15, it’s both interesting and reassuring to be able to accurately predict these low points. This enables us to notify our creditors in advance.”

Some of the current ESG-related initiatives in the payment systems

Over the past years and decades, financial institutions (FIs) have been playing a key role in advancing sustainability by reducing resource consumption through payment digitalisation and innovation.

Virtual cards help eliminate plastic waste, and software-based payment solutions like lessen the need for physical POS systems. Digital card platforms enable issuers to offer sustainable, data-driven options that educate consumers about their environmental impact. Additionally, optimising transaction efficiency, scaling responsibly, and partnering with carbon-neutral data centres help minimise the energy footprint of digital payments.

From a social standpoint, some fintechs have built their value proposition around financial inclusion and social responsibility. An example is enabling affordable financial products, inclusive wallets or banking accounts, or card-based distribution of social aid for financially vulnerable populations.

Financial incentives for more sustainable payments

Despite the clear benefits of these initiatives, a gap remains in ESG alignment between the payments industry and merchants. In contrast to lending, where institutions offer direct incentives to clients meeting specific ESG criteria, the payments sector has yet to fully embrace ESG-driven engagement with merchants and consumers.

As financial inclusion grows, some stakeholders in the payments industry are questioning whether businesses that contribute to ESG goals should receive more favourable transaction terms. For example, merchants could gain better interchange rates or pricing if they operate under certain that align with specific ESG principles. Similarly, should customers using Buy Now, Pay Later (BNPL) for essential goods or services receive reduced pricing?

In contrast, should certain payment methods incur penalties, particularly those that promote overconsumption or excessive debt? Should the fees for donating to a non-governmental organisation (NGO) be comparable to those for purchasing unnecessary goods produced under questionable conditions and transported from far away? And why not let some sectors when payers prefer to use a payment method with a worse ESG impact, or at least allow surcharging on certain industries with a positive ESG impact?

On the consumer side, we’re starting to see initiatives where companies encourage users to offset the carbon footprint of their transactions – especially in the travel industry, which has faced scrutiny over ESG and sustainability concerns –, or give customers the option to donate the remaining cents to charity projects to round up their transaction amount.

Key stakeholders for a successful transition

The shift towards a more sustainable payments industry necessitates coordinated efforts from various stakeholders, including FIs, networks, merchants, and consumers. Both private initiatives and public policies could promote this transformation by incentivising businesses that prioritise sustainability and ESG values.

In regions like the European Economic Area, financial regulations focus on ESG alignment by rewarding responsible investments and penalising environmentally damaging practices. However, the payments sector has largely remained unaffected by these regulatory changes, with interchange fees uniformly capped across industries under . The European Union (EU) has led the way in critical regulations, such as data protection through the General Data Protection Regulation (GDPR) and fraud reduction via various Payment Services Directives. However, the absence of clear and transversal ESG considerations in these frameworks signifies a missed opportunity to establish robust sustainability benchmarks within the payments industry.

Navigating the complexities of ESG adoption

While these concepts are intriguing, incorporating ESG principles into payment processes poses significant challenges, starting with the need for robust data management and transparency. Effective ESG reporting needs advanced data systems, which require substantial investment to accurately track and report environmental and social impacts. The lack of standardised metrics complicates performance benchmarking against industry peers, undermining the overall effectiveness of ESG initiatives.

Beyond technological investments, cultivating a commitment to ESG entails cultural changes within organisations. Payment companies must secure buy-in from all levels, from executives to frontline employees, to foster a genuine sustainability-oriented culture. Training and engagement programmes will be vital for embedding ESG into the corporate ethos, rather than treating it as a fleeting trend.

Cost considerations also present a major obstacle for smaller payment providers, who may struggle to reconcile sustainability investments with profitability. While the long-term benefits of sustainable practices, such as cost savings and increased brand loyalty, can outweigh initial expenditures, smaller firms often find it difficult to shoulder these costs without support from the industry.

Lastly, maintaining transparent communication and actively engaging with stakeholders – including shareholders, customers, and regulatory bodies – is essential for balancing profitability with sustainability. This delicate process requires payment companies to effectively convey their ESG initiatives and the long-term value they bring to all parties involved.

Conclusions

As ESG expectations increasingly influence the future of ESG payment systems, the question of leadership remains unresolved. Should payment networks and providers lead the charge in promoting sustainable practices, or should governments and regulators take a more active role in enforcing these changes? If private initiatives alone are inadequate for achieving ESG objectives, public policies might provide stronger incentives for the payments ecosystem to adopt greener standards. Could the EU’s approach to ESG eventually establish a global benchmark for ESG payment systems in the industry?

On the other hand, should consumers take a more proactive stance by helping cover the environmental costs of their transactions? Moving forward will certainly require innovation, collaboration, and a willingness to engage with these critical questions.

As the payments industry advances toward sustainability, each stakeholder must consider how they can contribute to a system that harmonises profitability with purpose. Most definitely, the very first actions merchants may undertake are to structure a solid and review the relationships with their current payment providers and acquirers.

Contact us for more information or payment advisory services.

Imagine yourself in the position of a treasury professional relying on the ECR to offset your banking fees. When the Federal Funds Rate rises, you’d probably expect the ECR on your deposits to increase accordingly. However, when the Federal Reserve was hiking interest rates in 2022 and 2023, US banks only passed on some of the increase in rates to the ECR. They also took their time to do so, responding slowly after each rate hike. We can see this in the graph below, which shows the ECR yields for a number of US companies that shared their data with Redbridge prior to renegotiating their cash management services.

Fast-forward to today, and monetary policy is now being eased – the Federal Reserve implemented its first rate cut in September. Given banks’ actions when rates were rising, a treasurer might expect their bank to only reduce their ECR slowly now that rates are falling. And yet our initial findings indicate that US banks reacted promptly and in full to the September cut, reducing the ECR by 50 basis points.

This imbalance is clearly going to be frustrating for treasurers, who might naturally feel that all this is evidence of banks acting primarily in their own interests. They might now be expecting their banks to reduce the ECR by another 25 basis points if the Fed cuts rates again this week, as anticipated. That said, such adjustments are not set in stone.

Redbridge has a simple message for all companies operating in the US: the ECR yield you negotiate with your bank should be based on a transparent, automatic mechanism that’s fair for both sides. What’s more, it’s possible to establish a spread over the Fed Funds Rate the offsets your costs significantly more than your current ECR.
In short, even though US interest rates are expected to fall further, there’s still scope for firms operating in the US to reduce their costs of cash management.