Time to Get Up to Speed with Instant Payments
By Eleanor Hill, Editor
Believe it or not, real-time payments are already changing the face of treasury. They offer an opportunity to rethink legacy payments, collections and liquidity management processes, glean valuable data, and add strategic value to the business. Instant payments are also a huge enabler of real-time treasury. But the rewards can only be reaped if treasurers embrace the possibilities that instant payments offer, and if regulators and banks continue to push towards global, not just local, real-time payments capabilities.
The era of real-time payments is upon us. Over 30 real-time payments schemes are now operational worldwide, with more on the cusp of going live, or in the development pipeline. As Craig Ramsey, Head of Real-Time Payments, ACI Worldwide, explains: “Real-time payments (RTPs) are happening all across the globe, with many countries either having a defined strategy or closing in on one. And it’s not just the developed markets that are doing this, all economies are pushing ahead with RTPs, with some of the best initiatives coming from developing or less mature markets.”
Regardless of geography, instant payments (the terms ‘real-time’ and ‘instant’ payments are used interchangeably in the market) present a new way to do business for everyone. They have the potential to change the way that businesses interact with their customers, but also how businesses interact with each other, says Ramsey. So, the benefits are by no means limited to B2C companies.
Francis De Roeck, Head of SEPA Offering, BNP Paribas, says that “the speed of instant payments – with settlement typically occurring in under 10 seconds – is not only extremely interesting for retail customers but also for corporate treasurers. In fact, the advent of instant payments offers a significant opportunity for treasurers to create value within their organisation by rethinking legacy payments and collections processes.”
While it may seem unusual for a treasurer to want to pay money away quickly, there are a number of reasons why making disbursements using instant payments can be beneficial, notes De Roeck. “Insurance companies could, for example, use RTPs to settle claims instantly, or retailers could issue refunds on the spot. In turn, this should help to improve customer service, drive customer retention, and attract new business.” Ramsey agrees, adding another example: “A retailer which is able to refund money instantly upon return of goods can improve customer loyalty and satisfaction substantially,” he observes.
Elsewhere, supplier payments, can be synchronised more closely with the production cycle, helping companies to embrace just-in-time business models, says De Roeck. In addition, “RTPs will give all corporate treasurers far greater control over their payments and allow them to be on the front foot. Old-fashioned cut-off times no longer apply. Weekends and bank holidays will not be an impediment anymore. And since instant payment schemes operate 24/7/365, corporates can actually hold on to their liquidity for longer – paying only at the last minute.”
Corporates could also use the ‘always on’ nature of RTPs to pay their employees’ salaries earlier in the day – perhaps at 7am rather than 10am, he suggests. “This is a small gesture, but it can have a significant positive impact for the workforce.”
Don’t be fooled
“It would be a mistake to think that instant payments are only relevant for treasurers operating in B2C sectors. As the benefits become clearer, organisations become more familiar with instant payments as a concept, and the value limits are increased, adoption will grow in the B2B space too,” says Anupam Sinha, Global Head, Domestic Payables & Receivables, Treasury and Trade Solutions, Citi.
Shahrokh Moinian, Head of Cash Products for Cash Management, Global Transaction Banking, Deutsche Bank concurs. “Whilst value limits may initially limit real-time payments to retail, over time these limits will increase and ultimately be removed. A downside is that unexpected receipts received outside office hours can increase the risk of breaching FX exposure policy limits. An upside is that treasurers will be able to manage liquidity and FX risk in real time.”
The other side of RTPs
Of course, real-time payments not only offer treasurers the opportunity to improve disbursements; they can enable real-time collections too. “After all, real-time payments offer finality of settlement, since RTPs are irrevocable, which is a huge benefit for treasury. And with instant collections, companies can ship goods much more quickly to customers, leading to improved customer service,” De Roeck notes.
There are significant opportunities to leverage real-time collections in the e-commerce space, therefore, integrating real-time credit transfers into the shopfront – which can also improve the customer experience and make the payment process even more seamless. And compared to more traditional payment instruments such as cards, real-time payments have a lower fraud rate associated with them, which is an added bonus for treasury, explains De Roeck.
Shahrokh Moinian, Head of Cash Products for Cash Management, Global Transaction Banking, Deutsche Bank, builds on these thoughts, saying that,
“By encouraging customers to pay via instant payment, either through discounts or making the payment experience as seamless as possible, companies can lower their days sales outstanding [DSO], close down credit lines with their customers, and ultimately manufacture and sell more because funds are coming in more quickly.”
“Elsewhere, real-time payments remove risks such as the need for cash handling for those companies who accept payment on delivery. Of course, moving away from physical cash to instant payments also results in enriched data around each transaction,” De Roeck notes.
Anupam Sinha, Global Head, Domestic Payables & Receivables, Treasury and Trade Solutions, Citi, also points to the data benefits, adding that “Together with technology solutions, the enriched data that comes with instant payments means that corporates can reconcile in near real-time, rather than waiting several days, and this will lead to DSO improvements.” We will come back to this important point about data later in this article, since it has significant implications for treasurers that go beyond quick wins.
Request to pay: a quiet revolution
Meanwhile, request-to-pay schemes add another dimension to the real-time collections angle. “These offer a new way to collect from consumers and businesses alike, instantly. They can be used for ad hoc payments, not just to replace direct debits, and are essentially a next-generation electronic bill presentment and payment (EBPP) solution,” says De Roeck.
For anyone unfamiliar with request-to-pay schemes (also confusingly shortened to ‘RTPs’ like real-time payments – go figure!), Dean Wallace, Practice Lead, Real Time and Digital Payments, ACI Worldwide describes their origins and usage. “With the advent of open banking and the much more widespread use of open application programming interfaces (APIs), another way to pay is on the horizon, which could revolutionise life for millions of UK consumers and businesses. Request-to-pay is a new payments service, which will provide another flexible way for payments to be made and received. It complements existing ways to pay, benefiting consumers, small businesses, charities, larger corporate users and governments,” he explains.