The real-time payments revolution reaches corporates
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The real-time payments revolution reaches corporates

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It can be difficult to imagine a world in which real-time payments are the norm for businesses. Yet Jon Levine, co-head of institutional banking at payments bank, Banking Circle, explains why the reality is closer than businesses realise.

Instant payment is now the expected norm for retail customers to such a degree that anything slower is considered unacceptable and a significant inconvenience. Consumers will not put up with anything other than instant payments – and why would they when there are so many instant payment solutions available?

Those same consumers may be surprised to learn that the same real-time benefits they take for granted are not yet widely available for corporate customers.

However, change is on the horizon and I believe the real-time payments revolution will soon begin to benefit businesses of all sizes. Even those dealing with cross border payments.

The instant payments race

Most countries are developing or have already launched new schemes to provide real-time payments. For example, Faster Payments in the UK, SEPA Instant in the Eurozone, FedNow in the US (from 2023) and other programmes and solutions in India, Australia, Singapore and more. Those schemes that have yet to launch will be live within the next few years, meaning most banks and their customers will soon be addressable over these instant schemes.

The significance of the change we will see in the next few years should not be underestimated. It will be fast, it will be a paradigm shift, and afterwards – just like retail customers do today – we will wonder how we put up with such slow payments in the past.

But we are not there yet. Significant roadblocks remain.

Supporting the post-COVID business bounce back

Change is on the horizon and I believe the real-time payments revolution will soon begin to benefit businesses of all sizes.
Jon Levine, co-head of institutional banking, Banking Circle

Businesses of every size need all the help they can get to bounce back from the impact of COVID-19 and accelerating the corporate element of the real-time payments revolution is a crucial piece in the jigsaw. Corporates today have immense funds perpetually tied up in the payments system. That is vast sums of inaccessible, unusable cash.

Imagine how the payments landscape and business potential will change as real-time technology is applied.

Suddenly a batch of corporate payments get parceled out over the payment schemes to run disbursement quickly and at low cost. Balances in the payment system effectively drop to zero, cash flow is maximised; businesses have the liquidity they need to flourish. It will be game-changing, and we will not look back.

But why isn’t this game-changer for businesses large and small already being delivered? For many banks, it comes down to the inherent legacy systems on which their operations are built.

Re-engineering critical

Some institutions are already leading the way, and those already playing their revolutionary part are going to be winners. But for others, re-engineering is needed to take full advantage of instant payments for corporates, and that’s where the challenges arise.

For example, there are often issues connecting banks’ front end, what the customer sees, through to the instant payment schemes themselves. If a bank has recently signed up to Faster Payments, is the corporate banking ledger yet piped through to Faster Payments? And does intelligent routing exist to decide which payments go to Faster Payments, to CHAPS, to BACS, etc?

There are other challenges too such as managing liquidity by bank treasuries outside of normal working hours. The dreaded payment repair queue, where an issue in a payment prohibits straight-through-processing is another issue.

There’s also sanctions screening, where most banks’ screening engines cannot look into payments processed via instant payment schemes. Instead, the screening engine looks at the SWIFT message traffic, but instant payment schemes often do not integrate with banks’ SWIFT gateways.

These issues diminish the benefits of instant payments.

Overcoming hurdles through collaboration

Instant payments for corporates of all sizes must be made a top priority. Sadly for some institutions, particularly the smaller local banks, the cost and upheaval of re-engineering their underlying systems is too big a challenge. It is therefore crucial that they find a different way to help corporates benefit from instant payments.

Working with alternative players that can help banks service the needs of their corporate clients could be the answer. For example, partnering with new cloud native specialist banks means financial institutions can use their infrastructure to join instant schemes that will deliver real-time payments for their corporates. And all the essential pipes and plumbing, connecting to the right payment rails and integrating the necessary sanctions screening can be part of the solution too.

The idea of collaboration to fix internal challenges is already gaining considerable ground. Research we conducted last year among C-suite bank executives across Europe found that half already had partnerships or planned to work with an external provider within the next month; another third planned to partner within the next 12 months.

The niche expertise of specialist banks, as well as their commitment to building the payment rails for instant payments, holds real appeal. It means banks can offer corporates access to affordable, friction-free, real-time cross border payments that will bolster international economies at a time when they are in great need, as we recover from the economic impact of COVID-19.

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