It is tempting to see instant payments as all upside. On the way in, they help businesses manage their capital more efficiently and they reduce the need for expensive short-term financing. But they also mean cash is going out of the door that much faster, which can hurt the unwary.
The direction of travel is clear: the real-time payment market is worth about $26 billion to $28 billion, and analysts project a compound annual growth rate of between 16% and 35% over the rest of this decade.
But the focus for corporates is on using instant payment solutions for receiving cash from their consumer customers, says Andrew Foulds, director of product management for high-value market infrastructures at Fiserv, a fintech and payments company.
Real-time payment services – particularly those offered via modern application programming interface (API) stacks – are less expensive and cumbersome than older solutions, neatly solving the traditional dilemma of whether to use payment processes that are faster or cheaper.
“Corporates will increasingly use these systems because they are less expensive to operate [than conventional payment systems], with less need for manual intervention,” says Foulds.
Most corporates would say they want to get paid faster and settle less quickly
James Winter, Thunes
But according to James Winter, senior vice-president for Europe at Thunes, a Singapore-based payments infrastructure provider, leveraging this technology for faster settlement while meeting the needs of treasury liquidity management is a different matter.
“Most corporates would say they want to get paid faster and settle less quickly,” he says.
In the business-to-consumer area, instant payments from consumers are becoming the norm in Europe for domestic transactions. But appetite for B2B instant payments has been limited: most corporates have adopted a batch payment initiation process for paying suppliers and employees.
Moving to instant payments requires a full review of corporate treasury operations, says Annelinda Koldewe, global head of wholesale banking payments at ING. That includes looking at what to do with balances that come in over a weekend and how to optimise currency exposure outside office hours.
“Where we see most benefit is in the connectivity between instant payment schemes across borders to improve the speed of execution of international payments,” she says. “Whether current instant payment capabilities justify the cost therefore depends on the individual circumstances of each company.”
Context
The benefit of real-time payments should be considered in the context of the impact on all aspects of the procurement process. The speed of the actual movement of money is often less of a challenge than other administrative costs associated with the accounts payable and receivable process.
Also, many organizations operate globally, whereas real-time payment systems are typically operated on a single-country basis.
“As such, although there are benefits to swifter money transfer, at this point there are other payment mechanisms, especially card-based options, that are more beneficial as they address both geographic and administrative requirements and are readily deployable,” says Jonathan Vaux, head of propositions and partnerships at Thredd, an issuer processing specialist.
Implementing real-time payments can also be expensive because of upgrading payment systems, training staff and ensuring compliance with regulatory requirements.
Bob Stark, head of market strategy at cloud treasury solutions provider Kyriba, suggests that instant payments are continuing to gain popularity around the world, albeit often accelerated by regulations requiring that instant payments be no more expensive than traditional payment options.
“In the absence of such regulation, there is a variety of use cases that drive instant payments adoption across insurance, transportation and logistics, and real-time service industries, although other sectors require more incentive to pay more quickly,” he says.
As Euromoney reported in December, international beverage producer Beam Suntory has optimised its payments infrastructure to remove legacy inefficiencies and manual processes. But while the benefits of revamping its payments infrastructure have been clear to its treasury team, the company has taken a cautious approach to real-time payments.
“As a mature business with established shared-service centres around the globe, we have a structure and organization where the need or the use case for real-time payments hasn’t presented itself yet given the costs involved, although it is something we continue to monitor,” says Petar Tomicic, treasury manager at Beam Suntory.
The company has been opportunistic in where it can continue to expand and create efficiencies globally, he adds.
“It is not a one-size-fits-all. It is imperative that everyone really thinks through what are their priorities and resources, and what different groups find value in.”
