Immediate payments to shake up corporate banking
Real-time payments offer an array of liquidity and efficiency benefits for corporate treasurers, and could prove a boost to product and service delivery.
Immediate payment systems have transformed consumer banking and are now staging a slow but sure adoption in the corporate space.
Real-time payments will also provide a wealth of transaction information to help companies drive value to their customers
The push for speedier payments worldwide follows UK’s Faster Payments system for consumers, which was introduced in 2008. Singapore has been offering faster payments since May 2014. Australia is now implementing a network based on the UK system, and is expected to go live in 2017.
How global payments systems evolve and their corporate adoption were hot topics at the EBAday conference for payments professionals in Amsterdam this week.
The definition of what constitutes immediacy is rapidly declining from its start point of around two hours.
Gene Neyer, senior vice-president of payments product management, of Fundtech, a payments systems provider, which was acquired in March by financial technology provider D+H, says: “The current definition of real time is about five seconds down from 15. But this number will carry on shrinking.”
The benefits for consumers – from online shopping to making bank transfers – are well-known, but treasurers are relatively new to the potential benefits. The ability to conduct salary payments instantly was repeatedly cited at the conference as being advantageous to a treasurer.
Neyer says: “Using immediate payments for salaries for hourly workers is one option, complementing standing orders for salaried workers to complete the transaction in real time.”
Making payments in real time enables a corporate to hold the funds until the payment is made, increasing the amount of available liquidity, and boosting the ability to manage cash more efficiently.
Paul Thomalla, senior vice-president, global corporate relations and business development, ACI Worldwide, says: “The move to real-time payments empowers company treasurers by making it easier for them to manage company processes and by enabling more efficient liquidity management.”
Mark Buitenhek, global head transaction services, ING, says: “It streamlines reconciliation – the invoices can be sent with the payments. For corporate treasurers this speeds up the process of payments.”
However, when transactions are already being processed efficiently through bulk payments, the need to change to another payment system is not necessarily a high priority for some.
Buitenhek says: “Salaries are paid in batches, so what is the need to move them to immediate payments? Changing the payment type is not the answer to this problem.”
In any case, there are also efficiency benefits. When a payment is sent, it is with the safe knowledge that it has been received by the other party.
Fundtech's Neyer says: “Immediate payments provide confirmation straight away that the transaction has been completed. There is no waiting around to find out if it has worked, and potentially receiving this information too late to rectify the issue.”
ACI's Thomalla adds: “Real-time payments will also provide a wealth of transaction information to help companies drive value to their customers, in a similar way that Amazon uses dispatch and delivery information to update and remain in contact with its customers from the moment they make a purchase.”
These payments move the capabilities back to the treasurer to make decisions on their business.
“Historically, company operations have been hampered by hierarchical systems of approval," says Thomalla. "The move to immediate payments empowers treasurers to make delegated decisions across the firm under their ERP system’s pre-agreed terms of authorization.”
Being able to complete a payment in a shorter time-frame can also bring about benefits within the supply chain.
“If a payment can be cleared earlier, then other options can be considered, such as supplier discount,” says Neyer. "It allows for the development of further cash-management options."
The system is not without its issues. The darker side of immediate payments has already been seen in the consumer space in the UK.
Thomalla says: “When we make such fundamental changes, it’s important to consider how the entire payments eco-system might respond, in order to try to prevent any unintended consequences – for instance, the emergence of the pay-day loan industry.”
Corporates will also need to catch up with the evolution of the payments process, which might involve shifting responsibilities within treasury teams.
ING's Buitenhek says: “Corporates are not standardized internally. Changing operations means making shifts in the structure. It is difficult to change the internal culture and responsibilities.”
What's more, corporates looking to make large payments might find the current limits too low for their purposes – the UK currently allows payments of £100,000.
“Completing larger payments may still prove to be difficult for some time," says Neyer. "It is not just a question of if the corporates have funds, it is if the banks themselves have the capital available on the balance sheet.”
Even with such limitations, rather than waiting on the sidelines for payments systems to be updated, Buitenhek says treasurers should innovate and embrace the benefits of immediate payments.