Real-time and Instant Payments
“Instant” the buzz word
All those who were at last SYBOS in Sydney told us that the buzz word was centered around the real-time payments. It is crucial in a world where Treasurers must manage liquidities more efficiently and in real-time too (ideally). It is a perfect way to create and optimize value. In an environment where domestic payments and even now cross-border payments (with the new SWIFT gpi), together with new technologies and API’s (i.e. Application Programming Interfaces) became prevailing, we, treasurers have with our bank partners opportunities to enhance business processes and to operate in a more real-time mode.
All drivers are in place
The regulatory environment (including PSD2 and open banking) has never been so favorable for developing the instant payment. There are already numerous schemes launched in Europe and even live now. Others are coming soon. SWIFT gpi is there (at least for FIN messages) and therefore treasurers are expecting more speed in payments in general. Business are evolving often towards B2C models. The young generations and the “Z” are coming urging for faster and easier methods of payments. The technical infrastructure with high speed internet and smart phones were also a pre-condition for a large adoption by end- users. There is an objective for cashless in medium term from some States. There is also from young users side a real aversion for cash and a clear preference for virtual or electronic currencies. The cash could be easily replaced by instant payments. With Aliba and Amazon, among others, customers are expecting deliver at point of sales. Eventually, API’s are emerging with numerous FinTech’s trying to partner with banks.
Instant liquidity management
Liquidity management remains key for all our treasury peers. The immediate access to liquidities and cash is becoming important. The velocity of liquidities became over years a major focus for treasurers. They are keen to cooperate with their banks to find optimized solutions, if any, to better and faster access their liquidities. At the same time, API’s are now offering fantastic occasion to give customers as well as treasurers customized solutions fitting to their specific needs (customers want faster and secure means of payments and new methods, where treasurers want to access cash more quickly and ease reconciliation processes). More customized added-value to customer should be the motto of all banks. Unfortunately, not all are doing so and proposing these expected solutions. The market infrastructures will have to move too towards more “real-time” scalable solutions. Isn’t it a joint journey we should make together with our bank partners? The way we have worked on SWIFT gpi for example, could be duplicated for other solutions and API’s developments. Let’s try to standardize instant payment solutions, like in the USA with the ZELLE initiative, which seems to be successful.
Instant payments are taking off
There is a momentum towards faster payments. We of course need interoperability between operators, platforms and gateways. We all dream about a 24/7/365 payment solution. Such solutions could give a competitive advantage to businesses. The liquidities will have to be managed differently and interests calculated on intraday basis rather than on daily basis. The current systems and tools are not set up for such multiple interest calculations on during the day.
We can remain optimistic. The current ecosystem and context are perfect. All drivers are there to enable immediate payments to become a European reality. It will give a fantastic opportunity to corporate treasurers to better serve operations and businesses”. With payment on delivery, immediate receivables and payment at point of sales, we remove the cut-off times constraints and enable instant liquidity management, even if it requires systems and bank interest calculation.
Immediate payments will enable reduction of credit risk, accelerate freeing of customer’s credit limits of customers, improve client satisfaction, facilitate trade, allow clients to pay against delivery without penalizing sellers. It will be useful for customers having no access to credit cards. It mitigates credit risks. It removes risk of refunds, as on cards. The company will receive an immediate confirmation without need for MT 103 messages. Instant payments are the way to further optimize working capital by enabling sellers to immediately reuse funds within 10 seconds. The velocity of liquidities becomes the major focus for treasurers.
However, good news, the treasurers are keen to cooperate with their banks to find optimized solutions. API’s are offering fantastic opportunities to offer customers and treasurers customized solutions fitting to their specific needs.
We are entering a new era of liquidity management, the next generation. Of course, it is interesting for treasurers having lots of volumes of collections from retail activities. Interesting to introduce payments at point of sales. The current cap can be an issue but should increase over time (the limit of EUR 15k should be reviewed in future).
As said by Benjamin Franklin: “Time is money”, therefore the faster the payments are collected the better for businesses and treasurers.