The move to real time payments

One of the trends in the payments world today is the move to ‘real time’ payments.  A good example of this move is the Faster Payments Service in the United Kingdom. The Faster Payments Service, launched in May 2008, is an initiative to drastically reduce the time for processing, clearing and settlement of domestic payments. Under the country’s ACH scheme rules (BACS) the processing takes 3 business days. Under the Faster Payments Service scheme that period is reduced to a few hours. The service can be used for payments and standing orders up to 100,000 GBP.  This payment scheme blurs the traditional lines between traditional low value ACH payments and real time gross settlement (RTGS) payments (CHAPS in the UK). The Faster Payments Service was launched successfully with quickly growing adoption of the service clearly showing that there is a real need among payment users for cost efficient real time payment services.

What does this mean for corporates?

Corporates have another choice when they need to process an urgent payment.  They can opt for a real time payment instrument that is priced cheaper than the traditional RTGS payment, resulting in cost savings.  The payments will be processed immediately and reach their destination in near real time.  From a collections perspective, if the customer is using the real time payment instrument, the cash is credited faster on the corporate’s bank account, meaning that the cash comes in earlier compared to other payment instruments, improving the cash position. 

Can these instruments be integrated in the current systems used by corporates?

Many large multi-national organizations have embarked on standardizing payment processing across entities, payment instruments and banks. Often in combination with a centralization exercise of the payments process using Shared Service Centers and with an implementation of a payment factory software solution to automate the process.

Integrating real time payment instruments into the existing infrastructure is possible in such infrastructures. The move towards ISO 20022 payment initiation standards can help in standardizing the messaging layer to all banks and implementation of e.g. UK Faster Payments is possible, also using standardized corporate-to-bank channels such as SWIFTNet.

What is next?

Meeting the SEPA deadlines is now the number one priority of many corporates. SEPA instruments are not real time instruments but follow a one day clearing and settlement cycle.  Having a real time SEPA scheme (in addition to the existing ones) for Euro payments would be a clear step forward but at this point not a planned deliverable.

Besides the Faster Payments Service in the UK, other European real time payment initiatives are launched in Sweden by payments operator Bankgirot and several Swedish banks in Sweden (a service called Swish) and in Poland by payments operator KIR. 

Corporates will have an increasing number of options to initiate real time payments and will offer these payment methods to their customers, leading to shorter payments and collections cycles.