Long reads

How real-time payments offer benefits to corporate treasurers

Scott Hamilton

Scott Hamilton

Contributing Editor, Finextra Research

There is a lot of buzz surrounding instant and real-time payments, and they are in various stages of growth or expansion in countries and regions across the globe. Gavin Maclean, head of payments at Lloyds Bank Corporate and Institutional Banking, says: “As individuals, real-time payments through the Faster Payments scheme are all around us. Pretty much any time you open a banking app to check your balance or send funds, you’re tapping into the system.”

Yet Maclean notes this may not apply to the larger clients on the business side of banking: “It’s not so widespread in corporate treasuries – yet. One thing that may have held some businesses back from making the leap is the fact that shifting to real-time payment systems can require reorganisation of other, quite fundamental, parts of a business. For example, if clients are receiving payments nearly instantly, customer service functions must be ready to respond to any queries or issues they have in nearly the same timeframe. Similarly, if firms are sending and receiving funds at the blink of an eye, their central cashflow management systems must be able to keep pace.”

Despite these barriers, Maclean assures that “adoption is spreading as treasury systems are becoming more technologically advanced and as firms are seeing the significant benefits that real-time payments can bring. These include greater control over working capital, predictability over payment timings, the potential to save on transaction costs and improved customer experience as a result of its sheer speed and convenience. There are also new international pathways being forged – in 2020, we were the first bank to
connect to Swift gpi Instant, which allows consumers and businesses to send tracked payments in seconds across borders.

“The continuation of this trend depends on making it as easy as possible for corporates to embed real-time payments systems into their businesses and for their clients to use them. As a corporate treasury partner, we take that responsibility seriously, and have been using our expertise to design new systems to do just this.” He cites examples like the bank’s PayTo and PayFrom Bank APIs that enable businesses to make real-time payments, without manual intervention, at any time or day and night to suppliers and customers, and give corporates’ customers the ability to pay them through their website, without requiring the customers to enter their payment details to complete transactions.

Rupa Krishnan, global head of real-time payments, JP Morgan, envisions account-to-account transfers by corporate treasury teams increasing in usage due to the rollout of instant payments. “Treasurers can top up accounts using instant payments for better liquidity management.”

Krishnan also sees applicability to foreign exchange practices: “Treasurers can take advantage of real-time payments and FX across the globe for better balance sheet management”, and for working capital management and process efficiency: “Treasurers can manage payables and receivables to accounts in real-time. Other examples include payroll / earned wage access and other disbursements like refunds.”

Nunzio Digiacomo, partner, McKinsey & Company, says the global market is ready for faster payments: “In a world of instant communication and expectations, instant payments are being adopted at increasing speed in the market. We expect an ever-increasing push from large treasuries to adopt instant payments across the value chain so that treasurers can have real-time views on their current liquidity without waiting T+1 or T+2, hence optimising their cash pooling and in-house banking.”

Digiacomo points to a long-known, even traditional, quandary for treasurers: they want to get paid by their customers as quickly as possible. He explains why the accounts receivable/accounts payable conversation might be changing as real-time payments offerings mature across the financial world: “It may seem counter-intuitive for treasurers to pay people quicker, but getting paid quicker will be very appealing and have positive implications for working capital management. We have seen quick adoption in value chains where instant is critical to the end consumer or business experience. Customers now expect to make payments instantly and not to wait for funds to be cleared before collecting large purchases like cars and furniture. Investors increasingly expect to make instant investments and again they expect the ability to trade and clear funds instantaneously.”

“Finally,” Digiacomo asserts, there are ways real-time transactions might help erase lingering cash-flow worries among treasurers, and improve employer-employee relations. “Paying out instantly may not result in negative working capital implications. For example, making payroll payments using legacy systems usually means a treasurer has to fund payroll one or two days before the employees receive their funds. Using instant payment systems means the company is debited on the same day as the employee receives their funds, not only improving working capital management, but also enhancing the employee experience, which is especially important for people in the age of flexible and gig economy working.”

David Rego, head of payments products, transaction banking, Standard Chartered, shares these instant transaction success stories from current and evolving markets:

"Today, many clients in Asia are already embracing real-time payments to boost their digital commerce offerings, allowing customers to make instant purchases easily. These payment rails are also perfect for urgent and critical corporate payments, like customs duty or port fees, which can now be swiftly settled. Additionally, ad hoc, and urgent payments required by Treasury get executed promptly, especially close to cut-off time. However, it’s essential to note that these payments may have limits on transaction value.”

Rego notes that if the trend toward embracing real-time payments continues, funding flexibility should increase for all parties involved: “As more commercial transactions shift to real-time payment rails, global and regional treasury centres, as well as in-house banks, can optimise funding throughout the day. By improving cash flow forecasting, in-house banks can even implement real-time funding models with intraday liquidity pricing methods for an extra edge.”

Art Brieske, head of instant payments, global treasury management, Wells Fargo observes some likely candidates that stand to benefit most from moving to faster transaction methods and rails, not to mention the richer data they bring to supply chain partners with their implementation: “As instant and real-time payments become part of standard corporate treasury payments practices, they are most likely to be used first by companies where it’s important to be able to pay for products and services as they’re delivered, on a 24/7/365 basis. Additionally, early-adopter corporate treasuries will see liquidity benefits as they continue to optimise cashflow in the form of richer data for forecasting as well as immediate availability of cash receipts.”

Comments: (1)

Jacqueline Powell
Jacqueline Powell - Bottomline - Reading 18 September, 2023, 13:56Be the first to give this comment the thumbs up 0 likes

A spot on article, Scott. Just last week I was chatting with our subject matter experts, Edward Ireland and Frederic Viard, on this.

In two separate research reports, we’re seeing adoption rise. The Future of Competitive Advantage in Banking and Payments Report, publishing this week to coincide with Sibos 2023, indicates that over 500 respondents from financial institutions cited adopting new payment rails, such as real-time payments, as their top priority on the roadmap for the next 12 months. With TCH offering real-time payments since 2017, FedNow going live a little earlier this year, and the proposed SEPA Inst requirements in the EU, this focus is no surprise. 

Add to that the New Payments Architecture, which will route all payments via the UK Faster Payment Service, and it’s clear that it’s the way to pay and get paid going forward. The 2023 Business Payments Barometer research also indicated that real-time payment adoption amongst corporates of all sizes had increased over last year, up 6% in the USA and 7% in Great Britain. Across the regions, businesses agree the most significant benefit is it allows them to clear and settle payments more quickly and guarantees that funds are readily available to the beneficiary.

From a bank and business perspective, real-time payments are moving toward critical mass providing liquidity options and generating new data sets from the accompanying ISO 20022 messaging format. The quicker we make the leap, the better.

If anyone needs more info on the topic, head to The Payments Podcast channel, which hosts several episodes from industry experts sharing their insight.