Driving Value from Immediate Payments

The new technologies will improve cash-flow forecasting and gain tighter control over their supply chain, purchasing, invoicing, reconciliation, risk management and stock control.

Transaction banks therefore have an opportunity to leverage innovation in payments solutions to drive value for their corporate customers. Helping corporates manage capital more efficiently to drive shareholder value will ultimately grow banks’ own bottom line – and help lead the adoption of immediate payments services across Europe, the US and indeed the world.

The retail world already largely functions online and in real-time, based mainly around cards but already in some countries with immediate payments solutions. Innovators who are making the best use of real-time payments are wresting ownership of the client relationship from banks and driving value in their own direction, disintermediating banks from the user experience of simply purchasing goods and services.

Witness how adeptly Amazon uses order, dispatch and delivery information to update – and remain in contact with – its customers from the moment they make a purchase. Thanks to regulatory, technological and behavioural drivers, immediate payments are now about to enter the corporate transaction space – with similar benefits available to both corporates and their banking partners.

The Faster Payments scheme

The UK’s Faster Payments (FP) scheme, initiated by the British government in 2008, reduces payment clearing times between different banks’ customer accounts from three working days to seconds. Currently, 11 banks and building societies are able to send and receive immediate payments under the scheme up to a transaction limit of £100,000.

However, there are plans to raise this limit – first to £250,000 and then to £1m, making it more attractive to corporates and also able to support the 70% of larger retail payments – such as house purchases – that currently go via the UK’s more expensive real time gross settlement (RTGS) system, the Clearing House Automated Payment System aka CHAPS.

To further speed the application, innovation and competition within immediate payments, the UK’s new Payments System Regulator (PSR), in cooperation with the Faster Payments Scheme Ltd (FPSL), is also opening up the Faster Payments scheme’s technology and infrastructure to new entrants – be they challenger banks or other payments services providers (PSPs) geared to exploit the value opportunity presented by immediate payments with the New Access Model. This model encourages technology providers such as ACI Worldwide to offer aggregator services (FP service bureaux), reducing barriers to entry for smaller banks and PSPs.

Meanwhile, the picture for immediate payments in Europe is somewhat different – but the opportunity for banks and their corporate customers also applies, particularly now that payments standards are being adopted. Certain European countries, such as Sweden and Poland, have already successfully adopted immediate payments initiatives with many more building or investigating their own schemes. The European Union (EU) is examining an immediate payments scheme, having stated publicly that ‘immediate payments is the next frontier’ and knowing that it will help to further standardise payments across the Union and drive economic growth.

The single European payment area (SEPA), which went live in August 2014, has already standardised basic payments protocols across the continent, in turn triggering certain multinational corporations (MNCs) to consolidate disparate systems and banking relationships. For instance, telecoms group Vodafone combined its 25 different European payment systems and relationships down to one, simplifying its previously complex payments network and driving significant value back into the business.

Now that the basic SEPA framework is in place, banks have the clear opportunity to adapt this framework towards compatibility with immediate payments and drive innovation and revenue, rather than simply comply with regulation.

How do Corporates Benefit from Immediate Payments?

Corporates stand to reap significant benefit from immediate payments, particularly when combined with the richer transaction data available using the now proven ISO 20022 standard. Chief financial officers (CFOs) trying to make treasury processes more strategic and efficient will leverage immediate payments to better manage their cash flow forecasting, and ultimately their supply chain risk.

Real-time notifications will include more data than simply payment information – they will include pay and receive updates, as well as notifications of financial events that can be linked back to the supply chain. Corporate treasurers will therefore be able to map their cash flow and financing operations with their suppliers’ and counterparties’ production lines – all in real-time – making cash flow easier to manage and more accurate, freeing up time and cash to be used more efficiently.

As a result of these real-time innovations, banks providing treasurers with access to timely integrated payments tools will enable them to drive shareholder value – and ultimately generate increased revenues from better integrated data with the corporates’ enterprise resource planning (ERP) systems.

How Should Banks Respond?

The good news for banks is that addressing changing expectations from their corporate customers doesn’t mean taking apart their existing payments infrastructure. Instead, they can keep their existing systems and invest in modern, agile tools that can wrap around these systems and that allow banks to develop new products and services without major replacement project costs.

Today, the UK’s Faster Payments infrastructure is paid for by the member high street banks. Soon, the 11 Faster Payments banks will have to compete with new entrants – perhaps more than 30 new banks and payments services providers are expected to start using the Faster Payments architecture.

Since 2012, when all the FP banks became capable of sending as well as receiving FPs, the leading UK banks began to recognise the true value of immediate payments to their retail customers, developing products and services of their own based around the Faster Payments infrastructure. With more competition entering the market – and with corporations set to increasingly demand immediate payments from their transaction banking partners – the time is now right for banks to seize this opportunity and lead the immediate payments revolution.

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