Business payments go real-time

Instant payments have become the expected norm for retail customers, but corporates have yet to gain access to the same benefits. When do you expect to see this change?

I believe change is finally on the horizon and the real-time payments revolution will soon begin to benefit businesses of all sizes. Firstly, ISO 20022 is set to vastly improve the data exchange, reducing the requirement for manual review, creating higher straight-through-processing rates and fewer delays.

However, arguably more significant is that most countries are developing or have already launched new schemes to provide real-time payments: Faster Payments in the UK, SEPA Instant in the Eurozone, FedNow in the US (from 2023) and other programmes and solutions in India, Australia, Singapore, and more. 

Those schemes that have yet to launch will be live within the next few years, meaning most banks and their customers will soon be addressable over these instant schemes. That will be revolutionary, a real paradigm shift that will leave us wondering what took so long and how we put up with slow, high-cost payments for so long. The significance of the change we will see in the next few years should not be underestimated. 

Why isn’t this game-changer for businesses large and small already being delivered? 

Whilst many changes are happening and more are in the pipeline, there are still some significant roadblocks. Much still needs to change before real-time payments become more widely adopted for corporate use, especially for cross-border business. For many banks, the delay is due to the inherent legacy systems on which their operations are built.

Some institutions are already leading the way in the revolution, and those are going to be the winners. But many of the others need a certain amount of re-engineering so they can take full advantage of instant payments for corporates. From the connections between banks’ payments engines and local schemes and intelligent routing to get payments to the lowest cost and fastest payment rail applicable, to the all-important KYC and AML processes. 

That is where some significant challenges arise.

There are often issues connecting the front-end applications delivered by banks, what the customer sees, through to the instant payment schemes themselves. If a bank has recently signed up to Faster Payments, is the corporate banking ledger yet piped through to Faster Payments? And does intelligent routing exist to decide which payments go to Faster Payments, which go to CHAPS, which go to BACS? 

There are other challenges too. Managing liquidity by bank treasuries outside of normal working hours. The dreaded payment repair queue, where an issue in a payment prohibits straight-through-processing. These issues diminish the benefits of instant payments. There’s also sanctions screening. Most banks have sanctions screening engines that cannot look into payments processed via the instant payment schemes. Instead, the screening engine looks at the SWIFT message traffic. But instant payment schemes often don't integrate with banks’ SWIFT gateways.

What can banks do to fast-track the re-engineering so that their corporate customers can benefit from instant payments as soon as possible?

Banks need to make instant payments for corporates – large and small - a top priority. But for some institutions – particularly the smaller, local banks – the cost and upheaval of re-engineering their underlying systems is too big a challenge. Therefore, it is crucial that they find a different route to achieving the same end goal of helping corporates benefit from instant payments. 

Working with alternative players that are able to help banks service the needs of their corporate clients could be the answer. Partnering with new cloud native specialist banks means financial institutions can use the specialist’s infrastructure to join instant schemes that will deliver real-time payments for their corporates without investing in building a solution in house. All the essential pipes and plumbing, connecting to the right payment rails and integrating the necessary sanctions screening can be part of the solution too.

The idea of collaboration to fix internal challenges is already gaining considerable ground. Research we conducted last year amongst C-suite bank executives across Europe found that half already have partnerships or planned to work with an external provider within the next month; another third have partnerships on the agenda for the next 12 months. 

The niche expertise of specialist banks as well as the commitment to building the payment rails for instant payments have a real appeal. It means banks can offer corporates access to affordable, friction-free, real-time cross-border payments that will bolster international economies at a time when they are in great need, as we recover from the economic impact of COVID-19. 

Businesses need all the help they can get to bounce back from the impact of COVID-19, but how important is the part played by real-time payments?

The real-time payment revolution is a crucial piece in the post-COVID recovery jigsaw. 

Corporates today always have immense funds tied up in the payments system. Vast sums of cash inaccessible, unusable. For large companies that adversely impacts working capital metrics. For smaller companies, the issue is much more critical. A delay in cash flow can have far more significant consequences. 

Imagine how the payments landscape and business potential will change as real-time technology is applied. Suddenly a batch of corporate payments gets parcelled out over the payment schemes to run disbursement in the fastest and most cost-effective way. Balances in the payment system effectively drop to zero, cash flow is maximised; businesses have the liquidity they need to flourish. Absolutely game-changing in the best market, but when economies and businesses are recovering from the biggest challenge in more than a decade, it will be invaluable.

About Jon Levine

Jon Levine is Co-Head of Institutional Banking at Banking Circle, based in London. Having joined Banking Circle in January 2021 he brings a wealth of banking knowledge and experience that is invaluable in developing the Institutional Banking area of the business. Prior to joining Banking Circle, Jon spent 11 years at Standard Chartered where he worked at the Bank’s London, Dubai and Singapore offices.  His most recent StanChart role was as Managing Director responsible for StanChart’s UK Banks, Broker-Dealers & Fintech coverage. Earlier roles at StanChart included Public Sector & Development Organisations coverage across EMEA and Debt Capital Markets roles.   

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