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Business Benefits of Real Time Payment Services

By Mike Faden

As real-time payment services spread to more countries, including the U.S., what are the potential benefits for businesses? In addition to enabling companies to get paid faster, these systems can provide a platform for services that improve cash visibility and forecasting while helping to manage risk, according to the 2017 Transaction Banking Survey from research firm Ovum.1 Some experts also say that real time payment services may help businesses trim costs by reducing their reliance on checks and more-expensive electronic payment services such as wire transfers.2

Roughly 25 real-time payment programs are already live worldwide and another 11 are under development, according to a 2017 study by financial technology provider FIS.3 In the U.S., The Clearing House launched the first national real-time payments service in November 2017; a Federal Reserve task force has set a goal of ubiquitous availability for real-time payments by 2020.4

 

What are Real-Time Payment Services?

 

Real-time payment services, also known as faster or immediate payments services, generally include the following characteristics, experts say:5

 

  • Funds are debited from the payer's account and made available in the recipient's account within seconds.
  • Payment status and confirmation are also available immediately.
  • Payments can be made 24 hours a day, 365 days a year.
  • Many systems are based on the ISO 20022 standard, which facilitates the exchange of payment-related information that can simplify reconciliation and enable straight-through processing.

Business Challenges Addressed by Real-Time Payments

 

A 2017 global survey by Ovum found that gaining access to real-time payments is a top priority for corporate treasurers and other finance professionals. Of corporate treasurers who were in markets without real-time payments infrastructure, 64 percent identified real time payments as one of the top three capabilities they'd most like their banking providers to deliver.6

 

Real-time payment services could address some of the key challenges among the surveyed businesses, according to the report, including difficulty in obtaining up-to-date views of cash positions and having to make decisions based on data that's incomplete or not up-to-date.7 Experts say real time payments could also address foreign exchange risk, another top problem identified by corporations, because companies can use the spot rate to exchange money at the time of payment instead of having to wait days for the payment to complete.8

 

Overall, most banks that also were surveyed for the Ovum report said the introduction of real-time payments can improve the services offered to customers in a wide range of areas, including trade finance, foreign exchange, cash visibility and forecasting, liquidity management, and regulatory reporting. However, the report also notes that real-time payments alone do not address these corporate needs: the benefits are delivered by services built on top of real-time infrastructure. Many banks will have to upgrade or even replace existing systems in order to deliver those services, according to the report.9

 

Cutting the Cost of Payment Services

 

Real-time payments are likely to help businesses trim expenses by reducing the use of checks and more-expensive payment methods, according to American Banker.10 The publication noted that many businesses still use checks for bookkeeping purposes, and for the transparency that comes with physically attaching a check to an invoice. However, real-time payment services will enable companies to move away from checks and modernize their accounts receivable processes, because they provide the information required to link invoices with payments in real time. In addition, experts say businesses that currently use wire services to ensure their payments complete rapidly may jump at the opportunity to use a potentially lower-cost and more-efficient method.11

 

Real-time Information

 

The additional information provided by real-time payment services can reduce the effort involved in investigating exceptions or checking whether payments have completed, according to one major bank.12 That's because such real-time payment systems support two-way communications between payer and payee, in contrast to many current payment systems that only support one-way communication from payer to payee. A typical B2B payments scenario described by the bank: You are low on inventory, and you pay a supplier right away to release goods. Did your vendor receive the funds? With the two-way communications provided by a real-time payment system, the payer would be immediately notified when the funds reach the vendor's bank account.13

 

In fact, a survey by global financial messaging provider SWIFT and EuroFinance suggested that real-time payment tracking is a higher priority than real-time payments.14 In the survey, 64 percent of businesses listed real-time payment tracking among their top three priorities for improving cross-border payments, compared with 42 percent that listed the ability to make instant cross-border payments. SWIFT recently introduced a cross-border payments tracker.15

 

The

Takeaway:

Real-time payment services have the potential to deliver a wide range of business benefits, in addition to letting companies pay and get paid more quickly. The benefits include better cash visibility and forecasting as well as foreign exchange risk management. Real-time payment services may also help cut cost by reducing the use of checks and more-expensive electronic payment services.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.

Sources

1. 2017 Transaction Banking Survey, Ovum; https://ovum.informa.com/resources/product-content/2017-transaction-banking-survey
2. “The real-world-impact of real-time payments,” American Banker; https://www.americanbanker.com/slideshow/the-real-world-impact-of-real-time-payments
3. “New FIS Report Finds Growing Adoption of Real-time Payment Programs Worldwide,” FIS; https://www.fisglobal.com/about-us/media-room/news-releases/2017/new-fis-report-finds-growing-adoption-of-real-time-payment-programs-worldwide
4. Faster Payments Task Force, Final Report Part Two: A Call to Action, Federal Reserve Faster Payments Task Force; https://fasterpaymentstaskforce.org/wp-content/uploads/faster- payments-task- force-final- report-part- two.pdf
5. Executive Guide to Immediate/Real-time Payments, Accenture/ACI Worldwide; https://www.aciworldwide.com/-/media/files/collateral/trends/executive-guide-to-immediate-payments-tl.pdf
6. 2017 Transaction Banking Survey, Ovum; https://ovum.informa.com/resources/product-content/2017-transaction-banking-survey
7. Ibid.
8. “Corporates see real-time payments value, will 2018 see this realized?,” Temenos blog; https://www.temenos.com/en/blog/2017/december/corporates-see-real-time-payments-value-will-2018-see-this-realized/
9. 2017 Transaction Banking Survey, Ovum; https://ovum.informa.com/resources/product-content/2017-transaction-banking-survey
10. “The real-world-impact of real-time payments,” American Banker; https://www.americanbanker.com/slideshow/the-real-world-impact-of-real-time-payments
11. Ibid.
12. The Real Value of Real-Time Payments, J.P. Morgan Chase; https://www.jpmorgan.com/country/US/EN/cib/treasury-services/real-value-real-time-payments
13. Ibid.
14. The future of payments: a corporate treasury perspective, SWIFT and EuroFinance; https://www.swift.com/resource/future-payments-corporate-treasury-perspective
15. Ibid.

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