Any increased use of real-time payments will likely mean a shift away from another type of payment, with an established set of procedures and, consequently, a different exposure to risk. As with any other project, making a business case means identifying the potential benefits of change and setting them against the predicted costs, before presenting an informed business case.
A decision to make increased use of real-time payments will probably require some internal systems changes, notably to be able to access real-time payments data. With IT support at a premium, it is important for treasury practitioners to start to prepare their business cases now.
For most organizations, the shift to real-time payments will be a gradual process. Initially, the potential benefits may only outweigh the costs for some specific use cases. For example, it may make sense to pay weekend staff by real-time payment, but not manage the whole payroll in the same way. Over time, the costs of implementation should reduce, gradually altering the balance in favor of change.
A gradual transition will also help to build business buy-in to the project, especially where there are long-established processes in place. Two things are particularly important: the ability to demonstrate clearly identifiable benefits from the early changes, and the opportunity to continually update processes as each activity is transitioned.
So, as part of the process of making a business case, treasury practitioners will be looking at existing individual practices to see whether real-time payments can make the whole process more efficient, particularly for disbursements.
So how do real-time payments compare?
- Vs. Wires? Real-time payments seem like a direct lower-cost replacement for wires. They share some of the same features – notably they both provide irrevocable, real-time gross settlement. However, real-time payments are always available, unlike wires which have strict cut-off times, although they are subject to a upper threshold limit (currently $1million in the US), making them unsuitable for many “traditional” treasury payments.
- Vs. Cards? It is also possible to view real-time payments as a direct replacement for payment cards. As with payment cards, real-time payments can be made any time and are not restricted to system operating hours. They are also both suitable for one-off payments. For beneficiaries, real-time payments have lower processing costs and there are no chargebacks. From the payer’s perspective, the potential advantages of real-time payments over cards are less clear, especially with respect to credit cards, where the payer loses access to short-term funding.
- Vs. ACH payments? In the short-term, at least, in many organizations real-time payments will be used alongside ACH credits, rather than as a replacement. Most ACH payments can be prepared in advance, making the real-time factor less important. In addition, because there is no real-time debit payment, companies will need to use Request for Payment alongside real-time payments if they want to replace ACH debits.
- Vs. Checks? A company that has decided to move from checks to electronic payments might also decide to rely solely on real-time payments, rather than build new processes for both ACH and real-time payments.
Making a clear evaluation of the potential benefits of increased use of real-time payments for particular uses alongside the costs of implementation and operation is a critical part of making the business case.
To learn more about how to make a business case for real-time payments, download the 2022 AFP Payments Guide: Making a Business Case for Real-time Payments, underwritten by MUFG.