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Are ‘Smarter’ Payments More Important Than Real-Time?

  • By Andrew Deichler
  • Published: 10/14/2015

paybuttonSINGAPORE -- Real-time payments have been on corporate treasurers’ minds as of late, as there appears to be a global, industry-wide push for immediate account-to-account transfers. In a session on real-time payments Tuesday morning at Sibos, panelists attempted to answer exactly how fast is too fast when it comes to real-time.

The push for real-time is clearly evident in the United States, with the Federal Reserve and NACHA are working on their own new faster payments systems. Just last month, the Payments Innovation Alliance and NACHA released the whitepaper “Real Time in Real Life: The Impact of a Real-Time Payments System on its Users”, which sought to address the realities—both good and bad—of implementing a real-time payments system. While many benefits were clearly identified, the whitepaper also pointed out significant challenges, such as the need for businesses receiving payments to update their internal systems to allow real-time customer payments to post immediately, or to retroactively post payments effective as of the time/date stamp on the payment. This may require businesses to design new, non-batch based processes that enable their systems to process large numbers of individual transactions.

‘Smarter’ payments

Panel moderator Liz Oakes, associate director, management consulting, senior leader for payments, KPMG, asked what a move to real-time payments would mean for customer-bank relationships in the U.S. “You have corporates, you have individual needs—there’s a variety of different use cases,” she said. “But is it too fast? Is it too quick to move in the U.S.?

Ather Williams, head of global transaction services, Bank of America Merrill Lynch, responded that in the U.S. there is “a ton of infrastructure” already in place. “People have already gotten their heads around speed, and you’ve gotten NACHA next year going to a same-day settlement window. The question is, is that good enough? If you wanted to, you could push a payment over the Visa rails if you wanted to do that.”

Williams explained that he spends a large amount of his time working on B2B payments. “As a bank, we move over $1 trillion around the world, and with B2B, most of our clients talk to us about two things—interoperability and the fact that since the 1970s, about 19 real-time schemes have been launched and they’re all different,” he said. “Information’s different, clearing is different, how you access funds is different—so that’s all a challenge for them.”

Furthermore, it shouldn’t be enough that payments are simply faster, Williams continued. “In the U.S., we still have an abundance of checks, 70 percent of which are written by businesses,” he said. However, our clients on the AR side have reconciliation rates of 95-plus percent for paper payments. So if they get checks and paper invoices, because of OCR technology, they can reconcile 95 percent of those payments. For ACH, it’s less than 50 percent. So getting money before you can apply it is really not valuable. So you can make them faster; that’s great. But how do we make them smarter?”

24/7 availability?

When it comes to speeding up the payments process, another concern, Oakes noted, is whether corporates are going to need to be there 24/7. “Are they going to be able to deal with what’s hitting them, 24/7, or react to payments that are 24/7? I think that’s a really interesting question,” she said.

Oakes noted that it would behoove corporates if banks put layers in place so that they don’t need be available around the clock. “In the UK, there are large corporates that are pushing out transactions through Faster Payments and receiving payments. But they’ll say to a bank, you take in all of my transactions, and just give them to me later. Preferably in a file or a batch, because that’s how my systems work. So I’d like you to give me a file drop at 9:00 a.m. of all the inbound payments that came in overnight, because my ERP system is not up and running.”

Oakes asked Singapore-based Panelist Karin Flinspach, head of cash products, transaction banking with Standard Chartered, if this is an issue in her region. She responded that just because the payments system in Singapore is available 24/7, it doesn’t mean people need to use it 24/7. “But it’s essentially the same question as, ‘Do you want to have ATM operable, 24 hours, 7 days a week?’ The answer is an easy ‘Yes,’ but you might not actually go to the ATM all the time,” she said.

Flinspach added that Singapore has a variety of different stakeholders; some companies are doing their reconciliation at the end of the day, others do it the next day, and there are some companies that want real-time reconciliation. “So it might not be 24 hours, but it might be 16 hours a day,” she said. “And there are the consumers; you go out at 2 a.m., there are lots of people out there. This city really does not sleep. And they’re completing transactions. So I think it’s a reality; the challenges are very clear. But on the settlement side, there needs to be a challenge put to the regulators and the liquidity providers. If we’re going to have payments that are 24/7, we cannot have liquidity providers working from 8 a.m.-4 p.m. and only five days a week. The whole market has to move.”

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