What is the impact of real time payments to the Corporate Treasurer?

January 16, 2020

by Thomas Knudsen Senior Manager

Email +44 (0)7595 850102

by Obi Odili Manager

Email +44 (0)7483 421918

What is the impact of real-time payments to the corporate treasurer?

In this blog series, we’re taking a closer look at some of the opportunities and challenges payment trends are creating for corporate treasurers. A number of these were discussed at our recent client forum including the topic of real-time payments.
As organisations increasingly use Faster Payments and SEPA instant payments, are we moving towards a real-time environment? This was the general consensus of our forum attendees, given the potential liquidity benefits of near real-time clearing of funds around the clock.

However before organisations can fully reap the benefits, there is still a challenge for treasurers. Do they really have the maturity of process and capability, both within their treasury and wider organisation, to handle the faster pace of settlements?

As every organisation is different, there is no single answer. But we’ve identified three major factors that would help you determine the process changes that may be required to take advantage of the real-time payments opportunity:

Payment irrevocability: We believe it’s important to have robust pre-remittance checks before a payment is released, particularly for businesses that operate in a global environment and are exposed to country risks. The pace of real-time payments means there may be very limited time available for you to stop a payment in the event that error or fraud is noticed. We understand from SWIFT that they are working on offering the ability to revoke payments, which might help alleviate those challenges.

Changes to business rules: With real-time payments, our view is that you need to re-determine business rules for your cash and liquidity operations. There’s no natural ‘end of day’ so you will need to define when to set your cash position for reporting and investments purposes – which can be quite tricky if you end up with a round-the clock flow in and out of your bank accounts. Some of the things that springs into our minds are: What cash buffer is acceptable if funds come in after the defined ‘end of day’? Should you allow payments to be made after the close of business hours and what are the controls in place to manage such issues?

Increased costs: Traditionally, banks generate income through float. With real-time payments, settlement cycles are completed intra-day and, as such, banks’ float income can be significantly reduced. We believe the banks will need to innovate their legacy systems to allow real-time online balances, AML screening and liquidity positions. These costs are likely to be recouped from you as a customer. We suggest you therefore take extra care to monitor the fees you are paying and address any significant increases with your bank.

In our opinion real-time payments can offer significant benefits to you, but there are key provisos that must be watched. We would be happy to share our insights on these developments and how they may apply to your organisation. Please get in touch with any questions you may have.

We will continue this blog series with a look at the changing bank connectivity puzzle for the treasurer.

by Thomas Knudsen Senior Manager

Email +44 (0)7595 850102

by Obi Odili Manager

Email +44 (0)7483 421918