Real-time payments forcing transaction flow rethink

Real-time payment systems can make a corporate treasurer's life a lot easier. They reduce risk, improve efficiency and generally make it simpler for suppliers and buyers to do business. 

However, they are also disruptive, forcing a rethink of treasury practices. And the banks that service such chains face their own set of challenges.

“The roll-out of various forms of instant payments, along with the explosion of e-commerce channels, is enabling companies to explore the digitization of their distribution channels," says Suman Chaki, Asia-Pacific head of corporate cash management at Deutsche Bank. "In many cases, this could have far-reaching effects on their traditional business models.”

That's because banks and corporates are finding that the dealer-distributor model does not work in this new environment. Payments can be made directly from the end distributor to the primary manufacturer – often the largest corporate in the chain. 

This removes the need for the distributor in the middle of the chain, speeding up the process by establishing a direct link. A transaction that might have taken three days could be reduced to a matter of hours.

The move to real-time is having an impact on the traditional flow of goods. Demand can be met far more quickly, as soon as payment is received. Companies can safely wait until they have the funds in their account before releasing the next batch of product, knowing that the delay will be minimal.

That has other benefits, too, such as removing some of the risk traditionally attached to working with new, unfamiliar buyers. If funds can be booked in near real-time, a supplier no longer needs to accept – or pay a bank to mitigate – the risk of non-payment.

It adds up to a more efficient process. 

“Besides enabling broadening and deepening of client penetration, these new models will significantly improve the efficiency of the value chain, enhance customer service levels, reduce financial and credit risks in the system, and reduce working capital requirements," says Chaki. 

"Instant payments and the launch of various direct debit solutions across different markets are going to be key enablers for these significant changes.”

The transformation is being felt most strongly in the e-commerce space. Chaki says that B2C businesses – often known for their quick turnaround and 24/7 accessibility – are doing the most to expand the expectations of the whole market. 

As a result, B2B businesses are re-examining their traditional business models, which in many industries are heavily dominated by dealer-distributor networks. It might see them create a hybrid of the two approaches, or B2B2C.

"Some are exploring B2B2C distribution models for certain lines of business to reap the benefits brought by e-commerce and various payment modes, including instant payments,” adds Chaki.

Not for the first time, the upheaval of traditional business practices is most pronounced in Asia. And much of the encouragement to move towards digitization is coming from the regulatory level. Singapore, for instance, has made clear its goal of embracing digital payments – largely influenced by the adoption levels seen in China, where consumer payments can often be made by swiping a QR code.

“In APAC, almost every regulator has a blueprint for digitizing their payment systems to unlock the value that new-age business models can bring to the market," says Chaki.

For banks, the challenge is to stay on top of developments and ensure they are investing enough in their back-end and client-facing systems. After all, the onus is on them, not their clients, to grapple with the intricacies of payment processing and FX.

Bringing systems up to date should form part of a bank's general client care, says Ashutosh Kumar, Standard Chartered's global head of 'Banking the ecosystem', a strategy that the bank launched last year to facilitate trade across Africa, Asia and the Middle East. 

"Clients do not need to know that the various systems look different inside and across banks for them to process their transactions,” he says.

However, for this evolution to take root, corporate treasurers also have a crucial role to play in passing on intelligence about their own clients' needs. 

“Treasurers are playing a leading role in the evolution of the business," says Stefan Leijdekkers, head of regional corporate sales, Asia, at Bank of America Merrill Lynch. "They are seeing first hand now how suppliers want to be paid. 

"They need to explain these changes to their banks and help to inform them how they need their business to work now.”

For the banks, that is likely to throw up continual challenges that stretch well beyond the payment systems themselves. With funds moving directly and instantly, batch clearing is becoming obsolete. That means liquidity management also needs a rethink.

“With the old batch-clearing method, it is possible to see what’s in a batch when it comes in and when it goes out," says Leijdekkers. "With real-time payments, this predictability is lost. 

"There is a need to become more nimble in the approach towards liquidity management. Fully automated liquidity management processes are becoming essential.”