The real-time world is coming – are you ready?

Real-time payments: a crucial tool for modernising the corporate treasury

Many companies now recognise the potential for their corporate treasury to be more than a simple support function. Data-based insights from the treasury department informs strategy across the broader business. As the complexity and velocity of the operating environment increases, demand for such insights often escalate. One vital data source growing in prominence is Real-Time Payment Networks (RTPNs). These networks offer rich and structured data that is available almost instantly.

The fastest RTPNs currently available operate on an ‘almost immediate’ timeframe, settling payments within minutes or seconds. While no solution currently processes payments with zero lag time – it will take time for the industry to develop them – companies across Asia–Pacific are increasingly keen to harness the significant benefits of RTPNs and incorporate them into their treasury transformation efforts.

Recent studies show that more than 118 billion Real-Time Payment (RTP) transactions took place worldwide in 2021. This marks a 64.5 per cent rise over the previous year, with the Asia–Pacific region leading the way. Transactions are projected to exceed 427 billion by 2026.

Global real-time transaction trends

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Source: Businesswire
 

Top markets for real-time transactions

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Source: Businesswire
 

Along with the obvious benefits of 24/7 connectivity that enables near-instantaneous payments, several additional factors are driving network adoption.

• The standardisation of RTPNs makes it cheaper and easier for corporates to adopt real-time payments, as they all speak a ‘common payments language’ by following the ISO 20022 standard. ISO 20022-compatible RTPNs across different countries can also be connected, bringing the industry closer to real-time cross-border payments.
  
• RTPNs carry rich transaction data, giving businesses more extensive and better structured transaction reference information, which enhances straight-through processing. For banks, this data facilitates efficient and rigorous anti-money-laundering checks.
  
• Simpler addressing services – e.g., sending a payment to a mobile phone or ID number instead of a long, complex account number – mitigate transaction risks.
  

Underpinning these advantages is the reality that treasuries’ operational systems are increasingly able to handle real-time data and transaction flows. This is partly due to compatibility with Application Programming Interfaces (APIs), allowing treasurers to receive transaction information on demand and lay the path to faster insights and streamlined operations.

What customers want

As more companies evaluate the benefits of real-time payments, early adapters of RPTNs have already gained numerous benefits. Three interesting themes stand out:

Real-time payments enhance the customer experience. A recent example is of a global insurer in Australia working with ANZ to overhaul and streamline its claims process. By adding a real-time payment capability, it can now process payouts as soon as the funds are requested to customers in their hour of need. An additional Application Programming Interface (API)-based notification system allows them to confirm whether a payment was successful.

Real-time payments facilitate working capital management. Unlike traditional transfer methods that may require two or more days to process, RTPNs are impervious to standard cut-off times and allow much-needed funds to reach a payee’s account within minutes. They remove the need to send a payroll file on Friday for employees to receive salaries the following Monday. Conversely, businesses can also receive funds in real time – replacing risk-prone paper-based ‘cash on delivery’ in retail settings – accompanied by richer data enabling straight-through reconciliation. In this way, truly just-in-time payments can help treasuries better manage their liquidity needs and reduce overall borrowing costs. The ability to process payments and be paid on time confers huge advantages for both buyers and suppliers.

Greatest challenges to business profitability

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Source: Atradius

Real-time payments enable business continuity. Imagine a scenario where a satellite office is in urgent need of funds. An always-on RTPN enables the corporate head office to send funds to any of its branches without payment cut-off time limitations, thus ensuring business carries on uninterrupted. In an increasingly uncertain global business environment affected by the pandemic and geopolitical tensions – which engender market volatility and supply chain disruptions – companies are keen to seek out payment networks that are not only robust, but also can be accessed any time, guarantee settlement of funds in seconds, and deliver instant transaction confirmation. 

Governments galvanising growth

Even as businesses warm up to the technology, another key factor driving interest in real-time payments is regulatory support and investments by governments across Asia–Pacific keen to encourage adoption.

In 2018, the Reserve Bank of Australia launched the country’s New Payments Platform (NPP), following a strategic review that identified several gaps in the country’s retail payments system. By October 2021, NPP was handling nearly three million transactions per day. In Singapore, over 80 per cent of consumers and businesses are connected to the PayNow network. Encouraged by its success, the monetary authorities of Indonesia, Thailand, Malaysia and India are now following Singapore’s example.

For most regulators, setting up a domestic RTPN is the first step towards a faster and more flexible domestic payment system that can be continuously enhanced by ongoing innovation.

Connecting these networks across borders and time zones is also a priority for the global financial industry. The G20 has developed a five-year roadmap for global cross-border payments, with specific targets for overcoming existing challenges.

Project Nexus is a joint initiative by the Bank for International Settlements and various central banks that aims to connect domestic RTPNs around the world. Launched in 2021 with a linkage between Singapore’s PayNow and Thailand’s PromptPay, more connections are planned.

The Monetary Authority of Singapore – which has taken a leading role in moving RTPNs beyond domestic platforms – is especially keen to establish more linkages with other major markets in the region, with connections to Malaysia and India in the works.

These initiatives show interoperability across businesses and geographies is within reach and, when deployed at scale, can benefit companies across a range of industries. Until the capability is available, treasuries may want to consider what cross-border real-time payments will mean to their business and prepare accordingly.

The road to real-time payments

While the benefits of real-time payments are myriad, migrating to such a system can be a challenging exercise. Among the main hurdles companies should focus on navigating are:

System Readiness. Firms looking to adopt real-time payments need to ensure their treasury and finance systems have the required technical capabilities, such as the ability to adjust to a common messaging standard like ISO 20022 to send payment instructions. Banks like ANZ are well-placed to assist companies with ensuring their systems are ready for RTPNs.

Using different payment systems. While Australia’s NPP is now at approximately 90 per cent reach, corporate treasuries must continue to use traditional payment systems to serve non-NPP accounts. However, global banks like ANZ can help clients by routing NPP payments to non-NPP accounts on the treasury’s behalf.

‘Always on’ liquidity management. Real-time payments can be a double-edged sword in that liquidity management becomes an ‘always on’ process. Companies need to consider how to adjust their business-as-usual practices to allow for payments to flow in and out all the time. This means adapting their accounts payable and accounts receivable policies, as well as treasury back-office operations, to allow for payment flows outside working hours and on weekends.

For accounts payable, the key is to achieve just-in-time payments, whilst avoiding unexpected fund outflows. This means that the cash flow position will change continuously. Accordingly, companies must alter their data feeds and cash forecasting models, as well as reconsider when to set the cash position for reporting and investment purposes.

Although this can cause friction in the initial stages of adoption, companies report increased efficiencies once the migration is complete. It also positions them to eventually adopt cross-border real-time payments and move towards just-in-time treasury, which can provide useful real-time insights.

From complexity to opportunity

Companies that move to adopt real-time payments soon come to recognise the long-term benefits far outweigh the initial short-term challenges. They create value by enhancing their customers’ experience, improving operational efficiencies, and increasing their operational resilience. At times, they have been the first in their industry to pioneer these innovations, as in the case of the global insurer.

With widening adoption of real-time payments, customers increasingly expect ‘seamless’ and ‘real-time’ payments as a standard offering. Sooner or later, most companies will need to start catering to these preferences.

Additionally, as payment platforms continue to evolve and improve over time – aided by governments and monetary authorities invested in maximising domestic adoption and growing networks – these companies will encourage others to focus on the many growth opportunities and synergies afforded by adopting real-time payments, and make the switch.

From there, it would be but a small step to a future where real-time payments – both domestic and global – are the new normal for corporate treasuries in the Asia–Pacific region and around the world.