Instant payments: innovations inbound for corporates

Over the past five years instant payment schemes, otherwise known as real-time or faster payment schemes, have rapidly developed across the world – catching the attention of banks, consumers and companies along the way. This trend is set to continue.

These schemes, which facilitate the transfer of money within seconds, can be a transformative proposition for corporates. Sending funds instantly removes cash-flow latency, improves the customer experience, and brings the industry one step closer to achieving a real-time treasury set-up.

But the journey is just beginning. Instant payments are relatively new on the market, with infrastructure and product features still being developed. While corporates have already seen a number of benefits, these are set to expand further as new complementary innovations, such as application programming interfaces (API) and request to pay, become more widespread.

Instant benefits

Real-time or instant payments are proliferating globally as regulators and central banks seek to reduce friction in payment processes and enhance the customer experience. As of September 2019, 54 countries have activated real-time payment systems – each developing the systems according to their own needs.

But how can the various instant payment schemes benefit corporates? Cash-flow latency of two or more days – the time lag between the buyer making a payment and the seller being able to put the funds to use – is no longer acceptable within modern business models. For one, it can prove expensive. In order to reduce waiting times, the client’s chosen payment method usually provides the seller with some security that they will receive the promised funds, although this comes at a cost to compensate for the underlying risk. By removing the delay altogether, instant payments can help to alleviate this cost and others associated with a corporate transaction.

Instant payments also bring various benefits to a wide range of specific corporate payment scenarios. For instance they allow companies to initiate liability payments at the exact moment they are due, without concerns about weekends or bank holidays, meaning that liquidity can be better put to use elsewhere.

Leveraging instant payments

There are already numerous ways in which instant payments are being leveraged in the corporate world.

For example, corporates regularly need to book spare capacity at the last-minute in order to fulfil any unexpected obligations. For a cargo company to reserve a space within a container or for a manufacturer to reserve machine capacity, full or partial payment will be required at the time of booking. Instant payments enable corporates to transfer funds immediately, which allows capacity to be booked even closer to when it is required.

Looking forward, instant payments could also be used in conjunction with smart contracts – a contract stored on a distributed ledger that automatically executes payment processing when specific conditions are met (although this potential is best addressed in a separate article). With instant payments, once a company verifies that it has received a shipment of goods, the contract would automatically trigger the payment that would arrive instantly in the supplier’s account. In future, this could potentially further accelerate the transaction and reduce the likelihood of payment processing service errors.

Innovating instant payments

Further benefits can be unlocked by combining instant payments and API technology. These standardised interfaces can be used to ensure safe, real-time connectivity and interactive collaboration between different entities.

An API can facilitate an interactive relationship between an online marketplace and a bank. For example, a retail customer might decide to purchase a new t-shirt from an online merchant. As the customer pays upfront and, with the instant payment reaching the merchant’s account within seconds, the t-shirt is dispatched almost immediately. Once the t-shirt arrives the customer might decide that they do not like it, choosing instead to return it to the merchant. The returned goods trigger a series of events – enabled through APIs and instant payments – that ensures the customer swiftly receives a refund for the purchase

By integrating an API solution such as this directly into their own business processes, corporates can interact with their bank in real time, 24/7/365 – without downtime or cut-off times. The bank, in turn, can offer a better service to clients, improving liquidity and potentially gaining a competitive advantage over peers.

What’s next

Though instant payment schemes are still developing, the direction for the payment industry is clear. Future trends like request to pay, a solution that empowers corporates to instantly send the payer a payment request, demonstrate a clear and continued development towards easier and more convenient payment solutions. This kind of process, which can be carried out via open banking channels or through dedicated inter-bank schemes, will continue to drive market adoption of instant payments solutions. Most importantly, it will unlock further benefits for corporates: reducing transaction fees, ridding businesses of long processing periods and eliminating the associated risk of non-payment.

Michael Knetsch is director, business product expert – payments, Deutsche Bank

Related reading