Are instant payments an industry game changer? Treasury Today and BNP Paribas uncovered the benefits in a recent webinar, analysing the features of instant payment systems and exploring some of the more interesting corporate use cases.
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Francis De Roeck
Head of SEPA offering
Payments are at the heart of the transformation happening in financial services. Facilitating this is the proliferation of instant payment systems around the world. In Europe, for example, such systems are in use in many of the non-eurozone countries, including the UK, Denmark and Sweden. And within the eurozone, there is SEPA Instant Credit Transfer (SCT Inst), which went live late last year.
For individuals, the value of being able to send payments to beneficiaries at any time, and in less than ten seconds, is clear. Yet for corporate treasurers, the use cases for instant payments are not quite as obvious. However, Francis De Roeck, Head of SEPA offering at BNP Paribas, believes that there is a “hidden dimension to instant payments” that can give treasurers across all industries the chance to “redefine the payments and collections process in their businesses to create immense value”.
Payment use cases
One of the most powerful aspects of instant payments is the fact that payments are settled in real-time. In some industries, this can be revolutionary, enabling the business to offer a much-improved customer experience, says De Roeck. “For example, insurance companies can pay out claims instantly,” he says. “Companies can also quickly and easily offer refunds to unsatisfied clients.”
Internally, the speed of instant payment schemes means that processes can be optimised. Most notably, supplier payments can be synchronised with the production cycle. Payments will no longer be a blocking factor in the supply chain and as a result, just-in-time delivery and payment become a reality, says De Roeck.
Elsewhere, the fact that instant payment schemes are always on means that treasurers can be in full control of when they make payments. “Because treasurers no longer need to factor in cut-off times, weekends and bank holidays, corporates can hold onto their liquidity until the last moment,” explains De Roeck. “This streamlines the process for recurring payments substantially and even enables corporates to generate alpha by holding onto their surplus cash a little longer.”
Treasurers can also generate value from instant payment schemes on the collections side of the equation. For example, De Roeck notes that it can reduce the credit risk and the risk associated with handling cash when companies accept payment-on-delivery. “This also increases customer satisfaction as clients will no longer need to pay anything up front because payment can be guaranteed on delivery,” he adds. “Presently, this use case is most impactful for B2C companies, but over time it could replace SEPA Direct Debits for B2B deliveries and payments.”
Additionally, instant payments can transform the checkout experience for customers in both physical and eCommerce stores. “These payment schemes can be very disruptive here, allowing corporates to think about ways to make the payment processes frictionless and even invisible,” says De Roeck.
Despite the clear benefits of instant payments demonstrated by these use cases, two polls of the audience during the webinar found that, on the whole, treasurers are yet be convinced. “The results from the two polls conducted are not that conclusive as far as the need for instant payments is concerned right now,” comments De Roeck. “However, we might assume that the whole society is moving, via different use cases, to the application and the need for instant payments.”
In the not too distant future, he suggests that we may witness SCT Inst becoming ‘the new norm’, whereby regular payments transacted via a variety of instruments will evolve to instant payments for a range of use cases.
And to that point, De Roeck recommends that corporates start thinking about how the notion of instant payments can impact their operations today. “Even if you are not ready to start using the schemes, your customers will be,” he warns. “As a result, corporates may start receiving payments at unfamiliar times. This will require their processes to be rethought and reengineered.”
Instant payment features
Instant payment rails operate 24/7/365.
Funds are made available to the beneficiary in real-time (less than ten seconds).
Transactions generate real-time notifications for each payment execution.
Instant payments are irrevocable.
Most instant payment schemes operate payment limits. These will increase moving forward. Some countries/banks have already removed limits.
If you missed the webinar and would like to hear the full recording:
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