Cash & Liquidity Management

Real-time payments in an increasingly connected world

Published: Dec 2019

Standard Chartered

“In a relatively short time frame, most of the world will have adopted real-time payment systems in one form or another, and they will come to dominate the way in which we all interact.”

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That’s the view held by Victor Penna, Head of Cash Management for Europe & Americas, and Global Head of Structured Solutions Development, Cash at Standard Chartered.

The adoption of real-time payment systems across the globe is creating a world in which many consumers, merchants and even financial institutions expect to pay businesses at the drop of a hat.

The concept of paying now is not new. After all, paying by cash is an immediate payment transaction, but it is the growth of real-time payment options that is building a new standard, certainly among consumers. This new standard is now driving change for traditional corporate payments.

So how is the real-time payment landscape changing, and what effect is it having on corporate payments and collections?

Growth and impact

“Real-time payments were born out of concerns over competition in the banking industry, and their growth can be explained due to the need to get the cost down for consumers,” says Penna. “If you do that, then you’ll encourage more people to use banking services. This is particularly the case in emerging markets such as India or parts of Africa or Asia, where it isn’t unusual for up to 50% of people to be unbanked.”

The arrival of real-time payments can have a profound effect on corporate payments and collections. To take an example, if a corporate dealing with lots of consumers moves to a payment system that is closer to real-time, the company will be less reliant on consumers having credit cards.

“The dominant model of e-commerce for the past 20 years has been Amazon, which allows consumers to pay for goods using a credit card,” explains Penna. “But in emerging markets, the use of credit cards is not that popular as they are primarily an instrument for people with money, such as the middle class.”

On the other hand, real-time payments allow businesses to reach down to the market and capture a much broader base of consumers. “If you are dealing with a market where 30-40% of the population is unbanked, then the credit card model won’t work for you,” Penna says.

He adds that these markets are seeing the rise of alternative payment instruments – “things like mobile money and peer-to-peer payment types like AliPay or WeChat Pay. By tapping into these alternative payment methods, businesses are now able to do business with these consumers.”

Winners and losers?

In a real-time payments world, Penna believes the main winners will be consumers and small businesses, simply because they will be able to interact and buy services from organisations in a much more efficient way. However, he is also of the opinion that service providers could also potentially be winners, along with banks.

“Real-time payments are giving rise to a world of micropayments,” he explains. “So rather than everything being about a large corporate selling to another large corporate, it can really be about a large corporate reaching a much bigger consumer base by selling higher quantities in much smaller amounts.”

The past 10-20 years have seen the remodelling of business and the end-to-end markets, due to the whole wave of technological change flowing through different industries. The losers in this space, therefore, will be the ones that fail to remake the way that they do business with their consumers. “It will all be about making the purchase of services online a frictionless experience, specifically through mobile apps, because this will result in a complete remaking of a lot of industries,” says Penna.

The road ahead for treasury

For Penna, the road ahead for real-time payments and treasury is certainly an exciting one, with most countries set to have a real-time payment system in the next decade. He adds, “With more than 50 systems either currently in operation or under development, I think pretty much the whole of Asia will be operating on a real-time payment basis within the next 12-18 months.”

Should Penna’s prediction come to pass, the road ahead for treasury will be a difficult one – but he believes the challenges can be overcome through education. “Treasurers need to reach out,” he says. “They need to speak to some of their more innovative and forward-thinking banks, not to mention some of the fintechs that are directly operating in this space, to get an understanding of just what is going on in the market.”

So when will real-time payments become the industry standard? “I don’t think anybody has the definitive answer, but the most important thing for treasurers right now is to educate themselves on the options available,” says Penna. “Banks also need to play a role in this, as well as building solutions that are relevant for clients. As their industries and business models evolve, they will need a completely different set of services.”

Real-time payments are here to stay, so the message is clear: fail to adapt to the sunny uplands of the instant and digital future, and it could be your business that is left out in the cold.

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