Our annual transaction banking survey with Ovum reveals that businesses are clamoring for real-time payments (RTP) systems. 80% of corporates say RTP has improved risk management, 77% say it has improved liquidity management, and 76% say it has improved cash visibility. Yet RTP still isn't widely available to banks and their corporate customers. Does RTP have to be regulation lead? 2018 is likely to be the year when banks consider the additional revenue streams that RTP opens up, particularly from a corporate banking perspective, perhaps regulation isn't the driver anymore? writes Daryl Proctor.
Video streaming, same-day delivery, email, mobile phones, texting, online shopping, just-in-time manufacturing, instant payment apps – I could go on, but you get the picture. We live in a culture where we get what we want when we want it – which is now. It's the new normal for customer service. And retail banking customers now expect it.
Although over 35 countries have adopted some form of real-time payments (RTP) scheme, many of these are retail models, driven by regulation rather than purely customer demand. When reviewing references to the business case and opportunities for RTP, very rarely are corporates considered. Yet companies are crying out for it. Why?
Supporting data access and availability
Our recent survey with Ovum (2017 Transaction Banking Survey: Challenges & Imperatives of Real-Time Payments and Liquidity) highlights that, at a global level, the most-valued services corporates would like their banks to provide are in areas related to data access and availability. Real time payments (RTP) is the second biggest overall top 3 priority, cited by 49% of corporates without RTP. But RTP and data access and availability goes hand in hand. As a result of the digitization of the supply chain, real-time payments (RTP) enables corporates to collect and analyze financial transaction data in real-time, derive financial insights immediately, and drastically reduce the effort involved in reconciliation.
Real-time payments also means a greater level of real-time data. Deployment of ISO20022, opens up the possibilities for data handling and the marketing of consumer analytics. This is because reporting can be broken down into payment status, account balances and transaction details in both intra-day and end-of-day situations. ISO20022 not only has a rich set of data definitions, but it is supported by sophisticated toolsets and utilities to manage them that greatly simplify definition of new message sets and rules. In turn, this makes ISO20022-based systems easier and less costly to maintain than ISO3583-based systems (which don't have a similar set of tools).
Banks offering RTP will also have an advantage in extracting data. The technological upgrade required by RTP will put banks in a better position to offer improved data management and analysis, such as meeting demand for real-time cash forecasting and scenario-based forecasting – numbers two and three on the corporate wish-list in our survey.
But the real value from a data perspective is in the flexibility and maintainability of ISO20022. With RTP banks can increase focus on their customers cross-border business, gaining a greater understanding through analytics to design and offer valuable services to customers as well as providing insight to support their business such as information on liquidity. Corporates are now realizing this; our survey revealed that those citing concern with accessing bank data for decision grew from 1% in 2016 to 13% in 2017.
RTP can also support last minute payroll services, disaster payments, multi bank cash concentration, tax payments and many other value added services. In essence, it can enhance the revenue lever, by not only driving a customer to use its services concentrated across multiple bank, but also in giving the treasurer that much sort after "real time cash position".
RTP – a virtual accounts enabler
So you the business case for RTP stretches well beyond payments. However, my experience is that, historically, when banks build the business case they tend to focus only on the payments element – the costs of investing in something that they do already, only to make it faster. This is way too narrow.
This is where it gets interesting. According to our survey, 53% of respondents named virtual accounts as one of the top three developments in the coming year, and these require RTP to be effective. The growth in demand for RTP, particularly in cross-border trade, also opens up demand for less risky foreign exchange. With RTP, companies can use the spot rate today rather than risk a rate change in a few days' time when the payment is completed.
It's not surprising that 64% of those surveyed put RTP at the top of their wish-list for the next 12 months. So if customers want it, why aren't banks delivering it?
Offering real-time payments services usually requires alterations to a payments system, an overhaul that, was historically, avoided by banks due to costing fears. However, a real-time centralized payments system is considered the least expensive method of processing payments per transaction, and offers similarly compelling long-term monetary benefits for banks by breaking payment silos. Investment in modern infrastructure has clear advantages outside of providing an efficient, cost effective level of service, including significantly lower risk of outages and failed payments.
There is also the concern around increased financial crime relating to RTP. This was further reinforced by our survey which revealed that 69% said that KYC risks are increased (rising to 80% among Tier 1 banks). Concern over AML is greatest in markets with real-time payments infrastructure, and 85% of corporate treasurers would like to see their lead banking partners do more to support them here. Stats like these are raising concerns with RTP but with truly real-time fraud and AML solutions available in the market, these issues can be addressed, allowing banks to realize the true value of RTP.
Independent real-time payments collaboration in 2018
Until recently, RTP it has been regulation driven. However, in November BNY Mellon and U.S. Bank initiated real-time payments, two years ahead of the Federal Reserves real-time payments deadline. I believe that in 2018 we may start to see independent real-time payments collaboration emerge, even without regulation.
Banks in those countries without RTP regulation are starting to realize that RTP will split the banks – into those that do and those that don't. Those that don't face wholesale customer desertion as RTP becomes a must-have for corporates. Four-out-of-five respondents to our survey said they had considered changing bank in order to access RTP – up from one-in-two last year in our survey. And with stats showing reduced failed payments savings gained through real-time transactions are estimated to be between $612 million and $1.7 billion in 2020. Banks in 2018 cannot risk waiting for regulation as the catalyst for RTP adoption, the stats speak for themselves, RTP should be a 2018 priority regardless of regulation.