Ed Adshead-Grant, General Manager, Payments, Bottomline Technologies
The race to process transactions quickly, securely and safely in real-time in the app economy is turbo-charging the need for faster payments. Regulators, banks and fintech providers are pushing hard to make sure payment infrastructures can underpin rising digital demands – but what does this trend mean for the corporate treasurer?
A growing number of countries already have real-time payment schemes, mainly for consumers, but some major developments have taken place over the past year that are raising the level of interest among corporate treasurers.
In Europe, since November 2017, The European Payment Council’s SEPA Instant Credit Transfer Scheme has enabled pan-European credit transfers of up to €15,000 in less than ten seconds, with availability 24/7 and 365 days per year.
That same month also marked a landmark moment in U.S. payments. The Clearing House, which processes $2 Trillion of transactions every day through CHIPs for high-value US Dollar payments, and the Electronic Payments Network for bulk payments, introduced the first major payments infrastructure system in the U.S. in 40 years. Designed and built through collaboration among its 25 owner banks, The Clearing House aims to open access to its new Real Time Payments system to every financial institution in the U.S. by 2020, with an initial transaction limit of $25k.
As other markets play catch-up, the UK’s Faster Payments Service (FPS) has enjoyed a decade of existence to build its trust and ubiquity of use. It had already expanded its relevance to users beyond the traditional banks, by giving FCA-regulated, non-bank payment service providers (PSPs) direct access to settlement accounts at the Bank of England. This opened up the possibility for a whole new generation of innovative PSPs to offer real-time payment services on an even footing with the biggest names in banking. Additionally, the FPS announced last year the planned refresh of its infrastructure as the underpinning for all Open Banking and New Payment Architecture projects in the UK.
A growing number of consumer-facing corporates are using Faster Payments for B2C payments, such as customer refunds, insurance claim pay-outs and consumer finance disbursements. In fact, Bottomline Technologies’ 2018 UK Business Payments Barometer revealed that 56% of businesses have already adopted Faster Payments, an increase of 12% in a year. In addition, businesses are starting to consider how best to harness the benefits of Faster Payments to make and receive payments in a B2B environment.
In comparison to the significantly lower real-time payment transaction limits in other countries, the UK’s Faster Payments Service limit for Faster Payments is currently £250k with ongoing discussions to raise this limit further, possibly towards £1 million per transaction. The banks that support FPS processing, generally impose significantly lower limits on their corporate and consumer customers to control the power of the UK payment rails available.
If real-time transaction limits are eventually raised to more usable levels for corporate treasurers, there is a whole range of exciting areas which could potentially use real-time payments, especially as a growing number of countries launch real-time payments systems. Use cases suitable for treasurers and B2B payments in real time include:
- Quick settlement to earn early payment discounts on invoices
- Just in time inventory management
- Liquidity management
- Treasury payments, such as Foreign Exchange, debt and investment management
Even with higher transaction limits, not all treasurers will adopt Faster Payments. There have been surveys, conducted by both Eurofinance and SWIFT, suggesting that real-time information is more valuable to treasurers than real-time payments. The information in question relates to remittance advice detail, which helps reconciliation and cash flow forecasting.
Contrary to the benefits, real-time payments can lead to real-time problems, the most important of which is fraud, AML and sanctioning regulations. Every corporate has a fiduciary duty and typically a national law behind them to ensure they know who they are paying legally. Relying only on banks to detect sanctioned individuals or companies in other countries is becoming a difficult legal defence in the case of any sanctions violation. Increasingly, companies are expected to have their own in-house sanction screening regimes in place as additional security to prove that they are in control of their payment operations and working inside international law before sending anything onwards to the banks.
This is why it is essential that any treasurer using or considering the adoption of instant payments needs to ensure that they have in-flight fraud prevention, AML and sanction compliance solutions in place. These include the monitoring of transactions, before they leave the business, against abnormal transactions that fall outside established payment profiles. The best solutions incorporate machine learning and can track transactions against configurable criteria, such as transaction limits, beneficiaries, timing and frequency. Any transactions not complying with such a profile or appearing on private or public sanction black lists are immediately flagged for special approval or further investigation before release. In addition to tracking and flagging any transactions that fall outside standard / defined patterns, another important form of fraud prevention is using advanced technology to monitor employee behaviour for abnormal activity.
If such fraud prevention, AML and sanction screening arrangements are in place, then the adoption of real time payments with higher limits could start to look more attractive to treasurers. A further positive development that can make adoption more attractive is the increasing availability of real-time information. With the advent of Open Banking, the payments industry has an exciting opportunity to deliver improved visibility of balance and transaction information. The rollout of Open Banking for corporates is likely to be slow and measured, as one country after another gradually gets comfortable with and embraces the advantages of Open Banking APIs to share customer data securely with customer approval. This new era of real-time information will increasingly enable treasurers to make better decisions and manage their cash more efficiently.
A smart way to gain full advantage of these opportunities for improved balance and transaction information is to use hybrid and future-proofed solutions from specialist providers that combine the advantages of SWIFT and Open Banking APIs for aggregating balance and transaction information. In some cases this information can be consolidated without any need for the corporate to join SWIFT. As more banks open the APIs to Third Party Providers offering Account Information Services, then this data access naturally reduces the dependency onproprietary SWIFT channels, towards Open APIs. The speed of this change is unknown but is likely to be of greatest appeal to mid-sized businesses that have bank accounts across a region, rather than larger corporates with bank accounts spread across the globe.
The payments landscape is going through a period of unprecedented change. Treasurers need to understand how Faster Payments in the UK and internationally typically work, how to seize this opportunity to improve payment operations with real-time information and the measures required to address growing concerns over fraud, AML and sanction screening prior to approving the flow of funds. The best place to start is by speaking to a trusted technology provider and bank, who know this domain and can explain the options for addressing emerging requirements and opportunities.