Cash & Liquidity ManagementLiquidityIf time is money what does real-time mean for business?

If time is money what does real-time mean for business?

Harshit Jain, Head of Transaction Banking & Digitisation, Nucleus Software, explains the possibilities of real-time payments and analytics

Consumers and businesses customers are becoming more impatient and more demanding. They want what they want when they want it. And if they don’t get it from you they will go to your competition. Customers expect businesses to respond to them quickly, if not immediately. In their recent survey of 8,000 consumers and business buyers, Salesforce reported that 80 percent of business buyers said they expect companies to respond to and interact with them in real-time.

But what exactly is real-time?

In his classic paper on Response Time in Man-Computer Conversational Transactions Robert B. Miller stated that response time of 100ms or less are perceived as instantaneous. Most of us can only react in around 250ms; the fastest reacting humans get that down to around 120ms. However, in our day to day lives, real-time could be more like a conversation you are having with someone: you immediately get the information and either of you can talk at any time.

Technology has changed our expectations of time – most people don’t expect immediate answers to emails but they do expect rapid replies from tools like WhatsApp, indeed these tools are called Instant Messaging. Facebook has its in-app notifications; Google docs allows users to collaborate in real-time, Uber provides its passengers with a real-time location tracking effect

As real-time service becomes more common, the financial services industry needs to adapt. After all, in the financial world, the old adage – time is money – holds especially true. A 1-millisecond advantage in trading applications can be worth $100m a year to a major brokerage firm.

A host of factors, including regulations and security concerns, have traditionally prevented banks from providing a true, real-time banking experience. However, the arrival of fintechs has changed expectations.  Consumers, today are wondering why banks can’t provide real-time services if they are able to use fintechs to send $50 to his friend immediately via their phone.

Banks have both recognised customers’ concerns and realised the threats posed by the fintechs and are now transforming themselves to provide a faster if not real-time experience to their customers. Mindsets are changing, processes and business models in the bank are being reviewed and traditional legacy platforms are being replaced with end-to-end digital platforms. And the results have been impressive. In Hong Kong, Standard Chartered customers can now complete the entire account opening process including e-KYC and form completion fully digitally in less than eight minutes. In retail lending, the entire process from application to disbursement of a loan which used to take around 7-10 days can now be completed in less than 30 minutes. More than 50 countries have either implemented or in the process of implementing real-time payment systems which will enable banks to deliver instant payments to their customers.

In corporate banking, the pace of change has been somewhat slower. The scale and complexity of corporate banking makes digitisation more challenging. Massive commercial loans, high numbers of transactions across disparate international banking systems and the management and security involved are serious considerations. And the cost of failure can be enormous: compliance breaches can lead to fines and reputational damage. All of this has led many to the belief that corporate banking is not well suited to the simplicity and speed of two-click banking.

However, things are changing. The opportunities and threats are mounting. According to a Forrester survey, an average corporate onboarding today often involves up to 20 applications, takes up to 34 weeks and costs $6,000 per client. Simplification and digitisation offer tremendous cost improvements and experience enhancements. Corporate treasurers today expect the service speed and convenience that makes up their customer experiences in every sphere of their life. In the recent Global Treasurer survey, 68 percent of the corporates felt that provision of real-time systems and processes is the single biggest factor their organisation considered when establishing a banking relationship. While corporate treasurers may make their peace with the complex and cumbersome onboarding processes, they are expecting their partner banks to help them realise their vision of a real-time treasury, where cash is sent and received in real time, and updated automatically on centralised dashboards for all stakeholders to see.

Technology and solutions are in place for banks to enable their corporate customers realise this vision. Digitisation and automation are helping to streamline treasury processes, improve liquidity management, and deliver more accurate and timely risk management. Transactions are shifting from batch-based to real-time processing with the increasing use of application programming interfaces (APIs) and the rise of instant payment systems. AI driven solutions driven are providing corporate treasurers with sophisticated, real-time insights on cash positions and transactions.

Real-time payments

56 countries across the globe have either implemented or in the process of implementing real-time payment infrastructures. Initially, low limits were placed on the value of individual payments and the focus was on retail banking. However, the situation is changing rapidly and various countries are now increasing the limits. In addition, cross border initiatives are being introduced to support faster payments, including:

  1. Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) which now allows businesses in the SEPA zone to make instant cross-border payments beyond the initial €15,000 limit.
  2. In September 2019, SWIFT launched a service to deliver global instant international payments by integrating GPI (their cross-border payments service with more than 3,500 financial institutions as members across 150 countries with real-time service levels), into the domestic instant payments systems around the world. Additionally, the SWIFT GPI initiative is allowing corporates to track their payments on a real-time basis.
  3. Ripple recently announced their plans to launch their XRP-based cross-border payments product around the world in 2020. Instead of maintaining pre-funded bank accounts in various countries to facilitate fast local payments, banks and financial institutions can leverage the speed of XRP, settling transactions in three seconds while providing customers with up to 60 percent savings.

Initiatives like these make real-time payments a compelling value proposition for corporate banks across the globe. They are now investing heavily in technology to provide a B2C-like real-time payments experience to their corporate customers – delivering immediately available funds, instant confirmation, settlement finality, and faster communication flows.

Real-time collections

Matching incoming payments with invoices has long been frustrating for companies with incomplete remittance information leading to an arduous and costly reconciliation process. As highlighted by my colleague Dinesh Verma in his earlier blog, the consequences of ‘getting it wrong’ are growing – poor management of invoice to cash collection processes leads to overdue invoices piling up, which, in turn, leads to cash flow problems. As control over operating cash reduces, businesses need to rely more and more on expensive bank credit. The first step to achieving real-time receivables is process automation with artificial intelligence-driven solutions. Along with enabling higher collections by identifying the right mode of payment and channel of communication, AI powered solutions can also process large volumes of invoices quickly, thereby improving the swiftness of processing. Robotic process automation can help the organisation automate the cash application process where remittance data is gathered through disparate sources, matching it with the invoice data and reconciling the resulting electronic payment with the corresponding customer account. Not only can these solutions do a simple match via an invoice number but they also enable a more complex pattern based matching which involves studying payment patterns (via trend analysis) and constructing reconciliation rules like LIFO, FIFO, normal match, best match etc.

New solutions such as virtual accounts are also allowing corporates to identify the payee instantly which has a considerable effect on the reconciliation process. Corporates no longer have to rely on the quality of details provided in the payment reference field, as the virtual account numbers (IBANs) act as reliable data keys to enable automated end-to-end reconciliation. This drastically streamlines the corporate accounts receivable process, aids credit control and delivers reduced days sales outstanding (DSO), and improved working capital

Real-time liquidity management

In the Global Treasurer survey, the most desired improvement to banking services amongst practitioners was a single view across all company balances in real-time – with 62 percent of respondents citing this as being at the top of their wish list. The reason is obvious. Brian Nolan, CEO at Finteum mentioned recently that a multinational company can save up to 40 million a year if it can calculate liquidity in a matter of hours rather than days. Corporate treasurers  are urgently looking for new ways to provide cash management with up to date – and if possible real time – information on cash positions and cash forecasts faster and with deeper insight, allowing corporate treasurers to better react to the company’s current cash and working capital needs. Efficient real-time liquidity management can be achieved through a unified view of accounts with multiple banking relationships, e.g. by integrating data via PSD2 APIs. Based on this information, decisions can be made quickly and executed immediately to avoid unnecessary corporate loans. There are also some use cases of Blockchain being used to provide real-time insight in a corporate’s liquidity position and enabling treasurers to see balances across the corporate group, across multiple entities, corporate departments and banks (accounts), in different geographies, and at any point in time. The technology also allows this visibility to be extended to partners, subsidiaries, vendors and customers thus facilitating the companies’ ability to more effectively use liquidity in functions such as supply chain finance, refinancing etc.

Rise of real-time fraud

While real-time banking has many advantages, it also creates opportunities for fraudsters. Legacy payment systems – often taking three days for settlement – provided banks and their customers with time to react. In the real-time world, where it only takes 10 seconds from request to final settlement, once the money leaves, it is gone forever.  In the United Kingdom when the faster payments system was introduced, online fraud increased by 300 percent. As is often the case, when technology causes a problem it can also help solve the problem. AI-based anomaly detection systems have been introduced which help banks and corporates detect and prevent these frauds instantly.

Evolve or perish

The evolution of new tech entrants in the market, the exponential rise in consumer expectations, the increasing number of supporting regulations and infrastructures and finally the introduction of additional security layers to combat fraud should ensure that banks who are looking to gain a competitive advantage start providing real-time services to their customer. Real-time services rely on advanced technology solutions – solutions that are highly scalable, secure and reliable, since the consumer expects 24x7x365 service availability.  Based on their current digital capabilities and the maturity of transaction banking solutions – banks can either look at internally-driven digital initiatives to better provide traditional transaction banking solutions or focus on externally driven initiatives such as partnering with fintechs to augment their digital capabilities. Whatever route they choose, banks need to take strategic steps TODAY in order to deliver real-time services to their business customers and shift their solutions and service models towards immediate delivery, or else they risk losing market share, customers and revenues tomorrow.

A leading provider of transaction banking and lending solutions to the global financial services industry, Nucleus software powers the operations of more than 150 companies in 50 countries, supporting retail banking, corporate banking, SME banking and other business areas. Click here to see how Nucleus Software’s integrated global transaction banking solution, FinnAxia, improves real-time transaction visibility, delivers better control of liquidity positions and enables organisations to make faster and more informed decisions.


By Harshit Jain, Head of Transaction Banking & Digitisation, Nucleus Software

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