Cash & Liquidity ManagementPaymentsSWIFTWhy standardisation is key to making real-time payments a reality

Why standardisation is key to making real-time payments a reality

The pandemic has driven corporate demand for real-time payments across international borders, but obstacles remain to finding suitable solutions which offer sufficient scale

In today’s fast-moving, online world, treasurers are increasingly looking to adopt real or near-time payments, which ensure both security and traceability.

For many of them, real-time payments – both domestic and cross border – are seen as a highly important enabler of increased efficiency from a process, business and financial standpoint.

“The faster a company receives funds, the faster it will clear credit limits or ship goods to customers. In today’s world, it’s all about everything, everywhere, immediately – so real-time payments support business operations 24 hours a day, seven days a week, especially for e-commerce,” says Thierry Cairus, treasurer, Japan Tobacco International.

“Real-time payments bring liquidity and cash flow management to new levels. The faster you collect funds the faster you earn interest or repay your debt. The impact on the return on investment capital (ROIC) can be substantial as you are able to ship faster, collect faster, reconcile faster and use funds faster.”


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Marcus Worsley, group treasurer at financial services company Apex Group, points out that real-time payments are critical for Apex in servicing its global client base, effectively managing liquidity, concentrating risks and enabling robust covenant compliance.

“Standardisation of payment platforms is a high priority for our group treasury, and it is true that with our acquisitions come legacy payment methods and processes, which then need to conform to the group’s standard methods,” he says. “Reliance on older cross-border payment processes ultimately means slow turnaround times and this impacts cash pooling, return on investments and ultimately cash performance.”

Standardisation key to unlocking real-time payments

However, there are obstacles to achieving true, real-time payments – particularly cross borders – including reliance on multiple national domestic schemes. So far, many of these payments schemes have also been geared at accommodating smaller sums.

They include, for example, Faster Payments in the UK, which is owned and operated by Pay.UK, and enables 24/7 one-off UK payments for up £25,000 via participating UK banks.

“The absence of a single, global and standardised payment system as well as regulations, such as KYC/AML, to some extent is one obstacle. There are too many fragmented solutions without interoperability,” says Cairus.

“The current cross-border system is built on the principle of trust and permission. Participants – namely banks – must trust each other in order for a transaction to reach finality and customers should be given authorization by banks to use the system,” he continues, pointing out that this brings many inefficiencies. “Intermediaries – correspondent networks – can slow down the process and increase the cost as everyone in the chain wants to earn a fee.”

He adds that, on the regulatory side, the requirements imposed on banks makes it expensive to process transactions, so this implies increased cost for corporates.

SEPA leads the way

However, a major move to promote cross-border payments has been driven by the European Payments Council (EPC) with its SEPA Instant Credit Transfer scheme which was initiated to guard against a big move by EU countries to setting up their own domestic schemes. This, claims the EPC, would have created a fragmented European payments landscape.

SEPA Instant Credit Transfer enables 24/7 euro payments, which, according to the EPC, should only take seconds across borders in SEPA participating countries. These transfers, however, are limited to €100,000 and can only take place if both sender and receiver banks are SEPA participants.

At present, 3000 banks from 23 countries are members of the scheme, which will ultimately be extended to 36 countries.

“The Single Euro Payments Area definitely created momentum amongst payment providers to improve the offering for corporates and generate tangible efficiencies and consistencies for corporates and the individual,” says Worsley. “You can even point to the creation of the Single Market and euro as the starting point for payments harmonisation in the EU along with the integration of existing credit transfer and direct debit payment schemes under the umbrella of the SEPA Instant Credit Transfer and Direct Debit schemes.”

“SEPA was clearly a game-changer for financial and commercial flows in Europe. For other parts of the world, where there are multiple currencies with different capital control regulations and priorities on agendas, the challenges are different,” says Cairus, pointing out that SEPA Instant Credit Transfer shows it is possible to have infrastructures in place to support real-time transactions.

“Some banks are also offering real-time cross border payments – but only within their ecosystem,” adds Cairus. “While these are welcomed moves, this is still far from perfect. I expect open banking to play a key role here as well as distributed ledger technology.”

SWIFT payment initiative

One major more recent breakthrough in near- and real-time, cross-border payments is SWIFT’s Global Payments Innovation (gpi), which enables payments that bridge multiple currency systems and regulatory jurisdictions.

The scheme, according to SWIFT, provides the speed, certainty (it is trackable and allows full visibility), fee transparency and security that is critical to running effective treasury and cash management processes, while also benefitting global trade.

SWIFT claims that hundreds of the world’s leading cash management banks are now sending over $300bn via gpi every day, with hundreds of others seeking to implement it.

“SWIFT’s gpi does play an important role in security and traceability but we are not in a 100 percent real-time processing environment,” says Cairus.

He notes that SWIFT has just launched a new service called SWIFT Go for low-value cross-border transactions,

“Such initiatives can change the payment landscape in the future if scale and speed increase to the point where we have all payments executed in real-time on a cross-border level, excluding capital controls,” he says.

Looking forward with IS0 20022

Next on the horizon is ISO 20022, supported by SWIFT as registration authority, which is an emerging common language and model for payments data worldwide. The standard promises to carry richer, better structured, granular data in payments messaging, thereby enabling higher quality payments. It is expected to bring greater automation and transparency, with more remittance information made available, as well as improved analytics and fraud prevention.

“SWIFT’s gpi will hopefully improve fee transparency so that corporates can make informed payment method choices when wiring across borders. It will no doubt force banks to improve internal processes to meet industry needs for tracing payments and speed of communication,” says Worsley.

“ISO 20022 will provide a truly global standard for payment messaging, and the hope is that it also makes financial messaging more meaningful to the end user.”

Migration to the new IS0 20022 standard starts in November this year, and SWIFT has launched an In-flow Translation service to help financial institutions adopt it.

“One of the guiding principles behind our strategy for instant and frictionless payments is to ensure that nobody is left behind and that institutions are able to migrate in a way that suits them and their customers,” says Stephen Lindsay, business lead, SWIFT Platform.

He explains that the In-flow Translation service translates rich ISO 20022 messages into the existing MT format for banks that are not ready to process ISO 20022 messages immediately to ensure that both message formats are delivered. This way all financial institutions on the SWIFT network can continue to transact as normal during the industry’s migration to the new standard, which will run until November 2025.

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