Embracing the phenomenon of real-time payments

Real-time and instant payments are not restricted to certain economies or digital-native industries and are becoming a necessity for C2B, B2C and B2B.

By Tarek El-Yafi, Managing Director, Americas Cash Management Head of Sales and Shantanu Bhosale, Americas Head of Cash Management Product and Structured Solutions Development, at Standard Chartered Bank

Payments are at the heart of any transaction, whether physical or digital, but friction or delay can be a major drag on commercial transactions and ultimately entire ecosystems. This issue has risen to the fore as digital business models have proliferated, as their success is dependent on an instant experience and highly integrated, efficient ecosystems. Real-time or instant payment methods, now a global phenomenon, have emerged strongly in response to this challenge, leading to an expectation amongst both consumers and businesses that transactions will be fast and frictionless.

Real-time and instant payments offer significant opportunity to reduce costs and enhance working capital, whilst delighting customers and suppliers, particularly consumers and small-medium enterprises (SMEs), by delivering a seamless, dynamic and real-time user experience. Consequently, finance managers need to work with their commercial colleagues to understand the company’s payment and collection needs, and design a strategy that meets the requirements of both payers and payees.

Making the business case

While most companies have relative freedom in their choice of outgoing payment methods, the choice of payment methods that a company offers to its customers will often be driven by competitive factors, and a desire to optimise the customer experience.

“In some countries, such as the United States, the use of cards is well-established, so our business model has been based on digital payments since the start. As adoption of wallets and other mobile payment methods grow over time, we will accept these methods in line with evolving customer demand. We want to enable customer choice as much as possible.

In countries such as India… younger generations, in particular, are rapidly embracing new digital payments, particularly mobile wallets. By supporting these methods, we can reduce our costs and offer a more seamless experience for customers.”

Kothai Senthil, Global Payments Acceptance - Strategy & Operations, Uber

While many consumers and large businesses are keen to adopt digital, real-time payments, there are still some groups of users that tend towards longer-established payment methods that are inconsistent with the digital economy. For example, in countries such as the US, many consumers and small businesses still prefer to use cash and checks, partly due to the perceived credit benefit of the mailing and float period. However, processing cash and checks is expensive, time-consuming and high-risk for businesses. Similarly, while cards are convenient and widely accepted, and the credit component can be attractive for payers, they can be costly for merchants to process and value is not received instantly.

In contrast, real-time digital payments are secure, convenient, low-cost and offer significant liquidity advantages. Furthermore, the quality and consistency of data helps to automate processes such as reconciliation and instant posting to customer accounts. This is essential in allowing the dynamic exchange of goods and services across ecosystems.

Incentives for change

Finance and commercial managers therefore need to create a positive experience for buyers and sellers that outweighs the perceived value of credit or float. Companies may offer incentives for customers to use – and suppliers to accept - preferred payment methods. For customers, this could include discounts for purchases using certain payment methods, ‘pay later’ schemes, customer loyalty points or promotions, as well as an easier purchasing experience. For suppliers, preferential payment terms or financing rates may help to encourage suppliers towards accepting digital payments.

“Key to the success of Google Pay is that it is not simply a payments platform. Our aim was to integrate payments as a seamless part of a wider experience. This could include making an online purchase or booking a ride through a vendor platform, or chatting to friends and family online through the Google Pay app. These unique and added-value features, combined with the ability to win scratchcards and other rewards, which update the user’s account automatically, means that Google Pay has become an industry leader in India.

At our recent Google for India event, we announced that there are now 67 million active users transacting every month, totalling US$110 billion annualised, making Google Pay the biggest platform in the country1.”

Saif Ashraf, Head of Treasury’s New Business Implementations at Google

There are also national schemes to help drive adoption and enhance consumer convenience. In markets such as Singapore and India, proxy addresses allow payments to be routed using a mobile phone number or national insurance number instead of obtaining payees’ bank account details. Similarly, static and dynamic QR codes are now ubiquitous in locations such as China, Hong Kong, India and Singapore, enabling a buyer to scan a code to purchase and pay instantly. The seller can then use the data linked to the QR code to process and reconcile the transaction automatically.

An integrated infrastructure

A common objection to adopting or accepting new payment methods is the implementation cost, and risk of fragmenting existing systems, processes and reporting. However, payment aggregator bank portals, such as Standard Chartered’s Straight2BankPay, allow companies to integrate multiple collection methods, including low value/high value, instant payments and mobile wallets through a single channel. The use of open application programming interfaces (APIs) has also become prevalent, enabling banks and their clients to embed payment and collection services directly into their business systems, such as procurement, credit, finance and front-end customer solutions to streamline the flow of transactions and data, and enhance the customer experience.

The real-time experience

Real-time and instant payments are not a phenomenon restricted to certain economies or digital-native industries. Although the pace of adoption varies globally, embracing real-time payments is becoming not a choice but a necessity, both in the C2B/ B2C space, but also B2B. This in turn will have significant implications for accelerating supply chains, connecting industry ecosystems more dynamically and ultimately building competitive advantage through improved working capital and risk dynamics and better customer satisfaction.

This article was originally posted on PaymentsSource

1 Statement, Ambarish Kenghe, Director, Product Management, Google Pay, September 2019, quoted in https://www.news18.com/news/tech/google-pay-reaches-67-million-active-users-in-india-within-two-years-2315297.html

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