Here in the U.S., we’re playing catch up when it comes to real-time payments. Currently, significant efforts are underway to put infrastructure in place to facilitate faster payments in the near future. Numerous countries, including the UK, Singapore, Poland and Mexico have had near-real-time processing for some time now. The biggest difference is that our overseas neighbors have adopted changes by central authority fiat, where as in this country the federal government is leaving it to the market to determine the best course forward.
To advance the ultimate goal of real-time payments, several financial industry consortiums and a Federal Reserve-assembled taskforce have been working on initiatives to develop standards and guidelines to support this effort. Fifth Third Bank is an active participant on all of these initiatives, providing regular reviews and feedback on the new payment standards under consideration.
The Big Payoff: What Real-time Payments Will Do For You
Faster payments hold a tremendous promise for corporates. Once in place, treasury will be able to dramatically shorten the time frame for recognizing a receivable, which will help to speed up the flow of commerce and at the same time make it easier to manage vital working capital.
Beyond allowing businesses to access much needed liquidity, real-time payments will deliver critical payment data that treasury can utilize to help reduce back-office costs. This will be made possible by achieving efficiencies in exception management, along with improved posting and reconciliation of invoice-related information associated with the payment. As ISO 20022 standards are widely adopted, businesses will be better equipped to integrate payment data with their enterprise resource management (ERP) systems for further treasury efficiency. All in all, the automation facilitated by digital transactions will reduce reliance on wasteful manual processes and liberate critical resources to support more strategic business objectives.
Faster payment systems will likely also relay more information than current systems allow. This is especially promising when compared to checks, which carry little data that can be used to drive further treasury efficiency. Real-time payment systems can be expected to provide invaluable information that flows with the payment transactions, allowing businesses to attain efficiencies in straight-through processing, achieve a better view into cash flows, and enable more informed operational decision-making.
In addition to improved speed and efficiency, real-time payment systems will focus on being more secure in order to deliver better fraud protection. Instead of relying on the current process, where a payer authorizes another party to pull money from their account, new payment systems are looking to rethink the payment authorization process. “Push” transactions, which would enable a payer to directly authorize payment from their account, would be far safer for all parties. And to reduce the fraud risk associated with buyers have access to suppliers’ account numbers for transactions, tokenization offers an effective means for shielding those sensitive numbers. Tokenization creates a unique identifier for a user and hides sensitive information such as account numbers. Faster payments solutions under consideration may very well incorporate built-in technology to use tokenization, so account numbers are never exposed.
The Importance of Staying Informed, So You’ll Be Prepared
Payments in the U.S. haven’t changed appreciably for the past 35 to 40 years or longer, so the changes ahead will certainly be significant. When real-time payments arrive in earnest, they will have a profound impact on treasury, affording businesses the opportunity to improve liquidity, boost efficiency, lower costs and help prevent fraud.
Banks of all sizes will be making considerable investments to integrate faster payments into existing offerings. At Fifth Third, we are developing solutions with future integration in mind on platforms such as Fifth Third Direct, our account management portal for commercial customers accessible from their desktop and mobile app. As these changes take place, corporates need to stay informed about the latest developments. It is incumbent upon treasury to work with a trusted banking partner to explore how these changes will impact your business and how it will change the way you receive, handle and make payments in the future.
Real-time payments are on the way. There’s no time like the present to start preparing for the opportunities that are just around the corner.