Financial institutions and businesses risk losing their competitive edge if they fail to embrace real-time payments

Real-time payments adoption is increasing and bringing a litany of benefits to businesses of all kinds. Leveraging insights from their recent global report, BNY Mellon’s Carl Slabicki, Co-Head of Global Payments, Treasury Services, and Datos Insights’s Erika Baumann, Director, Commercial Banking and Practice Payments, examine market sentiment towards this transformational payment method, and how real-time payment capabilities are becoming a dealbreaker for client relationships

The implementation of real-time payments is one of the most significant developments in the transaction space in generations. Facilitating faster and cheaper payments for businesses within their domestic markets, real-time payments are now a core offering in many countries across the globe. Moreover, extending real-time payments capabilities to cross-border transactions is increasingly becoming a reality, as the industry explores interoperability between different domestic systems.

Real-time payments are now readily available to many, and their volumes are expected to continue growing rapidly in response to client demand. For example, a recent report stated that global real-time payments’ market size is projected to reach US$123bn by 2031 – up significantly from the estimated US$13.8bn in 2021[1]. But how are businesses responding to this environment? Are there specific barriers preventing businesses from integrating real-time payments within their offerings and impacting how they view its benefits? BNY Mellon has collaborated with Datos Insights, a leading financial services advisory institution, to survey over a thousand companies across the world – from midsize to large corporations – to find out the industry sentiment around real-time payments.

Adoption and application of real-time payments

First and foremost, the survey reveals that a significant number of businesses increased their use of core real-time payment rails during the past 12 months (see Figure 1). This trend is evident across North America, Europe and APAC. In North America, for example, 79% of participants report that their use of The Clearing House’s Real-Time Payments (RTP ®) Network has grown during this period – and reinforces the belief that global real-time transaction volumes are on a considerable upward trajectory.

Figure 1

Alongside growth in transaction volumes, the scope of real-time payment application is also expanding. Initially, they were primarily used to support late or urgent transactions in time-sensitive situations. But thanks to ongoing technology advancements, such as automated payables and integrated receivables, real-time payments have been able to evolve and expand their remit, providing value to a wider range of transactions – from insurance claims and company payroll to utility billing and even real estate. Here, real-time payments can be leveraged to drastically reduce settlement times, allowing corporates to gain access to their cash quicker than ever before. In doing so, corporates can now manage their accounts receivable and payable more efficiently and effectively, thereby helping to optimise working capital.

Real-time cross-border payments: the lay of the land

Demand for real-time payments is by no means restricted to domestic transactions. Cross-border payments are often critical and high-value payments, but high costs, inefficiencies and a lack of transparency have been longstanding pain points for many businesses. With 80% of survey participants expecting an increase in international transaction volumes over the next 12-24 months, the need to realise and support cross-border and real-time payments ambitions is as important and urgent as ever.

Facilitating real-time international transactions is far from straightforward. But one approach involves achieved interoperability between different countries’ local real-time payments systems. And huge strides are being made in this respect. In 2021, in a world first, Singapore’s PayNow and Thailand’s PromptPay systems became integrated to enable participating banks to send and receive funds of up to SGD1,000/THB25,000 between the two countries on behalf of their clients. Singapore has most recently partnered with Indonesia, with the countries launching the cross-border quick response (QR) payment scheme, which enables consumers and businesses to conduct cross-border transactions instantly. India and Indonesia have also announced plans for a similar collaboration. Elsewhere, Europe and the US are pursuing a joint venture of the same kind, leveraging their respective real-time payment systems, RT1 and RTP, to enable transactions in the euro and US dollar currency corridor. This initiative is expected to gain significant momentum in 2024.

By combining cross-border with real-time payments, corporates will be able to operate with greater efficiency, allowing for more control of their capital not only domestically – but internationally. In doing so, real-time payments are becoming imperative to facilitating a corporate’s expansion into new markets and supporting operations worldwide.

Delivering on client demands?

With cross-border real-time payments gaining traction to meet demand and domestic real-time payments flourishing, the survey reveals strong recognition of the value of having real-time payments as part of a business’s offerings. Over three quarters (77%) of respondents agreed that using real-time payment solutions helps to provide an overall better experience for clients. This illustrates a clear awareness of their importance for end-client satisfaction. Despite this, many businesses have not yet begun incorporating faster payments into their strategies. Understanding why is crucial if the industry is to meet evolving demands from end-clients, and Figure 2 provides valuable insights in this respect.

Figure 2

The main reason appears to be due to the perception that sending and receiving real-time payments involves too much manual processing. There is also a belief that they are too expensive, too slow and that they “don’t fit their business’s payment workflows” (this is an issue affecting APAC in particular).

Many of these are misconceptions, however. For instance, it is not real-time payments themselves that can create more manual processing. Rather, the problem can lie with businesses not having the right tools to enable efficient payment processing. It is therefore important for corporates to collaborate with a financial services provider with the solutions to automate as much of the payments process as possible. Financial institutions (FIs) also have a key role to play in educating the market on the intricacies, workings and applications of real-time payments to ensure an accurate perception and greater understanding of their business benefits.

In this vein, it is concerning to note that, of the businesses not currently using faster payments, over a third cite that it is because they are not provided by their banking partner. This is a major oversight of FIs and payment providers, which should also note that 92% of respondents state that investments by their organisation in improving payments technology will be significant in the next 24 to 36 months. Certainly, it can be expected that businesses will be actively seeking a financial services provider that offers strong real-time payments capabilities. For a company to continue growing and expanding, it will seek assurance that it has access to cutting-edge payments technology.

With market appetite evident, it is imperative that banks incorporate real-time payment solutions into their offerings. Failure to do so exposes them to the risk of clients looking elsewhere for a provider that does. Indeed, when asked “has your organisation changed, or would it change, provider to access real-time payments?”, in total, 49% answered “yes” (ranging from 43% in North America, to 55% in APAC). Businesses looking to implement more efficient, effective payments strategies are seemingly now far more prepared to switch providers in order to receive the solutions they seek – and this includes real-time payments.

It is clear for both corporates and their banking providers that real-time payments are becoming an essential competency for everyday business – to the extent that they can make or break client relationships. This not only applies to domestic payments, but also cross-border transactions, as they continue to become increasingly relevant as instant payment advances inch forward. It will be a collaborative effort between businesses and FIs to ensure they can deliver an efficient integration. Read the full report, The Current State of Play of Emerging Payments, here.

[1] https://www.alliedmarketresearch.com/real-time-payments-market-A19437#:~:text=The%20global%20real%2Dtime%20payments,24.5%25%20from%202022%20to%20203