Instant Payments are continuing to gain ground among corporates


Instant Payments are continuing to gain ground among corporates. Yet, the scheme is facing some technical and usage constraints, what are the reasons? How can it be resolved and what are the key actions for treasurers to begin leveraging real time payments within their companies?

During the Eurofinance conference held in Barcelona from 27 to 29 September 2023, Nicolas Cailly, Head of Payments and Cash Management for the Group shared his thoughts on the growing role of real time payments in treasury.

To get more insights, find the scripts below of his interview with Tom Alford (TA), TMI journalist. 
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TA "Welcome to TMI Treasury Cast to Eurofinance, Tom Alford (TMI) and I am delighted to be joined by Nicolas Cailly, Head of Payments and Cash Management at Societe Generale.
Nicolas is here to share his thoughts on the burgeoning role of real-time payments in treasury, so hello and welcome Nicolas."

NC "Hello Tom, thank you for having me here."

TA "Real time is quite the idea of the moment in treasury and in finance, and has some complex elements so let’s start by looking how real time payments mechanisms are growing at scale around the world.
Yet business use is relatively limited compared to consumers options. Why do you think that is the case?"

Growing interest for instant payment despite regulatory and technological obstacles.

NC “That’s an interesting question, but you are right: there is growing adoption of instant payments across the world. They have been around for a number of years. In the UK, they have existed for the last ten or fifteen years already and adoption is massive in consumer space. And it’s probably because there are many use cases and all of us, as consumers, want to be able to pay immediately, or get delivered goods the same day or the day after. So, there are some use cases like that, that really make it quite understandable. As far as companies are concerned, adoption is slow, you are right, and there are a number of reasons for that. 
One is that in most geographical areas, there are some limits to the amount that you can settle by instant payment. With Europe’s SEPA instant scheme, instant payments are capped at one hundred thousand euros. There are exceptions here and there, but overall it is €100k and this is too low for corporates to use instant payments massively. 
There's another limitation: instant payments work fine domestically but, again, looking at Europe, just to focus on that area, when you want to issue an instant payment from one SEPA country to another, for compliance reasons, you would probably have eight or nine percent of these instant payments that get stopped and with instant payments, if they are stopped, they are simply rejected. So, there is no way that instant payments can be adopted more widely unless that hurdle is removed because corporates cannot afford to have almost ten percent of their instant payments rejected. So, that will have to change, to evolve, but it’s taking time and that's one of the main reasons why it's not widely adopted yet. 
And the last reason is that there are manyinstant payment schemes around the world but they are not talking to each other. You can’t run true instant  cross-border payments yet. There have been some experiments: it works but it's not industrial yet. So, that's another hurdle that needs overcoming. 
All in all, it will take an harmonization of the schemes, a reduction in failed instant payments, and greater interconnectivity between cross-border instant payment schemes for corporates to use them more. 

TA “Okay, so clearly there are some technical and practical reasons as to why it's not taking off quite as well as on the consumer side. How do you think that this “cause for pause” we might turn it amongst treasurers, could be resolved? I mean, fix the technical side of things, that's ongoing, but how do you feel the whole process can be given a “boost”, if you like, to improve that level of adoption.”

How to boost the level of adoption?

NC “Well, I think there are a number of initiatives underway that will help overcome these difficulties. First, looking again at harmonization, we see that the European Central Bank (ECB) is considering to change regulation: in Europe, instant payment transactions may no longer have to be screened for sanctions, provided the payer and payee banks know their customers well enough to be sure that sanction screening is actually performed at customer level on both sides. Discussions are underway. The proposed text is not yet fully convincing and needs to be reworded somewhat. However, authorities will eventually deliver, there is no doubt about that. 
The ECB wants instant payments to become the new standard, and that cannot be achieved without changes in regulation. So, they will come eventually. As regards cross-border payments, they are also a number of initiatives. Maybe I can mention two of them. There is one with SWIFT, and another the “IXB project” that involves EBA Clearing and the US clearing house TCH. Both are looking at making cross-border payments a reality. The topic was heavily discussed at SIBOS in September 2023. So, it’s clearly something that has an audience. Clearly, corporates want to push that way and we are talking here about private initiatives, so they will be delivered too. All in all, it may take another two or three years before we’re fully there. It’s going to take time. 

TA “Oh, I guess that’s inevitable. There are some intense discussions that need to be taking place now, just to give it that boost. So, as far as who is, or who should be involved in these discussions to deliver a secure real time treasury payment…Who should be engaging in that conversation? Because if you just sit and wait for regulators, it’ might take a very long time.”

NC “You know, you are right, sometimes regulators can be efficient. I wouldn’t say the contrary.  Having the whole industry moving together is always a challenge and payments are complex. So, it’s going to take some time. Who are the players involved? Well, first, the clients themselves, I mean the corporate clients. If there is a need, there is a way and we’ll find it. But before that, there must be demand. Actually, there is demand and it will probably grow. That's something that is essential. 
But then, moving the entire industry also requires involvement from banks and Payment Service Providers (PSP), obviously. And we also need the market infrastructures, and all the payment rails, as we call them, to evolve together. 
Again, it’s well underway and I'm confident it will materialize. But the difficulties are not only on the infrastructure side of the payment industry. They also lie on the corporate side, and more especially the treasury side. Modifying their processes to go instant is not trivial for corporates. They need to change the way their Enterprise Resource Plannings (ERP) software works, they need to adjust their own treasury management processes. You no longer have cut offs, so you need to be able to provide liquidity 24/7, even during bank holidays… And that's not necessarily what some corporates have in mind. So, that's a massive change for the whole industry, including at corporate level.”

TA “Yes! Clearly some pressure on the treasury side of things. Do you think the treasurers are both ready and willing to overcome those issues? I mean, there is an awful lot of work, but there is an awful lot of work in other areas. A competition battle of the resources perhaps. Is the treasury community up for it?”

Is the treasury community up for it?

NC “Well, we are at Eurofinance right now. So, I am meeting many customers and I can confirm growing interest from treasurers for going instant, probably because of high interest rates especially as they are here to stay. The price of money gives corporates a better reason to go instant: you can save a day or two in your payments or execute your payments later. It’s the interest rate that gives you the business case. So, yes, I believe treasurers are increasingly seeing that as an opportunity, not all of them though, but some of them are willing to invest and that will probably make the whole market shift. But again, such changes won’t come overnight. It is going to take a few years before we reach a point where instant payments account for a major part of credit transfers globally. According to the latest figures, fourteen percent of credit transfers in Europe are instant payments. But obviously these fourteen percent are massively on the consumer side, rather than on the commercial side. Yet, historically, this represents fast adoption for a new payment system. Still, it's only fourteen percent. So, before we reach fifty, sixty, seventy percent, it will probably be another eight or ten years.”

TA “Clearly, there is an understanding amongst the treasury community of the opportunities, and of the efforts and the resources necessary to be able to achieve that, that's not the issue. It's just finding and building towards it, making that sort of an absolute no-brainer business case to push for it. What’s the key first step for listeners to begin leveraging the real time payments and what resources might be used to begin that journey, do you think?”

NC “Well, I’ll try to answer your question. I’m going to come back on what part of the industry is doing, which is the way to go, that is identifying specific use cases that are relevant to them. 
The trigger can be a financial business case or a company’s will to differentiate from competitors. Let’s take the example of temp agencies. Their ability to pay their workers at the end of the week, or at the end of their assignments, i.e. on the day they actually finish their mission, is something that is seen by temp workers as a key differentiator. 
I mean that temp workers will prefer agencies that pay instantly. This is a differentiating factor and there is value for temp agencies. Some of them are already implementing instant payments for payroll. Once the other corporates have found their own use cases, they will want to adapt their processes by talking to banks providing instant payments through the adequate channel, which could be APIs or more traditional connectivity channels. And then, if the bank is ready for instant payments - most of them are – implementation will be very quick. So, really on the corporate side, it’s a matter of ensuring their ERP can route a certain type of payments to a specific channel in a given format, which the main ERPs and Treasury Management Systems (TMS) are already ready for. So, it’s not much work for them. 
Once this is done, they can go instant with the rest of their payments or at least with those for which they deem it relevant. Not every payment requires instantaneity. If you look at energy companies, they bill their customers for electricity or water mostly by direct debit and it works fine. These companies will not switch from direct debit to instant payments because they don’t necessarily require faster collection. So, for some payments, I don’t think instant payments are the solution really.” 

TA “And in terms of, actually making discoveries to whether it's a good thing for the future for them, giving in mind that the way the world of trade is a dynamic environment, best is to talk to your banks, I guess, and vendors, to work out what’s coming down the line, what the regulatory path is, what the technical path is. And just, sort of, keep the dialogue going and jump in when you see it’s fit to do so.”

NC “Yes, you’re right, instant payments are now a reality, and no longer innovation. They lie beside traditional SEPA payments and are just as easy. And the infrastructure is ready, the TMS are ready, the ERPs are ready. So, it will be straightforward for companies to go instant on some of their payments.”

TA “Right, there we go, some precisely clear thinking on the expanding role of real time payments treasury from Nicolas Cailly, Head of payments and Cash Management at Societe Generale. So, thank you for joining us and helping us through this, Nicolas.”