The Need for Speed

Instant payments is a topic that receives plenty of coverage, often under the assumption that everyone wants and needs it. Is this really the case for treasurers, and if so how and where does it fit? TMI spoke to Louis- David Rouyer, Deputy Head of Payments and Cash Management International Network, Societe Generale, about the pace of progress and the broader impact of real-time payments. 

Instant payments as an idea is simple to grasp: it’s about processing speed. It’s a highly desirable attribute for most users, but in a treasury context, speed must be augmented by secure and smart processing, states Rouyer. At a technical level, this means the application of solutions such as AI-based fraud detection, tracking and tracing, and enhanced forecasting capabilities. The broader objectives made achievable by instant payments infrastructures has generated a number of new paradigms for businesses to consider, he notes. Not least is the efficacy of internal and external communication channels to ensure enterprise-wide visibility, accessibility, accuracy, and timeliness of data. It is, he feels, a matter of finding a collective will to move to real-time payment processing, and then taking bold steps forwards to ensure the concept is optimised for all stakeholders. In an environment exhibiting an increasing focus on corporate costs, intensifying competition, global market uncertainties, the persistent threat of fraud and cybercrime, and regulatory change, treasurers are compelled to regularly review their priorities as part of the effective monitoring of their cash and liquidity positions, says Rouyer. 

Rapid growth 

While it’s perfect territory for a real-time environment to thrive, “the reality is that only around 10% of corporate treasurers have fully fledged solutions that give realtime access to cash, with the majority at best only able to forecast cash and liquidity out to three or four weeks”. That said, he notes that the adoption of domestic instant payments systems is growing rapidly. Societe Generale has purposefully been among the “instant payment pioneers”, driving early adoption for all clients (consumer and business), kickstarting their journey in 2019 with the establishment of a supporting franchise throughout Western Europe. Although uptake of instant payments at a corporate level is “highly dependent on sector”, Rouyer says its advantages are consistent across the board. “The obvious benefit is the ability to send and receive direct payments in euros anytime anywhere,” he explains. “The cash is credited in the recipient’s account within seconds, 24/7/365, and can be used immediately. It creates a clear optimisation of cash flow visibility, with the facility for quicker invoice settlement reducing late payments, freeing up credit lines, and potentially driving increased sales and profitability.” With the expansion of the instant payments infrastructure, Societe Generale has been looking beyond the existing European SEPA Instant Credit Transfer (SCT Inst) programme. This is helping new ‘instant products’, such as the SEPA request to pay (SRtP) mechanism, to come on stream and add value. SRtP does just that, targeting a host of scenarios including invoice payment, e-commerce, point-of-sale or interaction payments, debt collection, recurrent or instalment payments, and tax or contribution payments. “If the use case requires immediate payment, the instant payment will be indispensable,” states Rouyer. “This may be the case, for example, for a distance purchase or to collect a debt. The instant payment enables the funds to be collected immediately and irrevocably and is not limited by a ceiling in the way that a card payment is.” Instant payment with SRtP also facilitates easier reconciliations, since it’s the supplier that initiates the payment, adding all the required references to their message chain. What’s more, its irrevocability improves cash flow predictability over the direct debit model. However, given the irrevocability, payers will need to be reassured of right to recourse in the event of a dispute. This will form part of the educational approach required to drive user uptake, says Rouyer. 

Final hurdles 

There are a number of factors that influence the adoption of instant payments. Reachability is a key issue. Today, SEPA Inst is optional for banks, and not all are leveraging it, notes Rouyer. The European Commission and European Central Bank (ECB) aim to promote an efficient pan-European scheme with wide availability. The EU has already publicly consulted with a wide range of stakeholders and will decide whether EU co-ordinated action and/or policy measures are warranted in order to ensure that a critical mass of EU payment service providers (PSPs) are offering instant credit transfers. Fraud and AML prevention and detection also have a major influence on uptake. Compliance and sanction reference lists and fraud rules can be different from one country to another, and even between banks of a same country. This adds complexity. While AI can help solve this, only harmonisation will create the desired singular payments environment. A further issue is the lack of FX on crossborder instant payments. With SEPA a euro-denominated mechanism, real-time conversions for SEPA Inst transactions are not universally available, although the ECB is discussing an instant crosscurrency settlement platform The €100 000 transaction limit is also an issue that must be addressed for corporate usage. Following in the footsteps of the UK, which now has a £1m ceiling, pan-European limit extensions are anticipated as adoption increases, notes Rouyer. 

Transformational 

With the roll-out of SWIFT gpi instant and the imminent migration from SWIFT MT to MX/ISO 20022 messaging, the promise of data enrichment should begin to drive interest. As APIs become another ‘new normal’ in the treasury space, that interest will intensify, Rouyer believes. Describing APIs as a “technological  revolution that can enable corporate treasurers to gain agility and flexibility”, he says they “rank extremely high on the treasury agenda”. Indeed, he feels APIs are facilitating open banking, deeper digitalisation, and the advancement of the ‘cashless society’. With the technology landscape opening up, it becomes possible for treasurers to call for (and banks to deliver) on-demand real-time information such as statements, transaction statuses, and balances. This data can be streamed straight to the TMS or ERP, even where multi-banking is operative. Of course, real-time global 24/7 data drives more effective enterprise-wide forecasting capabilities. As cash and liquidity visibility increases, so lower-cost working capital is facilitated. The effect, says Rouyer, is noteworthy, and in combination with process automation “puts treasurers in a position to make more strategic and efficient cash management decisions”. In a world where running a treasury is akin to “swimming with sharks”, Rouyer says navigating a fast-evolving world where uncertainty is the watchword, means greater visibility and control is needed more than ever. Instant payments help deliver realtime monitoring of cash flows and the optimisation of working capital. But they also enable pooling of available cash resources, and facilitate stronger forecast positions that determine the level of external funding needed. All this happens “with the flexibility to respond to rapid changes”, notes Rouyer. Indeed, the power of instant payments is such that it can bring about “a switch for treasury from an operational role to one of strategic value”. 

Groundwork for real time 

With real-time payments systems gathering momentum globally, from SWIFT’s global cross-border proposition to the expanding portfolio of domestic systems, so the emergence and rapid evolution of infrastructures is “shaking up the world of payments and creating the need for treasurers to adapt their processes to a new working horizon”, notes Rouyer. “And this is only the beginning; it will be broadly adopted by all.” A key element for the concept taking off is real-time enterprise-wide balance reporting. In fact, Rouyer argues that the full potential of instant payments will be released only if real-time reporting is also available, adding that the two will drive each other forwards. With APIs implemented, it means data is available as and when required, and integration with a TMS or ERP means real-time flows are possible across all treasury processes. Another prerequisite for optimal use, and possibly the emergence of new use cases, is standardisation. This is a work in progress, says Rouyer. Societe Generale is committed to helping build the relevant frameworks for new services through its active participation in many interbank and regulatory open banking workgroups. This approach, he says, is echoed throughout the bank’s advocacy of client digital transformations. Indeed, says Rouyer, banks need to support strategic steps in order to deliver real-time services to their business customers. “With mindsets changing, traditional legacy platforms are being replaced with end-to-end digital platforms, so we’re investing heavily in technology to provide a consumer-like real-time payments experience to our corporate customers,” he says. “In doing so we’re delivering immediately available funds, instant confirmation, settlement finality, and faster communication flows.” To serve the trio of treasury instant payment benefits – faster, simpler, and safer – Societe Generale’s own efforts have seen it partner with tech-based authorised payment institution Fintecture to deliver RtP in France. It is also working with Kyriba and other TMS vendors to enable deeper integration of APIs, process automation cited as a key goal. Secure single sign-ons have been enabled for Societe Generale’s centralised services platform, SG Markets, with DocuSign adopted to enable e-signatures. Furthermore, Societe Generale has focused on the roll-out of virtual accounts with virtual IBANS, helping clients rationalise their bank account structure. Security is being further enhanced through its work with transfer-fraud specialist Trustpair to integrate that vendor’s APIbased pre-validation solution into core treasury systems. 

Building blocks for the future 

The immediate availability of accurate data regarding cash positions and risk exposures are a precondition of real-time liquidity planning, liquidity forecasting, and cash investment, says Rouyer. In developing the building blocks for the emergence of real-time treasury, the cornerstone of Societe Generale’s approach is real-time cash concentration, made possible through its virtual account and real-time cash pooling solutions, both customisable to fit the client’s operational structure as closely as possible. Virtual accounts offer instant cash centralisation, and thus total and immediate visibility and accessibility. With the booking of payments and collections made in a ‘real’ master account, the virtual structure avoids physical transfers of cash. API-based, real-time cash pooling enables intraday sweeps, automated if required, based on traditional notions such as zero-balancing or a rules-based approach. This supports real-time management of liquidity positions and enables balances to be deployed instantly. “By creating a real-time environment where payments can be made and received 24/7, treasury teams are able to support and monitor global liquidity more proactively and support the organisation’s ability to make real-time decisions,” Rouyer comments. These building blocks ensure that liquidity planning, and forecasting become more dynamic, in that they can be adjusted in alignment with real-time reporting and payments data, and this means any disruptions can be tackled immediately. Cash flow forecasting may be further enhanced with the adoption of AI/ML tools, improving the quality of forecasting on a continuous basis. With this level of insight, Rouyer believes that treasury will be better able to seek interest-optimisation on excess cash, or even deploy automated rules-based investment. This heightened degree of functionality is central to Societe Generale’s new Liquidity Management System (LMS). LMS, explains Rouyer, will deliver real-time cash pooling and is “augmented with an array of tools to give the treasurer access to fully automated liquidity management across multiple accounts, entities, currencies, geographies, and banks”. 

Preparing for change 

Moving to instant payments may necessitate a cultural shift, cautions Rouyer. “Treasurers need to embrace new business models in order to evolve their own models,” he explains. “They will have to review the transformation steps required to be able to leverage the benefits of instant payments, but there is no one-size-fits-all so they should understand that the business case for doing so might vary according to elements such as organisational structure, industry or geography.” As part of the change, rather than managing cash and risk positions on a daily basis, Rouyer believes these will need to become dynamic activities, ensuring at least that account balances are aligned with payments. To this end, he suggests treasurers may look to increase their intraday limits with their banks, to ensure execution of the transaction, and to provide more payment flexibility. Even if treasury does not use real-time payments, real-time collections create a 24/7 environment that must be managed. Other internal functions will also need to become more amenable to real-time activity to ensure the full benefit is gained. “For instance, as soon as cash is received into an account, it can be automatically reconciled and posted to the customer account, which the sales teams can see straight away,” suggests Rouyer. “Payments can also be made automatically and received at the precise point they are due, or the system may be used to calculate when an early payment discount is most advantageous.” The real-time environment also potentially modifies interest calculation processes. Historically this is based on end-of-day booked balances. “With the evolving real-time landscape, interest could eventually be applied for a particular number of hours a day,” suggests Rouyer. “This would change the need for cash flow forecasting throughout the day, and may see the introduction of, for example, a ‘daylight overdraft facility’ as a standard feature.” With the anticipated adjustments under real-time treasury, it may even create new jobs, says Rouyer. He suggests that the role of the chief liquidity officer may even become a reality as real-time technologies draw treasury into a new sphere of activity. However, while a single, authoritative point of accountability for the life cycle of liquidity may make sense in a fastpaced and volatile world, Rouyer states that the role of treasury remains central to the evolution of the wider corporate real-time environment. Many corporates are still operating on a 9-to-5 basis, but as instant payments become the new norm, and the entire ecosystem changes to accommodate it, treasury, with the help of partners such as Societe Generale, is already evolving at pace.