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November 2019

Instant payment schemes have been developing around the world over the past five years, gaining traction in the consumer payments sector to the point where physical cash is supplanted as the preferred form of payment. But what is the infrastructure that sits behind making all of this happen and how is it regulated? Where can the opportunities and benefits be found for corporate treasurers embracing these schemes as part of their liquidity management strategy? This white paper provides a comprehensive guide of the schemes in place, how they work – and how treasury can make the most of them

Instant payments, which give the ability to transfer money within a few seconds, are about to become the biggest trend in payments.

Over the past five years, new instant payment schemes – also known as real-time payment or faster payment schemes – have been developed across the world and increasingly gained the attention of banks, consumers and companies.

“Would you like to pay by cash or by card?” This question is now regularly asked in restaurants or shops. It has become so well-established that we typically never ask ourselves why exactly those two ways of paying for goods and services are favoured by merchants. However, the answer is simple: both methods allow the experience of (or in the case of cash, the actual) transferring funds in real time.

Consumers and corporates

Instant payments offer an alternative means of real-time money transfer. It is one that could be beneficial for both consumers and companies and ends the cash flow latency of what is often two or more working days until a payment process is closed. When combined with the support of application programming interface (API) technology, the result is a transformative proposition for corporates which can embed deep in their processes and play an integral part in the customer experience.

For many modern business relationships and business models, lengthy payment execution times are no longer acceptable – especially in an e-commerce or on-demand environment. The seller needs certainty that the buyer has paid the requested amount before the goods are sent or the service provided. To eliminate or minimise waiting periods for the client, typically payment methods are used with a guarantee for the seller that they will receive the payment. Giving such a guarantee is not free of charge; somebody needs to be compensated in return for undertaking the risk. The use of instant payments sets out to alleviate the costs associated with a transaction, for both corporates and consumers.

Towards real-time treasury

The benefits for corporates do not stop here. Making a payment in real time can be seen as simply the first step on the journey to a real-time treasury. Looking ahead, instant payments mean that liquidity buffers become obsolete, with surplus cash invested elsewhere. Real-time cash-flow forecasts will pinpoint the exact time and amount of borrowings that may be required.

However, instant payments are relatively new on the market, with the infrastructure and product features still being developed.

This white paper describes the current status of developments in various instant payment schemes around the world with the focus on Europe, shows global trends in the development and transformational powers of instant payments and sets out how corporates can prepare for both the future of payments and of treasury.

Christof Hofmann

Global Head of Payments & Collections Products at Deutsche Bank

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