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Determining Use Cases for Real-Time Payments

By Kyriba

For U.S. corporate treasury departments that are interested in real-time payments, they will first need to determine key uses cases for doing so. Kyriba’s new eBook defines some clear corporate use cases for real-time payments, as well as barriers to corporate adoption.

Determining Use Cases for Real-time Payments

While corporate use of real-time payments has so far been predominantly relegated to B2C and C2B transactions, this emerging payment method can also address pain points in B2B payments.

From a cash management standpoint, real-time payments are especially beneficial for treasury and finance. Clearing payments instantly reduces settlement risk and provides a clear liquidity picture. It also allows incoming payments to be immediately converted into accessible cash.

Real-time offers the opportunity to “un-batch” payments for corporates. Rather than relying on batch payments that are locked in at key times each day, real-time payments can be sent at any time.

Real-time payments can also keep companies from missing out on early payment discounts. Where discounts are available, real-time allows a business to ensure that a payment are made on the last day of discount availability.

Lee-Ann Perkins, CTP, FCT, assistant treasurer for Specialized Bicycle Components and a member of both the NACHA Advisory Board and the AFP Treasury Advisory Group, has become a “true believer” in real-time payments relatively recently. Before joining Specialized, she worked in the oil and gas industry as the vice president and treasurer for Ion Geophysical. At the time, she didn’t see much relevancy in speeding up the payments process. “When all of this came about, I thought that it would take a lot to get treasury invested in it,” she said.

Since moving to an organization that touches retail more significantly, Perkins has come around to see the value in real-time—and believes it has implications for B2B payments as well. She sees it being “very helpful” with providing companies with better views of their cash flow. Additionally, real-time systems can send extended remittance information along with the payment, which she feels will greatly appeal to treasury practitioners. “That’s going to be so helpful for companies that use TMS and technology to do straight-through processing,” she said.

Indeed, both The Clearing House’s Real-Time Payments (RTP) network and the Federal Reserve’s upcoming FedNow service allow users to send information with payments. They also feature Request for Pay (RFP) services that allow payees to send specific transaction details prior to payments.

Barriers to Corporate Adoption

While the RTP network has been available for corporates for several years now, uptake has been slow. Simply put, having a system in place doesn’t mean that businesses will flock to it, even if there is a clear need.

Jeff Johnson, CTP, chief financial officer of commercial kitchen repair service Smart Care Equipment Solutions, noted that having a slight delay when making B2B payments is not necessarily bad. “There are advantages to it, in trying to plan my cash,” he said. “There are advantages to it if people make mistakes. And there are advantages to not having things rushed.”

Jim Gilligan, former assistant treasurer for Kansas City, Mo.-based utility Evergy and currently senior vice president of MFR Securities, noted that on the receiving side, real-time payments aren’t exactly that. “Many companies still use batch systems to process receivables; so payments are not captured real-time,” he said. “It’s still going to take them the same amount of time to process the payment. Customers will likely be unsatisfied when they realize payments sent in real-time aren’t processed in real-time.”

But the greatest barrier to adoption for real-time payments may be the most obvious. Despite awareness of many of the dirty tricks that fraudsters apply, treasury and AP departments still fall prey to payments fraud scams even when they have adequate time to claw back a payment. Removing that aspect means that once a payment is out the door, it is gone for good.

Fortunately, technology can help to eliminate the threat. Brad Deflin, founder and president of Total Digital Security, noted that in a few nanoseconds, ML algorithms can run a multitude of tests to determine whether a payment appears to be legitimate or if it should be flagged for further analysis.

“Technology has really come a long way,” Deflin said. “Number one, there’s a lot more data to pull from that makes the software that much smarter. Number two, there’s a lot more threat intelligence available, and an increasing element of collaboration and sharing that threat intelligence. Today, you can run a transaction through an enormous number of tests in less than the time it takes to blink an eye. It adds a real element of credibility to a transaction.”

Preparing for the Shift

In the U.S., with only one system currently operational, corporate demand doesn’t appear to be there—yet. Once FedNow launches in the U.S. market, mass adoption may quickly take shape. For now, treasury and finance departments can benefit from assessing their current pain points and determining whether investing in real-time now—or in the very near future—makes sense for them.