Real-time payments: is your back-office ready?

What are real-time payments?

Real-time payments are any payments initiated or settled instantly.

While these payments were an anomaly only three or four years ago, real-time infrastructure is live in over fifty markets today. Consumer expectations for instant digital payments have been a big part of this transformation.

We can expect this to gain widespread momentum moving forward, considering that:

  • Authorities and central banks alike continue building new and expanding existing real-time infrastructures
  • Real-time transactions jumped to 118 billion in 2021, up from 70.3bn in 2020
  • 85% of banking executives believe that real-time payments are foundational to growth and new product enhancements

What are the benefits of real-time payments?

There are two core benefits to real-time payments. Speed is the obvious one, but another important dimension is precision: instant payments can facilitate the smallest transactions with no friction by precisely matching demand with supply. This helps reduce credit risk through real-time settlement.

Why are real-time payments a challenge?

In simple terms, real-time payments are a challenge to firms because back-office processes are rarely fast and agile enough to accommodate the real-time capabilities of the frontend.

Core financial control processes like reconciliations are often a pain point for many. After all, real-time payments demand real-time reconciliations. Trying to do this in modern real-time payment networks, where data and messaging move freely alongside payments and reconciliations occur in real-time, is impossible with outdated methods like spreadsheets.

Optimising the back-office for real-time

With real-time payments set to become more ubiquitous, outgrowing dated methods and getting the back-office up to speed should be top of the agenda. However, our recent survey of over fifty respondents from payments and e-money firms reveals that there is more work to be done.

Fully automated companies (23%)

Fully automated reconciliations ensure that beneficiaries are receiving funds promptly and that firms have better visibility of funding requirements.

That being said, fully automated companies are also at risk when it comes to system issues. If any part of the process encounters a problem, it can have a detrimental impact on real-time processing. This is especially problematic for those with clients who are accustomed to instant payments.

Companies creating batches of fund transfers for specific times (41%)

Most respondents process reconciliations in batches, representing the natural order of data flow in the payments ecosystem. This is driven largely by reliance on legacy platforms that require increased processing capacity to create batch-driven outputs. But creating batches of fund transfers will fall well short of real-time requirements.

When processing transactions in batches, any issues with related systems can prevent the entire batch from running through. Even when payments are processed as expected with no issues, processing in batches often creates a delay before beneficiaries receive funds. This can sometimes incur additional costs.

Entirely manual companies (19%)

Relying on spreadsheets in the back-office will leave firms well out of touch with the demands of the frontend.

Entirely manual processing requires manpower and additional checks to avoid processing errors. The overnight delay in executing payments frequently causes cash forecasting and funding issues because there is no clear picture of current balances.

Companies that are unsure (16%)

In-keeping with this survey, we find that many payments executives today lack visibility of core back-office processes like reconciliations. This stems from the fact that many companies have prioritised the front end of the product in recent years, with much less thought given to back-office optimisation.

Firms should take the time to review the efficiency and effectiveness of their financial control processes, especially because the next few years will pile even more pressure on the back-office of the payments world.

The way forward

Reconciliations are the core of any payments’ back-office. It is therefore surprising to see that the path to fully automated real-time reconciliations are some ways off.

The impending move to real-time payments will demand back-offices that can keep pace. Finance and operational teams should look to ditch the usual patchwork of outdated systems, spreadsheets and platforms in favour of more modern solutions.

Best-in-class solutions will reconcile payments and investigate breaks in real-time. Resolving breaks as and when they happen reduces workload for finance, operations and treasury teams and even produces a better experience for the end customer.

Successfully facilitating real-time payments reduces costs, improves visibility, optimises cash flow and enhances liquidity management. Those firms yet to develop real-time reconciliation capabilities should consider how modernisation could give their back-office a competitive edge as real-time payments look set to form the cornerstone of the global payments system in the years ahead.  

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