2017 is a Big Year for Real-Time “Instant” Payments
With two major real-time payment schemes going live later this year, the pan-European EBA SEPA Instant Credit Transfer Scheme (SCT Inst) and The Clearing House (TCH) Real-time Payments Scheme in the US, banks have their work cut out for them.
While many banks are working on the technical challenges of implementing real-time processing and connecting to new central infrastructures (by all means not a simple task), so far many financial institutions have paid little attention to what their customers actually want. Let’s not forget, the end-user – businesses, corporates and consumers – will decide whether the new schemes will be successful or not.
SMEs Have Spoken, and They Want Immediate Payments
In our recent real-time payments global survey, we asked small and medium sized business (SMEs) in the US, France, Italy and Germany how important real-time payments and other innovative banking services would be to them. It came as little surprise that almost half of SMEs (43%) said that being able to send and receive payments in real-time would be ‘essential’ to the success of their business. 65 percent of SMEs stated that real-time payments would even be an incentive for them to switch bank account providers. (65% in the US, 90% in Italy, 75% in France and 58% in Germany.)
Real-Time Payments Offer a Prime Opportunity to Increase SME Customer Satisfaction
- Competition is increasing and customers have more choice. Financial institutions must offer instant payments or risk being replaced.
- SMEs are willing to embrace innovative, digital payment services that can help their business succeed.
One of the biggest surprises coming out of our research was the huge gap between the high demand for better and faster banking services among SMEs on the one hand – and the general awareness of the schemes that are about to be launched on the other.
According to the survey, the majority of businesses in the US and Europe are not even aware of plans to develop real-time schemes: 81 percent of SME decision makers in the US had not heard about the TCH real-time payments scheme. In Europe, 55 percent of French businesses and 80 percent of those in Germany were not aware of any plans for pan-European real-time payments.
I think that banks are missing a big trick: they (the banks) now have a real opportunity to work with their customers and develop the products that would offer them the innovative services they really want.
In the UK, we have had Faster Payments for almost 10 years and SMEs in particular have profited in a number of ways:
- Cash flow is king for SMEs: Payment terms for smaller businesses are often based on what others do in the same field. These payment terms are often based on tradition (e.g. invoicing clients at the end of the month and allowing 30 days to pay.) Believe me, things have become a lot faster in the UK. Builders, cleaners, gardeners today expect instant payments from their clients once the job is done. This in turn allows SMEs to better manage their cash, reduce costs chasing payments, and actually gives them more time to earn money and invest in the business.
- SME supply chain: The use of immediate payments will considerably improve the financial performance and management of SMEs. The need to hold stock will be greatly reduced as businesses will be able to order ‘just in time’ and pay suppliers ‘instantly’ to deliver goods. It means businesses do not have capital tied up in stock and storage costs any longer, or need to sell off ‘old’ stock in sales. SMEs will be able to perform better cash management and won’t have to reconcile orders and deliveries vs. stock and cash movements at the end of the month.
- Salaries: Small businesses increasingly use Faster Payments to pay salaries to their employees. This is typically the case for paying wages to casual staff; on a Friday for example, a small business can pay an an employee for the 20 hours they worked that week once their work is actually done, and they will see the money in the account before they leave.
Once instant payments are available to the market, we will witness innovations that we have yet to imagine. Many of these innovations will have ripple effects on both retail and commercial banking, as well as potentially significant implications on society and our general everyday life.
Where should a financial institution begin? By accepting, then embracing, the opportunities that instant payments will bring and educating their clients; and by thinking long-term and ‘big-picture’, banks can lay the foundation of their innovation strategy for the next twenty years. But one thing is certain today: the impact of instant payments will go well beyond speed.