Real-time pay laggards punt on security, liquidity and savings

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Real-time and instant payments offer significant opportunity to reduce costs and enhance working capital, which delights customers and suppliers who welcome the seamless, dynamic and instantaneous user experience.

Consequently, finance managers need to work with their commercial colleagues to understand the company’s payment and collection needs, and design a strategy that meets the requirements of both payers and payees.

Payments are at the heart of any transaction, whether physical or digital, but friction or delay can be a major drag on commercial transactions and ultimately entire ecosystems.

This issue has risen to the fore as digital business models have proliferated, and their success depends on an instant experience and highly integrated, efficient ecosystems. Real-time or instant payment methods, now a global phenomenon, have emerged strongly in response to this challenge, leading to an expectation among both consumers and businesses that transactions will be fast and frictionless.

Most companies have relative freedom in choosing their outgoing payment methods, but the choice of payment methods a company offers to its customers will often be driven by competitive factors, and a desire to optimize the customer experience.

While many consumers and large businesses are keen to adopt digital, real-time payments, there are still some groups of users that tend toward longer-established payment methods that are inconsistent with the digital economy.

For example, in countries such as the U.S., many consumers and small businesses still prefer to use cash and checks, partly due to the perceived credit benefit of the mailing and float period. However, processing cash and checks is expensive, time-consuming and high-risk for businesses. Similarly, while cards are convenient and widely accepted, and the credit component can be attractive for payers, they can be costly for merchants to process and value is not always realized immediately.

In contrast, real-time digital payments are secure, convenient, low-cost and offer significant liquidity advantages. Furthermore, the quality and consistency of data helps to automate processes such as reconciliation and instant posting to customer accounts. This is essential in allowing the dynamic exchange of goods and services across ecosystems.

Finance and commercial managers therefore need to create a positive experience for buyers and sellers that outweighs the perceived value of credit or float. Companies may offer incentives for customers to use — and suppliers to accept — preferred payment methods. For customers, this could include discounts for purchases using certain payment methods, "pay later" schemes, customer loyalty points or promotions, as well as an easier purchasing experience. For suppliers, preferential payment terms or financing rates may help to encourage suppliers toward accepting digital payments.

By Tarek Elyafi and Shantanu Vijaykumar Bhosale

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