While explaining the business application of real-time, Harshit Jain, Head of Transaction Banking & Digitisation at Nucleus Software, said that: "Consumers and business customers are becoming more impatient and more demanding. They want what they want when they want it. And if they don’t get it from you they will go to your competition. Customers expect businesses to respond to them quickly, if not immediately."
Real-time has ventured in treasuries as well. The road to real-time treasury - a white paper from Deutsche Bank outlines - how the possibility of a real-time treasury, incorporating instant payments, real-time liquidity management, FX management and cash flow forecasting, is becoming a reality. The systems that enable real-time FX conversion and hedging, as well as real-time cash forecasting, are already up and running.
We caught up with IBSFINtech - a Global Enterprise Treasury, Risk & Trade Finance Management Solution provider from India and Ritesh Bhusari, deputy general manager of treasury at South Indian Bank - a major private sector bank in India, to learn their views on real-time treasury and how it is affecting the treasury operations in their respective ecosystems.
Do you think driving the development of faster payments domestically is the ideal way to develop real-time cross-border and cross-currency transactions?
IBSFINtech: The traditional way of making domestic payments like wire transfers, automated clearing house and cheque payments are rapidly changing and making its way for Instant Payments. An important ingredient in instant payments is the lower cost for both parties and quick delivery of funds in the account.
With the advancement in technology and government initiatives towards the digital economy, multiple instant payment platforms have emerged with India’s IMPS rated as the world’s best real-time payment services across 54 countries. Faster domestic payments are relatively more straightforward to achieve due to limited regulatory challenges and a unified currency regime.
IMPS based payments in India, API based payments and increased acceptance of wallet-based payments have assisted in significantly reducing the domestic payment turnaround time. Replicating a similar model, real-time cross-border transactions are also making its way using the new technology and payments methods like wallets, push-to-card options such as Visa Direct, Blockchain and virtual currencies.
However, the growth of cross border and cross-currency real-time payments have been relatively slow as it involves higher risk and requires various regulations to comply. Developing faster domestic payment networks which can subsequently be connected across borders can potentially assist in improving payment process efficiencies. Recently there has been a new breed of non-bank payment providers offering innovative e-payment methods.
With affordable international payment, segments such as SMEs stand to benefit most from the cross-border payment convergence and simplification; given that the large corporates already had access to most of these capabilities. Typical challenges noted in cross border payments including complexities in messaging formats, foreign exchange settlements and clearing methods will have to be addressed for achieving faster cross border and cross-currency payments.
South Indian Bank: Driving the development via the domestic route is certainly the ideal way. In fact, that's the path that regulators are guiding for. Whatever we do globally, the effects of that will be here. In order to build the base and to manage the cash utilisation efficiently, development of faster payments domestically is the ideal way.
Hence for banks, testing real-time cross-border and cross-currency transactions domestically makes more sense.
How much of a challenge do you think it is to get all the players – banks, vendors, payee and payer; to move to 24/7 availability?
IBSFINtech: Customers, not providers, will shape the future services and hence will continue to prove the famous quote “Customer is the King”. Interestingly, this customer will set the expectations and standards as they are seeking a seamless and transparent experience.
To have this seamless experience, one of the biggest challenges is the consolidation of infrastructure with multiple players being part of each transaction. Moving to real-time payments, this shall require a significant upgrade of internal processes and technology platforms for Banks and Corporates.
Banks shall be required to adopt smart systems to ensure real-time compliance with local and international regulations, counterparty and vendor/supplier checks with potential frauds. Corporates shall be needed to improve their internal processes and technology platforms to ensure real-time visibility of funds for their efficient deployment. Some of the critical aspects to be evaluated by treasurers for real-time payments include the risk of fraud, transaction cost and ability to cancel or revoke a payment.
Another major shift that would enhance efficiency is the government regulations which should understand the preference of the customer.
SIB: Getting all the parties involved to move to 24/7 availability will be slightly challenging for Banks. Particularly for the Banks, it will mean efficiently managing the cash reserve ratio (CRR) compliance.
Some additional staff costing is required. Now with 24*7 NEFT, Bank treasury needs to keep the funding desk open till the final settlement happens at 23:59 daily on all days. No holidays. This necessitates additional staffing cost, as CRR management desk needs to be there until 12 midnight and on all 365 days.
The various real-time payment options within Asian countries do not yet facilitate cross-border transfers. What is your take on the ASEAN Payments Policy Framework that is looking to establish cross-border real-time retail payments across ASEAN member states?
IBSFINtech: ASEAN payments policy is a positive step in the right direction. It is aimed at enabling faster cross border payments at an optimised cost. Considering the difference in currency and regulatory regimes, achieving interoperability between geographies will be crucial for the success of the platform.
Adoption of the platform will also remain a challenge due to the low penetration of digital payment modes in retail transactions. Security of various platforms involved also pose a concern as digital identity verification methods and encryption methods employed may vary.
SIB: The real-time cross border system has already started in countries like Thailand, Singapore, Myanmar, and Cambodia. I think soon rest of the countries will join the revolution. SWIFT backed real-time payment platform may come very soon. ASEAN Payments Policy Framework may be instrumental in this, however, the data safety and exchange rate problems needed to be resolved.