Through collaboration, banks can offer corporates access to affordable, friction-free, real-time cross-border payments, writes Jon Levine, Banking Circle’s co-head of institutional banking

Corporates join the real-time payments revolution

Instant payments both locally and cross-border have become so normalised for retail customers that they would simply go elsewhere if subjected to the costs and delays businesses experience with sending and receiving payments. Thankfully, though, change is on the horizon.

I believe that the real-time payments revolution will soon begin to benefit corporates of all sizes at much lower, more accessible cost. It will even work for those dealing with cross-border payments. A real life, modern day game-changer. 

The race to deliver instant payments  

Most countries are developing or have already launched new schemes to provide real-time payments. Schemes that have yet to launch will be live within the next few years, meaning most banks and their customers will soon be addressable over these instant schemes. The significance of the change we will see in the next few years should not be underestimated. It will be fast, it will be a paradigm shift, and afterwards—just like retail customers do today—we will wonder how we put up with such slow payments in the past.

But we are not there yet.

Supporting the post-Covid business bounce-back

Businesses of all sizes, but especially the smaller firms and startups, need all the help they can get to bounce back from the impact of Covid-19. Accelerating the corporate element of the real-time payments revolution is a crucial piece in the jigsaw.

Businesses of all types, sizes and industries have immense funds perpetually tied up in the payments system. That is vast sums of inaccessible, unusable cash. For large companies that adversely affects working capital metrics. For smaller companies, the issue is much more critical. A delay in cash flow can have far more significant consequences. Just imagine how the payments landscape and business potential will change as real-time technology is applied.

Suddenly a batch of corporate payments get parcelled out over the payment schemes to run disbursement quickly and at low cost. Balances in the payment system effectively drop to zero, cash flow is maximised; businesses have the liquidity they need to flourish. It will be game-changing, and we will not look back.

So why isn’t this game changer already being delivered? For many banks, it comes down to the inherent legacy systems on which their operations are built.

There are some institutions leading the way, already playing their revolutionary part, and they will be the winners. But for others, with legacy systems holding them back, re-engineering is needed to take full advantage of instant payments for corporates.

There are often issues connecting banks’ front end—what the customer sees—through to the instant payment schemes themselves. There are also challenges with managing liquidity by bank treasuries outside of normal working hours, the dreaded payment repair queue and sanctions screening. Each of these issues diminishes the benefits of instant payments.   

Overcoming hurdles through collaboration

The need is urgent to make instant payments for corporates—large and small—a top priority.  But for some institutions, particularly the smaller, local banks, the cost and upheaval of re-engineering their underlying systems is too big a challenge. Such banks are increasingly recognising the value of collaborating with niche providers to offer innovative and affordable banking solutions, including instant payments, for their corporate customers.

Research we conducted last year among C-suite bank executives across Europe found that half already had partnerships or planned to work with an external provider within the next month; another third planned to partner within the next 12 months.  

The niche expertise of specialist banks and fintechs, as well as their commitment to building the payment rails for instant payments, holds real appeal. It means banks can offer corporates access to affordable, friction-free, real-time cross-border payments that will bolster international economies at a time when they are in great need, as we recover from the economic impact of Covid-19.

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