What are the key benefits and challenges of adopting real-time payments and instant settlement solutions?

In my experience real time payments are credit transfers that make funds available in a payee’s account within ten seconds of a payment order being made.

Real time payments & instant settlement solutions are payments which use gross settlement rules while settling the amounts between the financial fiduciaries. The SEPA Instant Scheme of the EPC is one of it's kind which will be categorised as an RTP scheme in the EU, the Fed Now in the US,Faster Payment System (UK), UPI, IMPS, NEFT system in India, PIX in Brazil, Swish in Sweden are some of more variants of RTP schemes in different geographies. Overall from Cash Management perspective this gives a clear real time picture of the transactions which is very helpful for forecasting without any ineffectiveness & as well helps for proper hedge accounting.

There are many benefits due this technology: - If the company has to receive the payment before to ship the products instant payments can improve the efficiency and productivity of selling cycle. - Improving cash flow and liquidity. - Improving booking and record activities. - Improving forecast and planning activities. - Reduce fraud and insolvencies.

Key benefits of RTP Solutions: - Top notch consumer experience in B2C payments, which makes the consumers less anxious to understand the status of their payments - for businesses it is helpful to realise sales immediately a payment is booked on the bank account - hence needs no accrual accounting. - Real time payments with account check helps reduce fraud, disputes & chargebacks - hence lower risks overall & high predictability of cash flows. - Reduces manual tasks of the finance teams with automated realtime reconciliation, planning & AR/AP matching.

The most important challenge is to guarantee an high level of cybersecurity and reduce risks to zero. It's really important to make people understand that the system is secure, easy, always available, fast and people can get many advantages.

Key challenges: - Businesses need to maintain AP cash balances without delays are outgoing payments also happen in realtime - For marketplaces the vendor payments also would happen realtime so they would need to ensure that the whole transaction processing happens with real cash balances & not on accrual balances. - For RTP to work in a setup like the EU SEPA, both the sending & receiving banks should bring up their capabilities to support for real time consumer bank account balances. - RTP comes with it's own risks, where recall framework would need proper protocols.

Businesses can leverage RTP payments both for incoming as well as outgoing trasactions by having sharper cash flow forecasting, managing liquidity positions becomes easier. Traditional banking systems are restricted by "banking hours" and often don't process transactions during weekends or holidays. But RTPs operate 24/7, allowing businesses to send and receive payments at any time. This is particularly advantageous for e-commerce businesses that have customers in different time zones and operate around the clock. Opens u all together new usecases for Gig economy, marketplaces business models etc.

Implementation of RTP systems is very challenging as it needs heavy investments in technology & infrastructure - businesses may need to implement new APIs, upgrade their existing banking and payment systems and make sure that they have the necessary security measures in place. For RTPs to be truly effective, they must be widely adopted and fully interoperable with other systems. Achieving high level of interoperability can be a significant challenge. Educating customers & other stakeholders about the benefits of RTPs and addressing any concerns that they may have, such as security or privacy is also key to overall success.