Impact of instant payment and intraday liquidity on the corporate liquidity management ecosystem

Management summary

The primary responsibility of all corporate treasurers is to ensure their organisations meet any financial obligations as they fall due. To fulfil this responsibility, corporate treasurers rely on their banks (and other payment service providers) to process payments (both disbursement and collection) accurately and in a timely manner. To be able to do so, banks generally need to have access to multiple payment systems, and they need to manage the level of liquidity they provide to these systems to ensure payments, especially time-sensitive payments, are processed without delay.

Over the last decade, infrastructure supporting instant payments processes has been developed. To date, instant payments have primarily been used by consumers, with limited adoption in the realm of business-to-business (B2B) transactions, largely due to the transaction amount limits currently in place for instant payments. While the increase (or abolition) of these transaction amount limits is expected to increase B2B instant payments, some key constraints to their widespread use for B2B transactions remain, both on the corporate and on the bank sides of the corporate liquidity management ecosystem.

This paper argues that companies are only likely to choose to use instant payments if they already follow a “just-in-time” business model. That said, over time, it is likely that payment service providers, including banks, will migrate their clients from batch-based (ACH) payments to instant payments, compelling corporate treasurers to re-evaluate their forecasting processes and operating procedures. At this point, banks will be faced with twin dilemmas: how to ensure they provide sufficient liquidity to instant payments services to ensure time-sensitive payments are processed instantly (especially outside normal banking hours) and how to manage their own intraday liquidity to the satisfaction of their shareholders and regulators. This paper concludes that both sides of the ecosystem stand to gain by cooperating and sharing information, in the expectation that this will allow both corporates and banks to improve their use of intraday liquidity.

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