Sibos is abuzz with talk of real-time payments. But what impact is the ability to make payments 24 hours a day, seven days a week likely to have on the trade finance industry? Rod James takes a look.


Over the past 10 years there has been a marked change in the way new technology is adopted. For years the corporate world would embrace new ideas and these, eventually, would trickle into the consumer market. This process has gone into reverse.

The rapid development of the consumer technology market has left many businesses, particularly the larger, more unwieldy ones, playing catch-up. It has also heightened the expectations of customers who want access to services and products at any time through a number of channels.

One of the most popular themes at Sibos this year is real-time, 24/7 payments, which are set to make a big impact on the consumer market. At the moment, payments take between one and three days to clear, depending on the country you’re in, but the success of schemes in the UK (Faster Payment Service) and Singapore (Fast), among 16 others worldwide, suggests it won’t be long before instantaneous money transfer, whenever you want it, is the norm for consumers.

Though a very specialist, relatively conservative, industry, trade finance is not immune to such technological developments and their tendency to cross into the corporate space. Do real-time, 24/7 payments have a place in trade finance? And if so, what has to be done to make them possible?

The answer to the former is yes and no. Traditional trade being primarily value date-driven, with pre-defined payment and maturity dates, means the impact will be limited in that regard. But Chris Bozek, managing director, global head of trade and supply chain at Bank of America Merrill Lynch (BofAML), believes that there is potential in the open account space – for example, in being able to supply same-day funds to discounted invoices or trade bills.

Bozek sees real-time payments as part of BofAML’s ongoing efforts to speed up the processes leading up to settlement. The bank is in the process of digitising all activities that take place prior to payment – to increase the speed that it can match invoices and purchase orders, help clients process through their ERP systems and send compliance documentation. Real-time payment won’t be integral to the bank’s trade finance offering, more the final piece of the puzzle.

“Real time settlement is just another tool to drive down days sales outstanding [DSO],” he tells GTR. “As clients seek to further optimise cash and as that space becomes more mature and the clients continue to become more sophisticated, having this offering is going to be an increasingly important differentiator… With advances in the physical supply chain accelerating ordering and delivery capability, the financial supply chain, including payments, needs to keep pace.”

Karin Flinspach, head of cash payments in the transaction banking division at Standard Chartered, is a little more sceptical about the role real-time could play, at least in the short to medium term. She sees some potential in the open account space, particularly in small-business-to-big-business transactions, citing the example of a cigarette retailer and wholesaler, where real-time shipment and credit availability are particularly important. On the whole, however, she believes it will be a long time until all the stars align in the right way.

The systems currently in place that have worked well for consumers have capped payment amounts and are not designed for high-value trade transactions. The system with the highest cap, Faster Payment Service in the UK, allows for real-time payments up to £100,000 – not a lot in the context of global trade.

Adapting these systems for use by corporates making big trade finance transactions will require co-operation between banks, central banks and regulators. Central banks will have to harmonise their settlement processes and come up with a unified way of dealing with payments made outside normal office hours, when the payment banks would be exposed to the most risk. Flinspach doesn’t believe there’s the impetus or sufficient advocacy from within the industry for this to take place.

“Can it still apply or not? Of course for smaller settlements, yes it could,” she says. “The conclusion we have come to from the SME side is that, at this point in time, the application is not valid yet.”


Many rivers to cross

There are other big questions to be answered, not least around the issue of compliance. Banks’ compliance and KYC teams are overstretched as it is without having to apply AML and sanctions-related checks in real time and no bank needs the reputational damage that green-lighting dodgy payments can bring. For this reason, compliance teams need to be in on the discussion from the beginning to make clear what is realistic from a risk standpoint and manage the expectations of their product-focused colleagues.

“We bring in our compliance partners, our sanctions partners early on and throughout to make sure that, as we are delivering better solutions, we are doing it in a responsible manner, especially given the increasingly complex compliance parameters and the fact that there are jurisdictional variations that we must manage against,” Bozek says of BofAML’s work in the real-time space.

Flinspach thinks that compliance teams would take the real-time challenge in their stride but they would have to ensure that their systems are up to scratch – the current systems are largely automated anyway.

“I think in compliance there are certain things that we just have to do,” she says. “It’s no different for the real-time system. Some of the sanctions checking in pre-transaction processing is very automated. Other compliance disciplines are post-processing and that would again apply to real-time payments as with any other payments. It’s really the technology that makes this possible… Banks just need highly automated systems.”

Getting these systems up to date will cost a lot of money and banks are unlikely to make the investment unless they see others doing the same. This, in turn, will be driven by corporate demand and the competitive landscape. If real-time payment systems aimed at consumers start to raise their caps and it works out well, this could provide the incentive for banks to start co-operating on applying real-time, 24/7 principles to high-value trade transactions.

Looking further ahead, Bozek would like to see real-time cross-currency transactions, a move that he believes could be of very significant commercial value in a world where the US dollar is not as dominant as it used to be.

“If we are really looking at delivering breakthrough value, more and more trade transactions are being conducted in non-US dollar currencies,” he says. “So the ability to conduct real-time cross-currency transactions without payers having to maintain accounts in multiple currencies – that could be a game changer. Today typically a cross-currency payment can take three to five days, perhaps longer, using the traditional correspondent bank model.”

Again, Flinspach adopts more of a wait-and-see approach: “If particularly on the e-commerce side, cross-border settlement becomes more the norm, there might be some industry forces who push that agenda very heavily with regulators or with payment banks,” she says. “Then it might become interesting. But at the moment I haven’t seen such forces emerging yet.”