Faster Settlements May Add Pressure on FIs to Automate


What a difference a day can make.

The T+1 implementation for capital markets went live in the U.S., Canada and Mexico on Tuesday (May 28), accelerating the settlement cycle for securities from T+2 to T+1. And against that backdrop, financial institutions (FIs) are under increasing pressure to automate their existing manual processes and take the appropriate steps to ensure their underlying technology and operations are able to handle the new realities of the compressed settlement environment.

That’s because, absent proper solutions, FI staff relying on legacy processes will likely be under more pressure to meet tighter deadlines, potentially creating a higher risk of mistakes associated with human error.

After all, the twin pillars of end-user demand and expectations around digital convenience and faster payments, coupled with regulatory mandates, mean that FIs have had to upgrade their systems to support scale and rapid growth without downtime, a reality that could strain the limits of organizations hesitant to embrace modernization initiatives.

Forward thinking firms within the B2B space are already starting to consider what the impetus for financial innovation and modernization among FIs could mean for B2B payments, an area that is traditionally rife with manual processes and grounded in habit, not innovation.

But in the context of B2B payments, the necessity for FIs to embrace greater automation in their operations can enhance transaction speed, reliability and cost-effectiveness for both buyers and suppliers, contributing to better financial management and stronger business relationships.

See also: The Cost of Legacy Payments in Light of Innovation’s ROI

Enhancing B2B Transaction Speed While Improving Reliability

Automating B2B payment processes can significantly expedite the transaction lifecycle. Traditional manual processes, such as paper invoicing and check payments, often result in delays and inefficiencies, but automation ensures that payments are processed swiftly, which is crucial in today’s dynamic business environment where cash flow management is essential.

As PYMNTS has covered, the potential benefits of instant B2B payments — including improved cash flow management and reduced transaction costs — are driving a concerted effort among financial institutions and technology providers to develop scalable solutions, an effort that has moved front and center as a result of new regulatory mandates.

And as Sovos Chief Technology Officer Eric Lefebvre told PYMNTS, the acceleration of B2B commerce is necessitating a shift from traditional overnight batch processing to real-time payments, a transition supported by innovations like The Clearing House’s RTP® network and the FedNow® Service. The move toward immediacy also facilitates accounts payable and accounts receivable automation within enterprise resource planning (ERP) systems, enhancing efficiency in the B2B sector.

That’s because faster payments not only improve liquidity for businesses but also enhance their ability to meet financial obligations promptly, fostering a more stable and efficient commercial marketplace, ultimately transforming the way businesses manage their financial operations and interact with each other.

Still, as faster payments continue to gain traction, financial institutions must modernize their existing infrastructure to ensure they can support the needs of their B2B customers. And that frequently is not as easy, or as seamless, as FIs might want.

“For those of us in the industry, we understand the long road  it’s taken to build and drive financial institution adoption of real-time [payments] … and other new technology standards,” Seth Perlman, global head of product at i2c, told PYMNTS.

See also: What 17 Payments Experts Expect From Instant Payments in 2024 and Beyond

Overcoming the Architectural Limitations of Core Systems

The PYMNTS Intelligence report “Generation Instant: How Truckers Use Instant Payments to Support Their Lifestyles,” a collaboration with Ingo Payments, finds that 2 in 5 truck drivers now use instant payments to receive their income and earnings, and 93% would opt to get their payments instantly if they had the choice.

The marketplace demand is there for faster payments, however the limitations of core banking systems present challenges for FIs looking to adapt to modern market demands and integrate necessary new technologies — making modernization a must.

“A lot of instant payments is about moving toward this modern experience of being able to make a transaction and receive the money in real time, as one does with everything else in their life. But the issue is first we need the infrastructure,” Sean Kiewiet, chief strategy officer and co-founder of Priority Technology Holdings, told PYMNTS.

“There is the need for more developers and FinTechs to build apps and [push the ecosystem forward to] where we have a more ubiquitous experience for the end user,” Kiewiet said.

After all, the banking landscape is changing, as are end-user expectations around faster payments and digital convenience, which means that banks need to adapt and innovate or risk falling behind as their customers look elsewhere.

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