How Real-time Payments Can Help Businesses Better Understand Their Liquidity

Introduction

Last year, my teammates at Levvel and I participated in the Real-Time Payments (RTP) Buildathon, sponsored by The Clearing House (TCH), Oracle, Yodlee, and The Carolina Fintech Hub. We were tasked with creating a compelling use case for leveraging the RTP rail and building a working prototype to demonstrate our idea. As payments consultants, we wanted to solve a problem that we’d seen first-hand with large businesses and their enterprise accounting systems (ERPs).

Today, corporates face significant challenges in getting real-time access to their transactional data. Most large businesses receive a nightly batch file with their account activity from their bank, independent of payment speed. The majority of these businesses have an accounts receivable team that then manually matches their incoming payments to any outstanding invoices. Our research shows that 61% of businesses with ERPs do not have automatic invoice reconciliation and are engaging in such a resource-consuming manual reconciliation process. Importantly, the batch and manual processes create significant lag time in updating enterprise accounting systems, causing cash balances to be stale. For businesses to take advantage of RTPs, their ERP should be updated instantaneously, as the payments are processed.

The Problem

Our solution takes advantage of two main benefits of TCH’s RTP rail, including the immediacy of the payment and the fact that RTP payments can include rich data. RTP ISO 20022 messages have a standard messaging format for sending and receiving payments with remittance data. These messages can include data such as invoice numbers, purchase order numbers, customer identifiers, or other information linking the RTP payments to bills.

In our RTP Buildathon solution, we provide corporates with real-time access to their RTP data, rather than waiting for a batch file. As soon as the Corporate’s bank receives a real-time payment, the transaction information is forwarded to the Corporate’s ERP via an API. The ERP then uses the enriched data that can be housed within the RTP message (ISO 20022) for automatic invoice matching within the ERP, eliminating any manual steps. The solution improves the business’ back office because it reduces the time, money, and number of people required to keep the business’ ERP up-to-date, enabling scalable growth and a competitive advantage.

The Solution

Beneficiaries of our solution include the banks, their corporate customers, and TCH. When the banks offer an improved way to release RTP transaction information, they can monetize their offering and differentiate themselves in the market because they are providing a better customer experience to their corporate clients. Corporates can improve financial forecasting and back-office automation. Finally, The Clearing House could see an increased interest in RTP from corporations, who may begin to send large volumes of payments over the RTP rail.

We are proud to say that our idea was awarded the Best Back Office Improvement in the 2019 RTP Buildathon.

You can learn about real-time payments with Levvel’s RTP vlog series. To see if your bank is ready for real-time payments, see Levvel’s 2020 RTP readiness report and implementation considerations checklist. You can also read about RTP adoption waves and readiness.