Why should banks and corporates invest in realtime payments?
For corporates, the benefits stem from the capability for executing time-sensitive transactions – such as High-Value, critical vendor or M&A-related payments – while receiving close-to-immediate proof of execution instead of waiting for the specific entry to be documented by standard intraday reporting.
For banks to serve client needs, they need to be involved in these developments, which is why Deutsche Bank and others are helping develop a Pan-European Instant Payment Solution. For large banks, involvement in establishing such future payment/collection platforms is a revenue loss avoidance tactic rather than a profit creation one, as they will otherwise lose market share to disruptors. And, while urgent payments can currently be more expensive, there may be a regulatory push for banks to provide real-time payments with no extra charges in the near future.
What are the benefits and challenges of implementing pay-on-behalf-of/collect-on-behalf-of structures?
POBO/COBO structures help corporates consolidate cash flows and rationalise account structures, as well as increasing purchasing power when negotiating cash management terms with banks. POBO/COBO simplifies liquidity management, as cash is centralised through domestic and cross-border cash concentration. It also allows for streamlined cash management activities across subsidiaries, as payments and receivables are bundled in one place (such as a Shared Service Centre) for execution out of the central account. Improving cash and liquidity management in these ways reduces credit need and the operational burden on subsidiaries.
Deutsche Bank’s experience and feasibility studies on POBO/ COBO in Europe over the past four years have shown four kinds of challenges; market-specific practices, and legal, tax and operational considerations. In addition, POBO/COBO structures differ in the status of the underlying account. For POBO, the ordering account can be a normal operating account in most jurisdictions but, since funds collected within COBO structures often relate to different legal entities, the underlying account is often considered a trust account. This has further implications. For instance, depending on regional Anti-Money Laundering laws, an account can contain either own funds of the account holder or funds that belong to third parties (trust accounts) – not both. That in turn may require corporates to separate some incoming transaction flows from the entities flows’ part of the on-behalf-of structure.
If you want to find out how the main friction points in B2B cross-border payments will evolve in the next years download the B2B Fintech: Payments, Supply Chain Finance & E-invoicing Guide 2016.
About Andrew Reid
Appointed to his current role in 2013, Andrew has been with the Bank for 17 years, within corporate cash management and trade finance. Andrew supports and advises clients in adapting to the new regulatory environment and optimising their treasury operations.
About Deutsche Bank
Deutsche Bank provides commercial and investment banking, retail banking, transaction banking and asset and wealth management products and services to corporations, governments, institutional investors, businesses, and private individuals. Deutsche Bank is Germany’s leading bank, with a strong position in Europe and a significant presence in the Americas and Asia Pacific.
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