Citi Perspectives 2024 Corporates Edition

32 | Services Citi Perspectives This also begs the question; will some movements of money still need to be slowed because of balance sheet constraints? Of course, they will. Most instant and real-time payments systems have caps when they first launch. As the market matures and flows become better understood, these limits can and will rise. A fly in the payment ointment: The challenges of real-time payments We have talked a little about payments and liquidity. In today’s world, which runs on cutoff times and an end-of-day basis, information reporting happens via files periodically transmitted between financial institutions and their customers. This all works very well when the world runs predictably and at a measured pace. But what happens when you introduce unpredictability or when the speed of money increases? Things begin to break down. Have you ever wondered why banks want you to let them know when you will send large payments that are not routine? And if you do, the wire sometimes does not go as fast as you would expect? The bank is slowing it down because they must stay in compliance with liquidity regulations that dictate sufficient liquidity to support the movement. It’s no different than when the famous character J Wellington Wimpy of Popeye famously says, “I’ll gladly pay you Tuesday for a hamburger today.” If one thinks about the process of managing treasury, where payments and liquidity run 24x7x365, and at a high velocity, the question becomes, how do I manage cash positions where cutoff times and end-of-day no longer apply? Similar constraints in transaction flows happen in the stock market. What happens when a particular stock or the entire market declines in value too fast? A circuit breaker is hit, and trading is halted temporarily. Because the stock exchange is a centralized market, it is far easier to manage. As real-time payments are introduced, additional challenges arise. For instance, how does a bank’s customer stop payments from going out in a real-time world where the customer does not have sufficient funds in their accounts? Clearly, having some friction in the system serves a purpose. These are just some of the issues the marketplace needs to consider. Let’s draw on another analogy. A pilot friend of mine who flies small planes once told me he had to think one minute ahead of where he was. What he meant was, given the speed of a small plane, he was always thinking about what could happen and where he could put his plane down or what traffic he might need to avoid. This is analogous to a highly manual and simple treasury. If you think about the modern jet, they are much faster and have a good level of support in terms of autopilots and other systems that help the pilots anticipate what’s ahead. The treasury of today is similar in that it is semi-automated, but still dependent on human intervention. When military helicopters fly fast and close to the ground at night to avoid radar detection,