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Leveraging Digitized Banking in Pursuit of Real-Time Payments

Technological advancement has many benefits, but secure and instantaneous cross-border payments are high on the list of goals.

As seen in Institutional Investor

Asset managers have cash on their minds more than usual these days, and that can spell a challenge for banks. Volatility puts a premium on liquidity, and the lackluster performance of stocks and bonds at the same time has put cash at the center of many investment conversations. Investors want cash more readily available for use in strategies along varying time horizons – from ASAP to long-term – and across jurisdictions globally. In a happy coincidence, innovations in the digitization of banking are keeping pace with expectations around access to cash.

“There’s a huge appetite to maximize cash usage across all of our clients and product types at the moment,” says Justin Chapman, Global Head of Digital Assets and Financial Markets, Northern Trust. “Transactions stuck in payment networks or payment cycles are not an efficient use of cash. There’s demand now to maximize cash output to make sure cash is positioned appropriately. For example, you might have a cash position on one system or product but need to use it for instantaneous settlement somewhere else.

Demand for improved liquidity and super-efficient movement of cash through various processes is likely to continue to grow in the current economic and investment climate. And that’s a differentiator for leaders in digitization, such as Northern Trust, which expects that by 2030 between 5% and 10% of its assets under custody and administration could be digital assets – either cryptocurrencies, stable coins, central bank digital currencies (CBDCs), or tokenized/natively issued digital assets.

“Creating digital assets and other activities within a new environment is pretty pointless unless we have real time autonomous cash delivery,” says Chapman. “There’s no point in settling a transaction automatically on a security when there is a cash lag of two days. That creates an imbalance in the market’s structural support and denies clients the capability to utilize their liquidity as they should be able to do within a digital environment. In terms of evolving solutions, we’ve seen a lot of movement recently in how networks themselves can support digital cash transactions, which in turn can support financial institution transactions.”

Hiding behind the cash lag Chapman cites, are regulatory challenges in deploying innovative technologies, particularly when it comes to enabling real-time, cross-border payments.

"Most of that is the result of local clearance,” says Peter Sanchez, Global Head of Banking and Treasury Services, Northern Trust. “In the world of CBDCs, that will diminish. And as machine learning and data improve, we’ll see more synergies in the digitization of the payments business and digital currency.”

Crypto provides a lens for opportunity

With all the attention digital currencies garner it’s interesting to consider them in parallel with banking digitization. They are not one and the same – parallel advances aren’t occurring in a cause-and-effect manner, but mutual benefits could appear in the future.

“CBDCs and the demand for real-time settlements will leverage distributed ledger technology (DLT) and other methods to create real-time payments,” says Sanchez. “That’s the ultimate objective in the transactional banking business. To achieve that, it’s important to optimize the account opening process, make sure you don’t have any mishits in sanction reviews, and so forth. Eventually, with effective digitization of currencies, cross-border settlements should be simplified and move toward being real-time.”

In the nearer term, advancements are taking place with direct banking application programming interfaces (APIs) that will aid in creating more efficient transactions across the investment landscape. For example, by improving transparency for traders into whether there is sufficient cash in a counterparty account to satisfy a real-time transaction.

“An open API network gives us the opportunity see into cash positions to make sure that cash is where it needs to be to meet obligations,” says Chapman. “We’re starting to see that level of technology being deployed within some cross-platform ecosystems. That’s interesting, because not only are transactions being digitized, but it’s adding an extra level of assurance.”

While the optimal goals of digitization are pursued, another embodiment of innovation coming into its own is the use cases around stable coin networks to underpin payment networks, which are disjointed globally.

“There may be interim opportunities to mobilize around a token that will allow settlement or servicing of contractual cash to achieve the benefit of a real transaction but with the cash movement afterwards,” Chapman says. “Combining that with APIs could see instantaneous movement of cash and liabilities across balance sheets and accounts, which is quite dynamic.”

In the end, digital banking will continue to focus on security, resiliency, and efficiency, and over time, digital currencies will likely drive digital banking to the promised land of straight-through processing and real-time payments.

“Tremendous strides are being made,” says Sanchez. “The ultimate iteration may leverage SWIFT and ISO20022 and lead to real-time payments utilizing CBDCs and DLTs, but it can also go beyond this to include efficiencies for the account opening process, anti-money laundering requirements (AML), sanction reviews, and “know your customer” due diligence procedures (KYC).”

Justin Chapman

Global Head of Digital Assets and Financial Markets
Peter Sanchez portrait

Peter Sanchez

Global Head of Banking and Treasury Services

© 2023 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret) [VAT if applicable], address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.