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Same Day Settlement: An Emerging Focus For Lenders

Society’s appetite for short-term finance offered by digital lending platforms is growing, but how can lenders get quicker access to their repaid funds?

lending blog

For many customers, easy access to loans are often a lifeline. People rely on the extra cash not only to make ends meet but also to buy life-enhancing goods and services such as holidays and birthday presents.

Due to their short-term nature, it’s no surprise that debit and credit cards are often the repayment method of choice for these loans.

As a lender, waiting for card payments to settle can be a source of frustration. It can typically take up to three days before the money shows in your account.

Thankfully, tools now exist to drastically reduce transaction processing times.

One such tool is Continuous Settlement, which settles card payments on the same day as the transaction, rather than the typical three days later.

The benefit to lenders is enhanced cash flow.

Retrieving funds owed to you more quickly means additional cash is freed up and available to lend to new customers, providing an opportunity for investment and growth.

As far as CashFlows’ Head of Enterprise Nick Dobson is concerned, speeding up payments is business critical.

He said: “Lending businesses we work with really value tools that help them understand why payments have been declined and partners who tailor commercial arrangements to their circumstances.

“But what they tell us most of all is that innovations to improve cash flow are a top priority. Reducing declines is one way of dealing with this but speeding up payments for the 95% of transactions that go through successfully has the potential to make a massive difference.”

Indeed, CashFlows recently surveyed a broad spectrum of UK businesses in finance and other sectors about the importance of payment speeds, and around two thirds of these said they would like card payments to settle much faster.

Additionally, nearly as many said they would be prepared to pay for such a service, offering an indication of the perceived impact Continuous Settlement could make to their businesses. 

Currently, lending businesses have little alternative but to live with the standard card payment cycle of up to three days. In the payments industry this is known as ‘the money-go-round.’

It’s the sector’s equivalent of ‘cashing up’ after the close of business.

At the end of each working day, all authorisation messages are batched up and sent to the relevant card schemes.

Visa, Mastercard and others divide these between the issuing banks of the various cardholders.

The banks then debit their cardholders’ accounts and credit the schemes, who in turn credit the acquirers, such as CashFlows.

After this, the acquirers pass the funds to their customers.

The speed of the money-go-round is often dictated by where the customers and their cards are based.

Cards issued locally tend to be settled a day after the transaction but in the case of cards from further afield, such as Australia, Dubai or the US, payment could be delayed by three days after the day of the transaction.

Continuous Settlement represents a different way of doing things which helps both lending businesses and their customers.

And for CashFlows’ Nick Dobson, the money-go-round is now living on borrowed time.

“Thanks to digital innovation we all expect things to happen much more quickly, whether that’s ordering a book online or paying for concert tickets. So, there’s no reason why lending businesses shouldn’t benefit from this level of convenience when it comes to getting paid.”

For more information on CashFlows' Continuous Settlement proposition click here to start a conversation.

Nick Dobson

Topics: Lending, Blogs, blog, card payments, Continuous settlement, consumer lending