When it comes to payments, the need for speed is a global phenomenon. Real-time payments have gained tremendous traction all over the world during the past year. Part of that growth was fueled by the pandemic, but it was also fueled by the momentum real-time payments had gained from efforts by operators such as The Clearing House (TCH) in the U.S. (which runs the RTP® network), NPP in Australia, NPI in India and FPS in the U.K. And although the operation of real-time rails depends on geography, faster payments are seeing new use cases, new applications and shared best practices.
At its core, real-time payments have three value propositions regardless of the country: speed, immediate availability and the ability to confirm receipt of the payment. And that value proposition has crossed borders at a greater scale in Eastern countries than in the West.
A recent study found that more than 70.3 billion real-time payments were processed in 2020, topped by India (25.5 billion), China (15.7 billion), South Korea (6 billion) and Thailand (5.2 billion). In the U.S. (1.2 billion), TCH continues to add new participants, new features, new partners and new technology.
As Steve Ledford, SVP of products and strategy at TCH, recently told Karen Webster, countries and firms can — and increasingly, will — work together to foster innovation. Innovation will center around services and applications that countries are building on top of the real-time payment rails, he noted. Eventually, the rails themselves will become secondary to the new offerings they enable, globally, across a landscape marked by interoperability. As is par for the course in any evolution, some rails will fade away, made redundant by a faster, real-time, interoperable infrastructure.
Where We Are Now
For now, we’re seeing home-grown efforts take shape in domestic markets. In Australia, for example, the initial burst of activity over real-time rails has been tied to account-to-account payments. Ledford noted that the debut of the New Payments Platform (NPP) led to PayID, the addressing service that allows users to link email addresses or phone numbers to their accounts to facilitate payments in real time. In Europe, SEPA Instant Credit transfers are slowly starting to move domestic ACH traffic to faster rails.
At least part of the real-time payments uptake in emerging markets, such as India and Brazil, has been caused by the tailwind provided by infrastructure buildouts mandated by policy. Ledford noted that in many of these markets, “you’re talking about countries where there was a large number of people who are part of economies that have been growing fast, but they didn’t have as many of the existing ways to make payments.”
In India, for example, credit and debit card usage has historically been fairly low. But with the UPI and Immediate Payments System (IMPS) faster payments plumbing in place, reports place the real-time payments volume on the subcontinent at 41 million daily transactions. According to the India’s Business Standard, the Reserve Bank of India (RBI) has now invited private players to form a pan-Indian new umbrella entity (NUE) for retail payment systems. Many banks, including the country’s largest lender, the State Bank of India, are likely interested in bidding for it.
“If you look at some of the providers of these payment applications, those that really focus most of their effort on overcoming the limitations of the existing payment system are not the ones that prosper,” Ledford said. “I think those that focus on what is happening with their customers at that point of interface are the ones that are really doing creative things. I think they’re the ones who will prosper.” In essence, then, the real-time payments systems have become “digital highways” for payments for those countries.
As different countries continue to focus on their domestic faster payments schemes, innovation will remain opportunity-driven and market-specific. As the old saying goes, tailored a bit for faster payments: Imitation is the sincerest form of — well, innovation.
A good example of that, Ledford said, is the TCH protocol around the request for payment. It was developed in the U.S., but is now being developed in other markets (notably Brazil), sometimes under the name “request to pay.” That’s a use case that balances the level of control between the biller and the payer, said Ledford, where the payment can come right at the last minute. “We’ll see a number of announcements of use cases that we didn’t think even existed,” he pointed out, with some explosive growth on the horizon as payments become not only faster, but also smarter.
“We don’t prescribe a way of using those payment systems on the U.S. — we have folks find those ways themselves,” Ledford remarked. That evolution is in evidence as receivables factoring, payroll and insurance payouts have all blossomed over real-time rails.
As for B2B payments, mired as they have been in paper invoices, checks and long settlement times, Ledford said that “there’s a lot about ‘why don’t we just have a standard way of doing invoices, a standard way of doing remittances?’ That’s missing the point, because businesses are not all the same, and they’ve evolved their own ways of getting things done … I think we’re going to see creativity with the RTP network that is going to allow folks to interact in ways that are uniquely suited to their businesses.”
We’re still a long way from cross-border real-time payments, he said — and some fine-tuning must still be done to move money instantly in a seamless, end-to-end experience. But in what will be a marathon, and not a sprint, the goal is to make these domestic schemes linked and interoperable, giving rise to a superhighway marked by instant clearing and settling of cross-currency, cross-border commerce.
“If we’re talking about cross-border payments on a global scale, you’ll have to deal with the reality that different currencies require different ways of settling,” Ledford explained. “And so you’d have to deal with the financial structure of each of the countries” — which includes checking off compliance boxes tied to AML, KYC and OFAC mandates.
The needs of one country are not the same as another, he pointed out. One market may be defined by the widespread use of credit cards and efficient ACH systems, while another market may be defined by the aforementioned “digital highway” that has leapfrogged traditional payments infrastructure.
“Not all of those use cases are going to translate, but I think we’re going to see more and more commonality,” he predicted. As to when we’ll see the emergence of a global, real-time payments network, Ledford was sanguine about just how long it will take: a few years, tops — not decades.
“One is the things we keep collectively saying [across network operators] is that we need to get the applications up and running, get that critical mass in each of our own territories. We’re all working to adhere to the same basic standards with ISO 2022. And that is clearly where all of the new systems — and the existing systems, in their next generation — are going,” Ledford said, adding that “we’ll get the traction, we’ll get the use cases.”
As he told Webster, most of the heavy lifting, at least from a technical perspective, has been shouldered: “There’s no longer the need to create a lot of that plumbing, because the plumbing’s there.”
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