I am pleased to be working with Conrad Sheehan on developing this blog. Conrad is a leader in our payment processing in North America. He works directly with our financial services companies on strategic, operational and technical issues and is at the forefront of developing real-time payments.
Digital technologies have led us to long for immediacy. We receive packages in one hour. In a few sessions we look at whole seasons of our favorite shows. And a world of information and services is just a click away. But even in our culture of immediacy, the payment process takes one to three days. A life in the digital world.
The writing is on the wall
It is undeniable that payment systems for a digital economy need to be modernized around the clock. Consumer demand, technological advances, government mandates, central banks and private organizations are driving instant payments worldwide. Currently 46 countries are equipped with immediate payments, twelve more are in the planning.¹ The global real-time payments market is expected to reach $ 26 billion by 2023.²
Payment Department executives see the writing on the wall. Many see instant payments as a powerful catalyst for restructuring financial infrastructure and managing payments. Those surveyed in the Accenture 2019 Global Payments Survey see that instant payments are fast becoming the industry standard. A typical example: 96 percent in North America indicate that payments from end users to businesses are already being processed more quickly.³
Immediate payments are also key, as the customer experience becomes the currency of competitiveness in retail and commercial payments. Managers are aware of the influence of payment transactions on the balance sheet. The advantage lies not only in the generation of fee income, but also in the differentiation of banks by extending the value proposition beyond traditional transaction processing.
The United States is a backlog of payments compared to the rest of the world. Real-time payments are the first new payment method the country has introduced since the 1970s. Getting there is complicated by a number of factors that are unique to this market.
First, there is the immense market size and inherent complexity. There are approximately 10,000 depositaries, 21 million corporate payers and an economy of $ 18 trillion.4 And the US market is anything but monolithic. It's a hydra. The country's financial institutions serve countless constituencies and have a variety of operational and technical infrastructures. All of this has significant implications for the payment transaction transformation.
Real-time payments are the first new payment method the country has introduced since the 1970s.
Secondly, there is no mandate here to force the banks to participate, which is philosophically oriented to the typical functioning of the US economy. While the Federal Reserve set the 2017 Fast Payments Task Force a goal for the ubiquity of real-time payments by 20205This effort differs greatly in its practical application from a regulatory mandate.
Lessons from the world
Despite these challenges, there is momentum in the US to introduce real-time payments. We have had more discussions this year with a number of financial institutions to take advantage of real-time payments – from mega banks with massive balance sheets to medium and small market institutions.
For these institutions, there is no standard cut-and-paste solution to define their path to real-time payments. In our experience, there are three ways to accept real-time payments: fast, typical and slow acceptance. While there are striking differences in these paths, other countries' experiences provide guidance to US financial institutions for developing their real-time provision and monetization strategies. Consider these examples:
- A successful system Mexico Payments for social security and public sector payrolls are processed through the Bank of Mexico's SPEI® system. This resulted in an implicit mandate that spurred the acquisition. In addition, national marketing campaigns helped foster public participation, as well as bespoke technical solutions aimed at national ubiquity.
- in the AustraliaThe New Payments Platform (NPP) has acquired four percent of interbank clearing within six months. Overlays – services in addition to the central clearing and settlement functions – contributed to the acceptance. Car payments are one of them, and nowadays car companies are paid in NPP for four seconds.
- Dollar bills and overlays such as extending payment thresholds from £ 10,000 to £ 100,000 and enabling 24/7 direct business access helped Great Britain drive the impressive volume increases in consumer-to-business and business-to-business payments in the first decade of Faster Payments Service.
The journey ahead of us
With the Fed's recent announcement of its FedNow service, the momentum of real-time payments will only accelerate – and become more complicated.
Nevertheless, the ubiquity of real-time payments must be the ultimate goal. To achieve this, the scale and diversification of stakeholders needs to be tackled. Financial institutions must also develop strong use cases that double security and fraud prevention and build flexible technical infrastructures to position themselves in a world where payments are instantaneous.
Learn more about real-time payments in a recent webinar. Real-time payments in the United States: a customs clearance, Take a moment to read Mark Quigley's latest blog, "Expecting payments, this instant!" To read.
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1 InstaPay Tracker
2 Market and markets, "Real-time payments worth $ 25.9 billion by 2023"
3 Accenture 2019 Global Payments Pulse Survey
4 InstaPay,"Real-Time Payments in the US: A Game of Customs" 06/13/2013
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