Real-time payment infrastructure adoption has grown substantially in recent years. Over 30 European countries, plus the US and Australia, now either have or are developing their own version of a 24/7/365 realtime clearing solution. It is now up to banks to ensure that these new pioneering capabilities can be delivered to clients.
Several factors have been combined to drive the desire for real-time payments functionalities. First, the pace of hightech evolution that has occurred across multiple sectors and industries has meant that client needs have become more sophisticated, triggering a growing demand for new, cutting edge capabilities to be applied to payments.
Second, traditional payment and settlement methods, such as Automated Clearing House (ACH) or checks in the US, have often not been able to meet new client expectations in today’s digital, ondemand world. Prior to the introduction of RTP – an entirely new payment rail – no significant infrastructure upgrade had been made to the US payments network since the implementation of ACH in the 1970s.
Third, an influx of fintechs has entered the marketplace, vying to provide attractive, niche solutions – whether by introducing enhanced speed from an availability perspective, greater convenience, or lower fees.
This competitive landscape has sparked a great deal of payment innovation, bringing industry players together through different means, and acting as a catalyst for current rapid developments.
Transforming US payment systems
Taking the US as an example, banks have embraced this changing landscape, but they still have more inroads to make. The Clearing House (TCH) and its member banks launched RTP in November 2017 (BNY Mellon originated the first ever transaction), using new technology to deliver an around the clock system that clears and settles payments within seconds and provides real-time transparency to both parties with robust messaging.
The flexibility of RTP also allows it to interact with various payable/receivable solutions and industry platforms. For example, by connecting with directory services – which enable payments using a nonsensitive identifier (such as an email address or mobile phone number) – users can also benefit further from realtime payments.
Six of the largest US banks are currently on the network and approximately 50% account reach is predicted by the end of 2018. Yet, unlike most markets, including the UK, Australia and Singapore, which have a handful of core banks, the US has over 10,000 financial institutions (FIs). This creates a very different dynamic, with thousands of banks required to build, connect to and rollout real-time payment capabilities in order to ensure market reach. What’s more, the aim is for this to be in place by the end of 2020.
Undoubtedly, getting over 10,000 banks on the network so quickly is a massive undertaking. The costs of investment and connecting directly to the RTP network can be substantial and may present a challenge for many FIs. Indeed, many banks do not have the capabilities or scale to get onto the RTP network (or implement other functionalities) by themselves. But outsourcing some or all of the capabilities by partnering with a correspondent bank can significantly reduce the level of investment required – enabling institutions to deliver a transformed payment experience to their clients, and one fit for this digital age.
Beyond borders
The need to provide a better experience with greater speed and transparency applies just as much in crossborder transactions. While many of the drivers are the same as for domestic real-time payments, they are amplified on the cross-border side. With multiple banks involved in the chain and money moving between the networks of different countries, payments take longer to settle, tracking becomes more complex, resulting in an even greater lack of transparency, and fees are typically higher. Initiatives are underway to help address these issues, with three, in particular, holding a great deal of promise. First, SWIFT’s global payments innovation (gpi) initiative is already enhancing cross-border payments by adding transparency and speed. Second, distributed ledger technology – while still at an exploratory stage – could add value and be used within a private network of banks.
Third, there is the potential for interconnectivity between domestic real-time payments systems. While there are many challenges to overcome for formats and countryspecific payment regulations, by using common standards such as ISO 20022, it should eventually become possible to stitch together the different networks.
Finally, there is also the possibility of interconnectivity with mobile payment networks, particularly with those in emerging economies where phone providers are often used to execute payments. For some of the more developed countries, the ability to pay both inside and outside those emerging regions and the interoperability with the mobile payment networks in these regions will be key to achieving a truly global realtime payments ecosystem.
In short, the world of real-time payments is gaining momentum, partly by design and partly by necessity, resulting in developments that are genuinely transformational. By working together, banks can secure their place at the forefront of payment innovation, extending the reach of realtime and delivering an enriched payments experience.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.
About Karen Braithwaite and Carl Slabicki
Karen Braithwaite is Head of Global Product Management, Treasury Services, BNY Mellon. She has been with Treasury Services since 2009. Carl Slabicki is Director, Immediate Payments, Treasury Services, BNY Mellon. He is responsible for developing BNY Mellon’s faster payment solutions.
About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets.
This editorial was first published in our B2B Fintech: Payments, Supply Chain Finance & E-invoicing Guide 2018. The Guide gathers leading solution providers, consultants, associations, banks and corporates that share their latest insights, technologies and best practices in B2B payments, real-time fraud prevention, instant payments business opportunities, and supply chain sustainability.
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