Instant payments infrastructure offers bank customers speed and convenience
Blog: Capgemini CTO Blog
Driven by technology changes and regulatory initiatives by central banks and industry associations to modernize payments processing systems, online payments convenience and speed are improving. Implementation approaches vary among countries. Real-time payment processing originated in 1973 with Japan’s Zengin System, which is now in its sixth generation. In the UK, Sweden, Brazil, and Nigeria adoption has increased throughout the past decade. China and India offer robust real-time payment systems today. In November 2017, the European Payment Council’s SEPA Credit Transfer Inst (SCT Inst) scheme became operational and the US is in the process of going live.
Wherever an instant payment or real-time payment (RTP) scheme is live, banks provide instant payments platform support to their various third-party partners. Instant payment support, in combination with FinTech or third-party partnerships, helps banks deliver a better digital customer experience and provide innovative products and services to both retail and corporate customers.
Retailers are demanding instant payments solutions to give consumers the convenience they have become accustomed to elsewhere. Corporations seek more agile solutions for payments clearing and settlement so that they can track and manage intra- and inter-day liquidity. Banks are also in the process of designing harmonized products, especially for their corporate customers, keeping in view the newly accrued cross border instant settlement capability.
Most regulators encourage instant payments as a way to infuse infrastructure modernization and competition into the industry. In February 2018, Australia abandoned its 50-year-old batch-processing system and launched the industry-wide new payments platform (NPP). NPP’s 24/7 availability (versus Monday through Friday business hours) offers businesses greater operational freedom. Each participating bank – including Australia’s central bank – has several payment gateways that are all connected, resulting in a system with no maintenance downtime.[1]
Payments Canada (the owner and administrator of Canada’s core payments infrastructure) plans to launch its Real-Time Rail (RTR) by early 2020 and the Canadian government is collaborating with the country’s banking industry to open Canada’s payments infrastructure to nonbank payment service providers (PSPs) and FinTech firms, in a move to spur innovation and competition.[2]
Benefits and challenges of instant payments for stakeholders
Source: Capgemini Financial Services Analysis 2017
Instant payments infrastructure allows banks to provide more efficient cash and liquidity management services to corporate clients while including retail merchants through online and mobile payments overlay services developed on top of the infrastructure.
However, instant payments infrastructure also poses challenges. Because banks and PSPs have made significant investments in legacy systems over the years, organizational inertia often exists hinders the adoption of new technologies. Many banks, because of their payment landscape’s technology constraints, treat instant payment more as a compliance initiative. As such, they treat it just as another payment scheme.
Banks that have a future technology-ready payment landscape or platform are partnering with third parties and reaping the real benefit of the speed accrued by instant payment schemes. Additionally, because instant payments adoption extends to changes in stakeholder business processes, firms must develop a cohesive transition plan from batch-mode to real-time transactions. With the batch-clearing method, it is possible to see the contents of a batch when it comes in and when it goes out. That predictability is lost with real-time payments, however. That means banks’ liquidity management must become more nimble as fully-automated liquidity management processes are developed. With PSD2 EU, banks now have access to their customer data residing with other banks (AISP role). This also creates space for new payment analytics.
With instant payments infrastructure in various stages of implementation across the globe, the most relevant use cases exist within the retail payments domain. Corporations have been somewhat slow to adopt instant payments, with the exception of just-in-time supplier payments and short-term loan servicing payments. Eventually, more comprehensive implementation of instant payments will encourage banks to develop value-added services on top of their instant payments infrastructures such as e-invoicing for customers and person-to-person mobile payments for consumers. Instant payments implementation will bring banks and FinTech firms together to form meaningful collaborations such as those happening today in the Netherlands and the UK.
As instant payments adoption continues to rise, corporate adoption of such services will require further development of related ecosystems to address anti-money laundering, fraud, and harmonization challenges. Find out more in Top-10 Trends in Payments 2018, a report from Capgemini Financial Services
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[1] PYMNTS.com, “Behind The Architecture Of Australia’s New Payments Platform,” May 9, 2018, https://www.pymnts.com/news/faster-payments/2018/australia-npp-new-payments-platform-swift/
[2] PaymentsSource, “How Canada plans to disrupt its own payments market,” Robin Arnfield, July 13, 2018, https://www.paymentssource.com/news/how-canada-plans-to-disrupt-its-own-payments-market
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