Real-time payments initiatives are under way all across the globe, but there is little consistency across jurisdictions regarding how the financial services sector takes on the initiative or where each market is at in terms of progress in achieving real-time payments capabilities.
In the U.S., there is a bundle of faster payments initiatives, but one of the largest efforts in the area of real-time payments, specifically, is with The Clearing House. Icon Solutions, which provides FIs with technology and consulting to help get their real-time payments capabilities up and running, recently announced that it is working with The Clearing House (TCH), offering TCH its Instant Payments Framework.
The software offers a sort of template for banks to be able to access TCH’s real-time payments scheme, Icon explained, and means FIs won’t have to go it alone or start from scratch in making sure internal infrastructure is ready. Icon Solutions’ Head of Payments Tom Hay recently discussed why real-time payments are such a challenging undertaken within FIs, but how lessons from the past — like the adoption of card payment rails — and from peers across the globe who have already gone through these struggles can make the U.S.’ real-time payments path a smooth one.
“A lot of banks are working with legacy back-office infrastructures that were designed a long time ago specifically with batch payments processing in mind,” he explained. That means multiple transactions are settled at once — but real-time payments demands each transaction to be settled independently the moment it lands at the bank.
“So at the technical level,” continued Hay, “the bank is faced with serious challenges in meeting the response time for instant payments.”
Processing has to be continual — even overnight — and companies have to update their anti-fraud procedures as well. Overall, Hay said real-time payments demand banks “change their way of thinking.”
“What we’ve found in the U.K. and in Europe and now in the U.S., is that a lot of institutions go into it thinking real-time payments is just a faster batch of one payment, and that’s absolutely not the case,” he said. “They must stop thinking of it that way, and that’s a rude awakening.”
The implementation of real-time payments capabilities is by no means easy, with banks having to ready internal infrastructure and processes in a major way. But Hay said the U.S. is in a position to benefit greatly from the lessons learned by others.
For instance, there are some lessons to be learned from the card rail system. One of the largest concerns regarding real-time payments is for the banks to be able to identify and mitigate a fraudulent transaction that is settled far more quickly than even same-day ACH payments today.
“This is something that the cards world solved a long time ago,” Hay said. “Real-time assessment of an inside transaction and blocking fraudulent transactions in the card world has been around for a long time.”
He pointed to solutions developed for the ACH rail designed specifically to be able to identify instances of fraud in real time, with adaptive analytics, artificial intelligence and machine learning playing huge roles in the effort.
Of course, real-time ACH payments and card payments are hardly birds of a feather.
“Real-time payments support many use cases that previously were not achievable or which could only run over card rails, and the card rails are very suitable for a pull model,” Hay explained, “whereas real-time payments support the credit push model.”
Luckily, U.S. FIs have the luxury of looking to their peers across borders to understand best practices and learn from their challenges in implementing real-time payments.
“The lessons are already out there in the market,” Hay said. “One of the things I’ve noticed is that each new implementation of real-time payments that rolls out incorporates the learnings of previous implementations and builds on it.”
For instance, in the U.K. the financial services industry used what Hay described as a “simplistic data format” that was taken from the cards industry. But when he began working to help Singapore’s market adopt real-time payments, he found that the ISO 20022 messaging standard was more suitable to enable the transfer of rich data alongside a real-time payment.
It’s lessons like these that empower the U.S. — and future real-time payments initiatives across the globe — to be more attainable than ever.
“Learning, connectivity and liquify management, the way that settlement is handled — it’s all been improved and improved and improved,” Hay said. “I think the U.S. is in a good position. They have lots of existing systems to look at. They can take the best of breed and incorporate new features like request for payment, which opens up even more use cases.”
And while U.S. banks can’t take every lesson in real-time payments from the rollout of the card rails in decades past, their peers have build enough of a roadmap to fill in many of the gaps.
“I don’t think the rollout is going to be the same as cards, but it’s not terra incognita,” he said. “It’s standing on the shoulders of giants.”
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