In a rapidly changing digital world where real-time payments are becoming increasingly popular, it’s easy to assume that traditional payment methods like wire transfers and ACH payments are losing their relevance.
However, Bridget Hall, leader of real-time payments at ACI Worldwide, contended that despite the surge in instant payment methods, legacy methods continue to thrive as efficient and reliable payment methods.
“Real-time payments have a great benefit in certain use cases, but sometimes ACH is the most efficient and economical payment type that needs to [be used],” Hall said in an interview as part of PYMNTS’ “What’s Next in Payments: Instant Payments: What Will Turbocharge Instant Payments Growth in 2024?”
Similarly, she pointed to the lower transaction limits inherent in the primary instant payment rails in the United States — the FedNow® Service managed by the Federal Reserve and the RTP® Network overseen by The Clearing House — as the reasons large businesses have continued to rely on wire payments with higher limits.
However, as the U.S. gets more comfortable with the instant payment rails, there is potential for these limits to increase, Hall noted, mirroring similar changes observed in other countries.
“We’ll continue to see the transaction volumes shift between different payment types as different use cases [emerge], but some will continue to stay the same too,” she said.
When it comes to addressing interoperability challenges that may hinder seamless instant transactions between different payment systems and institutions, she suggested that rather than fixating on the mechanics of the payment process, the focus should be on creating an ecosystem where consumers can send payments without being concerned about the specific payment rail used.
That also extends to facilitating cross-border transactions, she added, explaining that the demand for seamless global financial connectivity, already in progress, will intensify as the world becomes more interconnected and businesses expand their international operations.
“It’s very common to see domestic schemes go live [and] get established a bit before starting to [connect] to real-time countries in other countries,” she noted, referencing Immediate Cross-Border Payments, an ongoing pilot program launched by EBA Clearing, SWIFT and TCH, with banking support from the U.S., the United Kingdom and Western European countries.
Beyond banking institutions, Hall said she is of the view that instant payments are going to impact the broader financial ecosystem, including FinTechs, marketplaces and other non-traditional financial players.
However, “it’s not all going to happen all at once,” she noted, explaining that despite the launch of FedNow in the last five months and TCH’s RTP being live for the past six years, the payments landscape has yet to undergo a significant shift.
Moreover, due to the complexity ingrained in payment operations developed over decades, integrating a new payment system will take time, especially considering the numerous players involved, including 9,000 financial institutions in the U.S.
However, she highlighted a “prime opportunity” for FinTech firms to disrupt the payments ecosystem, paving the way for a plethora of new options, services and offerings tailored for both business and banking customers.
This transformative potential also extends to unbanked and underbanked populations, Hall said, pointing to governments worldwide, including the U.S., that are actively working to extend the benefits of instant and digital payments to these demographics.
It’s a trend already witnessed in the Middle East and Europe, she added, where financial inclusion forms a cornerstone in the planning and adoption of instant payments.
“They’re already starting to lay out what the use cases would look like and how the underbanked and unbanked populations could potentially connect and learn about it,” she said.
Looking ahead, Hall said she anticipates more FIs embracing real-time payments in the upcoming year, specifically concentrating on advanced functionalities like send and request-for-payment capabilities.
“The sooner that banks are ready to go… they’ll be able to take advantage of [the service], rather than being left behind by other financial institutions,” she said.
This aligns with PYMNTS Intelligence research, which projected a quadrupling of U.S. real-time payments transactions by 2027. The trajectory underscores the growing urgency for FIs to swiftly adopt and adapt to these advancements, ensuring they remain competitive and don’t fall behind in the evolving financial landscape.
Additionally, more businesses are expected to recognize and leverage the benefits of real-time payments, particularly within sectors like insurance and real estate, Hall said.
This will result in faster payouts and financial transactions, as well as an overall enhanced customer experience, she said.
Imagine “being able to potentially close on your house on a Saturday rather than having to utilize the wire system that’s only available during the week,” she said.
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