The Changing Landscape Of Real-Time Payments

The emergence of real-time payment services is transforming the payments landscape, according to a new research paper from financial cooperative SWIFT.

Businesses now expect the same payment experience they have as consumers. Immediacy matters, and modern payment services must offer speed, convenience, ubiquity, safety and value for money.

The report, titled “The Global Adoption of Real-Time Retail Payments Systems,” examines the trends and challenges preventing the widespread adoption of real-time payments in a B2B and B2C environment.

Across the industry, payment processors are moving away from end-of-day batch processing to more frequent time frames. Transaction-by-transaction real-time processing becomes more realistic as the cost of technology falls. Mobile innovation is also driving demand, as anytime, anywhere purchasing is more common. Users are demanding payments keep pace.

A Business Case For Real-Time Payments

Transitioning from standard batched in deferred payments to real-time requires investment in operational changes. Payment systems were designed to process simple information in bulk files often overnight. This setup simply isn’t equipped to easily move to real time.

According to SWIFT, next-generation payment systems will need instant and irrevocable access to both payers’ and payees’ accounts, for debiting, crediting and confirmation. Round-the-clock service availability is also a must. Investment in the development of a real-time system or modifications to an existing system is costly. The white paper revealed that over a seven-year period, U.K.-based Faster Payment Service spent an estimated £800 million ($1.2 billion) on the initial investment and ongoing operating costs of a real-time system.

The fragmented nature of the current landscape is also a concern for financial partners. Multiple real-time solutions with different operational and network requirements would mean banks then must be able to meet those requirements leading to additional expenses.

Moving Real-Time Payments Toward Maturity

Over the past year, the U.S. Federal Reserve Bank, European Payments Council and European Banking Association have all issued formal papers on the subject of real-time payments.

Adoption rates are strongest in nations where regulators have played a strong role. The majority of those surveyed by SWIFT (73 percent) indicated regulatory support was the most important factor when moving to real-time payments. The reason regulators support real-time payments varies from region to region. In developing nations, real-time payments can provide better banking opportunities to the unbanked or under-banked. Modernizing a country’s payment system may attract foreign investments, which in turn, drives economic growth. Minimizing the role of cash in B2B transactions bolsters the formal economy, providing governments with related taxes.

In established markets, the introduction of a new payment model fosters innovation and competition in payment services sector. Research reviewed by SWIFT shows real-time payments can contribute to the acceleration of economic growth. If a business is paid in real-time, its cash conversion cycle is faster, generating necessary working capital, and reducing its need for expensive short-term financing.

The success of cross-border real-time payments will be dependent on the ability for different approaches to real-time payments to coexist. For regions like the European Union—where 17 nations are exploring a Eurozone initiative—a common currency is not enough. Finding ways to traverse the individual needs and regulations of each member state effects pan-European initiatives from payments to lending. According to the SWIFT report, the European Central Bank has recommended a pan-European RT-RPS, but has not excluded the idea of many systems as a way to increase competition and keep costs down.

In a B2B application, real-time payments could introduce game-changing capabilities from conditional payments on large invoices to a more transparent view of working capital for everyday transactions. To move forward, all parties must work together. “Real-time is a growing trend led by consumer expectations, supported by regulatory reform,” Juliette Kennel, Head of Market Infrastructures at SWIFT said of the white paper. “The industry is going to have to come up with ways to enable banks to offer real-time capabilities while keeping costs in check. Collaboration and innovation is going to be key.”