FIS sees opportunity as digital payments become more like cash
As futuristic as real-time digital payments can be, the concept is almost like a blast from the past for FIS’ Raja Gopalakrishnan.
“It’s coming full circle,” said Gopalakrishnan, FIS’ executive vice president of global real-time payments. “I started 30 years ago in cash, which is also a form of real-time payments. But it’s really looking different today.”
FIS just finished research on the expansion of real-time processing globally, and found quick uptake in several markets. Bahrain, for example, saw real-time transactions expand to 1.5 million per day in 2020, from 17,000 per day the previous year; while the Philippines saw a jump in payment value of 482%. Also, 56% of European payment service providers joined Europe’s Sepa Instant Credit Transfer.
As digital commerce expands, countries are building real-time payment rails through a mix of government projects and private-sector initiatives. The U.K. and Australia are among the countries with a faster payment rail, and Canada last week advanced its projects by adding Mastercard’s Vocalink to support settlement. There are 56 countries with some form of real-time payment scheme, up from 14 six years ago. There are also cross-border schemes planned, such as Sweden, Denmark and Finland’s P27 cross-border multicurrency service.
“The barriers to real-time payments are falling and markets are adapting,” Gopalakrishnan said. “There’s a move to an expectation of real-time access to funds.”
The pandemic has made the use cases for real-time payment more clear, Gopalakrishnan said. Supply chains can be better served with immediate access to funds, along with extra data that can inform liquidity.
There are specific industries that can benefit by addressing problems directly related to the pandemic.
Hospitals and other health care providers face billing uncertainties due to the rise in patients and a lack of clarity over what party is responsible for coronavirus treatment, as well as what constitutes coronavirus treatment.
Public policy is also changing, creating new pressures for consumers, providers and insurers to manage billing and money owed by the consumer and insurer. Faster payments doesn’t erase that confusion, but it does move money quickly.
“If you’re getting a refund or a payment from an insurer, do you want a check in the mail in 20 days or a response that gives you a choice of payment method and immediate access?” Gopalakrishnan said.
FIS is among the large bank technology companies that have added merchant acquiring and additional payment technology over the past two years through acquisition, including FIS’s $43 billion purchase of Worldpay.
The acquisitions are designed to support a broader move to digital commerce, which includes payments embedded in a range of other financial services and merchant value-added services. Digital payments also entail faster processing, as well as a user experience that creates less friction.
FIS has added bank connections over the years that have supported capital markets, which add processing speed for money movement in other areas. “And with Worldpay, that brings us into merchant acquiring channels with a focus on cards, both in the issuing and acquiring side,”Gopalakrishnan said.
The scale provides access to account-to-account rails for different business lines and markets, Gopalakrishnan said.
Fiserv has deployed real-time payments at 400 banks and credit unions, and has had more than 800 sign up, said Tim Ruhe, vice president of payment strategy and partnerships at Fiserv, in an email. Fiserv reports real-time P2P is expanding between 100% and 300% per year, with results vaGopalakrishnanrying by financial institution. More than 70% of consumers now have access to real-time payments through their financial institution marketwide in the U.S., Ruhe said.
The early uses have been person-to-person payments and disbursements, but these uses are starting to expand and should reach account-to-account (A2A) interbank transfers, small business payments, bill payment, and B2B payments, Ruhe said, adding use of real-time payments in e-commerce is still emerging and evolving.
“Financial institutions and businesses have started to think about and plan for real-time payments across their enterprise,” Ruhe said. “These organizations are starting to develop enterprise roadmaps, prioritizing use cases, developing infrastructure strategies, and establishing partnerships to achieve their near term and long term goals for real-time payments.”
TSYS, which merged with Global Payments around the same time as the FIS deal, did not comment.
All of the big fintech and core providers are working to enable real-time payments, but for some banks, the shift isn’t happening fast enough and they are seeking alternative vendors to help them connect, said Erika Baumann, a senior research analyst for Aite Group’s Wholesale Banking & Payments Practice. “For others, they still do not see a viable ROI and are holding off. This dichotomy has the industry all over the place as far as implementation plans and prioritization.” For a vendor like FIS that is looked at as a leader, it is essential that they are supporting and enabling faster, more frictionless payments, Baumann said, adding loyalty payouts, rebates, and refunds are a few examples where the end consumer is impacted by the ability to receive funds in real time.
“There are some corporations that are in an industry that is already experiencing real-time payment use case acceleration, competitors to those earlier adaptors have to keep up,” Baumann said. “Online marketplaces and ecommerce is an example of this. For FIS there is an opportunity cost to not enabling real-time payments that is becoming more evident.”