Lessons in real-time payments from around the world
For the U.S., being late to the real-time payments game has some tactical advantages, namely the ability to learn from other countries' successes and failures.
The U.S. is still early in the implementation process. In November, The Clearing House began testing its RTP system with a few banks; the goal is to have widespread participation by 2020. By contrast, the U.K. launched its real-time payments regime in 2008, and Singapore launched its platform in 2014.
There are 25 live real-time payment schemes globally as of last year, with 19 more firmly in development or being discussed in the early stages, according to the fintech company FIS.
There are several important takeaways U.S. payments firms can glean from other countries experiences with real-time payments.
The U.S. has “a blueprint for potential success, and as well as a road map to avoid potential failures,” said Josh Collins, vice president of architecture at Janeiro Digital, a Boston-based business consulting and software development firm.
Here are some of the key lessons from around the world:
The importance of a unified solution
The U.S. should strive to have a unified approach as soon as possible, given all the competing interests, payments professionals say.
One of the challenges the U.S. faces in the road to real-time payments is the lack of a government or central bank mandate to create a real-time payments system, experts say. This was not the case with other countries that have made the switch. While the lack of a mandate gives the industry more latitude to determine how the system will work, it has also made the adoption process much slower, professionals say.
Also complicating matters is the fact that the U.S. payments industry is large and fragmented—much more so than other markets globally, said Jerry Norton, head of strategy for CGI’s financial services business.
What’s more, from a cultural perspective the U.S. is much less focused on electronic payments, compared with some countries in Europe and Asia that have already adopted a real-time payments regime, Norton said.
Despite these challenges, Matt Wilcox, senior vice president of marketing strategy and innovation at Fiserv, said it’s a good sign for future progress that many of the same banks backing Zelle—the bank-operated P-to-P network for sending fast payments—are also backing The Clearing House’s system for commercial transactions. This will lead to more unified decision-making and faster adoption, he predicts.
Even so, payments industry professionals say there’s still a lot more work that needs to be done to get universal buy-in.
“The industry hasn’t come up with a good carrot and we need to get there,” said Elena Whisler, vice president of product management and strategy at FIS.
The importance of strong fraud controls
One area of utmost importance with real-time payments is fraud control. Online fraud spiked within months of the launch of real-time payments the U.K., said Rajesh Venkatraman, who leads IBM’s payments solutions business worldwide.
A lesson for the U.S. is to make sure to track the right metrics and use machine learning to detect certain anomalies that may not be readily visible to humans. “I think there is a huge element of man and machine working together to help alleviate that challenge,” he said.
Money can move from account to account very quickly in a real-time system.
Several years ago, technology that allowed banks to follow the entire money trail was limited, said George Evers, senior vice president of product and real-time payments at Vocalink Limited, a Mastercard subsidiary. (Vocalink provides the technology that supports RTP as well as real-time payment systems in the U.K., Singapore and Thailand.)
Now that this technology is readily available, the U.S. has the opportunity to implement these critical controls from the get-go, he said.
The need for a mechanism for returning funds
There are other practical lessons to be gleaned from other countries' experiences, payments professionals say.
One of the issues with real-time payments is that, once initiated, transactions can be very complicated to reverse, even in the case of innocent mistakes. Only last year did the U.K. implement a technological solution for this problem, Evers noted.
To eliminate hassles that users in other countries experienced, The Clearing House has built into its system the ability for banks to send requests for returned funds, he said.
Think strategically and long-term
When the U.K. real-time payments system launched, some banks did not expect volume to grow so quickly or they viewed the move to faster payments as just another IT or compliance project, said Dean Wallace, solution practice lead for immediate payments at ACI Worldwide.
This was a major mistake, requiring more work for the banks after the system went live, he said.
The lesson for the U.S. payments industry is to think strategically from the beginning, approaching faster payments as a broader business objective and ensuring whatever technology they employ is up to the task, Wallace said.
Many U.S. banks are also struggling with how to make money from real-time payments and in determining the value-add.
This, too, is a lesson banks can glean from other countries. In Singapore, for example, banks began coming up with innovative ways to earn more business, said IBM’s Venkatraman. For example, one client started paying merchants to hold their business balances overnight, a win-win for the bank and its business customers, he said.
One area where big banks in other countries found initial success was in focusing on a small segment of their customer base or vertical that was particularly important to them, said Whisler of FIS. “As that was successful—or not—the bank could pivot. Rather than impacting all of their customers, they focused on the ones that were more innovative,” she said.
She recommends that U.S. banks—even if they are having a hard time making a broader business case—should still connect to RTP so their clients can send and receive real-time payments if desired.
Banks have to stop looking at real-time payments as “what’s in it for me” because it leads to inaction, said Cheryl Gurz, global payments program manager at CGI. “Sometimes you just have to take the plunge,” she said.