Why the U.S. is taking the slow road to faster payments
The payments industry is engaged in 40 active real-time payments programs worldwide, but it's not as chaotic as it sounds — except in the U.S.
Unlike other countries in which real-time payments schemes are part of government-mandated programs, the U.S. in particular has to rely on different participants seeking the same goal of a faster payments network, and ultimately determining how all the various puzzle parts fit together.
Two key components — the rollout of The Clearing House's Real Time Payments rail and the development of various P2P payment services — have helped make faster payments a reality in the U.S. With the advent of Same-Day ACH payments, the country can point to slow but steady advancement in the past four years.
"The glass is definitely half full in the U.S.," said Elena Whisler, head of global product and open payments at FIS. "In other countries, they know their real-time transaction volume and innovations are going to be there. But the problems we are solving in the U.S., without a mandate, makes it unclear as to how quickly it can happen here."
The number of active real-time payments programs globally is up from 25 in 2017 and nearly three times as many as in 2014, according to research from financial services technology provider FIS. In addition, another five systems are under development and another 16 are expected to be live in the next year and a half, FIS noted.
The technology of texting messages makes for a good analogy in how faster payments are evolving, Whisler said.
"Looking back 10 years when we didn't have text messaging, you would just call someone and wait for that person to call you back," she added. "Now, with text messaging, people expect an immediate response. Corporates and consumers are expecting that same thing in their day-to-day working or individual lives, including payments."
It is also becoming apparent worldwide that the faster payments rails themselves are no longer transformative, as the real value occurs in the additional services providers bring to end users, banks and other parties attached to the scheme through those rails, the FIS report states. Those services include chatting capabilities, retail apps, instant loans and others as more innovation through application program interfaces continues.
China processes more than 25 million faster payments transactions a day, which is more than double its 2017 transaction volume. In addition, since the launch of the SEPA Instant Credit Transfer scheme, more than 15 European countries, including the U.K., have signed up for the faster payments system.
The onset of PSD2 in the U.K. has sparked various innovations and open banking that should trigger far more services taking advantage of faster digital rails, the report noted.
A key for any advancement in the U.S. could rest with the bank-supported Zelle P2P network, as it may eventually expand into B2C, B2B or even corporate payments, Whisler said.
"The P2P customers are used to closed-loop systems, but I think they would prefer ubiquity," Whisler said. A person with three sisters splitting a payment for a gift for their parents would find it much easier to pay each other through a P2P option, the using the digital technology for one or two, and writing checks for the others, she added.
In that regard, it is already noticeable that many of the faster rails are likely to become interoperable, rather than integrate into a single system, said Gareth Lodge, a London-based industry analyst with Celent.
"There are too many systems already built, and too many vying for that same goal for there to be just one system," Lodge said.
A key hurdle to interoperability will be to get networks worldwide operating on the ISO 20022 messaging standard as the "defacto standard for many payment types," Lodge said.
The standard essentially allows far more details about a payment to be included in the transfer of funds. "There are already global working groups for ISO 20022 to try to ensure that there is as much commonality as possible to enable it," Lodge said.
Another hurdle will be determining how settlement of payments actually take place, Lodge added. "What we think of as payments are generally just messages telling the central bank to move money from bank A to bank B, and it's not clear in what currency and what exchange rate that it might happen," he said. "It's not impossible to solve, but nor is it easily possible today."
To achieve that will take the ongoing innovation that is occurring in many faster payments projects worldwide.
FIS highlighted three programs it cited as "particularly innovative" after its 1 through 5 rating system measuring the comprehensiveness of real-time payments projects.
India's Immediate Payment Service received the report's only 5, for the second year in a row. The IMPS is the fastest growing immediate payment system in the world, with daily transaction volume growing from 2 million per day last year to 2.8 million a day this year, FIS said.
Australia's New Payments Platform received a 4-plus rating for its versatility 24/7 operation, as did Singapore's Fast and Secure Transfers service for its handling and instant funding of all payment types for 20 participating Singapore banks.