Country by country, Real-time payments Systems are taking shape and focusing on domestic transactions.
But Odilon Almeida, Global Chief Executive Officer at ACI worldwide, said Karen Webster, in time, these real-time domestic systems will connect, exceed limits and formation of new global financial services ecosystems.
And within this cross-border activity, account-to-account (A2A) transactions will help shape these innovations and new use cases. The US payments industry, in particular through FedNow, will lead by example, said Almeida.
Developed economies will lag a bit, but when the wholesale swing to real-time payments comes it will come quickly, Almeida predicted. The pivot could be powered by merchants, at least initially, because the transactions are so much cheaper than cards. Apps are important for merchants and financial institutions (FI) because they are easy to use and consumers are familiar with them.
The three rails
Real time establishes itself as the latest in a trio of payment tracks. As Almeida Webster said, two of them are pretty firmly anchored, and the real-time option is nascent in its development and deployment.
First, there is physical cash that works in developed and emerging countries. We are probably far from a truly cashless economy, he said.
The second rail is with the cards. These payment options have also spread unevenly around the globe, with North America on one end of the spectrum and Africa on the other end of the spectrum, Almeida said.
After all, the third line is tied to real-time payments, especially A2A payments, which have grown by more than 45 percent year on year.
“It’s the most efficient rail we have today,” he said. “It’s a lot cheaper than the cards and it’s a lot more convenient than cash.”
In countries like Kenya or China and across the Middle East, real-time payments have skyrocketed, outperforming the relatively delayed card acceptance and availability. (Conversely, the US and Canada are lagging a little behind on real-time payments, in part because the card networks are so developed, Almeida noted.)
“It’s not always about the app,” he said. “Right now it’s more about the rails. Everything comes together. “
For everything to work, interoperability beyond the domestic programs that either appear in the world or are on the drawing board is vital.
FedNow is a track set as it is The clearing house (TCH). They’ll work in parallel for a while. Elsewhere, the domestic markets from Australia to Brazil have their own rail sets. At some point, all of these rails have to interact and be connected to each other in order to have a global real-time payment system.
“The FedNow initiative is critical,” said Almeida, and banks will want to connect to the Fed’s system to bring new offerings to the largest audience as quickly as possible. He noted that participation requires some partnership with infrastructure providers, including ACI.
When asked if there are any killer apps in the US, Almeida said that consumers are in droves Venmo, to cell, to P2P interactions. He predicted that more apps will go online that track a user’s payment history and offer credit lines based on that history with personalized rates.
Webster noted that there is a tremendous amount of activity being carried out across borders, paving the way for an increasing number of commercial payments being processed through real-time channels.
“The cross-border market is ready to be disrupted,” said Almeida.
The correspondent banking environment is 60 years old, he stressed, and the future is moving towards real-time settlement between banks with digital wallets and digital central bank currencies (CBDCs).
Consumers on board
Of course, consumers need to step in to convince FIs to take the time and make the necessary investments to get real-time payments up and running.
In developing countries, people simply give up the frictions of cash – and they strive to do so. Almeida pointed to Brazil as a market that has allowed consumers to become familiar with real-time payments, largely due to the fact that the central bank started with a simple real-time experience (via PIX, the Instant Payment Rail, in users simply use E. Emails from the bank to log in and send money).
In general, Almeida says, “The roadmap is that you have to start with the basics: great customer service and customer experience. When consumers see that this is a lot easier, they start right away. And then you start adding functions. “
Examples of additional services can be credit lines with banks that are granted in real time.
The monetization models are also changing. Almeida said the fees banks charge merchants don’t have to come close to the card fees. Lower fees also entice retailers to join FinTechs and even Big Tech on the various real-time platforms and enable more innovation. And traders will want to use real-time rails to bypass hundreds of basis points in interbank fees.
The wider participation will create a new financial services ecosystem. Banks can do what banks always do, which is to lend and take deposits, but they can monetize the relationship in different ways by adding extra layers of service to traditional card offerings.
“There will also be local actors, local FinTechs who innovate and create new things that are locally relevant – and much more than the ecosystem of cards,” Almeida told Webster. “You will see the changes in payments accelerate.”