A real-time perspective on real-time payments
As your business grows internationally, sending payments securely, efficiently, and cost-effectively becomes more challenging. While real-time payments could enable near-instantaneous transfer of funds, business concerns have slowed adoption.
Judd Holroyde, head of Global Product Management and Delivery at Wells Fargo, shared his perspective on the influences behind real-time payment adoption, possible short-term benefits, and future trends.
What’s driving the adoption of more immediate payment mechanisms?
Most real-time payment systems — those that send funds and generate confirmation within seconds — originate around a value proposition for the mass-market consumer. Consumer pressure for greater transparency, certainty, and immediacy propels adoption.
A recent survey revealed only a third of corporates found real-time payment initiatives to support their business significantly.1 The primary motivator of corporate decision making was fraud management. Efficiency came in a close second, followed by cost, visibility, then working capital.
In our more mobile world, real-time experiences are the norm, and corporates may need to deliver an enhanced value proposition. More than 40 new real-time payment initiatives are in some phase of implementation around the world today.
Why not in the U.S.?
The scale and complexity of the U.S. make implementation fundamentally different. The U.S. has far more financial institutions than markets like Singapore, the U.K., and Australia, where real-time payment schemes are in play. The sheer number of U.S. financial institutions makes attaining consensus around design, approach, and time lines inherently difficult.
The role that regulators play is another differentiating factor. Historically, U.S. regulators haven’t driven new models, instead focusing on oversight, procedure, and governance. Any innovations came from banks and other groups trying to get regulator buy-in.
Elsewhere the regulatory environment seems more oriented toward innovation. For example, U.K. regulatory agencies mandated the adoption of a new, real-time payments infrastructure. U.S. regulators do not have that authority.
The concept of “float” is still an integral part of the U.S. money-movement system, too. Float largely went away when we moved to electronic settlement through Check 21. However, many corporates still consider “mail float” key to their check issuance strategy.
That’s one reason why checks have remained popular in the U.S. The faster you pay, the faster you lose the use of those funds, and that’s why corporates might not value real-time payments as much as consumers do.
What are companies looking for in payments innovation?
Most corporates are much more concerned with transparency and certainty than speed, which is why initiatives like SWIFT’s Global Payment Innovation (GPI) are interesting.
If you’re a corporate sending a wire to another corporate, for example, GPI would enable your bank to confirm the funds were deposited to the beneficiary’s account with another bank. For many companies, that transparency is as valuable as real-time payment and could improve budgeting and financial control.
In addition, if you’re collecting payments, an instantaneous payment mechanism not only enhances the experience for your customer but also benefits accounting and efficiency.
What can we expect in the future?
Progressive markets will continue to push innovation toward real-time payments. The development of faster, more efficient, more transparent payments will be iterative. No one thing will happen in all markets, consistently and at the same time. We’re at the beginning of next-generation thinking about real-time payments, especially at the global level.
1. Strategic Treasurer, LLC, “2016 Global Payments Survey.”
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