Though the U.S. continues to take significant steps toward a faster payments ecosystem, the market undoubtedly lags behind others across the world in the path toward real-time payments ubiquity.
There are a variety of reasons why this is the case, which stem beyond one of the most common explanations — that the U.S., unlike markets like the U.K. and Europe, lacks the same government push for change, and in some cases, mandatory changes.
ACI Worldwide Executive Vice President of Growth Markets Mandy Killam elaborated on the complexities of the U.S. real-time payments journey in a recent interview with PYMNTS. The market’s early-stage growing pains, she said, reflect the unique struggles of a market driven by competition, not regulation.
“My personal viewpoint is the U.S. is behind, and not because of technology constraints,” Killam said. “If you compare it to other nations, in the U.S., regulation is both a help and a hinderance. And of course, our government is less likely to intervene to provide capabilities that can be provided by the market.”
Competition, Not Regulation
There are two angles to the U.S. regulatory climate’s negative impact on real-time payments adoption, she said.
On one hand is a lack of a regulatory framework that other markets around the world have in place to drive real-time payments infrastructure development, deployment and adoption.
On the other are regulations in place that Killam noted could hinder real-time payments progress, most notably U.S. requirements that FinTechs must obtain a bank charter to access payment rails directly. That's in contrast to other markets like the U.K. that aim to lower barriers for FinTechs to participate, she said.
What's especially noteworthy in the current U.S. regulatory landscape, and how it arguably hinders real-time payments adoption, is that the government itself stands to benefit from faster payments capabilities.
“There are some really strong use cases [of real-time payments] that could address inefficiencies in government payments, if you look at it from a perspective of what the government could get done in areas like tax payments and disbursements like social security,” said Killam.
From Implementation to Integration
Regulatory climate aside, there are other factors at play in the U.S. as the market explores how to wield a competitive private sector to promote faster payments.
Among the largest is the pain experienced among financial service providers and corporates when considering how, exactly, to update back-end infrastructure to support emerging real-time payments technologies. In this regard, the strategy of “rip-and-replace” may not be the most effective one.
“Looking at this as a transformation is key,” said Killam. “The more we look at this as a big bang or a rip-and-replace, the more hesitancy participants are going to have to move forward.”
Real-time payments solution providers stand to gain from an evolution-not-revolution approach to adoption, and from taking advantage of organizations’ ongoing digital transformations. Digitization and migration to the cloud are happening anyway, Killam explained, so finding how real-time payments infrastructure can fit seamlessly into those modernization roadmaps will be key to success.
Prepping for the Future
What the payments ecosystem must also manage is the conundrum of future-proofing real-time payments solutions versus developing tools that have immediate applicability to contemporary problems.
The instinct of solution providers may often be to go with the latter. After all, if a real-time payment network doesn't solve a problem that a financial institution or corporate has today, then there is no incentive for adoption today, either.
The development of these technologies, however, cannot occur without keeping in mind the problems of tomorrow to ensure solutions can grow with a changing market.
“You can’t ignore real-time payments, so doing nothing in this area is really not an option. You want to dip a toe in the water and have a use case out there,” Killam said. “But at the same time, you have to build it with an eye toward the future of a solution that can scale.”
There’s a conflict, she added, between building a “minimum viable product for first-use cases” and building a tool that can manage the payment volumes expected in the future.
This challenge will particularly come into play as more service providers around the world grapple with the need for interconnecting various markets’ real-time payments systems to support cross-border transactions — not an easy task when each market today remains at a different point in its own faster payments journey. An embrace of global standards like the ISO 20022 messaging standard will be key, said Killam.
Learning from World Peers
The U.S. journey to real-time payments will be a balancing act: between private-sector competition and public sector initiatives, between immediate use cases and future-proofing, and between learning from the experiences of other markets at more advanced stages in faster payments and acknowledging the need to forge a unique path best suited for the U.S. market.
This is an opportunity for collaboration, Killam said, particularly between FinTechs, traditional FinServ providers and the public sector.
That's the idea behind ACI Worldwide recently joining the U.S. Faster Payments Council, which also recently secured sponsorship from the Federal Reserve. As more use cases for real-time payments emerge around applications like business-to-business (B2B) supplier payments, real-time liquidity management and “invisible payments,” Killam also noted that more challenges would arise, too, around areas like fraud and integration.
In the U.S. — indeed, around the world — striking the balance of real-time payments adoption means technological innovation and industry participant cooperation will ensure real-time payments are ready to react and anticipate those changes.
“Every nation is deciding their own approach to [real-time payments],” said Killam, “and while flexibility in technology to accommodate different formats and different rules is important, the interoperability of systems domestically and globally will drive faster adoption and lead to more efficiency, especially in cross-border payments.”