With faster and real-time payments progress being made in the U.S. on multiple fronts, consumers are often at the focus of emerging conversations about the implications of speed in the payments ecosystem.
While, indeed, real-time payments will have an impact on the way consumers pay both businesses and each other, corporate chief financial officers (CFOs) and treasurers are by no means spared from disruption resulting from real-time payments ubiquity.
The Accredited Standards Committee X9 (ASC X9), a nonprofit organization that works to develop financial services industry standards domestically and internationally through ISO, recently announced that it is expanding the scope of its X9C Corporate Banking Committee to include the focus on faster and real-time payments.
In a recent conversation with PYMNTS, ASC X9's Executive Director Steve Stevens, and the X9C Corporate Banking Committee's Vice-Chair and President of University Bank Stephen Lange Ranzini, explained how real-time payments would have profound impacts on the ways corporates make payments and manage finances — a reality that should be taken into account as the Federal Reserve, The Clearing House and others introduce their real-time infrastructure to the nation's payments ecosystem.
Among the most important factors to recognize, according to Stevens, is that — as with any payment technology — it's not only the actual payment itself that will be affected.
"With faster payments, you've always got a security component to it, a communication component and then the actual payments component," he said, noting that efforts to standardize real-time payments touch on all three.
With the emergence of the Federal Reserve's FedNow service, The Clearing House's RTP network and other emerging technologies and infrastructure designed to accelerate transaction clearing and settlement, the payments ecosystem must keep a focus on interoperability to mitigate friction.
Essential to interoperability is the ability to move transaction data between systems of various parties. ISO 20022 payments messaging standards can support the effort, yet not every entity adopts data and messaging formats in the same way.
For instance, in today's ecosystem, ISO 20022 payments messaging standards have enabled electronic data interchange (EDI) to facilitate the movement and reconciliation of payments data within and between corporates. Yet as Ranzini explained, the XML format for moving that information isn't adopted the same way by every financial institution.
While interoperability and data standardization will be important for real-time payments adoption in all use cases, Stevens and Ranzini said the corporate use case offers a valuable example of the importance of those initiatives as innovators develop and roll out their services.
"Corporate banking and company-to-company payments, remittances, treasury functions — all of those things are all related to faster payments," said Stevens. He added that the X9C Corporate Banking Committee was identified as a group positioned to centralize the focus of how standardization could address concerns like interoperability, security and data exchange — all of which are key in the corporate use case.
In the case of data standardization, corporates are using data sharing formats designed to support a batch payment processing ecosystem. As real-time payments drive a shift toward real-time processing, however, data and messaging standardization will need to take into account what this means for financial institutions' (FIs), corporates' and small businesses' internal workflows.
The real-time payments environment will also have to consider security implications, with Ranzini pointing to multibillion-dollar fraud losses within the ACH network as well as other legacy systems like wire and cards. Ensuring security in a real-time payments ecosystem will not only protect corporates and consumers but keep transaction costs down, which will be key to adoption.
In both data interchange and security initiatives, Ranzini said that industry stakeholders should learn from past mistakes to tackle the biggest friction points of a real-time payments ecosystem: Standardization of security best-practices will be critical because as real-time payment systems embrace interoperability, one single security weakness could expose a much larger landscape to risks like fraud.
Both Ranzini and Stevens also emphasized the role that industry collaboration plays in promoting interoperability, security and adoption overall, with corporate treasurers an important component of that effort.
"Any corporate treasury department that wants to be fully informed and educated about real-time payments should be sending someone to join our committee," said Ranzini.