With the current state of economic upheaval, the ongoing pandemic and the great digital shift, corporates and financial institutions are racing to digitize and modernize payment flows and back-end processes.
But the transition is one that must consider, and maybe even embrace, several emerging options and payment rails in a bid to move data and money more quickly across borders, and move, decisively, away from paper checks.
As part of the PYMNTS month-long series on modernizing and digitizing B2B payments, Alan Koenigsberg, global head of new payment Flows at Visa New Business Solutions and five executives from payments and messaging networks, services providers and the crypto realm said room exists for several payment rails to compete, coexist — and even complement one another.
Panel members included Russ Waterhouse, EVP at The Clearing House; Mike Kresse, SVP card and money movement at FIS; Jane Larimer, CEO at Nacha; David Scola, chief executive, Americas and UK at SWIFT; and Jeremy Allaire, CEO at Circle.
Moving Beyond ACH
ACH might be among the most readily visible paper check killers — and as Nacha’s Larimer noted, “we need more than just ACH to make huge inroads [against checks]. Real time and the ACH network can actually work together to displace paper checks.” ACH, she said, has been growing by double-digit percentage points annually.
“That’s strong growth for something that is a mature payment product,” said Larimer. That’s especially true for larger corporates, where large volume, high dollar value transactions have been gaining traction, especially in B2B settings.
Kresse, of FIS, echoed that sentiment, stating the company has seen a “massive increase in ACH volumes” for FIs, at a quickening pace. There may be some tailwind, he said, as recent research has shown that the coronavirus can live for weeks on banknotes and other surfaces.
Against that backdrop of moving away from paper payments, and toward ubiquitous real-time payments, TCH’s Waterhouse said there’s probably not a use case “that’s going to tip the scale here.” But he pointed to a use case that might be a bit under the radar. Truckers, he said, have found real-time payments useful — as, for example, even before taking trips they are paid, factor payments and can even cover the costs of gassing up their trucks for cross-country treks. Real-time payment is also is finding traction in the gig economy, allowing employees to be paid on a regular basis, even daily.
There’s room for RTP and ACH to co-exist, said Waterhouse, “for a very, very long time.” There’s no doubt that when it comes to large bulk payments, said Waterhouse, ACH has strong advantages for users and processing efficiency. But the faster payment systems are showing advantages, too, he said.
“All of these new instant payments systems around the world are being built on the ISO 2002 standard,” said Waterhouse. “We've got a common messaging framework, this data rich environment where also we’re operating 24/7. So these traditional operating hours of payment networks are no longer relevant when people are in that 24/7 operating model. So that is certainly an aspiration. It may not be one that’s front of mind today, but I think you will see that play out over the next several years.” Larimer echoed that there are use cases that are within the wheelhouses of both payment systems.
More Tools, More Flexibility
Kresse noted that having different tools available just creates more flexibility to make sure the consumer experience and the commercial experience that’s being delivered is the one that’s most delightful for the individual entities that are participating — where, say real-time payments can deliver messages automatically, that bills have been paid, where payments are intuitive.
The stage may even be set for the emergence of digital currencies, and as Circle’s Allaire said digital dollars (with 500 percent growth through the past several months), among others, have “really started to become not just a technical reality, but a legal and regulatory reality as well.”
The vision has always been a traditional currency with the liability of a central bank that could run on the public internet and underpinned by blockchain.
“The real innovation cycle is where you layer on the program ability of money as a data type on the internet,” noted Allaire. “There need to be governance models. There need to be regulatory models around it.”
Scola said, “We’ve seen the central bank digital currency discussion accelerate pretty quickly over the last few months,” adding, “It really is dependent on the use case. And I think there will almost certainly be use cases for central bank digital currency or a stable coin or fiat currency.”
He mentioned that use cases seem to work best come when moving data with the currency — akin to a mechanism of exchange that is far bigger than just the movement of the value itself.
He noted that at SWIFT, “We’ve looked at the use of blockchain for things like corporate actions and tying into some of the evolving trade finance systems that are cropping up all around the world.” As a rule of thumb, he said, on-ramps and off-ramps need to be monitored and controlled to make sure networks are safe.
Interoperability In Focus
“There has to also be this continuity of transaction flow from a blockchain environment to a traditional payment environment,” added Scola.
Yet various networks still need to be able to “talk to each other.”
Interoperability, said the panel, can improve B2B payments, creating new payments structures that contain message payloads that (can eventually) enable straight-through processing.
Noted Kresse, “RTP and other new payment rails provide us the opportunity to carry remittance direct from system to system.” Standards, such as ISO 20022 are critical to fostering interoperability, they agreed (Scola pointed to SWIFT gpi, a standard for global payments, as an example).
“It’s challenging for banks to kind of meet that new heightened data standard — have that level of data richness embedded in that transactional activity. So what we’re doing is effectively moving from what has been a kind of pass the parcel methodology. You give us a message. We act as the post office and deliver it to the bank on the other side of that transaction. And we never tear open the envelope,” said Scola.
The conversation turned to whether FinTechs are purely competitors to traditional FIs — or, actually collaborators.
Said Kresse, “It’s great to have a competitive marketplace where you have all sorts of different financial technology players, challenging each other to get better and to raise our game.” Waterhouse noted that FinTechs act as collaborators. “In many instances, we’re working with FinTechs to provide the next solution for the consumer,” he said.