Faster payments solutions must meet a variety of demands. Small retailers want to keep their cash flow moving by receiving consumer payments quickly, while large corporations need improved data and visibility to ensure their B2B transactions arrive on schedule. And consumers are at risk of abandoning their purchases if they can’t pay quickly and with minimal hassle.
Speeding along money and detailed information could mean beefing up existing infrastructure or building a new set of rails. The merits of each approach are continuing to cause energetic debate.
After two decades of tweaking and updating its existing Real-Time Gross Settlement (RTGS) system, Hong Kong determined it needed a new rail. RTGS was designed to support high-value, interbank transactions, but P2P and C2B payments typically took a day or two to clear, were processed only during work hours and cost up to HK $200 (US $25.5) per transaction. Hong Kong required a new solution.
The Hong Kong Monetary Authority (HKMA) designed its long-awaited Faster Payment System (FPS) to ease frictions that RTGS couldn’t. The new rail supports real-time, 24/7 transfers not just between banks, but also between stored-value facilities (SVFs) — i.e., mobile wallet operators — and between SVFs and banks.
And while a separate RTGS system was required for each currency — the Hong Kong dollar, renminbi, U.S. dollar and euro — FPS supports both Hong Kong dollars and renminbi.
Days before the system’s Sept. 30 launch, PYMNTS talked with executives from two participating banks, Standard Chartered Bank and DBS Bank (Hong Kong), about their expectations for FPS’ impact on consumers and businesses, and how they prepared for the change.
Changing Retail and Insurance
FPS is likely to encourage companies and consumers to change their retail payment methods.
Because it is free to use the faster payments rail, consumers will be more inclined to use FPS even for small purchases, said DBS Bank (Hong Kong)’s Soh Fern Boey, managing director and head of global transaction services. But it’s not just brick-and-mortars that can benefit – eCommerce and mobile commerce retailers, which were limited to accepting card payments, can now offer FPS capabilities that settle their funds more quickly, Boey said. Users can identify recipients by their registered mobile phone numbers, FPS IDs or email accounts, rather than through their bank account numbers — a critical feature expected to make businesses feel more secure, Boey said.
“Not many corporates want to divulge their [bank] account numbers to their customers,” she said.
HKMA also recently released a QR code standard for retail payments, along with an associated app, to let retailers display a single QR code for accepting payments. This simplified QR code setup, combined with FPS’ support for real-time inter-SVF transactions, could open new opportunities with digital wallets, said Standard Chartered Bank’s Ricky Kaura, regional head of cash, transaction and banking in Greater China and North Asia.
Kaura said FPS will also help corporations quickly reconcile accounts as well as access real-time information and payments. In addition, the rails are expected to benefit B2C payments.
Kaura said FPS launched at a time when insurance, logistics and other industries have sought to digitize their last mile and replace cash and check use. Both Kaura and Boey said insurance companies could use FPS to quickly disburse funds after an incident – for instance, sending travel insurance money immediately after a flight delay announcement.
Making it Work
Leading up to the system’s launch, DBS and Standard Chartered readied to connect into the HKMA, other banks and with SVFs, and to roll out platforms so customers could make transactions via FPS. Boey said DBS also prepared an API that would let customers view their accounts instantly and confirm that money sent and received via real-time rail had arrived.
Keeping phone records up to date has been critical in ensuring that recipients identified by their phone numbers receive their payments smoothly and accurately, said DBS Bank (Hong Kong)’s Ajay Mathur, managing director and head of consumer banking and wealth management.
“From an industry standpoint, having mobile numbers being a default method of paying would have meant there’s a lot of cleanup of mobile numbers,” Mathur said. “While that is stored at the Clearing House, business rules that need to apply toward setting that up had to be thrashed through with the Clearing House, amongst banks, with telecos and in our own database with how we store and change these numbers.”
Boey said that banks are not in a position to verify whether a specific mobile phone number corresponds to an intended recipient. As such, corporate clients need to carefully check customers’ phone numbers when paying via FPS and using mobile numbers to identify recipients.
Even with these preparatory measures in place, Kaura said, many corporations need to make changes of their own before they can take advantage of bank-facilitated FPS services. Many businesses have expressed interest in the system, but haven’t yet adopted FPS because they are evaluating the changes needed to adjust for how it will affect other processes, such as accounts payable systems and static data.
“Typically, there are upstream or downstream implications,” he said. “They see the opportunity, but it’s a question of how quickly they can or want to deploy, given that it does touch other processes.”
Whether corporations take advantage of the rail now or in the future, they can expect a changed financial landscape — and banks ready to help.