The global payments ecosystem’s path to faster and real-time payments ubiquity is an evolution, not a revolution.
That is to say, mass adoption will take time, and the factors driving that adoption will almost certainly continue to change and shift as end users’ needs do the same. Among corporates, there is an increasing demand that their global payment activity is able to keep up with the pace of doing business.
According to Tom Halpin, head of payment products at HSBC, faster and real-time payment services don’t only provide the value of speed for corporate clients, especially in the context of cross-border transactions. Friction associated with traditional payment networks is plentiful, he told PYMNTS in a recent interview — and while real-time payment networks can address many of the related woes, their adoption will greatly rely on their ability to address corporates’ biggest pain points.
Progress in Tackling Cross-Border Payments Friction
There are a few major pain points in corporate cross-border payments today, Halpin explained, which are greatly addressed with faster and real-time payment networks.
Traditional payment networks that are unable to accelerate transactions result in businesses struggling to manage time zone differences between them and their partners, for instance.
“If you’re making a payment from the U.S. to Asia, the time difference could be 16 hours,” Halpin explained. “You’re literally talking about the end of one business day and the start of another.”
Faster and real-time payments can be instrumental in getting funds to where they need to be on time, he noted.
Further, one of the largest benefits to corporates of faster and real-time payments services is less about the speed and more about the data these networks are able to carry along with a transaction.
The ISO 20022 payments messaging standard — and faster payment networks’ adoption of it — has proven to be a significant value-add to financial service providers’ faster payments offerings.
“The world is moving more toward standards, and ISO is one of them,” said Halpin. “It’s a global standard, and it means information can be moved a lot quicker, and more successfully and consistently. Equally important to the ISO journey is the data richness it carries, versus some of the underlying legacy systems that are not as robust with information.”
That standardization supports recipients’ reconciliation hurdles, he added, meaning corporates can more quickly turn an incoming credit into applicable, working capital.
What Faster Payments Hasn’t Solved … Yet
The solutions that faster payments technology have brought to corporates’ global operations cannot be downplayed, but major hurdles continue to challenge real-time payments’ ability to achieve ubiquity.
A lack of interoperability between local payment networks is among the largest of those hurdles, said Halpin.
“Not all of the underlying systems are as open with allowing cross-border payments,” he noted. “Some systems don’t allow [a payment] to go to a real-time payment network. These underlying markets sometimes dictate the speed by which a cross-border payment can travel to an end beneficiary.”
And while the ISO 20022 messaging standard is itself on a trajectory toward ubiquity — thanks to adoption by central banks and faster cross-border payment initiatives, like SWIFT gpi and networks like RTP, which are crucial to interoperability — Halpin explained that there is still a lack of standardization in the type and volume of data that is carried in the ISO format.
The Community Approach to Ubiquity
ISO 20022’s path to ubiquity could serve as a model for faster payments technologies’ own adoption journeys. Although the technology exists, it’s ultimately the end user who will dictate how (or if) to use it.
For ISO 20022, the technology to standardize payments message exists, but it’s up to service providers and end users to decide which data, and how much of it, to send in the ISO format.
“The question is, how will you leverage the amount of information that’s contained within the message to ensure that you’re giving your customers the ultimate advantage of complete data,” Halpin said. “That’s where I believe it becomes an assessment for each participant in the payments chain to consider.”
For faster payments, technological innovation is introducing newer capabilities, but as Halpin emphasized, it will ultimately be up to the payments community of end users whether that technology is used.
The ability for SWIFT gpi to address HSBC’s corporate client challenges is what drove the financial institution to join the initiative last year, Halpin noted, adding that technology must solve real-world problems and cannot exist for the sake of existing.
Real-time payments technology exists, but its adoption among corporates in a global context will depend on whether that client actually needs a transaction to be instant or whether they simply require a same-day transaction.
Halpin pointed to payroll as one important use case for real-time corporate payments, while other faster and same-day payment networks can address businesses’ biggest cross-border payments challenges without the need for immediacy — for example, in scenarios like needing to send robust remittance data or ensuring that a transaction lands at a beneficiary in a time zone 16 hours different than the sender’s.
“It’s about understanding clients’ needs and problems, and helping to solve for that,” noted Halpin. “The key component is providing the customer with the tools and empowering them to decide on the urgency of payments.”