If you want to know how consumers feel about faster payments, talk to the millions of Americans who still have not received stimulus money as of mid- to late-May. The U.S. real-time payments void has hurt commerce, too, as PYMNTS research finds that close to 39 percent of small to mid-sized businesses (SMBs) have reduced payrolls to help relieve cash flow stress, and nearly 30 percent simply went under.
The Paycheck Protection Program (PPP) disbursement fiasco, coupled with the U.S. Treasury’s difficulties getting relief money to individuals, has renewed calls for the government to accelerate its FedNow national real-time payments network, still not expected to be operational until at least 2023.
PYMNTS’ May 2020 Faster Payments Tracker examines changes now taking root in the pandemic’s wake, as consumers, financial institutions (FIs) and merchants seek reinvention on the road to a new normal.
The EU Model
Dealing with unpleasant realities first: Things are exactly as bad as they seem right now.
“The U.S. Congressional Research Service projects that the pandemic could reduce global trade by anywhere from 13 percent to 32 percent,” according to the May Faster Payments Tracker. “This decline in economic activity has tightened cash flows for businesses and consumers alike. Many government bodies around the world are offering financial support in response, but their inability to do so in a fast and robust manner is further highlighting the need for improved access to real-time payments.”
Detailing similar efforts in India and the Asia-Pacific region, the new Tracker looks at faster payments systems getting built around the world to ignite whole economies. Having led on issues like consumer data privacy, the European Union (EU) is trying to pull ahead on real-time payments as well.
“The European Central Bank (ECB) is using its real-time payments network, TARGET Instant Payment Settlement (TIPS), as an infrastructural foundation to expand its real-time payments capacity and also bring together the region’s broader payments ecosystem,” the Tracker states. “Sweden’s central bank, Sveriges Riksbank, is the newest financial institution (FI) to connect to TIPS, for example. This has broadened the ECB’s real-time banking reach to 30 countries and more than 3,800 FIs, setting the stage for countries that transact in different currencies to join the network in the future.”
Interoperability is crucial to these large projects, as faster payments relies on secure data exchange and a dizzying array of third-party APIs to make all the necessary connections and authentications.
To build TIPS, the ECB utilized the SEPA Instant Credit Transfer (SCT Inst) protocol, which establishes operational guidelines for real-time payments throughout the EU. “The ECB is supporting and actively contributing to the work on the Financial Stability Board roadmap to enhance cross-border payments, in coordination with relevant international organizations and standard-setting bodies – notably the Bank for International Settlements Committee on Payments and Market Infrastructure,” the ECB told PYMNTS.
The Fed’s Failure
Implications for cross-border B2B payments in a patchwork of national faster payments networks are also huge, and that activity is also featured in the latest Faster Payments Tracker.
But the plight of American SMBs and consumers seems more pressing at the moment.
“Aaron Klein, policy director at The Brookings Institution’s Center on Regulation and Markets, considers the problem to be less of a policy issue than a governmental failure to modernize its disbursement capabilities,” the Tracker states. “Problem No. 1 is a real-time payments problem created by the Federal Reserve’s lack of modernization ... compounded by the Treasury Department’s inability to use the private real-time payments system [that[ banks created,” Klein said.