More Central Banks Will Build New Clearing Houses for Real-Time Payments

The pandemic has accelerated the growth of real-time payments (RTP), with banks, merchants and consumers seeking ways to send and receive funds domestically as well as across borders quickly and easily.

According to a recent PYMNTS report, more than 70 billion real-time payments were processed around the globe in 2020 — a year-over-year jump of 41%. The trend is expected to continue in the coming years, with a predicted compound annual growth rate (CAGR) of nearly 24% for RTP between 2020 and 2025.

That growth was a significant factor as to why, earlier this year, FinTech leader FIS launched RealNet, its cloud-based platform that enables transactions for businesses, consumers, and governments over real-time payment networks.

As global real-time payments infrastructure continues to evolve, RealNet also leverages a smart-routing decision engine that identifies the fastest and most cost-efficient payments option for a given transaction — whether automated clearing house (ACH), same-day ACH, Wires and RTP® — and automates the end-to-end process.

Read PYMNTS’ RTP Report: Bank Independent Rides Real-Time Rails To Compete With Big Banks

According to Bernd Richter, SVP of global real-time payments for Europe and U.K. at FIS, there are more than 50 countries with RTP capabilities today — a number that will continue to significantly grow in the years to come.

Western countries may be ahead of the game when it comes to transforming their markets into real time, enabling connected economies to circulate money faster, but many other geographic regions and countries are starting to embrace RTP as a crucial piece of economic infrastructure to enable corporates, small and medium-sized enterprises (SMEs) and consumers to thrive.

In Europe, for example, real-time payments have become the norm — “almost like a commodity,” and progressively, market participants are building out new use cases or adopting their value chain to leverage RTP for both businesses and consumers, Richter told PYMNTS in an interview.

There are complex changes and heavy costs involved in upgrading existing systems with newer technologies, however, which is why not all the 5,000-plus financial institutions (FIs) in Europe have adopted RTP, he said. Sometimes for smaller banks “the business case is just not there,” he added, an indication that it will take a while before the region becomes “fully real-time payments enabled.”

But even though widespread adoption has been slow, European regulators have played a key role in advancing RTP uptake and fostering innovation in payments more broadly.

Richter referred to the Single Euro Payments Area (SEPA) that was launched in 2014 as an example of a regulatory scheme establishing a set of rules and standards to make cashless cross-border euro payments — via credit transfer and direct debit — as easy and efficient as national payments.

He also highlighted how the open banking scheme, part of the revised Payment Services Directive (PSD2) which went into effect in January 2018 across the U.K. and Europe, has opened the banking industry to new players, fostering innovation and competition, while creating new products and services to improve the customer experience.

That said, even though regulators are doing their part, Richter is of the view that more needs to be done to standardize systems like open banking.

For example, the regulator introduced PSD2 without providing details of how it should be implemented, he said, leading to a less-than-ideal situation involving the creation of multiple standards and different ways of implementation.

The U.K., though, is a step ahead in this area, he said. The country has created bodies like the Open Banking Implementation Entity (OBIE) which gathers banks, FinTechs, regulators and corporates together to discuss how open banking should be implemented, using software standards and industry guidelines to drive innovation in the U.K.’s retail banking space.

RTP Systems and De-Fi

The ability of RTP systems to interact with the decentralized finance (De-Fi) world is a hot topic today, but Richter said because De-Fi is mostly unregulated and not integrated in the regulatory frameworks of most countries, that interaction will take a while to materialize.

“But I believe that it [RTP] will have a place because decentralized finance is just too interesting to be neglected by banks, corporations, and treasuries in the future,” he noted.

It doesn’t mean that this will become the new standard, but rather an important aspect of the overall mix of centralized finance and De-Fi, he said, adding that the banking system will find a lot of opportunities to “enrich” De-Fi with centralized services like know your customer (KYC) and anti-money laundering (AML) that are currently missing in that space.

He went on to say that De-Fi, stablecoins and cryptocurrencies will interact with each other, and while there is a need to educate the masses on these technologies to boost their adoption, it is important to “create clear rules and regulations to protect consumers and their interests.”

Leapfrogging Effect

Moving forward, Richter said more central banks will build new clearing houses for RTP, and like China leapfrogging credit cards straight to mobile payments, countries without an existing RTP infrastructure can leapfrog their way to implementing open banking much faster with the latest RTP technology, avoiding the complex, time-consuming process of upgrading an existing infrastructure system in the process.

“They can start with a green field, move much quicker and make use of the newest technologies and standards, even making it cloud-enabled from day one,” he said.

Richter added that interoperability between different systems will also be at the top of the agenda as countries building up RTP or upgrading their infrastructure look for new ways to improve quality of service, speed, and cost.

And as the Bank for International Settlements (BIS) experiments with interoperating central bank digital currencies (CBDCs) by forming multi-CBDC arrangements to make cross-border payments more efficient, Richter said things are moving in the right direction, and it’s an indication of a “tremendous wave of innovation” that is emerging in the payments space.