For real-time payments, the infrastructure is there, and now comes the demand.
To that end, according to Craig Ramsey, head of real-time payments at ACI Worldwide, the real-time payments focus in the United States through the present day has been on consumer propositions — sending money instantly between parties for groceries, restaurant bills and other expenses.
And it is the consumer’s expectation of payments done with speed, account to account, that will create ripple effects for banks, merchants, corporates and corporate transactions.
Ramsey said the growth in Zelle and Venmo helps illustrate the emergence of a mindset that states, “as a consumer I can pay my bills when it suits me. I don’t have to think about the bank clearing and settlement cycle. I can decide I want to pay my credit card bill at a particular time — maybe at the last possible moment.”
He told PYMNTS this consumer mindset is reflected, for example, in statistics from the United Kingdom that show a significant number of transactions happen outside of regular banking hours.
And to get a sense of just how dramatic a digital overlay and new payments platform can take root, consider the fact that transactions over India’s Unified Payments Interface hit the 1 billion mark last month, three years after launch.
He noted that real-time flexibility is vital in cementing the relationship between banks and their customers. Though the financial institution may not make much (if any) revenue on the transactions, they do indeed benefit from consumers holding accounts with those institutions, and of course, benefit from peripheral services tied to loans and mortgages. He likened the strategy to the 80/20 rule, where the bank may make 20 percent of its revenues from payment services and 80 percent from account holdings.
Looking at the two types of merchants — online or physical stores — he said real-time payments are less likely to gain traction in a brick-and-mortar setting, at least on the consumer side of the equation.
For online transactions, he told PYMNTS, merchants can prod consumers to consider an alternative form of online payment, done across real-time rails and through a request for payment.
But in the in-store setting, contactless payments, credit cards and debit cards are, in Ramsey’s estimation, a “hard proposition to beat from a user experience perspective.” But, he added, there’s an incentive for merchants to shift to real-time payments. They typically pay interchange fees, and settlement of card payments can stretch across as long as 30 days.
“It’s to the merchant’s benefit to get money sooner,” he said. And at the point of sale (POS), real-time payments may find solid footing during self-checkout, where a request for payment can be made through the POS device and can be done just as quickly as using credit card or debit card. At least some familiarity is already in place to embrace real-time payments in this setting, as, for example, in the United Kingdom, consumers can use their smartphones as they “scan to shop” at most major supermarkets.
Downloading a mobile app and preregistering a payment choice can pave the way for using application programming interfaces (APIs) connected to banking apps for requests for payments.
The Corporate Case
Ramsey said that in the B2B space, corporations are interested in real-time payments because there is value in paying their bills a bit later (just like consumers would) while being able to receive funds instantly — which of course improves cash-flow management.
He noted, too, that real-time payments, tied to the universal financial messaging scheme known as ISO 20022, have rich messaging attached, which allows for easier reconciliation of transactions at the back end. That means cost savings for firms as they reduce manual processes and paperwork, he said.
At present, corporate adoption of real-time payments faces at least some hurdles because transaction limits are relatively low, depending on the country. In the U.S., for example, the limit stands at $25,000 per transaction. But those limits should scale upward rather quickly, said Ramsey, who noted that in the U.K., initial real-time payment limits were set at 10,000 pounds, and now are at 250,000 pounds.
“When the banks start to look at those payments sizes and propositions,” he said, “that’s when we will start to see more value-added services being added by those banks to encourage corporates and merchants to start to use real-time payments and move away from more traditional payment types.”
With the add-on of services, he said, and especially with higher transaction limits, real-time payments may indeed go global — across borders and well beyond the confines of domestic use cases. The infrastructure is there for faster payments, and eventually, real-time payments done globally. Ramsey noted that SWIFT gpi has been improving both the speed and transparency of cross-border payments.
The readiness is there for real time — and now comes the demand to monetize it all, said Ramsey.
It used to be the case that it was quicker and cheaper to grab a bag of cash and fly it anywhere in the world than it was to send money electronically,” said Ramsey, a bit tongue in cheek. With the recent proliferation of payment schemes around the globe, he said that, of course, is no longer the case. With SWIFT gpi, there is certainty that payments will arrive in a certain place at a certain time.
For current B2B transactions, he said, money moves as fast as it needs to — and with many transactions being able to flow from the U.S. to Australia in less than 15 minutes, for all intents and purposes, is quite fast enough.
In other words, payments are moving as fast as they need to right now — and when the time is right, they’ll get faster.
“Maybe in a few years’ time that 15 minutes from the U.S. to Australia will feel like it’s the slowest thing in payments in the world and that needs to be improved as well,” he told PYMNTS. “But as we sit here today SWIFT gpi answers a very real problem and moves us to into the 21st century — which is exactly what correspondent banking needs.”