Citi Services Head of Payments Says Instant Is In as Global Dynamics Shift

Change in payments, as in life, happens slowly and then all at once.

And as we navigate through 2024, the payments industry is undergoing transformative changes, driven by innovations spurred by the rise of new payment rails and ongoing efforts toward standardization.

“We’ve been tracking the momentum in instant payments, or real-time payments, for a long time,” Debo Sen, head of payments at Citi Services, told PYMNTS during a conversation for the series, “What’s Next in Payments: The Halftime Report.”

Sen highlighted the rapid adoption of these new payment rails in regions like Asia-Pacific (APAC) and Latin America, with India and Brazil leading the charge. In India, about 85% of all payments are now real time, thanks to the Unified Payments Interface (UPI) system, a testament to the country’s leap in digital payments infrastructure.

Brazil follows closely, with nearly 80% adoption. But this trend is not limited to emerging markets, she added, noting that the U.S. and the European Union are also advancing regulations and infrastructure to support real-time payments.

“The interesting thing is there is always a lot of conversation as to whether instant payments will cannibalize other methods of payment — but in fact, it is digitizing cash in those economies and eliminating cash in many cases,” Sen explained.

Enhancing Payment Experiences and Benefits

The shift to real-time payments is driven by the demand for faster, more convenient, and secure payment options. For merchants, these new rails offer reduced transaction costs and the finality of payments, crucial for cash flow management.

The immediacy of transactions also improves customer satisfaction, allowing businesses to provide quick refunds and compensate for service disruptions, such as delayed flights, thereby maintaining customer loyalty even during challenging times, Sen said, noting that Citi Services itself operates in 65-plus markets for instant payments, and is continually enhancing its cloud-based, always-on payment capabilities.

She added that innovations like pay by bank, QR codes, and instant direct debits are reducing friction and costs for consumers and merchants alike.

Still, the transition to real-time payments and other digital payment methods necessitates significant infrastructure investments. Banks and financial institutions must upgrade their systems to handle always-on, high-volume transactions. This includes enhancing data verification processes and ensuring the security and reliability of payment networks.

Sen pointed out that while the industry is making strides in infrastructure readiness, challenges remain, particularly in areas like account verification, which varies widely across markets. Developing consistent and efficient solutions for issues like credential management and dispute resolution is crucial for the widespread adoption of these new payment systems.

Path to ISO 20022 Standardization

Cross-border payments remain an area of focus for innovation. Sen explained that Citi has been working to improve the speed, cost-effectiveness and transparency of these transactions. Initiatives like Swift GPI and the adoption of ISO 20022 are pivotal in this regard. These efforts are aimed at providing richer data, reducing friction and enhancing the traceability of cross-border payments.

The integration of cross-border payments with instant payment systems and digital wallets is another area where progress is being made, she added, noting that FinTech companies also play a crucial role in the payments ecosystem, driving innovation and reducing friction in processes like know-your-customer (KYC) and remittances.

Citi collaborates extensively with FinTechs, leveraging their capabilities to enhance its service offerings while also providing these companies with access to Citi’s extensive infrastructure. This symbiotic relationship fosters a more dynamic and responsive payments environment.

And of course, any discussion of payments innovation would not be complete without touching on the ongoing migration to ISO 20022, a standard for electronic data interchange between financial institutions.

This standardization effort aims to improve interoperability, reduce manual interventions, and enhance compliance capabilities. The richer, more structured data enabled by ISO 20022 will support better customer experiences, streamline reconciliation processes, and provide the foundation for new value-added services, Sen said.

As the payments industry evolves, new technologies such as tokenization and smart contracts are emerging as potential game-changers.

Sen explained that Citi has been experimenting with tokenized bank liabilities and smart contracts for trade transactions, showcasing the practical applications of these technologies. Initiatives like Project Agora, involving central banks and commercial banks, are exploring the potential of tokenized assets for cross-border payments, indicating a future where digital tokens could revolutionize the way we conduct international transactions.