Although real-time payments (RTP) have been around for some time now, the domain is undergoing rapid transformation with ISO 20022 messages being touted as the foundation for ‘truly’ real-time payment systems. After the UK implemented Faster Payments Service (FPS) in 2007, other major economies have also come up with their versions, such as Singapore’s FAST in 2014, Australia’s New Payments Platform (NPP) in 2017, and the European Payments Council’s (EPC) SEPA Instant Credit Transfer (SCT) in 2017. The US has been a late entrant to the world of RTP systems. The Fed, which is one of the ACH operators, came up with Same Day ACH in 2016, and The Clearing House (TCH), i.e. the other ACH operator in the US, implemented an RTP system in 2017.
While customers are the primary beneficiaries of the increased payment efficiencies and shorter response times that RTP systems enable, banks and financial services firms also stand to gain. Apart from countries setting up their own national RTPs, payment card schemes such as MasterCard and Visa are also venturing into the world of real-time payments. These payment card schemes already have a large card base, relationships with member banks, and they also provide various front-end services.
MasterCard acquired VocaLink in 2016, a leading global provider in real-time payment systems that brings along considerable expertise in building and operating RTP systems. This acquisition will help with opportunities that arise from the convergence of card and non-card payments. Besides, MasterCard also has the MasterCard Send product, a cards-based P2P solution, which they can integrate with the RTP system in geographies where they have a presence.
Visa is also making forays into real-time payment systems by expanding its card-based P2P solution, Visa Direct, in the US, Canada, and Europe. Visa has also tied up with the likes of FiServ and its ‘pop money P2P service’, Ingo money, Square, EarlyWarning, the ClearXchange / Zelle service, FIS and its ‘People pay P2P service’, Jack Henry & Associates (JHA), Stripe, Hyper Wallet and Paypay (for Paypal and Venmo payments).
Tapping into the RTP Potential
Global players who already have a huge customer base can make early forays into the RTP space and occupy the center stage, eventually influencing how the market evolves.
Payment schemes operating global payment card networks with currency conversion capabilities and now acquiring real-time payment network gives rise to the possibility of creating a disruptive, global real-time payment network. A word of caution though: real-time payment networks, because of the irrevocability attribute, run a higher risk of frauds and disputes. This gives rise to numerous opportunities w.r.t. developing intelligent fraud detection systems using machine learning (ML) and artificial intelligence (AI). Given that ISO 20022 will carry much more transaction data alongside payment data, AI and ML based systems will be more than useful. They can help banks analyze all this data and derive insights that can further drive revenue through enabling the delivery of value-added services to end customers.
Another area of interest is the request-to-pay service (real-time payment debit), which is available in India now. It is expected to be launched in the UK in 2019, and most other countries are likely to follow suit. This could revolutionize the bill payment ecosystem with more, value-added (remainder for bill payment) services being created for billers or merchants and consumers.
With real-time payments, banks can tap into new revenue streams by providing overlay and value-added services. Global banks could also play a major role in enabling real-time payments across the globe. They will need to have payment service hubs to identify the most optimal method of payment mechanism for each kind of payment. Banks will need to integrate different forms of payment and enable payment services using APIs. They must identify revenue streams to provide value-added overlay services to their business and retail customers. Banks and third-party companies could also issue decoupled debit cards with limited credit exposure and pull from banks through the real-time payments network.
The future of real-time payments therefore seems quite bright, with a plenty of opportunities for banks to tap into and create new revenue streams.