EXCLUSIVE: “The rationale for real time” – George Evers, Mastercard in “The Paytech Magazine”
There are various motivations for implementing real-time payment systems. ‘Speed’ merely scratches the surface, writes George Evers, Senior Vice President for Realtime Products at Mastercard
The rapid and widespread development of real-time payment systems has been a central component of payments modernisation over the past decade. Fast, secure and reliable, these systems support always-on financial environments and promote innovation and competition by providing a firm backbone for new digital experiences for all players in the payments ecosystem, including consumers, corporates, merchants and governments.
Our research shows that, by the end of 2021, there were 66 markets with access t o real-time payments, accounting for the equivalent of over 90 per cent of global GDP. New services are expected to launch soon in Sweden, Denmark and Finland as part of the Nordic payment system’s P27 initiative, and in Canada, the United Arab Emirates, Myanmar, Vietnam and India. The obvious benefit of these systems is the ability to send and receive funds nearly instantly. But there are various motivations for implementing them.
These include promoting competition, increasing efficiency and improving the end-to-end user experience. ‘Speed’ merely scratches the surface.Interoperability, for example, is an often-cited aim of payments modernisation, with 39 per cent of real-time payments initiatives that we reviewed highlighting this as a stated objective. But Interoperability can have a very different meaning, depending on one’s perspective. When policymakers at a domestic level call for interoperability between systems, it can be because they want to enhance existing infrastructure. Meanwhile, markets are increasingly talking about interoperability in terms of crossborder reach. Whatever the definition, the potential is transformative. Not only can interoperability help remove barriers and increase the velocity of international trade, but there is also the promise of easing crossborder payment pain points, including cost-efficiency and transparency.
This should, therefore, become an important consideration when looking at the standards, design and technology behind real-time payment systems. The pan-European goals of the SEPA Instant and P27 are good examples of interoperability in practice; SEPA Instant is helped by the fact it’s based on a single currency, while P27 is multi-currency. To make this a reality in other multi-market jurisdictions, significant cooperation is required at the bank and scheme level, but also among central banks.
SUPPORTING THE B2B SECTOR
Businesses are a vital customer base for banks, and a driving force for economies. As such, real-time payments can support a variety of use cases that are driven by the context in which a payment is being made. For example, for supply chain management, immediate payment can support a just-in-time manufacturing process that is looking to create efficiencies in automated stock management and fulfilment. But here again, not all benefits of real-time payments are about speed, – for example, for many businesses, the digital creation of a standard invoice that’s executed in a pre-determined timeframe will provide significant positive uplift, supported by the implementation of ISO 20022.
Certainty and predictability of payments, particularly in markets upgrading to real-time from legacy payments infrastructure, is also significant for businesses. It enables them to better manage cash flows and liquidity positions as they have greater visibility over both incoming and outgoing payments. For a salaried employee, too, certainty of payment is paramount: knowing they will get paid on the same day each month – and it’s relatively simple for the employer to schedule this.
By contrast, for a business’s freelance or temp worker on more irregular pay, immediacy is far more important to them. It’s worth noting that newer bulk/batch systems can already support more frequent intraday settlement cycles, which creates ‘fast enough’ processing that will meet the requirements of many B2B, C2B, G2P and B2C use cases. Many real-time payment systems are built to run parallel with this infrastructure; while there is sometimes migration of volumes, for the most part, the two are considered complementary. There are a number of other options to consider here, however. One is modular implementation. The Netherlands, for example, is using two speeds over the instant rails – true instant and slower, controlled payments.
The migrated batch traffic can use the second option, recognising that speed isn’t essential here, but 24/7 operations are attractive. There are many instances where instant payments are not crucial but where certainty and ‘always on’ operations are. All of these factors – and more – show payments modernisation is so much more than simply real time. This understanding is crucial for central banks and governments to ensure they adopt game-changing infrastructures and solutions to benefit consumers, businesses, corporates and – ultimately – economies.