FX International Payments
By Mike Faden
Several factors are driving the global proliferation of real-time international payments, also known as immediate payments. Due to rapid technological change and the adoption of smartphones, consumers expect almost everything to be available instantly – including payments.2 According to a report by Deloitte, real-time payments offerings from fintech startups are increasing pressure on established financial institutions to offer faster payment services. Meanwhile, regulators are supporting real-time international payments to benefit consumers and improve competitiveness of national economies.
The U.K.’s Faster Payments Service (FPS), a real-time payment system in operation since 2008, has been deemed extremely successful and has emerged as a platform for new businesses, particularly in the online and digital economy.3 Australia is set to launch its New Payments Platform (NPP) service in 2017 as an open-access infrastructure allowing businesses, households and government agencies to make near real-time payments on a 24/7 basis.4
The U.S., on the other hand, does not yet have a ubiquitous real-time international payments system designed for business-to-business (B2B) as well as consumer transactions, though the U.S. Federal Reserve (Fed) is leading a broad initiative to spur development of one.5 Some real-time systems already exist or are in development, including several focused on person-to-person payments. Of course, such national real-time commercial payment systems will have to become interoperable across borders before they can be routinely used for paying foreign contractors.
The term “real-time” can cause confusion, so it’s worth briefly describing how real-time payments differ from other payment types. Two key steps in international payments that transfer money between bank accounts are clearing, which is when the funds become available in the recipient’s account and are debited from the payers’ account; and settlement, which is when the two banks involved actually transfer the funds between them.6 The key characteristic of real-time international payments is that the recipient immediately (usually within seconds) receives and can use the funds. Settlement may also occur in real time or it may occur later, depending on the system.
For comparison, credit-card authorizations provide an immediate guarantee of payment, but the recipient may not actually receive the funds until later. With other B2B payment methods commonly used in the U.K. and Australia, such as the Single Euro Payments Area (SEPA) and Direct Entry, respectively, funds are usually available to the recipient within one business day.
Definitions of real-time international payments systems typically include some or all of the following characteristics:
Of note, that last bullet reflects a facet of the U.K.’s Faster Payments System, in addition to being a sentiment among U.S. businesses due to the potential for a high level of convenience.8
The U.S. lags other countries (including the U.K., China, India, Japan and Singapore) in implementing a national real-time payment system. Reasons include the sheer scale of the U.S. banking system and the fact that regulators haven’t imposed pressure on banks in the way that they have in other some countries.9 However, like in Australia, progress is underway. Focal points of all countries involved in the effort include speed, ubiquity, security, and efficiency.10,11 Results of the U.S. assessment are due in early 2017 and Australia is set to launch their platform around the same time.12
Real-time international payments may provide a number of benefits for B2B invoice payments and other transactions, including:
Businesses will receive payments faster. On the other hand, outgoing payments will move faster too.13
Payer and recipient both receive immediate confirmation of payment.
Urgent purchases and last-minute bill payments could be easier.14
Executives surveyed by Capgemini said they believe value-added services based on real-time payments systems will increase adoption by businesses. Potential services include integration with invoicing to facilitate automated payment processing.15
Real-time international payments systems that can be routinely used for paying foreign contractors aren’t yet universally available – but they are coming fast. Stay tuned for further developments.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. "Smarter bank payments—part 3: Real-Time Payments and APIs", Accenture Banking Blog; http://fsblog.accenture.com/banking/smarter-bank-payments-part-3-real-time-payments-and-apis/
2. Real-time payments are changing the reality of payments, Deloitte; http://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-real-time-payments.pdf
3. "Is a Global Real-Time Payment System Possible?", The Clearing House; https://www.theclearinghouse.org/publications/2015/2015-q3-banking-perspectives/global-real-time-payments
4. "About New Payments Platform", Reserve Bank of Australia; http://www.rba.gov.au/payments-and-infrastructure/new-payments-platform/
5. Strategies for Improving the U.S. Payment System, U.S. Department of the Treasury; https://www.fiscal.treasury.gov/fstraining/events/StrategiesforImprovingtheUSPaymentSystem.pdf
6. "A Guide to Real-Time Payments Terminology", Accenture Banking Blog; http://fsblog.accenture.com/banking/a-guide-to-real-time-payments-terminology/
7. Flavours of Fast (Edition 2), FIS; https://www.fisglobal.com/-/media/FISGlobal/Files/Report/Flavours_Of_Fast.pdf
8. Strategies for Improving the U.S. Payment System, U.S. Department of the Treasury; https://www.fiscal.treasury.gov/fstraining/events/StrategiesforImprovingtheUSPaymentSystem.pdf
9. "Real-time payments in the US: right said Fed", Banking Technology; http://www.bankingtech.com/500772/real-time-payments-in-the-us-right-said-fed/
11. Strategies for Improving the U.S. Payment System, U.S. Department of the Treasury; https://www.fiscal.treasury.gov/fstraining/events/StrategiesforImprovingtheUSPaymentSystem.pdf
12. "Federal Reserve Selects Firm to Assess Faster Payments Solutions", U.S. Federal Reserve; https://fedpaymentsimprovement.org/federal-reserve-engages-in-effort-to-assess-faster-payments-solutions/
14. The Global Adoption of Real-Time Retail Payments Systems (RT-RPS), SWIFT; https://marketinfrastructures.swift.com/sites/marketinfrastructures/files/white_paper_real_time_payments_0.pdf
15. 2016 World Payments Report, Capgemini; https://www.worldpaymentsreport.com/download