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Real-time payment services are coming online worldwide

Real-Time Business Payment Systems Expand WorldwideARTICLE

By Bill Camarda

Whether described as “real-time,” “instant,” or “immediate,” systems capable of processing payments extremely fast are coming online all over the world. As recently as a decade ago, relatively few systems allowed businesses and consumers to make payments from bank accounts that made the funds almost instantaneously available to recipients.1 Today this capability is a reality for millions of people and businesses worldwide.2

For business payment systems to be considered real-time, they must execute each step of the payment process quickly and within a predetermined time, including approval, clearing, availability of funds, settlement, and notification of payment status.3 The systems typically make funds available to recipients within a minute, or in some cases within seconds.4

Major Instant Payment Services to Come Online in 2017

At least 20 major instant payment systems are now live, according to a report by research and consulting firm Celent.5 Early systems included payment schemes in Mexico and South Africa, as well as the UK’s widely-known Faster Payments system, which was launched in 2008.6

In November 2015, Faster Payments raised transaction limits from GBP100,000 to GBP250,000.7 According to Faster Payments’ Head of Development, Mike Banyard, it is discussing raising the limit to GBP1 million in the second half of 2017.8 The system already handles over 1.4 billion credit transfers worth over GBP1 trillion per year.9 Along with these increases, Faster Payments aims to grow the number of institutions that access it directly: two new participant banks joined in the summer of 2016, and eight more are seeking to join.10

Other countries that have implemented instant payment schemes during the last few years include Poland (2012) and Sweden (2013), followed by Singapore’s FAST and Denmark’s RealTime24/7 in 2014.11 Other countries with real-time systems, as listed by Celent, include Argentina, Brazil, and Chile in South America; and Malaysia, Japan, and Taiwan in Asia.

The European Payments Council plans in November 2017 to enable real-time money transfers in euros between 34 countries within the Single Euro Payments Area (SEPA).12,13 At launch, Finextra reports, the program will deliver payments up to EUR15,000 within 10 seconds, though participating financial institutions may bilaterally or multilaterally agree higher transaction limits or speeds if they wish.14 By the end of 2017, the number of businesses with access to instant B2B payments may grow dramatically.

Australia’s New Payments Platform (NPP) for fast, data-rich smaller payments is also expected to go live in the second half of 2017.15 Key capabilities are expected to include an addressing service that enables businesses to send payments 24x7 from a mobile phone, using only the recipient’s email address, a phone number or a business number.16,17 However, one expert believes that the true importance of NPP is in offering “an entirely new and better platform for processing payments and building widely diverse new applications.”18

U.S. Makes Significant Progress Towards Real-Time Payment Services

In the U.S., the enormity, diversity, and decentralization of payment systems make a single “central fast payments hub” unlikely, some experts believe.19 Still, significant progress is being made toward making faster payments available nationwide.

In January 2016, the U.S. Federal Reserve’s Faster Payments Task Force published "effectiveness criteria" defining the elements needed to implement “safe, ubiquitous, faster payments” capabilities in the US.20 Since then, it has received 22 industry proposals for creating these capabilities.21 In January 2017, it released the first half of a major report on faster payments, describing their anticipated value to the financial system.22 Later this year, in the second part of the report, the Fed’s task force says it will share its assessment of the 19 proposals it is still considering, and recommend next steps.23

The Clearing House, which processes many of the nation’s bank payments, is building a Real-Time Payment (RTP) system that is designed to meet the Fed’s criteria.24 Now at the pilot stage, the system “settles credit transfers in literally seconds,” says iTreasurer.25 Like other advanced faster payments systems outside the US – the system will include “data and non-payment messages that financial institutions can use to build innovative digital commerce solutions,” according to TCH.26

Meanwhile, as iTreasurer recently reported, NACHA went live with same-day ACH credit transfer payments in September, 2016, allowing for settlements within 2.5 hours on payments made by 10 am or 2:45 pm ET submission deadlines -- not “real time,” but closer.27

Faster Payment Services Offer Business Benefits

Increasingly, real-time payments are being seen as a fundamentally different payment type that will enable the development of new business services that offer competitive advantage, experts say.28 For example, retailers might process return refunds in real-time, or link loyalty cards to customer bank accounts, transforming the loyalty card into a means of payment.29 Or, as KPMG suggests, insurers could offer “immediate disaster payments, same-day insurance coverage, and collection of insurance premiums via a request for payment.”30

Within companies, business continuity planners might find an early application in emergency payroll, a McKinsey & Co. consultant suggested in a speech, adding that data-rich real-time payment systems may help fight fraud by enabling companies to intervene during a transaction using advanced analytics.31

Real-time payment systems may also help businesses reduce supply chain risk and payment delays,32 and improve cash flow management, experts say.33 For example, by precisely timing payments, companies may be able to preserve cash until the last moment, without risking overdrafts or late fees.34

Preparing for Real-time B2B Payments Services

Financial-services industry executives cited by iTreasurer suggest that companies may benefit from thoroughly reviewing existing business processes to understand how to integrate real-time payments.35 For example, as real-time payments become more widespread, e-invoicing and virtual account structures may become increasingly attractive for some companies.36 As one expert notes, a continual flow of real-time payments may have implications for the accounts receivable process, which at many companies is still batch oriented, often involving overnight processing and tallying of transactions.37

The Takeaway

Major new real-time payment systems are expected to come online in 2017, building on the experiences of early adopters over the past decade. These business payment systems may provide opportunities for competitive advantage, but experts say that planning and integration may be important to realize the greatest business benefits.38

Bill Camarda - The Author

The Author

Bill Camarda

Bill Camarda is a professional writer with more than 30 years' experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.

Sources

1. “Flavors of Fast”, FIS; http://www.instapay.today/insight/flavours-fast-2016-fis/
2. “Real-Time Payments and Settlement Comes to the United States”, D+H; https://www.pnc.com/content/dam/pnc-ideas/articles/D+H-US-Real-Time-Payments-and-Settlement-whitepaper-coauthored-PNC-TCH-15-April%202016.pdf
3. “The U.S. Path to Faster Payments, Part I”, Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/wp-content/uploads/path-to-faster-payments.pdf
4. Ibid.
5. “Faster Than a Speeding Payment: The Race to Real-Time Is Here”, Celent; ; http://celent.com/reports/faster-speeding-payment-race-real-time-here
6. “History/Timeline”, Faster Payments; ; http://www.fasterpayments.org.uk/about-us/historytimeline
7. Ibid.
8. “InstaPay Interview with Faster Payments Scheme”, Faster Payments; http://www.fasterpayments.org.uk/industry-news/instapay-interview-faster-payments-scheme
9. “Request for Payment”, Faster Payments; http://www.fasterpayments.org.uk/industry-news/request-payment
10. “InstaPay Interview with Faster Payments Scheme”, December 20, 2016.; http://www.fasterpayments.org.uk/industry-news/instapay-interview-faster-payments-scheme
11. “Real-Time Payments and Settlement Comes to the United States”, D+H; https://www.pnc.com/content/dam/pnc-ideas/articles/D+H-US-Real-Time-Payments-and-Settlement-whitepaper-coauthored-PNC-TCH-15-April%202016.pdf
12. SEPA Instant Credit Transfer (SCT Inst), European Payments Council; http://www.europeanpaymentscouncil.eu/index.cfm/sepa-instant-payments/sepa-instant-credit-transfer-sct-inst/
13. “EPC: Pan-European instant payments set for November 2017”, Finextra; https://www.finextra.com/newsarticle/29839/epc-pan-european-instant-payments-set-for-november-2017
14. Ibid.
15. “New Payments Platform: Phases 3 & 4 - Design, Build and Test”, Australian Payments Clearing Association; http://www.apca.com.au/about-payments/future-of-payments/new-payments-platform-phases-3-4
16. Immediate Payments Module for Australia’s New Payments Platform (NPP), D+H; https://www.dh.com/system/files/resources/flyer_australias-new-payments-platform.pdf
17. “The New Payment Platform (NPP) in Australia : Explained”, Praxsys Technologies; https://www.linkedin.com/pulse/new-payment-platform-npp-australia-explained-arthur-wielgosz
18. “The New Payment Platform (NPP) in Australia : Explained”, Praxsys Technologies; https://www.linkedin.com/pulse/new-payment-platform-npp-australia-explained-arthur-wielgosz
19. “Real-time payments for the U.S.? Not anytime soon”, BAI Banking Strategies; https://www.bai.org/banking-strategies/article-detail/real-time-payments-for-the-u.s.-not-anytime-soon
20. “Faster Payments Effectiveness Criteria–Final Version–1-26-16”, Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/wp-content/uploads/fptf-payment-criteria.pdf
21. “New on FedPayments Improvement: Two Years, Five Strategies, Continuous Progress: Strategies for Improving the U.S. Payment System Turns Two”Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/two-years-five-strategies-continuous-progress-strategies-for-improving-the-u-s-payment-system-turns-two/
22. “The U.S. Path to Faster Payments, Part I”, Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/wp-content/uploads/path-to-faster-payments.pdf
23. “The U.S. Path to Faster Payments, Part I”, Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/wp-content/uploads/path-to-faster-payments.pdf
24. “The Clearing House and FIS Submit Joint Proposal to Fed’s Faster Payments Task Force”, The Clearing House; https://www.theclearinghouse.org/-/media/tch/press%20releases/the%20clearing%20house%20and%20fis%20submit%20joint%20proposal.pdf?la=en
25. “Real-Time Payments Upheaval Seen in 2017”, iTreasurer; http://www.itreasurer.com/Real-Time-Payments-Upheaval-Seen-in-2017.aspx
26. “U.S. Real-Time Payments Business Playbook”, The Clearing House; https://www.theclearinghouse.org/-/media/tch/pay%20co/rtp/tch%20rtp%20business%20playbook%20v103%2003%202016%2011716.pdf?la=en
27. “Real-Time Payments Upheaval Seen in 2017,”, iTreasurer; ; http://www.itreasurer.com/Real-Time-Payments-Upheaval-Seen-in-2017.aspx
28. “Faster Than a Speeding Payment: The Race to Real-Time Is Here”, Celent; http://celent.com/reports/faster-speeding-payment-race-real-time-here
29. Immediate payments and the impact on corporate treasurers, The Treasurer’s Wiki; https://wiki.treasurers.org/wiki/Immediate_payments_and_the_impact_on_corporate_treasurers
30. “A Real-Time Payments Brainstorm”, The Clearing House; https://www.theclearinghouse.org/research/2016/2016-q4-banking-perspectives/real-time-payments-brainstorm
31. “Treasurers Are Increasingly Interested In Faster Payments”, Association for Financial Professionals; https://www.afponline.org/trends-topics/topics/articles/Details/treasurers-are-increasingly-interested-in-faster-payments
32. “Heralding the Birth of USD Real-Time Payments”, TMI; https://www.treasury-management.com/article/1/361/2977/heralding-the-birth-of-usd-real-time-payments.html
33. “The U.S. Path to Faster Payments, Part I”, Faster Payments Task Force, Federal Reserve; https://fedpaymentsimprovement.org/wp-content/uploads/path-to-faster-payments.pdf
34. “Are you Ready for Real-Time? Payments That Is”, iTreasurer; http://www.itreasurer.com/Are-you-Ready-for-Real-Time-Payments-That-Is.aspx
35. “Are you Ready for Real-Time? Payments That Is”, iTreasurer; http://www.itreasurer.com/Are-you-Ready-for-Real-Time-Payments-That-Is.aspx
36. Ibid.
37. “Real-Time Payments Upheaval Seen in 2017”, iTreasurer; http://www.itreasurer.com/Real-Time-Payments-Upheaval-Seen-in-2017.aspx
38. “Are you Ready for Real-Time? Payments That Is”, iTreasurer; http://www.itreasurer.com/Are-you-Ready-for-Real-Time-Payments-That-Is.aspx

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