How real are real-time payments?
The financial industry is a keen user of the phrase “real-time payments”. But how many of us actually mean “real-time” when we say it? Real-time isn’t complicated. It doesn’t mean “faster payments”, which it often gets confused with. It means it happens right there and then, with no delay – or float, as the industry calls it.
“Many in the industry will use the terms ‘faster’ and ‘real-time’ fairly interchangeably, and certainly I’m guilty of that,” Sarah Grotta, a researcher at Mercator Advisory Group, tells PaymentsJournal. “But I think it points to a bit of the confusion in the market and the need for clarification.”
South Korea was the first to launch a real-time payments system in 2001. Since then, the UK and parts of Asia have done the same, and the US is currently ramping up its own. At the end of 2019, the US Clearing House said its real-time payments network was reaching nearly 50% of all US bank accounts.
But there are two different conversations to be had. One for domestic payments, and quite another for cross-border payments. Incumbents and fintechs alike still face the same challenges when it comes to scaling real-time payments internationally, which is why the phrase “real-time payments” still doesn’t wholly ring true.
It comes down to a host of complexities, including crossing different regulatory jurisdictions, as well as the time it takes to convert money between different currencies. So, are these challenges manageable?
The emergence of ISO 20022, a global and open standard for payments messaging, has helped to kick off standardisation which could shape a harmonised cross-border payments system. Companies have desperately tried to reach a solution which connects the dots between national solutions. Swift claims it’s been working with market infrastructures in Australia, Europe and Asia to do this.
The most notable project in this direction is P27, a Nordic-wide single payments platform which is likely to become the first model for real-time cross-border payments. “This isn’t a long-term aspiration anymore, it’s happening in the next couple of years,” says Peter Ryan, a senior product manager at Infosys Finacle.
In a world where “instant” is becoming the new base-level expectation, banks and payments systems are under a time pressure to deliver real-time-everything. Generation Z has an attention span of just eight seconds. Which means the longer we wait, the more the world will clamour for instant payments and more.
Currently, the likes of fintech start-up TransferWise and Santander’s PagoFX – created to take on upstarts like TransferWise – still face a common problem. They’re still both subject to the same time delays, which means sending a full, converted payment can still take days depending on when it’s sent. Even if they claim it can take minutes, there’s no guarantee – like a real-time cross-border payments system.
But it’s not just about solving the payment itself. It’s also about the message which confirms or alerts you of that payment. We get banking app notifications when someone sends us money, but how in-sync is the transaction with the message of payment? The amount of times I’ve fallen into the trap of thinking someone has sent me £50, only to find it’s the money I transferred to myself half an hour before.
It adds to the list of reasons which explore why real-time payments, in their truest form, still seem like a far-off concept unless you’re living in the Nordics. Notifications – at least sent by incumbents like my bank Lloyds – are still out of sync with payments as simple as to one’s self.
And payments are still significantly delayed by border jurisdictions and currency conversion times. The answer to these barriers lies in collaboration on a mass scale. It’s far bigger than the cost-war incumbents and fintechs are currently fighting.