Just last year organizations from the Federal Reserve to SWIFT to The Clearing House made much of the need to adopt a real-time payments system in the U.S. In fact, some were studying ways to develop such a thing. Yet it was understood during those announcements that it would take some time—years, people believed—before anything real-time would go live.
Those expectations have been undone.
• BBVA Compass, which operates 672 branches in the U.S., is beginning to roll out real-time transfers through FiSync. The latter technology which allows confirmation of funds, secure authentication, and real-time availability of money to and from the Dwolla digital payments network.
• There’s also the recent announcement from U.S. Bank that it now offers an instant payment option through its existing person-to-person payment service, Fiserv’s Popmoney.
Core industry efforts remain important
Certainly, no one disrespects the efforts of those organizations undergoing studies of real-time payments. They’re duly concerned with a long list of issues: convenience; account data privacy; cost savings; certainty; safety; and cash management.
“Consumer safety and privacy are core competencies of the banking industry that will be brought to bear in the development of this system. Real-time payments will incorporate strong safeguards to protect account information,” says Jim Aramanda, president and CEO of The Clearing House.
One idea everybody will agree with: When real-time payments become prevalent in this country, it must be right the first time. It must work, and work securely, and work in a way that consumers intuitively trust and embrace.
So due consideration is lauded.
But concern about such systems is hardly limited to this country’s financial systems. Celent debunked a number of myths about real-time payments in a report last year. It pointed out that real-time payments exist in at least 35 countries already; that some systems are more than 40 years old; that private enterprise as well as regulatory pressure led to their development; and that bank wire revenue will not be impacted.
In fact, Celent said almost a year ago: “We believe real-time is close to tipping point within the lifespan of most systems being considered for implementation today.”
Why has real-time’s time come?
As the examples of BBVA Compass and U.S. Bank illustrate, the real-time payments phenomenon seems to be tipping already.
Why? Here are a couple of comments related to this question:
“Consumers can now get anything on demand—music, movies, services—but the underlying financial transactions can sometimes take days to finalize,” says BBVA Compass Chairman and CEO Manolo Sanchez. “By working with Dwolla, BBVA Compass is ensuring that money is able to keep up with the speed of the instant economy. This will have a real and lasting impact on businesses and consumers alike.”
And from Fiserv’s Marc West, senior vice-president, electronic p[ayments: “Designing payment solutions using a real-time-first mentality, which assumes that real-time is the ultimate standard of delivery, is a guiding principle in the ongoing Fiserv initiative to make faster payment options available to consumers. The powerful combination of real-time and mobile opens new doors for adoption and use of person-to-person payments.”
Even SWIFT, which won’t roll out its real-time payments system, beginning in Australia, until 2017, recognizes these sentiments.
“The trend in retail payments is having a profound impact on the payments ecosystem and is highly relevant to SWIFT’s core business,” says Gottfried Leibbrandt, CEO. “With SWIFT’s instant retail payments solution, banks can leverage their existing SWIFT infrastructure, resulting in a cost-effective solution with world-class resiliency.”
How real-time plays out in U.K.
All of which makes comments by George Evers, a director at Vocalink—which runs the ACH system used by all banks in the United Kingdom—extremely relevant to any potential real-time payments system in U.S. He spoke at length on the subject during the recent Oracle Industry Connect conference in Washington, D.C., recounting what real-time payments have meant for banks in the U.K.
Real-time payments in the U.K. (and other countries in recent years) are driven by three needs, he says:
“One is a market need for platform renewal. Payments infrastructures around the world are relatively mature and rely on the batch payment process. There are some emerging needs within new markets in terms of regulation around financial inclusion. There’s a need for economies to move away from depending on cash as governments want to move toward electronic payments. If you’re trying to move away from cash your payments infrastructure has to be as good as cash.
“Technology has been a big factor in changing the payments infrastructure. Some of the technological limitations have just disappeared. Also, no one can doubt the impact of mobile devices on the lives of consumers’ ability to access information, to buy goods and services, and to interact with each other.
“And there’s a behavioral factor. There’s a lot of focus on the millennials but actually we’re all changing our behavior. We’re all connected to each other. We’re connected to information and goods and services and also our anticipation about how quickly we can execute on a transaction, or buy something, or communicate with someone.
“All of the barriers to those things have disappeared. So that leads to the fact that the payments infrastructure needs to maintain pace.”
The kicker in all this, though, is what it means for banks.
Evers admits facing stiff resistance from banks which at first saw a diminution of their existing expedited payment services. Evers successfully argued that real-time payments in fact open up many more revenue-generating products and services, including P2P and mobile merchant payments processing.
“All of these have been made possible by putting in that core foundation of real-time payments,” he says.
An answer to disruption
More important, though, according to Vocalink’s Evers is the result of real-time payments.
“Rather than it being something that had an impact on our existing revenues, it’s really enabled banks to reintermediate themselves,” Evers says, “to put themselves back into some of those layers where they’ve previously seen disruptors taking positions.”
He concludes that real-time payments have been successful because “it’s based on the premise that we have the bank accounts and the relationships with all those customers.”
“That’s the key worth of real-time payments, then: reintermediation.
Sources used for this article include: