Innovation, new technologies, demand from customers and markets moving to real-time are all driving the development of real-time payments
Carlo Palmers, Head of Payments Market Infrastructures at SWIFT, recently spoke to leading treasury publication, The Global Treasurer, about how innovation, new technologies, demand from customers and markets moving to real-time are all driving the development of real-time payments across the globe.
Appetite for instant payments
In the banking sector, there’s a real variation in appetite, depending on location and who you’re talking to, and there’s also a difference in what is driving the innovation. Palmers gave the example of the UK, which introduced real-time payments in 2008. He noted the regulator had been the driving force behind the move with the aim of reducing the 3-days settlement cycle of BACS.
On the corporate treasury side, treasurers can make personal payments in just a few seconds and, naturally, now expect that business payments will be just as fast. Instant payments will, “enable them to use their liquidity more efficiently and make the payment at the last moment, which is driving them push for instant payments.”
Transparency for treasurers
Historically, treasurers used tables to see how long payments would take to reach certain countries. While things have moved on from then, there is still further progress ahead. Instant payments will provide greater transparency and provide them with the power to decide when the money is going to be credited.
Instant cross-border payments
SWIFT gpi is also bringing about much greater transparency in the cross-border payments business, not just around fees and charges, but around the speed and time it takes for money to be credited. Palmers said, “50% of payments are completed end to end within 30 minutes and 75% within six hours…It’s getting much faster.”
Palmers talked about a number of pilot projects that link gpi cross-border transactions into domestic instant payment systems. Recent trials in Singapore and Australia, have demonstrated the power of gpi, with payments settling in as little as 13 seconds.
One of the major benefits is that these domestic systems are running 24/7. He used the example of Chinese corporates initiating payments in Australian dollars to Australia having a cut off-time of around 3 or 4pm, i.e., around lunchtime in China. “Now, using the instant payment system in Australia, the Australian dollar has no cut off time, so the Chinese corporates are able to make payments 24/7 and reach the beneficiary within seconds.”
“This is truly transformational and the fact that the Australian dollar was available 24/7 really mattered to the Chinese corporates.” Palmers said
Role of standards
Standards currently used by retail batch payment systems are different everywhere and this presents a challenge. These are domestic standards agreed by a domestic banking community. Palmers said, “Now, if you go international, it makes sense to use a uniform global standard. This is where SWIFT is taking a leading role.”
ISO 20022 is key to this as it allows for extended remittance information, invoice information and structured identification of the different parties in the transaction.
As ISO 20022 is globally accepted as the one single way to go forward in terms of financial standardisation now, it brings different domestic communities much closer to each other, making interoperability much easier.
How long until real-time payments become the norm?
This very much depends on how instant payment systems are facilitated.
Australia has one of the steepest adoption curves of all the payment systems created, purely because the Australian community of banks have approached this as a countrywide introduction of a new payment means. Shops everywhere in Australia offer Osko payments and the user knows that it’s going to be an instant payment to the beneficiary.
SWIFT played a key role in the development of Australia’s new real-time payment system – which would become known as the New Payments Platform (NPP). It launched in 2018 and is now a world-leading payments infrastructure that enables Australian consumers, businesses and government agencies to make real-time, data-rich payments between accounts at participating financial institutions.
In order to achieve widespread adoption of instant payment systems you need a good ‘overlay service’ – a commonly agreed service by the banks for their consumer community.
Palmers concluded, “If you want to move this cross-border, we can see that becoming a reality in the not too distant future through SWIFT gpi and our instant cross-border trials.”