When it comes to executing modern day corporate payments, the desire for speed is paramount. Instead of waiting several days for funds to clear, treasury professionals would rather have certainty knowing their funds have been settled. That was a key finding of a survey taken of treasury professionals by TD Bank.
According to the survey, close to half of participants cited real-time payments as a technological innovation that would have the greatest positive impact on the industry in the next three to five years.
Unlike traditional payment infrastructure, real-time payments allow for immediate interbank clearing of a transaction in a matter of seconds. Increased usage of e-wallets and P2P fund transfer may appear to depict a fluid payments system, but, in reality, this facility rests upon a dated clearing system. For example, a card scheme payment network often results in a merchant collecting a payment several weeks after a transaction has occurred. While under an ACH (automated clearing house) process clearing needs to be three times a day, as is the case with United States transfers.
Responding to the industry desire for real-time payments, several jurisdictions have started launching real-time payments initiatives. Last November, the United States Clearing House launched their Faster Payments Scheme, along with banks such as Bank of America and JP Morgan Chase. This move represented the first time in 40 years that the United States had revamped its payments infrastructure.
Shortly after, the Eurozone launched its SEPC Instant Credit Transfer scheme, and, just recently, Australia started its New Payments Platform, all with similar intentions to make clearing almost instantaneous.
Moreover, entities such as Swift's (Society for Worldwide Interbank Financial Telecommunication) and San Francisco-based Ripple are establishing their own networks of real-time cross border payments, based on blockchain technology. DBS, for instance, has leveraged on Swift's gpi (Global Payments Innovation) system to give clients real-time payments tracking capabilities. While Ripple, most noticeably, forged a partnership with Chinese financial service provider LianLian International to allow instant transfers between China, Europe and the United States.
However, real-time payments eventually mean a higher risk of payments fraud, especially given that current bank systems may not be able to handle the speed in which these transactions are processed. One answer to this problem could be tokenisation, or, in other words, converting sensitive into onetime use code, thereby making it harder for fraudsters to obtain confidential account information.
Whether real-time payments will grow or not will heavily depend on the ability of financial institutions to upgrade their outdated payment infrastructure. As of now, the message that technological upgrades are a prerequisite seems to be hitting the mark. A poll conducted by ACI Worldwide and Ovum revealed that 28% of banks surveyed would make future investments into real-time payments.
