I am pleased to collaborate with Conrad Sheehan in developing this blog. Conrad leads our core payments practice in North America. Working directly with our financial services clients on strategic, operational and technical issues, he is on the front lines of the evolution of real-time payments.
Digital technologies have conditioned us to crave immediacy. We get packages delivered in an hour. We binge watch entire seasons of our favorite shows in a few sittings. And a world of information and services is a quick click away. Yet even in our Culture of Immediacy, payments processing still takes one to three days. A lifetime in the digital world.
The writing is on the wall
There is an undeniable need to modernize the payment rails for a 24/7 digital economy. Consumer demand, technology advances, government mandates, central banks and private organizations are driving activity in instant payments globally. Today, 46 countries are live with instant payment schemes and 12 more are in planning stages.¹ The global real-time payments market is projected to reach about $26 billion by 2023.²
Payment executives see the writing on the wall. Many view instant payments as a powerful catalyst to re-architect financial infrastructures and how payments are managed. Those we surveyed in the Accenture 2019 Global Payments Survey see instant payments fast becoming the industry standard. Case in point: 96 percent in North America say consumer-to-business payments are already becoming more instant.³
Instant payments are also top-of-mind as customer experience becomes the currency of competitiveness in retail and commercial payments. Executives are keenly aware of the influence of the payments business on the balance sheet. The benefit is not just in delivering fee income, but also in enabling banks to differentiate themselves by extending the value proposition beyond traditional transaction processing.
The United States is an instant payments laggard compared to the rest of the world. Real-time payments is the first new payment rail that the country has deployed since the 1970s. Getting there is complicated by a number of factors that are unique to this market.
First, there is the immense market size and its inherent complexity. There are roughly 10,000 depository institutions, 21 million business payers and an $18 trillion economy.4 And the US market is far from monolithic. It is a hydra. The nation’s financial institutions serve countless constituencies and have diverse operational and technical infrastructures. All of this has a significant impact on payments transformation.
Real-time payments is the first new payment rail that the country has deployed since the 1970s.
Second, there is no mandate here forcing banks to participate, which is philosophically aligned with how the US economy typically runs. While the Federal Reserve Faster Payments Task Force set a goal in 2017 for real-time payments ubiquity by 20205, this aspiration is far different from a regulatory mandate in its practical application.
Lessons from the world
Despite these challenges, there is momentum in real-time payments adoption in the United States. We have had more conversations with a range of financial institutions this year around taking advantage of real-time payments—from mega-banks with massive balance sheets to middle- and small-market institutions.
There is no standard cut-and-paste solution for these institutions to define their path to real-time payments. In our experience, adoption rates of real-time payments follow one of three paths: rapid, typical and slow adoption. While there are striking differences in these paths, other countries’ experiences provide guideposts for US financial institutions in developing their real-time payments deployment and monetization strategies. Consider these examples:
- A successful system, Mexico runs social security payments and government payroll through the Bank of Mexico’s SPEI® system, which created an implicit mandate that spurred adoption. In addition, national marketing campaigns helped to encourage public participation along with tailored technical solutions to target national ubiquity.
- In Australia, the New Payments Platform (NPP) acquired four percent of interbank clearing in six months. Overlays—services in addition to core clearing and settlement functions—helped drive adoption. Car payments is one of these, and today, auto companies are paid in four seconds with NPP.
- Dollar thresholds and overlays such as expanding payment thresholds from £10,000 to £100,000 and enabling 24×7 Direct Corporate Access helped the United Kingdom drive the impressive volume increases that occurred in consumer-to-business and business-to-business payments over the first decade of its Faster Payments Service.
The journey ahead
With the Federal Reserve’s recent announcement of the development of its FedNow service, momentum around real-time payments here will only accelerate—and get more complicated.
Even so, real-time payments ubiquity must be the ultimate goal. Achieving it means tackling scale and stakeholder diversification. Financial institutions must also develop strong use cases, double down on security and fraud prevention, and build flexible technical infrastructures to position themselves in a world where payments are truly instant.
For more insights on real-time payments, listen to a recent webinar, Real-time payments in the United States: A game of inches. Also take a moment to read Mark Quigley’s recent blog, Expecting payments, this instant!
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1 InstaPay Tracker
2 Market and Markets, “Real-Time Payments Worth $25.9 billion by 2023”
3 Accenture 2019 Global Payments Pulse Survey
4 InstaPay,“Real-Time Payments in the United States: A Game of Inches” 6/13/2019