Driven by rapid adoption of technology and rising end-user expectations, payment systems across the world are going through a remarkable period of evolution—with a clear focus on innovation and payments infrastructure improvement.
Payments infrastructure modernization initiatives are usually led by governments, central banks, regulatory bodies or banks’ networks. All of these players recognize the importance of efficient clearing and settlement systems with modernized payments platforms, able to support real-time, high value/RTGS payments and digital experience for their customers without compromising on payment security.
New payment platforms have also enabled open innovation by partnering with fintechs and start-ups to provide next-generation payment solutions. Examples include NatWest’s collaboration with Iwoca to offer short-term working capital to small businesses, and Barclays partnering with PayPal to enable customers to see both accounts in a single dashboard on their mobile app.
So, why is the rush of investment into payments infrastructure taking place—and why now? The main trigger has been the introduction of alternative payment networks such as Ripple, and the market entry of fintechs like the peer-to-peer money transfer solution TransferWise and multi-currency wallet, money transfer and payment app Revolut.
While huge progress has already been made in the evolution of payments infrastructures, there’s much more to come.
These entrants bring innovative digital capabilities to attract B2C and B2B payments, and can process transactions more quickly by removing liquidity and settlement risks. These capabilities have intensified the competition for banks. So to maintain their position, banks now need to create an end-to-end experience for their clients, supported by a powerful global platform that allows for ongoing innovation and uses emerging technologies efficiently.
Going forward, investments in open source technologies, automation and platform integration methods will ultimately reduce costs dramatically, and allow value-added service to support customers’ demands 24/7. New core clearing and settlement infrastructure—which will meet international industry standards through ISO 20022—will use modern technical and risk management architectures to enhance liquidity savings mechanisms and overlay services for both consumers and businesses.
At the same time, investments in payment security measures like biometric authentication methods will balance security with a frictionless checkout experience during online shopping or at point-of-sale. Other areas of payments services where banks have good scope for infrastructure improvements to boost revenue generation include cloud computing-based models, payment-as-a-service, blockchain-based systems, real-time payments and open APIs.
Against the background of this fast-evolving environment, many payment infrastructure systems across the world are coming up for renewal. In the UK, the New Payment Architecture (NPA) solution is being developed to unify infrastructure for Faster Payments, bulk and corporate payments. The Bank of England has also initiated a renewal process for the UK’s real-time high-value payments system, which is expected to continue until 2020.
Another current example in Europe is the European Central Banks’s (ECB’s) TARGET Instant Payment Settlement (TIPS) initiative, which is scheduled to go live on November 30, 2018, and will allow real-time transactions and crediting of the payee’s account, including a confirmation. Other recent moves include EBA Clearing’s 2017-launched Real Time 1 (RT1), an infrastructure solution for processing instant SEPA credit transfers at a pan-European level. At the same time, modern payment hubs and real-time systems are being implemented based on ISO 20022 standards. SWIFT, too, has taken steps to redesign its message formats and move to ISO 20022 XML with its MX messages.
Following the success of real-time payments systems in other parts of the globe, US clearing houses are also adopting real-time payments powered by Vocalink. Australia has implemented its own real-time system—the New Payments Platform (NPP)—for low-value, high-volume domestic payments. And the Monetary Authority of Singapore (MAS) has introduced the Smart Nation initiative to make Singapore one of the leading global financial centers with a major role in international payments. To support this—and accelerate the transition to an end-to-end digitized payment microsystem—the Singapore government is providing a robust regulatory framework and state-of-the-art payments infrastructure.
Meanwhile, in China, global mobile payment technology giants are partnering with domestic payment schemes to build globally interoperable schemes. Examples include Alipay partnering with the Swiss mobile payment provider TWINT to enable Chinese Alipay customers to scan TWINT QR-Codes at Swiss retailers to pay for goods. And the Chinese government has moved to increase competition by allowing foreign companies to access China’s bank card clearing services.
The latest initiative in this field is the Faster Payments System announced by the Hong Kong Monetary Authority (HKMA) in September 2018. This will equip Hong Kong to support instant payments and achieve full connectivity among banks through the use of mobile phone numbers, email addresses or QR codes.
Overall, the message is clear. New payments infrastructures will continue to change and disrupt the market, fueled by the growing traction of Open Banking APIs and real-time payments—which in turn will catalyze the creation of new payment schemes and business models. As all of this underlines, the modernization of payments systems and infrastructure is an ongoing process. And it’s one that will remain at the forefront of investment plans, as customer expectations continue to grow in tandem with ongoing advances in digital technologies. So, while huge progress has already been made in the evolution of payments infrastructures, there’s much more to come.