The implementation of retail faster payments across the globe is continuing at a rapid pace, with significant implications for incumbent RTGS systems, according to a report published by the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI).
Global adoption of retail FPS is rising at a rapid pace with some convergence in features and design. The report finds that a growing number of FPS have adopted – or are moving towards adoption of – the ISO 20022 messaging format.
FPS are also increasingly settling obligations among banks and, where relevant, non-bank FPS participants on a payment-by-payment basis in real time. In terms of the role of the central bank in an FPS, while differences in approaches remain, central banks tend to play important roles in facilitating the operations of FPS; in a number of cases, they also operate the FPS system.
Designing, implementing and operating an FPS is complex. Challenges include ensuring high system availability and reliability requirements.
FPS can also have significant implications for the operations and services of RTGS systems in the jurisdiction. This can include potential modifications to access criteria and extension of operating hours at the RTGS system. The insights from this study can be relevant for jurisdictions considering implementing a new FPS, or modifying an existing arrangement.
Retail faster payment systems allow processing of small-value (retail) account-based transactions such that funds are immediately available to the payee.
Further, these FPS are available on a (near) 24/7 basis. FPS can have a significant impact on domestic payment landscape, but can also be relevant for cross-border payments.
In October 2020, the G20 endorsed a roadmap to enhance cross-border payments, developed by the Financial Stability Board (FSB) in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other relevant international organisations and standard-setting bodies.
The G20 cross-border payments programme aims to address long-standing challenges in the cross-border payments market, including high costs, low speed, limited access and insufficient transparency (CPMI (2020), FSB (2020)).
FPS can be part of broader solutions in that they provide (near) 24/7 funds transfers in the “last mile” (or the “first mile”) of these payments.
More recently, the Covid-19 pandemic has accelerated the digitalisation of payments and reinforced the potential of fast payment services. In some jurisdictions, governments have used FPS to disburse timely Covid-19-related benefit payments to households and businesses in need.
The report takes stock of recent developments in retail faster payment systems (FPS), examines central banks’ roles in these systems and discusses the implications for real-time gross settlement (RTGS) systems which provide a critical foundation for the wholesale settlement associated with FPS.