One thing’s for sure: faster payments are going to make their presence felt around the world. Currently, some 41 markets world-wide offer some form of domestic faster payment system, with another 30 set to follow suit over the next 18 months. Internationally, faster payments corridors are emerging, with an experimental Hong Kong-Australia corridor promising transaction and settlement in less than 13 seconds.
FIS’s “Flavour of Fast” report for 2020 sets out a vision for the future of Real-Time Payments, or RTPs. Aman Cheema, FIS’s SVP of strategic initiatives, argues that COVID-19 will see digital account for 50 percent of all transactions worldwide as early as the end of 2021.
Previous estimates had pushed this watershed out to 2025 – the implication of FIS’s analysis being that as digital grows, demand for real-time settlement will increase: though they don’t offer much explanation of the link between the two trends.
Furthermore, FIS believe that the strong performance of new domestic RTP platforms will widen and deepen usage of RTP in many different environments. The company points out that China processed more than 16 billion RTP transactions in 2019, while Australia’s New Payments Platform saw its transaction numbers surge by 277 percent this year.
These successes will encourage banks and others involved in trade to see RTPs as a reliable vehicle for international business-to-business transactions. In part, FIS expect this move towards RTPs in the business-to-business segment to be driven by the rich data on offer in most modern RTP systems.
A benefit to government
Rising economic instability has seen demand for instant payment and settlement rise, both from workers in the “gig” economy and from those receiving government benefits. “In the Netherlands, real-time payments are used to disburse insurance payouts, especially in healthcare”, Cheema says.
“Given that complex infrastructure accounts for $389 billion of cost in US healthcare, the use of real-time infrastructures could eliminate such financial demands.” Although FIS argue that governments are committed to the provision of tax refunds and other remittances in real time, questions have to be raised over this assertion given the cost and complexity of introducing RTPs into government systems.
Fraud turns to aged systems: will banks’ roles change?
FIS’s report states that last-generation payment systems based on card and account numbers will become growing targets for fraudsters as the world moves to a fully digital environment. While this may be the case, there are significant unanswered questions about the security of RTP.
Further – and possibly contradictory – conclusions drawn by the FIS study include the prediction that big tech firms will partner with banks on financial products, as Google did with Citibank on a consumer bank account, or Apple did with its credit card powered by Goldman Sachs. At the same time, FIS say banks will be encouraged to partner with big tech firms on the basis of open APIs as they seek the latest technology solutions.
“New modular systems based on single micro-services can be upgraded and replaced more rapidly.“
While these predictions may come to pass, they ignore both the power of real-time payments to bypass traditional banking loops, and the transformative role that innovative FinTechs – possibly, “little techs” – can play in partnership with banks. In other words, it’s not clear that partnerships with Big Tech are necessarily a given, especially given consumer mistrust of those firms.
The rise of microservices
If FIS’s predictions in some areas seem a little questionable, then there’s no doubting the good sense behind their analysis of where the payment services market is heading. They argue that the “monolithic” design of many of today’s payment systems – think credit transfers or BACS – has made such systems difficult and expensive to upgrade.
As a result, institutions bringing Faster Payments systems in will seek to create modular, micro-service based systems which can be upgraded and replaced more rapidly. They also say that the wider adoption of cloud systems with rapid internet access has made such an approach more feasible than ever before.