Real-Time Payments – Winners, Losers and the Barriers to Innovation

Immediate Payments, Real-Time Payments, Faster Payments – wherever you are in the world you probably have a term for it, but whatever that is, Real-Time Payments (RTP) is probably spreading faster than any other previous payments initiative. There is good reason for this. RTP offers many benefits and everyone wants to be the first to penetrate new and growing markets. However, when I talk to CTOs and those responsible for innovation, it’s evident that implementation is one of the main barriers to progress.

 

The History of Real-Time Payments

If you follow Chris Skinner’s excellent blog you’ll have probably seen his recent article ‘The Digital Corporate Bank, Real-time Payments’ which looked at how and why RTP will be so important to commercial banks in the future. He provided a succinct summary of where we have come from to get to this point:

“Real-time payments have been developing nicely in many countries for over two decades, with the first such system launched in South Korea way back in 2001. Countries that now have real-time payments infrastructures include the UK (2008), China and India (2010) and almost 40 others. Interestingly, some countries were quite slow to catch up, most notably the USA, but The Clearing House launched RTP, the Real-Time Payments, network in November 2017. This was the first new payments system launched in America in the last 40 years.”

When Faster Payments launched in the UK, 11 of the 13 founder banks relied on our software to prepare themselves. Now, we are members of The Clearing House RTP network and we have what we believe is the only independent and complete test platform for RTP. Since the UK launch much has changed, but a great deal has stayed the same, particularly the benefits to customers and banks using Real-Time Payments.

 

The Benefits of Real-Time Payments

In Ovum’s 2018 Payments Report (2018 Global Payments Insight Survey: Cross-vertical) there were some telling statistics demonstrating the direction of travel for the payments and banking industry:

• At a global level, 51% of all merchants, billing organisations, and retail banks will increase their IT budgets for payments-related projects in 2018.
• Real-Time Payments are now central to planned customer service improvements for the majority of retail banks, billing organisations and merchants.
• Over three quarters of organizations expect, or are experiencing, customer service gains from real-time payments.
• At a global level 78% of banks, 72% of billing organisations and 68% of merchants think that the combination of Real-Time Payments and Open Banking will see the importance of payment cards decline over time.

In Commercial Banking, working capital can be improved through better management of cashflow. Back to Chris Skinner, who had this to say about Real-Time Payments in Commercial Banking:

“Real-time payments are going to be a critical part of addressing this need, which is why so many countries are moving towards instant payments processing. Real-time payments offer ubiquity, speed of payment, extensive data exchange, real-time messaging, and 24/7/365 availability. With such capabilities, real-time payments can help improve cash flow, operational efficiencies, customer engagement, data transparency and accuracy. Overall, any commercial bank worth its salt should be adopting and embracing real-time processing, and encouraging their clients to move in this direction.”

 

The Barriers to Innovation

There is no doubt that Real-Time Payments is going to become the standard for transactions over the next ten years. What is unclear is who will be able to develop their propositions first. Who will develop the most compelling propositions? Who will be able to adapt to the rapidly changing dynamics of the industry?

Adopting Real-Time Payments is challenging, but fundamentally, integration with other systems is the largest barrier to design, test and launch. As no scheme or system works in isolation, interoperability is the key issue. Most institutions have existing legacy systems and the integration of the old and the new lies at the heart of the challenge.

Existing test tools and methodologies are simply no longer adequate. We conclude that a platform-based approach suits testing better than the traditional stand-alone test tools. This allows for all interconnected systems to be simulated in one location so that testing is faster and more efficient, and above all replicates the situation in the real world. According to Capgemini’s 2017 World Quality Report, 31% of IT budgets are spent on testing, and Capgemini predicts that this will rise to 40%.

 

The Winners and Losers

I think it’s impossible to predict who will be the leading payment providers in the next ten years as so much is changing. Some established players will adapt to the dynamic market, and some new entrants will be able to grow faster without the burden of legacy systems.

However, I think that all the market leaders will share certain characteristics. Firstly, they will have a clear proposition that utilises Real-Time Payments and the new opportunities that Open Banking presents. Secondly, they will have total confidence in their ability to manage innovation in an efficient, safe and cost effective way, and enjoy a major competitive advantage over those following outmoded operating procedures, and bound to an outlook that is increasing risk for IT departments.