Real-time payments have long become the ‘new normal’, with 45 schemes currently live and a further 13 in planning stages. In 2020, the conversation around real-time will move further away from being about setting up to support real-time payments to ‘what can we do with real-time’? Craig Ramsey, head of real-time payments at global software business ACI Worldwide looks at the five key trends that will shape the real-time world in 2020.
The Request to Pay revolution is taking off around the world
Consumers and corporations around the world are increasingly demanding products and services to interact with them in real-time, and of course that includes the interaction with the payment. Digital overlay services will be the talk of the town, as banks look for new products and services that leverage the newly created real-time rails.
Request for Payment (RfP) is one such overlay service where there will be plenty of talk. Last year several major US banks announced new RfP messaging capabilities for their customers on The Clearing House’s (TCH) Real-Time Payments (RTP) network. In the UK Mastercard is planning to launch its RtP solution, following accreditation from Pay.UK; the service will enable consumers and businesses to receive payment requests, view bills and pay using real-time payments or card. And in Europe, the EBA is planning to develop a pan-European RfP infrastructure. The project is supported by 26 payment service providers from 11 countries and scheduled to go live in the second half of 2020.
Banks will need new technology solutions to support RfP, at the processing level as well the customer facing channels to be able to support it.
Real-Time enables the Democratisation of Payments
India’s UPI is probably the world’s biggest global RfP success story which brings me to the next big trend – the democratisation of payments. The introduction of UPI (Unified Payments Interface) has changed the Indian payments landscape dramatically.
Within just a few years UPI’s popularity has grown exponentially. From 21 banks in 2016 to more than 140 currently, transaction volumes have risen from ₹3.1 Cr in August 2016 to ₹1.89 trillion in October 2019. In November 2019 alone UPI amassed 1.22 billion transactions in one month. Transactions via UPI could surpass cards within a couple of years based on current growth estimates.
It’s the interoperability – bank to bank, social media to social media – that makes UPI the most promising real-time payments system in the world, and one that other countries are watching closely.
While there has been much debate and a backlash against the cashless society in many parts of the world, the example of India demonstrates that digital payments can lead to a democratisation of payments, making it easier and cheaper for the unbanked or underbanked to transfer money. Evidence suggests that if businesses can bring consumers from an unbanked or underbanked situation into a banked one, it will increase security and help them to better manage their money. One of the key issues is to ensure that the unbanked and underbanked have access to technology that will allow them to become banked.
Renovation of Payments Infrastructure and Public Cloud
Renovating and updating existing payments infrastructure will be another big topic for 2020. One of the biggest changes we have seen in recent years has been the shift in the relationship between banks and the public cloud. While financial institutions were initially reluctant to embrace the technology, they are now amongst the most likely to do so. According the Culture of Innovation Index, recently published by ACI Worldwide and Ovum, 92 percent of corporate banks are either already making significant use of the cloud, or planning to make further investments in 2020.
What has prompted this shift? Banks now realise that the cloud is a key enabler towards the digital transformation of their business. Coupled with the understanding that it is secure and that cloud providers have more spending power to maintain their clouds, banks are fast realising that adopting the cloud enables banks to run a more cost-effective operating model, while providing them with the agility to adapt to the ever-changing financial environment and enter new markets. Ultimately, this means they can focus their time and effort on delivering the customer experience required to remain relevant in an increasingly competitive environment.
Migration to ISO 20022 will become mandatory
The global trend towards capitalising on richer payments data and enabling for value-added overlay services on real-time rails aligns with another major global shift which is just around the corner: The financial community has agreed that November 2021 marks the beginning of the move to ISO 20022. ISO 20022 messages deliver more, through structured data that allows payment providers to exchange information seamlessly between systems to deliver a consistent customer experience across markets.
The transition will begin in November 2021 and run until November 2025. There’s a lot to do between now and the deadline. Participants need to procure and sign a contract with a Network Service Provider, finalise internal development plans, adapt their IT and internal processes, complete connectivity and user testing, finalise their configuration and then complete migration activities on production environments.
It is fair to say that many banks have underestimated the enormity of the task ahead and planning for migration should be on top of the agenda for financial institutions in Europe and beyond. Migrating as soon as possible will deliver early benefits for payment providers and their customers, including end-to-end visibility on payment flows, easier reconciliation and transmission of more data to the final customer.
Universal Confirmations will become mandatory for all financial institutions using SWIFT
Since it was launched in 2016 SWIFT gpi has without doubt transformed the cross-border payments experience. Over 500 banks have joined the service and gpi customer payments are now being made in nearly 150 currencies, across more than 1,300 country corridors.
SWIFT gpi has quickly become the new norm for cross-border payments and enables financial institutions to provide fast, transparent, certain and trackable cross-border payments to their customers. By the end of 2020, SWIFT will extend the benefits of tracking and confirming payments to every financial institution. As part of this, every single payment (MT 103 on FIN) will require a confirmation that funds have been credited to the end beneficiary account within two business days.
Financial institutions on SWIFT that are not gpi-enabled will be able to confirm their incoming payments manually using a new Basic Tracker, as well as through a range of other automated solutions. SWIFT gpi member banks will continue to be able to access the full gpi Tracker to confirm payments, as well as benefit from the full search and tracking features of gpi, along with the suite of value-added services. Many customers are demanding the transparency that Universal Confirmations offer and are determined to action as soon as possible. Additionally, SWIFT provides access to the testing robot for all its pilot members as a free resource – so it makes sense to take advantage of this.