By : Andy Brown
October 11, 2018 08:00 AM
The payments industry is going through a period of widespread, exciting change. From the launch of new real-time platforms such as RTP in the US and New Payments Platform (NPP in Australia, to the enablement of new services and providers via PSD2 and open banking in Europe, there are key developments underway all over the world.
With so many exciting trends in motion, there is inevitable speculation about where the payments industry is headed and what it could look like years or decades in the future.
As national systems and services continue to evolve, is it possible that consumers and businesses could soon be able to access a truly international real-time payments network?
Opportunities and obstacles
There have certainly been some encouraging signs of progress toward a global real-time payments system. SWIFT, the network that allows financial institutions to complete transactions across borders, now enables near-instant payments via its global payments innovation (gpi) service.
In February 2018, SWIFT announced that more than US$100 billion worth of SWIFT gpi messages are being sent every day. Transactions are taking place via 220 country corridors and recipients are often credited in minutes or even seconds. More time is sometimes required as a result of complicated foreign exchange conversions, compliance checks or regulatory authorizations.
The industry is also witnessing positive trends within other large regions. In Asia, for example, payment system operators representing Malaysia, Thailand, Vietnam, Singapore and Indonesia have signed a memorandum of understanding to enable real-time cross-border transactions.
Peter Schiesser, group CEO of Malaysia's PayNet, said: "Our collective resolve for regional collaboration will ensure our payment services remain relevant in a fast-changing, innovative and globally interconnected world."
Europe has made its own positive strides with the introduction of SEPA Instant Credit Transfer, which is hoped to eventually encompass all 34 countries in the Single Euro Payments Area.
These are all very encouraging signs, but it should also be noted that there are some big hurdles to overcome before a truly global, genuinely real-time payments system can be a reality.
There is the massive logistical challenge of enabling instant transactions between many different national payment processing systems and currencies. As SWIFT's experiences with gpi have shown, complex foreign exchange conversions and compliance issues inevitably slow payments down.
Security of transactions is another major concern. It's vital that the necessary checks and safeguards are in place to protect businesses and consumers against the threat of fraud in the real-time environment, particularly where cross-border payments are concerned.
Banks will also need to think about interoperability, and the capacity of their systems to engage with those used by other businesses. This underlines the importance of financial institutions updating legacy infrastructure and becoming more agile and flexible through digital transformation.
Do we really need global real-time payments?
With so many potential difficulties to overcome, some in the industry might question the need for an international real-time payments network.
According to enterprise software firm R3, one of the key reasons it's important to increase the speed of cross-border payments is to meet the needs of customers who have become accustomed to real-time clearing within national borders. The company said enabling instant international transactions - potentially through distributed ledger technology - could prove particularly valuable for businesses and global trade.
David Rutter, CEO of R3, said international payment systems have "struggled to keep pace with the explosion of global trade and the globalization of the world's markets."
A secure and reliable system enabling real-time transactions across borders could also prove highly beneficial for people working overseas who want to transfer money to family back home, and international charities that need to send funds urgently to foreign locations.
If industry members and stakeholders in the global financial system are able to find solutions to the challenges, developing a system to support instant transfers all over the world could be the next key stage in the evolution of payments.
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