Real-time payments: what, where and when
Momentum is building behind a faster or real-time payments platform for the US, with plans to launch a service in the next few years.The move to real-time is in an early stage, but progress is swift.
Already several big banks, including JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co and U.S. Bancorp have started to use their jointly-owned clearXchange platform to enable instant person-to-person mobile payments. (ClearXchange is now part of Early Warning)
It’s clear the US banking sector has woken up to the challenge, not least because of disruptive services from Silicon Valley firms which already offer instant person-to-person (P2P) transactions.
But full-scale real-time payment ‘rails’ are another matter. Mobile P2P is a relatively small segment of the market - the real task will be around other forms of payments like ACH. To that end, The Clearing House (TCH), which processes 50 percent of US ACH payments, has inked a deal with VocaLink, which developed the UK’s Faster Payments system, to deliver a US version.
Meanwhile, Early Warning is working with NCR's Authentic solution to build a bank-to-bank good funds network supporting faster availability of funds. Authentic, which enables payment authorization and transaction routing, will be integrated with Early Warning’s core payments products and services.
In practice, it will mean a depositing bank will get a real-time guarantee for check and ACH transactions. It will also support both credit push and debit models. This will lead to faster availability of funds on deposited items and instant notification of items presented for deposit.
While the US plays catch-up, where else in the world are real-time payments in operation? A recent report from Payments UK outlined the history, and it’s clear the rest of the world has a few years’ head start.
Real-time payments history
1973 - Japan becomes the first country in the world to implement real-time payments with Zengin.
1987 - It takes another 14 years for the next system to appear, this time in Switzerland with SIC.
1992 - Turkey implements TIC-RTGS.
1995 - Taiwan becomes the second Asian country to go real-time with CIFS.
2000 to 2006 - Emerging markets get into real-time payments, with Brazil, Mexico and South Africa joining the party. This period also sees South Korea and Iceland roll out real-time infrastructure.
2008 - UK introduces Faster Payments, Chile rolls out TEF.
2010 - Asian giants India and China implement real-time systems.
2011 to 2014 - Denmark, Sweden, Poland, Nigeria and Singapore all launch real-time platforms.
Looking ahead
The US is not the only country playing catch-up, clearly.
Australia is working on its own real-time system with a launch date set for 2017.
SEPA - the Single Euro Payments Area - is looking to roll out its version 2018. A SEPA-based instant payments system would be the first international real-time infrastructure and hugely important for the region. And the Dutch Payments Association is going through its own consultation process at the moment.
Meanwhile, there doesn’t seem to be a concrete date for the US, but we should expect movement soon following the TCH/VocaLink tie-up and the big banks’ willingness to push clearXchange.
It’s no easy task for the US - there are 14,000 financial institutions and the market is more fragmented than any other country, however there are initiatives such as the Faster Payments Taskforce that are addressing the challenge.
Nevertheless, James Aramanda, president and chief executive officer at The Clearing House is hopeful that “ubiquitous real-time payments” will soon be a reality in the US. “Once completed, customers will pay or receive money in real-time from any financial institution, and with its innovative extensible design the system will be built to provide the basis for payment solutions currently unimagined,” he commented.