There is increasing pressure to clear payments in real time, especially with recent advances in technology and standards. Sarkis Akmakjian, Senior Director Product Management discusses how the introduction of the ISO 20022 standard is affecting the push for faster payments and sounds a cautionary note.
The payments industry everywhere is talking about faster payments. The topic was highlighted at EBAday in Amsterdam earlier this year and was also a topic of discussion at NACHA Payments conference in April. It will undoubtedly be an area of focus at SIBOS, taking place later this year. The desire for faster payments reflects an expectation on the part of financial institutions, technology companies, corporates as well as consumers in seeing that technology exists to make this possible. Increasing momentum in faster payments are standards that are now becoming widespread in the industry, not least of which is ISO 20022. Understanding that standards such as ISO 20022 are a pre-condition to faster payments, organizations such as the Federal Reserve which are putting together a task force, see this as a building block to use in reengineering legacy systems to accommodate faster payments.
One has to note that SEPA really did instigate the use of ISO 20022. In fact, SEPA was a main driver for wider use of ISO 20022. Aside from complete adoption of ISO 20022, there was the aspiration for true interoperability between legacy clearing systems which did not take place in the end. Countries are revisiting the importance of interoperability between domestic clearing systems in order to realize faster payments across borders.
There are still greater ambitions beyond interoperability with faster payments. In the U.S., there is a push to institute availability of faster payments according to a 24/7 model. While the market accepts downtimes for clearing windows now, soon there will be a time that that concept will become antiquated. Arguably, there is no reason why payments cannot be cleared in real-time, domestically and globally, as well as for low-value and high-value payments. Already, many countries have real-time payment systems for high-value payments. The issue is that the way real-time payments have been designed has made it expensive to accommodate faster low-value payments.
Who funds the infrastructures needed for making faster payments a reality? A recent study found that the cost to build a faster payment service in the U.S. would exceed $4 billion 1. While this does seem like a high price tag, it has to be considered in the overall view of the total flow of payments which in the U.S. are in the trillions of dollars on a daily basis. Depending on how faster payments roll out in the U.S., this can be a competitive edge and issues such as funding the system will be not be hurdles when organizations see the amount of business that can be generated as a result of this.
The aspirations for a faster payments service seem to be going from version ‘0’ to version ‘10’ without much thought for an iterative approach. Perhaps the technology companies which are getting involved in the Federal Reserve’s task force for faster payments will influence the way in which faster payments will develop in the U.S. Thought should be given to having core domestic systems which develop in parallel with international ones. Obvious to this approach is the need to leverage technologies for both systems. Realities with the pace of development occurring in other jurisdictions will mean that any attempt has to consider a phased approach. Building up to faster payments will probably have a tipping point, where hopefully most countries of major economies can accommodate faster payments, with newer markets easily joining in the future.
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