Technology has created a business environment characterized by immediacy. The payments industry has lagged in this regard though and immediate payments schemes are just now being implemented across the globe. In banks meeting customer demands for the immediate transfer of funds from one account to another, with certainty, convenience and at a low cost, immediate payments are an enabler of new modes of commerce with great benefits to the banking industry and society as a whole.
Mexico, the United Kingdom, Singapore, Sweden, and Australia, among others, have led the way in adopting real time payments schemes. Fundtech expects at least 20 more countries to institute such schemes over the next ten years and 50 more countries over the next two decades. Judging from a 2013 Federal Reserve request for comment, there is a strong chance that the United States may soon be joining the club.
The benefits that immediate payments bring to banks and customers are many. For instance, customers no longer need to go to the trouble of obtaining a cashier’s check for significant purchases like that of a car. In fact, many of these bigger ticket purchases, along with everyday ones, are now done immediately through mobile devices. Also, as commerce moves further into cyberspace, crime is significantly reduced. Less cash carrying means less opportunistic robbery and crime. Sweden, especially, has seen the reduction of cash usage as reducing the overall level of violent crime in society. Additionally, increased digital usage greatly reduces the most significant fraud cases, tax and check fraud.
Mexico’s SPEI, the U.K.’s Faster Payments Scheme (FPS), Sweden’s Immediate Payments Scheme (BiR) and Singapore’s G3 system all provide good case studies into the industry’s evolution. Learning by example and being prepared are key elements to successful system implementations at banks. Even if a country’s specific immediate payments scheme is not yet known, banks are starting to have a better vision of the end game and should begin aligning business cases now. This includes:
1) Assessing the business model impact to banks - The U.K.’s experience shows us that there is a definite first-mover advantage. Thus, in Singapore, all leading retail banks quickly joined the first implementation wave.
2) Developing cost effective services - The model will change - rapidly as in Singapore or slowly as in Sweden - and banks need to be flexible. Banks should invest in automation — such as STP improvements and customer self-service in order to be ready for the future.
3) Evolving to meet real-time requirements - This should be the case through the entire payments value chain, and could involve stand-in processing should a bank’s system not be capable of 24/7 operation.
4) Focusing on scalability - As Mexico and the U.K. show, massive multi-year volume growth should be anticipated.
5) Preparing to implement differentiated services - Once immediate payments basics are clear, it is common to have value-added services to be designed at inception.
6) Conducting staffing analysis - As immediate payments get underway, other payments options are used less frequently and staff adjustments should be anticipated.
7) Considering security measures - Enhancements should look beyond just today’s needs and account for what is on the horizon.
8) Remember the education element - immediate payments will be an adjustment for consumers. Through proper preparation though, banks can ease the transition to an immediate, 24-hour system.
The immediate payments revolution is well underway and the pace of adoption is accelerating. Commerce and economic activity can occur more quickly and efficiently, less expensively and with greater security. This benefits society and can benefit banks, particularly those who are proactive and visionary as well.
Gene Neyer is the senior vice president of global payments at Fundtech.