In today’s era, there is immense business and consumer pressure on banks and payment processors to expedite payments. Over the past couple of years, we are seeing many geographies transitioning from 2-3 days payment cycles to 1 day. By today’s standards, even this is not enough.
Customers now want fast payments (definitions vary, but lets call it same day settlement). Faster payments would be the equivalent of payments settled within the span of a few hours (worse case scenario) to less than 30 minutes.
The fastest payments concepts banks on the end-to-end transaction being settled instantly (sub 15 seconds).
The UK already has FasterPayments with limits of up to GBP 100,000, payments made through UK’s FasterPayments are settled literally with seconds (sub 15 seconds) for all participating member banks.
In India, the National Payments Corporation of India runs the Immediate Payment Service (IMPS). Payments processed under IMPS are near real-time. In Pakistan, the real-time payments switch is via 1Link for consumer bank-to-bank payments that enable near real-time payments also.
Singapore has eGiro & NETS which is being replaced by G3, Germany has GiroPay and Sofortüberweisung.
G3 Immediate Payments (Singapore)
Majority of the countries in the world have a real-time switch that connects banks (typically through the ATM Network) and are using the same mechanism to extend real-time payments to consumers.
McKinsey & Company: McKinsey on Payments: Transforming National Payments Systems (No 20. September 2014).
The US significantly lags behind the rest of the world as far as real-time payments are concerned and keeping in view the size of the US payments market. NACHA, the US organization that sets the rules and oversees the ACH (Automated Clearing House) is divided on real-time payments. The US processed in excess of US$ 39+ Trillion in ACH transaction 2014 (Source), yet it still does not have a real-time payment system. Many banks are proposing a gradual shift to same-day ACH rather than an outright shift to instant payments. There is a lot to lose as far as float-money is concerned – not to mention many companies and institutions working around the NACHA framework would disappear overnight – should the US implement real-time payments.
There is no doubt, the US is the big fish. From companies like IBM, Ripple Labs, Vocalink, Fiserv, et. al. are all vying to be the operator of choice. There isn’t a vendor that is not trying to cajole the influencers towards their solution. Many are skeptical, that because of the political influence of banks, processors and not to mention, the income companies are making from the current ACH, a sudden move would jolt the entire ecosystem. A few payment pundits have openly cited “Real-time payments in America? Not in my lifetime!”
In our upcoming shows we will be discussing the impact of real-time payments worldwide and especially what it means for the US.
About the Author: Faisal Khan is a banking / payments consultant and digital money evangelist. He is the co-host of Around the Coin, a weekly podcast on banking, money and payments. He is also a frequent contributor to popular Q&A site Quora. His official website is at www.faisalkhan.com
References & Reading
- UK FasterPayments: http://www.fasterpayments.org.uk/
- India IMPS: http://www.npci.org.in/
- Pakistan 1Link: http://www.1link.net.pk/
- Germany GiroPay: http://www.giropay.de/
- Germany Sofortüberweisung (PDF)
- McKinsey & Company: McKinsey on Payments: Transforming National Payments Systems (No 20. September 2014).
- SWIFT enters into real-time domestic payments
- Fiserv: Real-time Payments Hold Economic Value (PDF)
- American Banker: Same-Day ACH and the Future of Faster Payments
- G3 Payments for Singapore (by Clear2Pay) (PDF)
- Accenture Payment Services: Payments Transformation – Real-Time payments (PDF)
- Can Real-time Payments Impact GDP?
Vocalink FasterPayments Infographic