Real-time payment systems for the real world

ACI has joined forces with Mastercard to create a unique partnership capable of leading the world towards advancing the on-demand economy through payment system modernisation. 

Introduction

Countries worldwide are recognising that a vibrant digital economy requires the real-time movement of money, particularly for those looking to bring underbanked populations and underserved small merchants into a more formalised ecosystem. And, even more so in the post-Covid-19 pandemic era, liquidity management at every level of the economy will remain crucial to recovery. 

It is not hard to understand why. From central banks and governments to billers, fintechs and individuals, everybody in the payment ecosystem stands to benefit from real-time payments in some way. Whether paying other people, disbursing welfare and aid, or financial institutions transacting among themselves, experiences are vastly improved by frictionless interaction. But there can be complexity involved in connecting this to the payment value chain. To truly capitalise on the opportunity of real-time payments, every interested party must understand the landscape and start planning for the future accordingly. 

Mastercard and ACI experts have real-world experience, having collectively and in partnership dealt with challenges from all angles and perspectives. We have the unique ability to harness our complex understanding to help our clients articulate and promote the real-world use-cases for real-time payments.

The need for speed

Consumer and business expectations for an on-demand economy are increasing. Real-time payments – also known as faster payments, immediate payments or instant payments – are growing to ubiquity in context and in response to this drive.

When Vocalink, now a Mastercard company, partnered with the UK’s retail payments operator to build and launch the Faster Payments service in 2008, there were just nine other real-time payment systems at the time. Fast forward to 2021 and there are now more than 60 live global real-time payments systems covering 65 different countries and territories. These markets account for the equivalent of more than 89% of global GDP. Over 5,000 institutions globally are connected (either directly or through intermediaries) to real-time payment systems.

In many geographies, transaction volumes are accelerating rapidly, with further predicted growth. ACI’s 2020 Prime time for real-time report revealed the explosive rise of real-time payments worldwide, and the pandemic has only accelerated this momentum. Three of the top five global markets – India, Thailand and the UK – have since released 2020 data showing a combined increase of 12 billion transactions for the year. ACI has recently forecast that more than half a trillion real-time payments will be processed by 2025.

Meanwhile, transaction values are decreasing, suggesting real-time payments are being adopted for day-to-day purchases in place of cash. Usage has also been driven by the increasing adoption of online banking, which has intensified as a result of the pandemic, allowing businesses and consumers to continue remotely transferring funds to one another.

Pressure from all sides

Real-time payments provide certainty of payment, real-time visibility of balances and immediate access to funds. They cater to all payment use-cases, presenting financial institutions with an opportunity to enhance the product offering, generate new revenue streams and improve the lives of end-users.

For governments and central banks, real-time payments provide a means to migrate from an informal cash economy to a more vibrant and secure digital payments ecosystem that can be better managed for the benefit of citizens. Perhaps the biggest addressable market is in the instance of people paying other people. Real-time payments are instant and irrevocable, which makes them suitable for displacing cash in these scenarios by functioning as a proxy for trust.

Existing system operators and participants, meanwhile, are under pressure from regulators, who are looking to increase transparency on pricing, availability and services offered. A 2019 report by Deloitte and Vocalink showed how real-time payments can boost working capital and improve the efficiency of the financial system with longer-term impact as corporates, startups and policy-makers harness the infrastructure to deliver innovative products and services to consumers and businesses. The mix of benefits may differ from country to country, but the overall economic implications are powerful and convincing.

However, for financial institutions it’s about meeting the demands of their customers, be they businesses or consumers, in an increasingly on-demand economy. Legacy systems have prevented banks from effectively addressing customer expectations for faster, more secure and more flexible ways to transact – the very areas in which challenger banks and fintechs are making their mark.

Real-time payments can cater to all flows between consumers, businesses, governments and non-governmental organisations and their financial institutions. In India, for example, real-time payments make up an array of use-cases that include domestic remittances, paying bills and taxes, and government disbursements. Real-time payment applications can also be used at the point of sale to lower barriers for small merchants to receive digital payments, including via QR codes or other unique identifiers. For other businesses, real-time payments enable just-in-time supply chains, helping to create efficiencies in automated stock management and fulfilment. 

And it’s not just credit transfers. One particularly exciting use-case, though not specific to real-time payments, allows a person or business to submit a digital payment request to a debtor account. The debtor or payee typically receives this request via their digital banking app. The capability is enabled by a financial message commonly called ‘request to pay’ or ‘request for payment’, which prescribes the payment value, due date and destination account. A growing number of operators, such as those in the UK, India and Malaysia, have introduced request-to-pay services and/or schemes to govern interactions between participants.

In this instance, and many others, it is not so much a competition of speed but of innovation – of leveraging the tools of a modernised payment system, including those that facilitate the development of improved experiences beyond speed and beyond the transaction.

Beyond speed – the value of data

The current generation of real-time payment systems heralds a new era in which value-added services take centre stage. These systems are designed to separate the core clearing and settlement engine from a platform layer that allows for the continuous exchange of value-added messages that can be used to develop innovative new products and services. 

Almost two-thirds of real-time payments markets have access to a real-time system based on the International Organization for Standardization 20022 data standards. Its advanced messaging capabilities provide greater context to the transaction and enable a range of innovative use-cases. With widespread adoption, they enable global cross-industry interoperability.

Business and financial institutions can therefore derive additional benefits beyond speed, such as more efficient processing by back-office systems. Customers testify to this. “Data – such as remittance information – can improve processing efficiency and reduce matching errors. And the reduced reliance on paper (including cheques) is expected to drive significant bottom-line value for Canadian businesses and government,” says Tracey Black, of Payments Canada, a Mastercard customer.

The aim for any market investing in a new payments system is to create continuous growth. Sometimes this is around migrating existing transactions to new rails (such as cash to real-time payments) but, more often than not, the focus is on creating net-new transactions. This expansion of digital transactions is driven by financial and non-financial transactions connected to payment accounts and instruments, including microtransactions, balance enquiries and the maturation of initiatives such as open banking to facilitate a variety of new use-cases that drive ecosystem adoption. 

Dependable services

Adoption of real-time payments will reach a tipping point where consumer, merchant and biller adoption make real-time expectations the norm. At this stage, payment service providers must be able to meet those expectations with availability, scalability and security equal to that which underpin traditional payment types. 

As revealed in Mastercard’s dependable services research, provision of real-time payment services needs to be combined with robust reliability and the ability to scale without downtime. Appropriate strength of service is essential to grow adoption and usage among consumers, merchants and corporates, and delivering the best possible customer experience. 

Cloud deployment is one preferred solution to meet these needs. The benefits of cloud are manifold: it is highly resilient, ensuring round-the-clock availability. It scales up and down on demand, resulting in operational cost efficiencies. It’s quick to build and deploy, and it enables fast and easy onboarding for financial institutions (whether individually or as part of a scheme). Of course, trust features heavily in any cloud consideration as it relates to regulation, governance and risk. Cloud technology is highly secure – to connect to and as a data store. Furthermore, data hosted in the cloud can be ‘pinned’ to ensure data sovereignty, which is highly important for some of the fastest-growing real-time markets, such as India. 

Proven expertise in delivering and maintaining these infrastructures of national importance is perhaps the number one assessment criteria for financial institutions and operators seeking to bring real-time payments to their markets. But a means of accessing these infrastructures is essential. It’s not a case of ‘build it and they will come’ – all participants in the payments value chain need fast, secure and simple mechanisms for onboarding. 

Time to act

Together, Mastercard and ACI have the scale, expertise, experience and assets to support regulators and operators during the transition to real-time payment systems. We possess deep and wide know-how, being involved in more complex projects than any other market player. As such, we have the unique ability to leverage our technical and practical understanding to significantly increase the speed-to-market delivery. ACI is one of the world’s leading providers of real-time digital payment software and solutions, and Mastercard is a leading global technology company in the payments industry, providing real-time payments infrastructure for 14 of the top 55 GDP countries. 

We use proven and scalable technologies that have been tried and tested over the years, and develop flexible and highly adaptable solution architectures to enable smooth participation for all users of the infrastructure. We support our customers throughout implementation, building on our experience in solving bottlenecks across the board and developing support services that cover all aspects of a nationwide programme deployment, right down to end-user adoption.

And, importantly, we are fully committed to the long-term view, leading with our ‘skin in the game’ attitude. We are committed to always being on the lookout for interesting opportunities to bring about long-term innovation for our customers. We always think holistically, integrating our big picture understanding to provide market insights to support long-term goals, including cost reduction, futureproofing and regulation development.

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