The second day of EBAday 2024 in Lisbon kicked off with exciting panel sessions discussing real-time payments.
In the panel ‘Accelerating the creation of real-time currency corridors’, experts Tapan Agarwal, head of payments solutions at Intellect Design Arena; Zennon Kapron, director of Kapronasia Singapore; Piers Marais, chief product officer at Currencycloud; and Paul Francis Walvik-Joynt, SVP of real time payments at Mastercard, explored the potential of cross-border real-time payments.
Marais stated: “When looking at cross-border payments we have to start with the oxymoron that, more often than not, money is not moving across borders, money is staying within domestic payments.”
He continued to outline that the UK has been a market leader in real time payments capabilities, which is due to the technological and cultural mindset withing public and private sectors around digital innovation. Marais points to the progressive regulatory framework that allows non-banks to disrupt the status quo to improve customer experience as a key element that contributes to the success of the UK instant payments landscape.
Walvik-Joynt stated: “When you are looking at the question that we have, ‘what is your perspective on immediate cross border payments in real time payments?’ You have to look back at what the experience is domestically in each country. It always starts there. So, anyone who's interacting today with real time payments, whether it be for financial inclusion reasons, or substituting in cash, or something else, there is a habit that has been formed. That habit grows when trust is in your transactions.”
He said that it is important to come together, and that real time payments is a collaborative effort. Collaborative processes are also a legal framework. Walvik-Joynt continued that the creating a collaborative environment built on trust is essential for schemes to be adopted globally:
“I think there's a really perfect constellation of regulatory incentives for instant payments across Europe. There's a currency that spans across multiple countries. In 2025, all financial institutions will comply to the OCT, which is landmark for a whole region. The long history in Europe of creating collaborative environments is being adopted other places in the world, and that's what you need. Putting that into the context, you can collaborate. you can compete, and it can be profitable, but at the end of the day, we earn the trust of the customers and we build our real time payment systems based on the premise.”
Marais agreed with Walvik-Joynt’s point, and added that there is no going back to the pre-instant payments era, and that to continue to manage data effectively and enhance instant payments infrastructure global systems will need to rely on each other.
He commented: “How do we start to upgrade that legacy to support the growing instant use cases that exist? Let's be honest, the instant cat is out of the bag. There is no way that we're going back to slow transactions either domestically or globally. But there are some key building blocks that start to come out of that.”
Kapron said that technology has never been the problem for instant payments and instant cross-border payments. Speaking from the perspective of who has worked in Asia, he highlighted how regulatory issues are more prevalent in ASEAN rather than a lack of technology:
“It's all people, organisations, and regulatory issues, rather than technology issues at the top of the mountain. There's been great work done by the BIS and many other organisations to map out amazing community footprints of what the landscape could look like. It's that will from regulators that is what is needed. It's ironic, because we look at individual countries like Malaysia, basically for the retail payments for point of sale payments, they want to push the interchange rate down to less than 50 basis points for any transaction. There is a bill from various different governments to lower the costs of payments for individuals that's going across border, but that only goes to a certain point, and when it gets to the point of negotiating with another country about what this will look like, that's what we run into the challenges. Europe is the only place that has managed to pull something together around that.”
He continued that if there is no standardisation, there will be a patchwork of functional, but inefficient systems that do not connect seamlessly or easily as they should.
Agarwal concluded by pointed out how banks are leveraging new technologies to enable faster instant payments: “My team is here to make payments faster, cheaper, and more transparent. They there are so many initiatives in the industry today to facilitate immediate cross border payments. We made a payment for one of our Indian customers from a Canadian bank to an Australian bank using Ripple in 10 seconds. There are banks which are trying to leverage open banking APIs to connect with the underbanked and get access to global payables and receivables and local payment base uses the ATMs, using partner banking and open banking networks.”
In a panel session titled ‘Real-time payments across the globe’, speakers Dan Baum, SVP and head of payment product, FedNow, Federal Reserve Bank; Kjeld Herreman, head of strategy advisory at RedCompass Labs; Uwe Klatt, CEO of GEVA Group; Rob Magee, program director of ISO 20022 industry migration at the Australian Payments Network; and Isabel Schmidt, executive platform owner of enterprise payments at BNY, touched on how real-time payments have evolved worldwide.
FedNow recently launched their instant payments system, Baum noted how they plan build an infrastructure to support future payments: “Many of the organisations we serve in the states are global corporations, and they move payments across borders, and we need to build the infrastructure such that we can we can support that and make it easy for them to make those payments in a way that's going to become the future for all of us.”
Magee said that adoption of the instant payments system in Australia, NPP, is slow in terms of volume but that is changing. As the batch system has an end-of-life in 2030, solutions are being built:
“We are openly now saying we think it has an end of life in 2030. A lot of that traffic is going to end up going to NPP, so NPP is working hard to rebuild its functionality, where it has gaps that don't currently meet the needs of dispatch system. They're looking at things like the product Pay To, which is going to be an equivalent to Direct Debit. They're looking at Confirmation of Payee. We're going to see the increasing growth in volume throughout the instant payments system between now and 2030.”
Baum mentioned that it is important to stay connected to build the right value as companies scale to maintain the instant payments global landscape: “We have to stay connected so that we know that when we get to that end game, we've built the right value. But we need to ensure that we are not so separate in the ways that we achieved that scale domestically, that we that can't connect globally. The ability for providers, services, and jurisdictions around the world to stay connected and to learn about what other countries are doing to determine if we can get to scale based on our learnings.”
When asked when ISO 20022 is being leveraged, Schmidt stated that models of interconnectivity have not changed conceivably, and agreed with Baum’s statement on maintaining connectivity and collaboration. However, she highlighted how the lack of consistent regulation leads to a friction and disconnect between systems despite speaking the same language essentially, the says they all have “different accents and dialects” which can lead to gaps in understanding:
“It is important that we try and converge and remain true to some level of consistency, as we build and scale. The first step is focusing on our domestic agendas and capabilities. Remember that even within our domestic networks ecosystem, we have a responsibility to keep the number of dialects and accents to a minimum so that we can actually have a global conversion on the right path.”
Klatt added to Schmidt’s point, saying that it is a legal and cost problem for corporates, and there is liability between the banks which can cause further issues: “For example, if you cooperate and seek CGI project, they give you the same rules for each country and the fact that they want to develop between the database cooperation. What is really important is that all these steps are really slow and migration of payments is becoming a larger challenge.”
Herreman stated that rich data is key, that there is no good way for searching for individuals and identifying them uniquely, but on ISO there are more standards in place. He concluded that there is a still a lot of work to be done to communicate efficiently:
“With ISO 20022, when it comes to interoperability, we're doing quite a good job when it comes to the payment itself, besides the missed opportunity with rich data. It becomes more complicated when we're looking at Verification of Payee, or all these other services, it is a cacophony of different standards.”