Real-time payments have become an important part of everyday life as they become entrenched in global markets. In a world where we are currently travelling less and doing more and more business digitally, they’ve never been more relevant. As we’ve seen with world-wide crises like the Coronavirus outbreak, real-time payments can create a big impact. Contactless payments enable purchases to be made in a safer way without physical contact, and real-time payments allow a cross-border business to continue seamlessly. They have become essential.
If we take a look back, we can see that real-time payment systems have evolved through the first generation – that offered real-time clearing and settlement of interbank payments - and now the second generation that brought 24/7 availability, direct technical access for non-banks, and immediate confirmation to the payment sender is making way for the third generation of real-time payments. This generation will have increased data capabilities, fraud detection and mitigation, and new processing capabilities such as tokenization.
Payment systems develop just like any other system: when new technology or functionality becomes available, IT systems (and business processes) adapt to incorporate new capabilities.
The third-generation systems will allow all participants to develop data-rich value-added services that leverage core clearing and settlement infrastructure. By partnering with third parties and creating ecosystems that provide value-added services, banks will be able to provide improved customer experience, retain a central position in providing payment services, and increase revenue.
The result will be a move away from a siloed approach to payments, that will enable financial institutions to continuously evolve to changing customer demands and utilise technology as it continues to progress.
Furthermore, the third-generation real-time payment systems will bring in a new era where 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.
Development of more open system architecture that allows banks to quickly develop new products and services, take them to market, and monetise them, to fill the gaps in consumer need, will spur the progression of real-time payments.
With a wide variety of new players and services being offered in digital marketplaces, to both consumers and businesses, real-time systems will need to accommodate both payment and informational messages that are exchanged continuously between parties. Banks, in particular, may need to re-assess existing IT and business processes to prepare for the leap into the future to remain competitive and continue to add value to their customer relationships.
In part two of our future of real-time payment series, we’ll be showing how value-added services are forcing banks and third parties alike to change their payments strategy.
Read our full report on accelerating real-time payment adoption with value-added services.
Ilkka has a broad international experience in banking, corporate finance, consulting and IT. As Head of Payments in TietoEVRY he is responsible for the global Payments business. Prior to the current role Ilkka has held many senior management roles in the former Tieto company and worked in OP Banking Group as a Head of Digital Banking.