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The evolution of payment systems
If we take a look back, we can see how real-time payment systems have evolved. The first generation offered real-time clearing and settlement of interbank payments. The second generation brought 24/7 availability, direct technical access for non-banks, and immediate confirmation to the payment sender. We are now ushering in the third generation of real-time payments which offers increased data capabilities, improved fraud detection and mitigation, and new processing capabilities such as tokenization.
Embracing the next generation
From what we have seen so far, the banks that embrace this will develop data-rich value-added services that leverage their core clearing and settlement infrastructure. With growth in third-party collaborations, new ecosystems are developed with service offerings that improve the customer experience and generate new revenues. Payment siloes become a thing of the past, leading to better business agility, while empowering the banks to meet changing customer demands through technology advancements.
In the cards business we’ve seen merchant initiated transactions and recurring card transactions for many years. What we’ve learnt while growing this market can now be applied to the new generation of instance payments. And the pitfalls we’ve met and overcome can now be easily avoided. New customer-oriented services can include things like proxy services, request-to-pay, straight-through-processing, as well as digital identity.
In those markets that have already deployed next-generation real-time payments successfully, we have seen that many banks offer peer-to-peer payments (P2P) as an early service offering. Not surprisingly most of the functionality being added in second and third generation real-time systems focuses on unlocking C2B and B2B revenues streams.
Request-to-pay (RtP) falls clearly into the category of implementing card innovations and best practices. With RtP a beneficiary can initiate a transaction by sending a payment request. If the payer accepts the request, a real-time credit transfer is initiated. RtP also provides direct debit-like functionality while providing users with complete control of payment flows. It can also greatly improve reconciliation for billers and merchants by incorporating messages with a real-time payment. As such, it can replace direct debit and e-invoicing if it includes a bill presentment link. We believe this will be particularly interesting for merchants as point-of-sale can be incorporated using additional services such as dispute management, an area that card networks have developed over decades.
We also expect enhanced data intelligence to be a key enabler of B2B real-time payments. With richer data capabilities and greater automation, enabled in part by ISO 20022, reconciliation is eased, and straight-through-processing (STP) rates can be raised for businesses. Beyond corporate payments, rich payments data will be key to helping banks gain more granular insights into their customers’ behavior as well as interpreting evolving needs.
Finally, we will see digital identity becoming an even bigger challenge as more and more transactions take place in fully digital spaces. Customers now expect to make all their transactions online with a single identity regardless of the channel or system. This will force banks to manage more complex digital ID services that rely on outside proxies and databases. And the challenge doesn’t end there. Advanced digital ID services will have to be developed for corporates to cope with multiple bank accounts and many unique users in diverse regions.
Is your system ready?
Although there are challenges ahead, these are easily outweighed by the benefits of third generation real-time payments. As we mentioned above, your system will determine how many of these benefits you can take advantage of. Building out from a legacy system will see you awash in costly and lengthy delays that simply aren’t worth the efforts. To fully embrace next generation real-time payments, you need to look to the new in the form of providers that can deliver a solution that meets your and customers’ expectations.