As real-time payment adoption grows, so do the criteria for a central payment infrastructure. Edgars Bremze explores what is needed to ensure infrastructure is relevant at launch and in the future.
When developing an infrastructure, it’s essential to consider services that will be offered to users over time, therefore having a long-term view is essential. Adding additional capabilities to an existing infrastructure, that could have been incorporated at launch, adds complexity and costs that are avoidable with a user-first approach. For example, functionality such as request-to-pay should be built into the core infrastructure of any modern central payment infrastructure from the beginning.
A good example of this is the US instant payment system, FedNow, where a rich feature set and expansive functions will be built into the core platform, which is scheduled for launch in 2023.
Central infrastructure must be flexible enough to respond to the evolving needs of both businesses and their customers. Providing accessibility via APIs and leveraging international standards, such as ISO20022, will enable payment service providers, banks and other financial institutions to connect to the system easily and structure their offering. This will encourage market participants to innovate and deliver new and better services to users, resulting in faster instant payment adoption.
For example, to ease the access to the instant payments system in the Maldives, we are creating a Unified Payment Gateway (UPG) that will act as an API based access layer to unite all modules of the solution. UPG will enable customers to manage multiple payment accounts through a single interface, including seamless fund routing and merchant payments.
Today’s payment system is fragmented. Different payment systems cannot easily communicate with one another. To meet customer needs, merchants have to offer customers multiple payments methods, which creates additional costs. Furthermore, if different payment platforms are interoperable, consumers could benefit from making instant transfers to each other among these platforms. Utilizing industry standards that support interoperability, such as ISO 20022, can help to resolve the fragmentation and support interoperability.
This year, the G20 has made cross-border payments a priority to address cost, speed, transparency and access challenges, in a move that will have significant ramifications for the industry. Looking further afield, an agreement between the Monetary Authority of Singapore and the Bank of Thailand allows users of Singapore's PayNow and Thailand's PromptPay to send up to S$1,000 or THB25,000 daily between the two countries using only a mobile number. These trends, as well as cross-border initiatives such as P27 Nordic Payments and the European Payments Initiative, should be embraced.
The market demand exists, it’s about looking into cross-border instant payments and envisioning how a local central payment scheme can communicate with another instant payment scheme. Again, common industry standards should be used to ensure its success.
Given that the adoption of instant payments is speeding up, it’s likely that they will replace traditional payment systems. As this adoption grows, it’s essential that the regulations and governance frameworks are in place to support and promote this. Rather than being seen as a hindrance to growth and business, they should define the operating models that support the secure and sustainable environments for service providers to thrive, while protecting customers and businesses. With intuitive frameworks in place, all stakeholders will be able to move forward with confidence.
AML and fraud scoring are major challenges for banks, especially in the context of instant payments. Negating them is critical. This should be addressed at an industry level, whereby information on such matters as suspicious accounts and networks are shared between banks. As an example, the UK’s Faster Payments system is designed to identify and alert members about fraudulent account networks. Depending on the market, the necessary additional transaction monitoring and blocking of suspicious accounts could be managed by a central bank, central monitoring authority or a central payment processor. For success, the necessary processes, rulebooks and information exchange protocols must be established.
Digital payments and e-commerce are on the rise, in part driven by our increased dependence on mobile devices, which is why many service providers turn to apps. When Sweden introduced Swish, the mobile instant payments platform, they went for a common, user-friendly mobile app supported by banks in the country. To meet customer demand for simple, secure and immediate mobile payment solutions, Bizum in Spain also launched a P2P payment app – a service consumers now use on a day-to-day basis.
Building this type of infrastructure is a large investment requiring extensive resources, therefore we always advise our clients to investigate existing infrastructure projects deployed around the world and learn from them. If you are unsure where to start, we are ready to share best practice examples and use-cases and guide you in the right direction.