Country by country, real-time payments systems are taking shape, focusing on domestic transactions.
But as Odilon Almeida, global chief executive officer at ACI Worldwide, told Karen Webster, in time, those domestic real-time schemes will link, crossing borders and forming new global financial services ecosystems.
And within that cross-border activity, account-to-account (A2A) transactions will help shape those innovations and new use cases. The U.S. payments industry, particularly through FedNow, will lead through example, said Almeida.
Developed economies will lag for a bit, but when the wholesale pivot to real-time payments comes, it will come quickly, Almeida predicted. The pivot may be driven by merchants, at least at first, because the transactions are so much less expensive than cards. For the merchants and the financial institution (FI), apps are important because they are easy to use and are familiar to consumers.
The Three Rails
Real-time is taking root as the latest of a trio of payment rails. As Almeida told Webster, two of them are rather firmly entrenched, and the real-time option is nascent in its development and deployment.
First, there’s physical cash, which works in developed countries and emerging markets. We’re likely a long way from truly cashless economies, he said.
As for the second rail, that rests with cards. Those payment options, too, have spread around the globe in uneven fashion with North America at one end of the spectrum and Africa at the other end, said Almeida.
Lastly, the third rail is tied to real-time payments, specifically A2A payments, he said, which have been growing by more than 45 percent year on year.
“It’s the most efficient rail that we have today,” he said. “It is much less expensive than the cards, and it is much more convenient than cash.”
In countries like Kenya or China and throughout the Middle East, real-time payments have been growing by leaps and bounds, leapfrogging the relatively lagging card acceptance and availability. (Conversely, the U.S. and Canada are lagging a bit when it comes to real-time payments, partly because the card networks have been so developed, noted Almeida.)
“It’s not always about the app,” he said. “Right now, it’s more about the rails. Everything is coming together.”
To get it all working, beyond the domestic schemes that are either debuting or on the drawing board around the world, interoperability is critical.
FedNow is a set of rails, as is The Clearing House (TCH). They’ll work in parallel for a while. Elsewhere, domestic markets, from Australia to Brazil, have their own sets of rails. At some point, all of those rails must interact and interconnect to have a global real-time payment scheme.
“The FedNow initiative is critical,” said Almeida, and banks are going to want to connect to the Fed’s system to deliver new offerings as quickly as possible and to the largest audience possible. He noted that opting in will require some partnership with infrastructure providers, including ACI.
Asked whether there are killer apps in place in the U.S., Almeida said that consumers have been flocking to Venmo, to Zelle, to P2P interactions. He predicted that more apps will come online that will track a user’s payment history and offer lines of credit based on that history, with personalized rates.
Webster remarked that a huge amount of activity is done across borders, which paves the way for an increasing number of commercial payments to be done via real-time conduits.
“The cross-border market is ready for disruption,” Almeida said.
The correspondent banking environment is 60 years old, he pointed out, and the future is moving toward real-time settlement between banks, with digital wallets and central bank digital currencies (CBDCs).
Consumers On Board
Of course, consumers have to get on board in order to convince FIs to take the time and make the investment needed to get real-time payments up and running.
In developing economies, individuals are simply giving up the friction associated with cash — and they’re eager to do so. Almeida pointed to Brazil as a market that has been able to get consumers comfortable with real-time payments, largely based on the fact that the central bank has started out with a simple real-time experience (via PIX, the instant payment rail in which users simply use emails from the bank to log in and send money).
Generally speaking, said Almeida, “the roadmap is that you need to start with the basics: great customer service and customer experience. When consumers see that it is much simpler to do that, they start to do it right away. And then you start to add features to that.”
Examples of additional services could include lines of credit at banks, issued in real time.
The monetization models are changing, too. Almeida said the fees charged by banks to merchants need not be anywhere close to card fees. Lower fees also entice merchants to come on board to the various real-time platforms, along with FinTechs and even Big Tech, and enable more innovation. And merchants will want to take advantage of real-time rails so they can sidestep several hundred basis points of interchange fees.
The broader levels of participation will give birth to a new financial services ecosystem. Banks may do what banks always do, which is lend and take deposits, but they can monetize the relationship in different ways as they add layers of services on top of traditional card offerings.
“There are also going to be local players, local FinTechs, innovating and creating new things that are locally relevant — and much more so than the ecosystem of cards,” Almeida told Webster. “You’re going to see change accelerating in payments.”