A massive overhaul of the US payments space is underway, with The Clearing House (TCH) announcing its intention to implement a new US real-time payments system. This represents the first significant change to core US payment platforms since the arrival of the Automated Clearing House (ACH) in the 1970s.
Of course, the global payments landscape has changed substantially since then, and is now evolving faster than ever before. Such change is being driven primarily by fintech innovation, which in turn is fuelling client demand for high-tech capabilities that can support today’s fast-paced digital lifestyles.
Real-time payments are a key priority in this respect, and the new US initiative will be pivotal in facilitating consumer and businesses’ payment needs, providing:
• instant payments and messaging (enhancing speed, efficiency, convenience, transparency and reliability); • reduced costs;• round-the-clock capabilities (eliminating the current culture in which payments can only be processed during business hours).
An important advantage compared with existing US systems will be its ubiquity. A key goal of TCH is to ensure that it will be straightforward for any US financial institution to join this new payment network, meaning that, eventually, any US account will be able to send and receive payments in real-time.
VocaLink – the payment systems provider behind both the UK’s Faster Payments platform and the FAST network in Singapore (launched in 2008 and 2014 respectively) – has been contracted to build the US system, providing a great deal of experience in developing effective, innovative platforms. Furthermore, with 18 countries around the globe having already implemented instant domestic payment systems in recent years, the US is well positioned to leverage the insights and experiences of these earlier adopters – as well as the very latest in technology developments – to ensure the new system is at the forefront of real-time innovation.
A number of banks, including BNY Mellon, have already commenced efforts to integrate and adopt the new real-time payment system. While the level of investment required to build the new capabilities is significant, working closely with clients to ascertain ways that the technology can be leveraged to enhance and add value to the entire transaction chain will help to ensure investment is maximised and client service significantly enriched. For smaller banks, partnering with a global bank can be an ideal means of offering end-clients such capabilities, without the need for such substantial investment.
Real-time around the globe
The provision of instant payments has become a global priority; in addition to existing real-time systems and the US initiative, around 30 other nations are currently in various stages of real-time infrastructure development, with estimations that the number could soon soar to 140. At the same time, there is a growing realisation that efforts must be made to establish a strong degree of standardisation between these individual systems if the vision for real-time cross-border payments is to come to fruition.
Common formatting is a key means of achieving such a global real-time network. ISO 20022 has been acknowledged as the new global standard format and is the messaging system behind most of the latest real-time initiatives – including that of the US. Certainly, TCH has a longer-term vision for the US initiative beyond the domestic aspect, and is working closely with payment system operators of countries such as Australia, Singapore and the UK on the planning and establishment of international interoperability; the elements of structural harmonisation necessary to ensure separate domestic systems can more easily align in the future.
Addressing the different transaction laws and regulations of each individual country is also integral to achieving the real-time cross-border payments goal. Arriving at consistent operating rules that meet local government needs will be a challenge to say the least – but such hurdles have been overcome with other cross-border payments in the past. Indeed, SEPA (the Single Euro Payments Area), is a prime example, from which lessons can be learned. What’s more, SEPA is set to become an even more important blueprint, as a pan-European real-time payments solution is expected to be launched in 2017.
Without doubt, international collaboration must be at the heart of any real-time cross-border payment strategy if a global instant network is to become more than just a pipedream. The technology is there; the next step is to agree fundamental standards and market practices if we are to ensure the true extent of global payment possibilities are to be realised.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.
About Carl Slabicki
Carl Slabicki is Senior Product Manager at BNY Mellon for USD Clearing Product Management; responsible for supporting and developing integrated services to facilitate ACH payments, as well as strategy development for Faster Payment initiatives such as Real-time Payments. Prior to joining BNY Mellon in 2014, he was the Treasurer for the Wurth Group of North America Inc. Carl graduated from Muhlenberg College with bachelor degrees in Economics and in Business Administration. He is a Certified Treasury Professional (CTP), an Accredited ACH Professional (AAP) and a member of the Association for Financial Professionals (AFP).
About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2015, BNY Mellon had USD 28.6 trillion in assets under custody and/or administration, and USD 1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).
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