Who Really Cares About Real-time Payments?

Behind the daily shouts about the market value of cryptocurrencies, there are quiet murmurs about another revolution in the making — real-time, domestic payment systems.

Australia is set to launch their domestic New Payments Platform (NPP) in early 2018. Offering always-on, “near real-time” payments, consumer-friendly aliases (e.g. email, smartphone number) rather than bank account numbers and richer payment data, NPP holds great promise for consumers and businesses alike.

Driven by the Reserve Bank of Australia after a strategic review in 2012, this has been a multi-million dollar investment in industry infrastructure over five years.

Australia joins the ranks of the Korea (CD/ATM), UK (Faster Payments), Mexico (SPEI),Singapore (FAST/G3), the early adopters of so-called “Immediate Payments” domestic payment platforms. The US is not far behind: The US Federal Reserve established a “Faster Payments” Task Force in 2015 to engage with industry and drive adoption by 2020.

The move to a real-time experience was driven by the proliferation of smartphones and their ability to access information immediately. Today, consumers want the same real-time experience from payment services — especially when buying online or sending payments to friends and family.

Businesses and even large corporates, it would appear, want the same functionality and performance.

“The provision of real-time cash positions, scenario-based forecasting and direct integration with client systems are top priorities for corporate treasurers,” according to an Ovum report quoted by Forbes.

What’s more, the Bank for International Settlements said in a November 2016 report that “fast payments are of strategic importance for the long-run modernization of the payment system.”

The so-called “Immediate Payments” is now a must-have national capability.

But who can afford Immediate Payments?

Even though there is an interest in moving to a faster experience, there seem to be a few hurdles along the way. Many central banks have examined their own national payments infrastructure and have found a hodge-podge of systems, built as silos for each popular method of payment: a silo for cheques, a silo for credit cards, a silo for low-value bank account payments, and a silo for high-value bank account payments.

Each silo has its own messaging format, operational and “scheme” rules, governance and licensed participants —  banks as well as non-bank financial institutions —  with equally dated integrations into the participants’ applications.

The new implementations in the UK, Singapore and Australia have not tried to undo the silos.  Instead, they have built a new silo — new frontend services, new messaging (ISO 20022 being the current favorite), user-friendly aliasing to replace tedious bank account numbers for routing payments and finally, a new high-volume, real-time settlement system built and operated by the central bank.

The cost? Tens of millions of dollars, borne by the entire industry, but mainly the commercial banks.The elapsed time from concept to launch —  3-5 years.

For many countries, Immediate Payments may seem to be a distant goal. Yet, emerging markets need to remove payments friction both domestically and across borders today to spur global trade and rev up their economies. Ripple can help.

Enter Ripple, stage left
Since Ripple’s inception in 2012 —   a new kid on the “blockchain” with a superior Distributed Ledger Technology —  our focus has been to solve cross-border clearing and settlement between financial institutions.

In fact Ripple’s product, xCurrent, enables banks to conduct coordinated “atomic” transactions across our ledgers, privately and with certainty and scalability. Many banks now conduct cross-border payments in “production” mode for real customers, on a 24/7 basis.

xCurrent can also be deployed between banks for a domestic, single currency use case as a lightweight Immediate Payments infrastructure, with the support and participation of the central bank.

Ripple offers cost-effective building blocks for a national payments scheme. Central banks and domestic commercial banks can architect a payments scheme that offer “overlay” payment services. Common scheme components, such as a user-friendly “aliasing” application can be built or bought in. Ripple also provides messaging translators to simplify integration into legacy bank applications. By leveraging the native cross-border capabilities of xCurrent, regional payment networks can be quickly established as well.  For the first time, countries can build a clearing and settlement infrastructure that can be shared across domestic and cross-border payment services, with a distributed architecture mitigating systemic risks.

Ripple invites any central bank to work with us on a beta trial of an Immediate Payments solution over a three- to six-month innovation project with a small number of their domestic banks.  This will enable us to assess any gaps and steer a clear path to a commercial solution.

Again quoting the BIS report, “Central banks, in particular, may contribute to the development and implementation of fast payments in their traditional roles as catalysts for change, as well as operators and overseers of payment systems, to the extent that fast payments contribute to meeting these public policy objectives.”

The future is already here and can be more evenly distributed as well!

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