Taking Real Time Payments Global

by Sarah Grotta 0

Currently in the U.S., when the discussion of enabling faster payments comes up, most use cases contemplated are domestic, consumer based transactions including P2P opportunities, C to B bill payment or B to C payroll.  There hasn’t been much discussion yet regarding the international, cross border opportunities for faster payments.  It is my opinion that some of the best use case opportunities and business cases exist in tying together various real time payment platforms across the globe. An article in Banking Technology interviews several experts in cross boarder activities that underscores the complexities of faster and real time transactions on a global scale that will make this difficult:

David Kretz, head of global payments, global transaction services, Bank of America Merrill Lynch:

With increasing adoption of electronic and mobile payments, and the continuing globalisation of commerce, the financial industry is focused on making payments truly global, fast, price-appropriate and data rich. One potential way to achieve these objectives is interoperability of local real-time payment (RTP) systems. End-users will likely come to expect real-time processing of their cross-border payments in the future.

With banks responsible for the actual movement of money, we recognise three primary challenges to RTP interoperability: settlement risk, regulation and oversight/standards. A real-time user experience depends on immediate funds availability to receivers, yet current settlement activities supporting cross-border payments do not occur in real time. Local regulations and the lack of a single overseeing body add complexity. Finally, the industry would need to achieve agreement on general governance, data standards and establish appropriate disclosures to support transparency.

 And this from Manish Kohli, global head of payments and receivables, Citi treasury and trade solutions:

Setting up an industry-wide solution of cross-border instant payments schemes poses challenges that may need resolution across boundaries, legal jurisdictions and cultures. These include:

  • FX settlement – executing FX transactions on a 24×7 basis.

  • Liquidity – ensuring 24×7 liquidity specially to handle cross-border traffic.

  • Legal framework – determining which regulations will apply, how a dispute would be resolved.

  • Regulator – who will regulate the scheme?

  • Scheme administrator – who would manage the scheme on a transnational basis?

  • Agreement on standards – global agreement on set of standards to be followed.

  • Scope of Network – the network should cover a critical mass of countries.

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

Read the full story here