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Real-time payments must go truly global to unlock further growth

June 19, 2024

  • APIs
  • Cashless Transaction
  • Cross Border Payments

Kyle Rosen, Head of Core Product, Thunes
Kyle Rosen, Head of Core Product, Thunes

by Kyle Rosen, Head of Core Product, Thunes

Not all payments are created equal. Businesses and individuals now increasingly expect transactions to be quick, easy, and low-cost, which has resulted in the rapid expansion of real-time payments (RTPs) in recent years. RTPs, however, continue to be limited by national boundaries, with cross-border interlinks created one by one and therefore challenging to create on a global scale. There remains a disconnect between systems worldwide. Linking networks between countries is crucial to improving access to instant and secure payments.

Fast payments are the new norm

It’s worth looking at the context for instant payments. The global appetite for RTPs has skyrocketed in recent years. In 2022, 195 billion RTP transactions were recorded across more than 70 countries, representing a remarkable year-on-year growth of 63%. Projections suggest there will be 511.7 billion transactions by 2027, with growth of 36% from 2023 to 2030.

Just last year, the US launched its RTP service, ‘FedNow’, and as of January this year, 400 financial institutions have joined. India is holding onto its position as the world leader in instant payments.  Its Unified Payments Interface (UPI) is expected to add 1.12% to the country’s GDP by 2026 through cost-savings and improved efficiencies. So, it’s safe to say that RTPs are booming and here to stay.

Interconnecting the RTP landscape

While RTPs are cheaper, speedier, and more secure – making them very widely used – the reach and impact of RTP networks is reaching an obstacle. RTP schemes were primarily developed with a domestic, rather than an international, framework. Today, there is often no easy way to send a payment from one national network to another. As a result, international money movement remains an unresolved domain.

The few cases of cross-border RTPs that do exist bring considerable benefits to the participating corridors. Take India’s UPI integration with Singapore’s PayNow. At launch, cross-border payments and remittances between the two countries amounted to over $1 billion. It’s been a game changer, unlocking multi-currency options for small business owners and serving travellers between the two countries. The interconnectivity has helped provide migrants and expats with convenient and cost-effective alternatives to wire transfers.

Increasing cross-border RTP connections could have a broader impact on the financial landscape. For example, if RTP networks were interconnected, this improved interoperability could usher in more competition for traditional banking and payment systems. In turn, this would spur financial institutions to drive innovation, increase transaction size and improve information passing to meet the evolving demands of their customers. These benefits will require investment in core payment systems and cloud solutions, among other significant endeavours.

Creating more interoperability in RTP networks would likely help large enterprises streamline their operations. These connections would reduce the complexities of international transactions (for the purposes of supplier payments, salary disbursal, etc) and mitigate risks associated with currency fluctuations and processing delays. With improved payments, large corporations could improve their efficiencies, as well as their cash cycles. Moreover, this would foster stronger relationships with international partners and suppliers.

Finally, the security protocols inherent in RTP systems, coupled with the transparency and traceability of real-time transactions, would provide an extra layer of protection against fraud and financial crime. This is of huge importance given the wide range of evolving security threats to digital transactions.

Of course, there is no simple answer to connecting RTP networks. To give a sense of the scale of the challenge, the work on integrating the UPI and Paynow networks began nearly three years ago. Currently, the integration only allows transfers between individuals, with business payment usage still being developed. Some infrastructure companies, like Thunes, have done the work to connect different RTPs through a unified API, giving consumers and businesses access to most networks worldwide. These networks are more privatized in nature, rather than facilitated by the RTP operators themselves. As such, network effects and adoption are key to increase the access of these connection rails.

The payments industry as a whole needs to move in the direction of interoperability across borders. Close collaboration between payment services, regulatory bodies and financial institutions will be critical for RTPs to transcend national borders. In addition, while the initial focus of global RTPs has largely been between individuals, there’s a clear need to expand the RTP connectivity to support business payments as well. This expansion has the potential to unlock major growth worldwide as businesses and merchants rely on less complex and restrictive infrastructure.

The value, and effort, of connecting these networks cannot be underestimated. This not only heralds an era of quick, low-cost and frictionless global payments, but also a more inclusive financial ecosystem.

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