SAN FRANCISCO -- During a panel session Tuesday at the latest Payments Innovation Alliance meeting, experts examined the value and necessity of real-time, or instant payments in the United States. A key question was whether corporate treasurers need—or want—them? The panel all agreed that they do.
The panel began by looking at how different countries have implemented real-time systems to see whether there is truly a necessity for such a system in the United States. One international payments expert said that the U.S. must first determine its goal in adopting real-time. She noted that none of the countries that have implemented real-time systems, did so overnight and all of them did it to solve key problems. First step: Proceed with caution
“Look at Mexico,” she said. “They have a real-time payments system, but they use it in a hybrid way. They call it a hybrid system because it’s open to P2P, it’s open to large-value payments, etc. But they were trying to get more payments electronified, which is something we’re still trying to do. So we have to ask ourselves, what problems are we solving?”
A representative from a financial technology provider said that he wouldn’t recommend that the U.S. take the UK’s approach to faster payments—“just build it and everyone else will just get on board”—but it ultimately worked. “What happened in the UK was a regulated change because of consumers,” he said. “Bacs worked on a three-day settlement cycle. I’d see the debit today, and you wouldn’t get the value until three days later, and that was not what the UK government wanted for consumers. We ended up with instant over same-day ACH. Everything was predicated around P2P and P2B payments.” But what followed proved that there was corporate interest as well.
“It was amazing how quickly corporate treasurers suddenly realized what they could do on a personal level and how much benefit that could bring them on a corporate level,” he continued. “Really simple things like, I have to get my payroll file to my bank by 2 p.m. so my employees will get paid tomorrow. Well, now we’re in an instant world, so I can send it to them at 10 p.m. and everybody will be paid at 10:01. I can pay invoices after I’ve received the value into my account. I’m there managing my liquidity; I’m managing my cash.”
Real-time payments even are dramatically changing retail operations in the UK. The fintech representative explained that thanks to Faster Payments, some high-end retailers in the UK no longer carry stock. “They’ll take an instant payment from me; they’ll buy the item directly from the manufacturer, paying instantly; and that good will be shipped to my house by the afternoon,” he said.
The international payments expert stressed that the U.S. has “underestimated the B2B aspect of instant payments” by a large degree. She believes there is a lot of interest from corporate treasurers to pay in real time. “We’re here in Silicon Valley and I think there are so many marketplaces that have been created that will use this capability from day one to enable transactions between members of their marketplace,” she said.
A bank representative on the panel noted that while some of the large corporates might be hesitant to get in on real-time, the small and medium-sized businesses are very interested. “It’s not the big corporates that are going to drive this in the U.S., it’s the small businesses,” he said. “They’re managing day to day, hour by hour. Cash flow is king to them. So it’s going to be a huge enabler for small businesses.”
A representative from a security firm sees interest from large corporates when it comes to disbursements. “For example, insurance payments—someone gets into a wreck and the insurance company can get them the money right away,” she said. “We’re seeing interest from businesses in B2C instant payments.”
Similarly, there has also been interest in “G2C” (government to consumer) instant payments, she added. “There are several states that are interested in real-time payments. When you think about disasters like floods—how do you get money to people right away? That’s another use-case for real-time,” she said.
The fintech representative concluded that he’s been working in payments for more than 30 years, and he sees this as the most exciting time to be in the industry. “The level of change, the disruption that’s going to happen with instant payments is going to fundamentally change the way we interact,” he said. “We talk about blockchain, but blockchain’s just technology. It may help, but instant payments are really, fundamentally changing the interaction that we all have.”