Right Here, Right Now: What are Real-Time Payments and Why are They Changing the Ecosystem

By E S Venkat

Real-time payments (RTPs) have become a staple of domestic payments globally for consumers and corporates. Last year alone saw 195 billion RTP transactions globally, up 63% from 2021—led by India, Brazil, China, Thailand and South Korea. Nearly every major market has launched an RTP platform or is developing one. Today, 79 countries worldwide—14 in Asia Pacific (APAC) and 25 of the 27 EU nations—have one or more RTP schemes.

RTPs, as the name suggests, are payments that are settled almost instantaneously after initiation and at any time of the day. RTP schemes are typically characterized by three unique aspects: 1) settlement in real time (within a few seconds) 2) 24X7X365 processing and 3) ability to support alias (like mobile numbers or email IDs etc). Most RTP schemes have either already adopted or are in the process of adopting ISO 20022 XML standards. With this combination of real time settlement, anytime anywhere access, and globally consistent ISO standards for flexible and structured data exchange, RTPs have the potential to revolutionize the traditional payments and settlement ecosystem.

While the initial drivers of RTPs were the shift to online working and shopping (ecommerce), accelerated digitization (from the Covid pandemic), and the rise of mobile wallets, the practical use cases can now extend way beyond that to any industry or segment for their daily payment needs, from travel and logistics to general industries to FMCGs to Telecom and Tech companies to financial services industries (e.g. insurance and asset management firms). And with value added features in most RTP schemes like request to pay, beneficiary / alias validation and QR code-based payment, it can even be a powerful substitute to the traditional paper based (cheque and cash) payments. Finally, the availability of structured data, instant confirmation of credit and irrevocability of the settlement offers the ability for companies to digitally automate 100% of their transactional data flows and reconciliation process end to end.

Hence RTP schemes can address all limitations and constraints that are inherent to traditional paper based or electronic clearing systems. 

Cross-border RTPs: All together now

While domestic settlement systems continue to evolve across all major markets, cross-border payments (overwhelmingly dominated by SWIFT wires) remain by far the biggest areas of challenge and mystery. In recent years SWIFT and global FIs have taken steps to demystify these flows through initiatives like SWIFT GPI (Global Payments Innovation) to provide end-to-end visibility of a SWIFT wire and the migration from MT to MX (ISO 20022 XML) messages by 2025 to provide more structured and flexible data flows. However, two major area of challenge remain: 1) turn-around time for receipt by final beneficiary (typically 2 days or longer) and 2) overall cost (typically ranging from $10-$100 or even higher).

It is in this context that major economies have been working on bilateral or multi-lateral tie-ups between their domestic RTP schemes to facilitate instant and low-cost cross-border flows. The ASEAN regional grouping has made meaningful progress here. In 2021, Singapore and Thailand were the first to connect their RTP systems; since then, Thailand, Malaysia, and Indonesia have connected theirs (all of which adhere to the ISO 20022 standard). The goal is an ASEAN-wide payments network by 2025. However, implementing a fully scalable cross-border scheme through multi-lateral tie-ups is less straightforward given inter-operability challenges, as well as considerations of local data privacy, security, cost, and the complexity of transactions involving multiple currencies. In addition, while real time payments have made significant progress, real time data and liquidity still have a long way to catch up, creating further scalability constraints.

One possible solution to this is to adopt a hybrid model between SWIFT and domestic RTP schemes where SWIFT is used for cross-border message flows while RTP is used for currency settlements in the host location in real time. This model recently went live in Hong Kong from June 2023 and is being explored by other large financial centers. And once the adoption of Central Bank Digital Currencies (CBDCs) pick up, this can help address the real time cross-border liquidity constraints. Hence the hybrid SWIFT + RTP model together with CBDCs can be a viable alternative towards a scalable and global cross-border RTP scheme culminating in a global instant payment network.

Use of RTP for Business payments: A question of efficiency

Another common perception for RTP schemes that these are only for consumer payments with limited applicability to business payments which constitute the majority of payments by value globally. However, with its unique characteristics as outlined above, RTPs are very well-suited for B2B transfers as well. These not only offer companies greater flexibility vs wires or check payments, but also deliver a more efficient overall solution with enhanced data flows and reconciliation inherent to these schemes. For example, Deloitte notes that payroll use is a key reason for the recent growth of RTPs in the U.S.

RTPs particularly work well for high-volume, fast, and round-the-clock payments processing (as required by ridesharing companies, travel and logistics firms, FMCG sector & insurance companies for example), and add value by reducing the need to maintain data in a high churn-rate environment like the gig economy or the ITES and BPO segment. Freelancers and contract staff, for instance, can get paid fast and as often as needed either at the end of each shift / day or upon completion of tasks / milestones, and across different geographical regions in their preferred currencies. Additionally, the use of aliases (mobile numbers or emails) help tokenize the payments and improve information security due to limited exposure to account details of end beneficiary especially for such highly transient workforce.

Hence the adoption of RTP goes well beyond the conventional consumer payments space into almost all areas of business to business payments. It is no more a question of relevance, its about achieving true end to end efficiency in a company’s business life cycle through real time collections, significantly enhanced reconciliation and risk management, improving velocity of sales leading to robust and sustainable profitability.

RTP and Digital Cyber Security: speed matters

While RTP can deliver end to end digital experience at high speed, a key apprehension is whether it can deliver on security around data transmission and mitigation of cyber and fraud risks. This risk perception is heightened due to its 24X7 availability where funds can flow in and out even beyond business hours where clients may not be able to enforce their normal controls and monitoring. This is where banks can add immense value in ensuring authenticity and safety of transactions by supporting RTP schemes through a strong digital security backbone and by ensuring that funds are channeled towards their intended purpose which is integral to existing fraud prevention and anti-money laundering practices.

For instance, a vendor may request for an instant payment for a certain transaction using a unique QR code. The payer then authenticates the transaction in real time with their bank to trigger the fund transfer. This offers the payer greater certainty that the funds are indeed being used for the specified transaction. As safeguards, the payer’s bank can add two-factor authentication and transaction limits for funds transfer, real-time verification of payment status and account balances, and instant notification of credit and debit transaction – allowing the payer to have end to end visibility and always be in control of their fund flows. These critical features can supplement the significant benefits of RTP scheme through additional security and controls to mitigate fraud and cyber security risks.

Looking ahead, the continuing rise of RTPs seems assured, with governments and regulators in Asia Pacific, the Americas, Europe, and the Middle East issuing regulations and mandates to boost their adoption. This, coupled with increasing industry innovation, will pave the way for RTPs (including future cross-border instant payments) to become even more powerful engines in driving global commerce. What corporates and institutions need is a change in the mindset to adopt to 24×7 paradigms in accepting real time information and data and to optimize on real time liquidity for a successful implementation of the RTP framework.

E S Venkat is the Head of APAC Treasury Product, Global Transaction Services at Bank of America