How Real Time Money Transfer is Becoming More Popular

– Saqib Sheikh, COO, SWIFT India

Realtime payments is a burning topic in the banking and payments industry. And with the buzz there is also significant investment being made and disruption being experienced as a consequence.

What makes a payment “realtime”? One would think with all the attention it garners there would be one universal agreed definition. In practice the “realtime” label is used for a number of instruments and payments systems that vary in their accessibility, timeliness and certainty.

How the system works

The Immediate Payments Service (IMPS) in India as an example, confirms and clears payments in a few minutes. This means you can instruct your bank to money transfer funds to family or friends using your mobile or internet banking portal, and that instruction will be cleared by the payment system and transmitted to the beneficiary’s bank in a few minutes. The beneficiary bank may then release funds to the beneficiary immediately or may take a few more minutes to do so. If any step in this process fails your funds will be returned to your account. All told your loved ones can anticipate waiting no more than 10–20 minutes before they can withdraw those funds from an ATM. This is a marked improvement over traditional paper instruments like cheques and demand drafts, that are time consuming and fraud-prone. However if electronic payments are to become truly ubiquitous in India, such that your local vegetable vendor is going to accept them in lieu of cash, more investment is required in usability, speed and certainty of such realtime payments systems.

Realtime payments not only benefit you and I as individuals but also the economy at large. In the short term faster payments speed up cash conversion cycles of businesses, providing consistent working capital and reducing need for expensive short-term financing. More certain customer collections over time also strengthens corporate balance sheets, boosting investor confidence and growth. For regulators a cashless economy means more direct and faster transmission of monetary policy and tighter control on inflation. Government agencies can disburse benefits without leakage and fraud, typical with cash. And electronic payments bring much needed transparency to the system, enabling monitoring and control over financial crime.

Learning from best practices around the globe

To achieve anywhere-anytime payments there are a number of best practices emerging from systems such as the Faster Payments (FAST) network in the UK and Australia’s New Payments Platform (NPP):

• Minimize settlement risk: To bring irrevocability and finality to payments intermediate banks must have sufficient liquidity to clear and settle payments. This is achieved through frequent (say hourly) or realtime payment by payment settlement using central bank funds.

• A strong backbone infrastructure: To enable realtime 24/7/365 service invest and upgrade in the interbank payments systems and communications infrastructures such that they can provide low latency and high transaction volumes, tightly coupled with back-office systems of banks and intermediaries. Such infrastructures must operate a the highest levels of resiliency and availability.

• Build a platform: No one player can provide necessary penetration and access of services to the masses. This will require a rich and open ecosystem of banks, payments providers, bill aggregators and other intermediaries. Payments systems must be plug-and-play with open Application Program Interfaces (APIs) and uniform standards.

True realtime payments are hard. They require great ambition and effort. Yet they can have enormous positive impact in everyday lives of citizens and the economy as whole. The journey can be eased by closely observing and learning from experiences of our peers.