Real-time payments have witnessed massive acceptance globally. More and more countries are joining the real-time bandwagon every day, and rightly so! Domestically, real-time payments have been able to bring significant changes in the money-transfer landscape within countries that have been able to implement RTP successfully. India’s UPI is the biggest and most successful case in point. However, international money transfer is yet to witness changes and growth at such a large scale, even though the value that real-time payments can bring to international payments is probably as high, if not more, as domestic payments simply because of the economic impact it would be able to create for all players, public as well as private.
Why has cross-border real-time payment taken time? The reasons are too many and too subtle.
Broadly speaking, for any payment, there is a payer, a receiver, a currency, and a processing body (leaving aside the finer details like communicating and recording protocols like message format for now). In a domestic payment, the payer and receiver are from the same region and operate under the same banking system which allows easy account identification and verification for the transfer. Both parties operate on a single currency; hence no conversion hassles and forex requirements delay the process. Lastly, both the parties, and essentially the payment partners i.e., the banks, operate under a common processing system that processes, records, and reconciles the transactions, making the whole transfer process complete and seamless.
For cross-border payments, however, it’s not that simple. Let’s see how.
- Currency: One of the key hold-ups that remain for cross-border payments is currency conversion and the requirement of Forex reserves with the payment partner for both parties.
- Banking Systems and Protocols: Banking systems need to operate on the same messaging protocols for speedy payment data transfer to ensure genuine real-time payments whereas, in cross-border scenarios, it may not be the case.
- Identification and Payment Security: Different countries operate under different legal systems, and hence fraud management and accountability become critical matters, especially in cross-border payments.
However, with changing business and payment scenarios, consumer expectations are also changing rapidly and both financial institutions, as well as governments, are making a note of it. We are witnessing more and more countries joining hands on integrating their real-time payments systems to ensure safe, speedy, cross-border real-time payments among their systems. One of the examples is the coming together of South-Asian countries like Singapore and Thailand and partnering with India to integrate their regional RTP Systems with UPI.
Affordability and Accessibility are the pillars on which the success of any RTP system depends. And these can only be achieved through strategic partnerships and technological innovations. Innovations that are primarily focused on improving the overall payment cycle and value chain of the payments business and at the same time reduce the cost of making that real-time international payment.
And that’s essentially the crux here. For cross-border real-time payments to be successful, innovation at the payments infrastructural level becomes paramount, i.e., cross-border real-time payment innovations are dependent on infrastructure like payment rails, central banking setups, etc.
While there have been steps at a larger level that have helped further this process, like implementing common messaging standards and newer integrations within the central banking systems, a certain amount of innovation and development is needed at a domestic level to make smooth cross-border RTP possible.
Real-time payments have three core elements – Speed, Volume, and Automation and each country participating in the cross-border real-time payments needs to ensure that it has a payments infrastructure that can sustain it.
- The infrastructure should support real-time or near-time payment processing and settlement between partners to ensure there isn’t any lag or delay.
- Any RTP infrastructure usually manages high payment volumes at a domestic level, however, the governments should ensure that when the volumes rise with the additional international payment traffic, the system holds up.
- Lastly, the system should be smooth enough to reduce manual intervention to the least possible levels and automate critical processes like conversion, reconciliation, and settlement in a timely manner to avoid discrepancies at an international level
Further, the infrastructure should be built in a manner that improves the customer experience right from the beginning of the payment cycle, i.e., registering and validating the payment account, to simpler steps to complete the transaction and reducing friction points, to securing the payment and preventing any form of RTP frauds.
The future of real-time cross-border payments depends on multiple factors. It is the interoperability of systems, a mutual partnership between govt., the ease of currency conversion, and operation regulatory frameworks guiding the flow of payments. But at the center of it will always remain a strong and steady technology stack that can suit any payments landscape and adapt to any system.
Technology partners like FSS with strong payment domain expertise not only help design this kind of infrastructure and technology stack for the central banking organizations but also help them successfully deploy and implement it, and further extend it at an international level.
With international payments and global trade growing rapidly, it is only a matter of time before all the countries will join the RTP bandwagon. But it will be the countries who join it first, who reap the benefits of economical technology, better implementation, and larger global acceptance. FSS, in this regard, is helping institutions globally to initiate their RTP journey and achieve success.
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