While shiny new fintechs grab the headlines with innovative digital replacements for cash, there’s no escaping the fact that it is a country’s central infrastructure (CI) that does much of the heavy lifting.
Indeed, as governments deliver on their societal responsibilities to extend financial inclusion, and their economic responsibilities to promote growth by helping money flow between people and businesses, there are now more centrally driven real-time payments initiatives in the world than ever before.
This has pushed us towards the emergence of widespread real-time payments adoption, as seen in our recent Prime Time for Real-Time Payments Report, and countries without a real-time CI know that they need one: the question is how? It’s no small task to upgrade a country’s central payments infrastructure and it’s a process fraught with complications. Certainly, countries can learn from those with mature real-time capabilities, but there isn’t a single roadmap for success. And these mature countries are themselves finding that real-time success breeds a host of new challenges, as the nature of demand changes and its velocity increases.
Stability through sovereignty?
Aside from the high-level societal and economic benefits already noted, sovereignty is another major driver prompting governments to create real-time-enabled CIs.
Adoption has soared in countries and regions with mature and open real-time capabilities, as the utility and convenience of real-time payments has been proven. This success has allowed governments to wrest control of a key economic function from private interests with potentially monopolistic tendencies.
This success, however, has also given rise to new tensions that raise familiar challenges to the sovereignty of these systems. Governments rightly need to assess their ability to protect national interests, including payment processing and data handling. As citizens’ expectations change, demand is growing for yet more capabilities that further shape real-time payments around their day-to-day lives. These “overlay services,” created by non-governmental actors, raise questions around how to govern connectivity to the underlying CI in a way that boosts innovation, while guarding against the risks of a small handful of – usually – foreign players coming in to dominate the space.
These are not mere technical questions. They strike to the heart of driving liquidity and stability in the economy for the national good.
Learning from the experiences of mature real-time CIs
Embracing real-time within CIs also means being prepared to handle the resulting demands that come with it. Experience around the world shows that people want more specific services related to real-time, such as Request to Pay (RtP) digital overlay services, which create competitive environments in what have traditionally been non-competitive, government-owned spaces. Moreover, commercial banking interests are also coming around to the benefits of these services, driving further competition between banks and intermediaries.
This has led to growing and unexpected demand for further regulation on how these spaces are governed, and to re-assert the sovereign interests of a nation’s economy and its citizens.
Countries with a less developed infrastructure can use the growing pains of these established real-time CIs as an example for their own payments modernization initiatives. They can anticipate these future challenges and plan or regulate for them now, creating iterative roadmaps that learn from those that have gone before them to create adaptable and interoperable infrastructures. In this way, they move in the right direction, at the right speed – without over (or under) investing.
Changes in regulation are often linked to these initiatives – for example, a government might relax rules for how a certain sort of company can get a banking licence or clearance for payment processing and connecting to a CI. But policy, encouragement and persuasive “nudges” can also be used to accelerate adoption. For example, if a government’s main priority is, say, financial inclusion or to fight corruption, then it should ensure that citizens have easy access to new services like online banking, digital benefits payments and payroll loans.
From the outset, these governments have an opportunity to provide clear frameworks that inform the wider payments ecosystem how they can integrate into the new systems in pursuit of those policy objectives. These frameworks and schemes should be geared towards prioritizing the use of efficient CI components, increasing flow and liquidity and ensuring no one player can dominate the space and adversely impact stability.
A big challenge, worth tackling
Whatever stage of development a CI has reached, it still poses a challenge for national infrastructure providers, but at the same time they offer appealing outcomes that make these projects worth tackling. The improvement of central infrastructure is a serious commitment, which can take place over five to ten years, but the benefits to the economy and its citizens will endure for decades.
Discover more about what the growth of real-time payments means for the future of your national payments network in our eBook: Building the Foundations of a Real-Time World