The role of central infrastructure (CI) overseers is expanding from safety-first custodians of closed-door connections between privileged clearing banks, toward becoming the creators of open and accessible financial frameworks – a new digital CI for the common good.

A key element of this new thinking is the provision of real-time payments infrastructure to bring new facilities and benefits to citizens and businesses. These are based on greater inclusion, easier access to payment handling, lower cost of funding, and an overall stimulation of economic activity. In essence, central infrastructures are designed to connect governments and banks to a common network that creates an ecosystem to support the basic needs and future growth demands of society.

Whether the infrastructure needs to be developed from scratch or needs to be upgraded and migrated to meet a specific society’s needs, creating and maintaining real-time CI poses nuanced challenges for national infrastructure operators around the world. However, governments have been remarkably consistent in their approach to real-time payments, based on the provision of “instant” or “immediate” payments providing funds settlement and availability within seconds. They have equally followed similar templates and playbooks for technical connectivity standards (invariably based on ISO 20022), and shared ideas for common overlay services, to be provided either by the expanding CI provider, or by participants creating new commercial propositions.

In all cases, the operators have not abdicated their safety-first approach. On the contrary, many governments see the modernization of CI as a national security imperative, to safeguard against digital/cyber-attacks, to maintain control and sovereignty over the security of payments (and related data), and to ensure that payments can flow quickly and safely wherever they are needed.

But governments are not the only ones interested in bringing a country’s infrastructure up to date in terms of immediacy; merchants are also eager to see what a real-time CI offers them. Merchants and retailers have always been in a constant state of updating and modernizing to keep relevant to the changing desires of consumers, and with the Covid-19 pandemic, they have had to reinvent themselves once again.

The government’s participation as a player that educates, supports and encourages the modernization of payments directly impacts the entire retail sector. This role has been even further reinforced post-pandemic as economic stimulus packages have been constructed to encourage more retail trade.

Considering the end-goal for merchants, which is to sell, to grow and to retain satisfied customers, the more channels and payment methods offered that suit the changing needs of consumers, the more successful those businesses will become. The new propositions offered by a national infrastructure provider give merchants a wide range of possibilities to leverage new relationships and to take advantage of lower costs of revenue management.

New CI leads to cost savings for merchants

By creating a real-time CI where all the players in the ecosystem can connect directly (including traditional clearing banks as well as more contemporary payment institutions and specialist payment intermediaries regulated with a lighter touch), existing dependencies on potentially monopolistic processors and schemes can be cut out.

Existing international payment schemes have done an excellent job of creating ubiquity through highly visible branding and advertising. But new government-led CI could create a similar network effect, offering merchants the option of consumer payments processed via local, lower-cost networks rather than those provided by global card schemes.

Although in the event of governments succeeding, it is likely that big card schemes will adjust their models and pricing to make their networks more competitive to merchant demands. This would not only mean savings for retailers, but more choice for consumers too: disrupting the dominance of large card networks means that consumers will look favorably at alternatives to traditional cards in order to make purchases.

These alternatives, designed to be integrated with a modern merchant’s point of sale (POS) systems, may better fit with the global trend toward mobile, digital payments and commerce for the expanding and newly financially-included masses.

In addition to this mutual interest in saving these connectivity margins, immediacy is another key factor that comes with real-time infrastructures, and benefits the retail sector when reconciling and for accelerating cash availability for businesses.

Digital overlay services fulfilling your business needs

Having a real-time national infrastructure allows the market to address challenges specific to that country through the creation of digital overlay services. Retailers can also take advantage of these services’ capabilities for their own interest and benefit.

For example, governments can provide a centralized identity management service that could be leveraged in various payment flows for different business models. Access to additional customer information can be used by merchants in their favor to make the checkout process smoother and improve conversion rates. Examples include right-to-buy checks, based on age and credentials, or appropriately permission-based electronic identity sharing for the purposes of transaction authentication. Banks should not forget that they can leverage this opportunity by directly offering overlay services to their retail clients, thus making their way into this new market niche where Account-to-Account payments are at the forefront of innovation.

Aiming at both customers and retailers

From this perspective, right now there is an interesting dynamic of transition from a card-dominant world into an era where there is more diversity in retail payments, including at the CI level. It is not only because of the diversification of payment types, but also because of the value-added services that can be offered on top of real-time rails that governments are investing more in immediate payment infrastructures. But always with a keen focus on the overlays that facilitate the common interests from governments, banks, retailers and consumers.

The savings costs and the new value-added services that arise from loosening the status-quo of international payments schemes make many countries willing to tackle this opportunity. The European Central Bank (ECB) recently welcomed the decision of sixteen European banks to launch the European Payments Initiative.

According to the ECB, “This initiative aims to create a unified payment solution for consumers and merchants across Europe, encompassing a payment card and a digital wallet and covering in-store, online and person-to-person payments as well as cash withdrawals.”

This idea is being replicated by other countries around the world. Perhaps eventually there will only be one unified card and digital wallet, and merchants can benefit from everything that simplicity brings for their customers.

Join our exclusive panel of payment experts on October 15 to see how Latin America’s central infrastructures can modernize to support today’s payments innovation: “Building the Foundation of a Real-Time World: The Task for Central Infrastructures

​Solutions Practice Lead, Consumer Payments EMEA

Lu Zurawski is Practice Lead for Retail Banking Products at ACI Worldwide. Bringing with him a varied and extensive background in consulting, systems integration and service management, Lu develops ACI’s strategic payments business propositions in the emerging fields of Open Banking, new access models and real-time alternative payments. Lu has over 20 years’ experience across a variety of payments markets, which is evident in his thought-provoking and often unorthodox viewpoints on the world of payments. In particular, Lu’s interest in Behavioral Economics often shines through, as he addresses the latest trends across policy, regulation, technology and customer behavior.