How to Deliver on the Promise of End-to-End, Global Real-Time Payments [Q&A]
Traditionally, Sibos has been focused on high-value cross-border payments, but – as with so much of 2020 – times are changing. High- and low-value cross-border payments are converging, and the rich-data standards that are emerging for real-time payments will further accelerate this trend. The big challenge will be, how do we deliver on the promise of end-to-end, global real-time payments?
As part of the Sibos 2020 Partner Sessions program, I spoke to Stephen Grainger, executive vice president of business partnerships at Mastercard New Payment Platforms, and Christian Sarafidis, chief business development officer Worldwide Financial Services at Microsoft, about the journey – as well as the destination. Here are some highlights from the session.
Craig Ramsey: Stephen, we talk about achieving global real-time payments. What are some of the key differences to the domestic schemes that already exist or are emerging?
Stephen Grainger: Even domestically, real-time payments are not easy to deliver, for a whole host of reasons, but in cross-border there are frictions and complexities that don’t exist in a domestic setting. Financial crime compliance, FX and money movement, risk management – these aspects are all heightened when you think about cross-border, let alone cross-border real-time payments.
As you start to peel back the layers, you can start to appreciate the level of complexity involved. Mastercard has experience in real-time payments, and in standing up cross-border payment schemes, but partnerships – such as ours with ACI – will be necessary to deliver the sort of customer experiences that cross-border real-time payments promises. Achieving truly global real-time payments, I believe, will hinge upon these sorts of partnerships.
CR: Christian, we talk about payments modernization and how banks can better prepare for an increasingly digital world – what role do real-time payments have in the discussions that you’re having with your customers?
Christian Sarafidis: Banks want to future-proof their technology and ensure they can cope with a whole range of current challenges. Customer experience, as Stephen already mentioned, is number one, but they also want to reduce costs and increase revenue. However, legacy infrastructure can mean that a bank’s data systems are still quite siloed, and there is the threat of disruption from new entrants.
The COVID-19 pandemic has served to accelerate the pace of payments transformation and the need for faster access to funds. But that paradigm shift – from batch processing to 24/7/365 – has consequences for the way banks are operating. So those banks are thinking about flexible architecture; a platform-based model where they can group assets and data, building an orchestration layer with APIs that provide access to partners.
CR: Layering in the “COVID effect” – we’ve all witnessed the demand for more digital payment options – it’s clear that real-time payments is becoming the new normal. The demand is there, but for the central infrastructure providers and for other participants there are significant challenges to overcome. Stephen – as a provider for the central infrastructure through Mastercard, just how complex is the creation of these schemes?
SG: If you look at real-time payments today, how they manifest at the domestic level, they need to be very cheap, especially in a market like the U.K. where many retail banking services have become free. The challenge for a bank is, how do you meet those demands around customer experience, but also build a business case? How do you derive value? Increasingly, banks are already operating with revenue at the margin, so some very different thinking is required when it comes to how to make money.
That’s partly what has led to conversations around cross-border real-time payments, but the true complexity is lost on many people. It entails the delivering of a scheme, a platform and an environment. Adding to this, there is no live, cross-border, multi-currency platform to use as a blueprint. So, we come back to the idea of partnerships that bring together global experience across multiple payment schemes and systems. Of course, our job as providers is to remove complexity and to make it as straightforward and simple as possible, but that complexity is still there.
CR: It’s also worth considering how the market for real-time payments has shifted significantly. Twelve years ago, when the U.K. launched its scheme, the conversation was about using simple standards and getting the scheme live, not necessarily what we were going to use it for. That’s changed now. We talk about Request to Pay (R2P), bill payments, QR-code payments, all the things you layer on top of real-time payments. In other words, it’s not what you do, it’s how you do it. Related to this is how customers actually look to deploy a solution, which of course is right up Microsoft’s alley.
CS: It’s worth remembering that banks are not thinking about cloud for the sake of cloud; they are looking for real business outcomes. Cost reduction is an obvious one, but I’d like to elaborate on that. The first step for a financial institution is identifying workloads that can be moved to the cloud in order to maximize human resources. This is a foundational part of optimizing costs. The next step is adopting cloud-native technology to re-engineer an application and accelerate time-to-market. But ultimately, and I consider this the third phase of cloud maturity, the goal is to facilitate innovation.
CR: We are currently in a phase of rapid real-time payments growth, but thinking ahead, how do banks position themselves to deal with this and what does an operating environment look like for banks?
CS: In terms of operating models, a platform approach makes sense, but different aspects of it are relevant depending on the maturity level of the bank. Beyond the functionalities that a bank wants to deliver, they need to think about identity management, security and regulatory compliance. There are both business aspects and technology aspects that will inform a new operating model.
CR: Stephen – how about from your perspective? What do banks and countries need to do to prepare for this acceleration of change?
SG: I think there are three key things. First, think about partners. Mastercard over the past five years has come to think very differently about how we deliver payments through a multi-rail strategy. What is very clear is that real-time payments are going to play a major role in that next phase of digital payments transformation. And it’s heavily linked to both financial and digital inclusion initiatives that are being promoted by central banks and governments. I think it’s important to consider how we bring those agendas into the narrative of real-time payments, which can be a genuine enabler for better outcomes with regard to financial inclusion and financial resilience. An important part of that inclusion agenda is also how real-time payments deliver consistency and predictability.
We do have to prepare for real-time payments becoming the new normal. Our experience as consumers and customers of banks is that everything is getting faster – and in low-value payments, in particular, that presents a huge area of opportunity.
CR: Indeed, banks shouldn’t be thinking about their real-time payments strategy in an isolated or purely domestic context, they need to establish the right strategic ecosystem that will support customers’ payment needs for the next twenty years. We can take learnings from the card networks and from wire processing, but ultimately, we need to bring that together with flexibility to support high-volume and low-value real-time payments domestically and internationally. Critically, we have to support the digital overlay services based on the new ways these real-time rails will be used.
Watch the full on-demand recording: The Last Step in Cross-Border, Real-Time Payments
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