Our chief examiner, Jane Barber gives us an overview of real-time payments and explains how they meet the needs of a real-time world.
Developments in technology have led people and businesses to make greater use of electronic payment methods as work and business lives have moved online.
The increased use of electronic and mobile banking showed customers how long it could take a payment to reach a bank account. This added to expectations that payments should be speeded up.
What does real-time mean?
In simple terms, it’s the ability for a customer to initiate a payment and for the funds to move to the payee's account within seconds – often with confirmation to the payer.
About 35 countries around the globe have already implemented or have scheduled launch dates for immediate payments capabilities.
Such systems are generally a combination of real-time – sometimes ‘instant’ – payments and are available 24/7.
How long have real-time payments been around?
Real-time payments were first introduced in the UK in 2008 and are commonly referred to as ‘faster payments’. Since then, they have been adopted or enhanced by various countries– including Sweden, Poland, Denmark, Mexico – since 2000.
Over the two years 2018–19, there were important developments in Japan – which enhanced its global finance system – Australia, Hong Kong, and Malaysia.
In almost all cases, instant payments are driven by the development of new payment infrastructures.
Who uses real-time payments? And why?
Let’s consider businesses first.
Customer service is a key driver. Dealing with service complaints – and refunding your customer to their account immediately – can increase customer satisfaction hugely. Practical benefits include flexibility to pay temporary or gig economy employees weekly.
For personal users, real-time payments may now be the only type of electronic payment offered by both established and challenger banks. Customers have the flexibility to choose when to make their payments. Early benefits were for parents to send money quickly to a child at college, for example.
Newer systems offer ‘instant’ payments, which reach the payee in seconds and tend to support person-to-person payments.
These – like the growth in contactless payments – have resulted in increasing reductions in cash use across the globe.
What needs to be considered?
When the first countries transitioned to real-time payments, they had to think about every aspect of the payment journey. In part this is because instant payments are often driven by the development of new payment infrastructures. It’s also because banks and customers were more used to the features of automated clearing house (ACH) systems.
Key issues include:
- risk and credit management
- compliance procedures relevant to real-time standards and performance
- establishing customer confidence through communication and education
As time has passed, fraudsters have begun to focus on real-time payments, because of how quickly money can be moved. The speed allows them to split and move funds across their networks.
For payment systems, participants and users, attention has turned to crime prevention. Many countries have introduced payee verification solutions which check the payee name and account details before a payment is made.
Regulators and industry groups increasingly require payment professionals to act swiftly to protect customers and prevent fraud. Faster responses when fraud is reported are also encouraged.
Jane Barber is Senior Consultant, Industry Engagement, at NatWest representing the bank's views to regulators and industry bodies. Her career background spans UK payments product management and development, as well as commercial relationship banking. From 2012 to 2014 Jane was part of the UK Payments Council – the predecessor to Payments UK which is now part of UK Finance – where she was director of research and policy.
As chief examiner, Jane welcomes CertPAY as an important addition to the suite of professional qualifications produced by the London Institute of Banking & Finance.
Find out how you can develop specialist knowledge and skills relating to products, purpose, structure and inherent risks associated with payments.