Heralding the Birth of USD Real-Time Payments

An Executive Interview with Michael Bellacosa, Head of Global Payments Product Management Group, BNY Mellon – by Helen Sanders, Editor

There is a lot of industry discussion about instant, or real-time payments: what’s the background to these discussions?

Discussions on instant payments seem to have happened quite quickly, but in reality, other than advances in cheque electronification, there have not been any fundamental changes to the payments industry in the United States since ACH payments in the 1970s. Three major developments have converged to create the current focus on real-time payments. First, consumer expectations have evolved rapidly in recent years, as we all become more accustomed to real-time, on-demand digital experiences. Second, evolving consumer expectations have been accompanied by regulatory and economic views that there needs to be greater transparency and efficiency in the payments industry to drive innovation and growth. Third, financial technology or ‘fintech’ companies are becoming more active and influential, further heightening consumer and bank awareness of the opportunities that exist.

These three developments are interrelated, and if banks and clearing systems want to drive the payments agenda, it’s increasingly important for them to align their services with evolving customer expectations. Real-time payments are a key part of this realignment. So far, we have seen a variety of different initiatives emerging. The Federal Reserve Faster Payments Task Force is a key one, demonstrating the government’s commitment to a new payments model. This task force will be offering a variety of proposals, and it will be interesting to see where these lead. As that initiative moves forward, other operators in the payments space are also considering what can be achieved singly or in collaboration with others.

What are the likely advantages of instant payments for corporate payment users?

We have worked closely with corporates both directly on a one-to-one basis or indirectly through seminars, workshops and customer forums to model a variety of use cases and gauge interest and potential benefits from their perspective. This interaction shows that there is definite potential for real-time payments to deliver benefits for corporate users. But the form these benefits will take will vary depending on a given firm’s specific business model, customers and suppliers, and payment and collection models. Everyone seems to agree that instant payments will solve some issues, such as alleviating supply chain challenges created by payment delays. The cost and resources required to change legacy processes can be prohibitive, however. For some corporates, the offset for these cost considerations is the opportunity that real-time payments present to drive innovative ways of interacting with customers and suppliers via new channels in the future.

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