Time, Really, for Real-Time Payments?

Real-time payments. Really, this time. The stage is set. Maybe.

In our latest Topic TBD, Cheryl Gurz, director of CGI’s Payments Solutions Group, told Karen Webster that faster payments is an idea whose time has come, and has been coming.  For years.

“I remember having this conversation a decade ago,” said Gurz, with banks and other firms about modernizing the payments infrastructure, and now consumers are demanding faster payments on the retail side.

With credit cards, she noted, the assumption by the consumer remains that the payment is done in real time, at, say a POS, right when they walk away with their purchased items.

Trying to push that ubiquity and real-time performance across other payments rails, said the executive, “is a bigger endeavor than I think many of those in the industry and many of those that use payments recognize.”

As for speed itself, she continued – amid the myriad payments choices, from faster payments to instant payments and beyond – Gurz mulled the need to determine whether a “faster” mindset should center on faster settlement or faster messaging. “When I hear ‘faster payments’ she said, “one point of view is that as a consumer, ‘Wow, I saw in my current account, I just asked for a payment to be made and I see that the money has been taken out and that the other person with the other account has the money.’”

But, she added, the settlement of the money itself is a process that comes through an entirely different standpoint, even as the consumer expects settlement to happen with the speed and surety of buying something online from Amazon.

One issue is that the payment rails currently in use were not designed to support a real-time environment. The last real change to payments as a system came in the 1970s, when ACH made its debut in the United States and payments as an industry still operates through what she termed “a batch process.”

Touching on same-day ACH, Gurz noted that scale remains important in the industry, as the multiple settlement windows that are part of that initiative are “very controlled … and at this point it’s still a pretty small volume. So the workflows in the back offices, and technology, did not change that much.” But there’d be no way for all of the ACH volume to be supported in real time by the current system, and thus major investments in infrastructure and manpower would be in the offing. Real-time, she noted, is a concept that requires a single and constant workflow.

One determinant of whether real-time payments are valued by consumers lies in the economic value attached to getting those funds in real time. As Webster and Gurz discussed, a $25 dinner check repaid in real time comes with attendant costs today, depending on how it’s sent that consumers may not be willing to pay for. FinTechs have made strides against incumbent payments players, said Gurz, as value lies in the messaging – letting senders know that money is being moved, that the order to do so has been received, and the ultimate recipient can also be noted funds are on their way.

For CGI’s own clients, as the U.S. moves ever closer to closed networks run by companies like Venmo and Facebook payments as opposed to open architecture such as NACHA and the Fed, “There needs to be a business strategy around your payments – what customer segments do you have within the organization?”

In tandem with that, the firm has been helping clients switch out some of its older systems and legacy technologies, moving toward an interoperable and open architecture. But for companies going into the realm of the “true, instant” payments, there must be the recognition that platforms in place might not be able to keep up with the 24/7 demand and for the number of payments themselves, which can be high-frequency but low-value at $15, $25 to $50 a piece. “How do you re-architect your databases and your processes for a world where there is no end of day,” she cautioned, “and you are operating continuously?”