How to design the real-time payment systems of the future

By looking at the shifts from one generation of payment systems to the next, there are many lessons to learn, which can be used as guidelines to develop the systems of the future.

1: End-to-end solutions 

Real-time payments are not purely an interbank affair. The design of real-time payment systems must take into account how real-time functionality can be leveraged to serve both individuals and business customers. 

One of the first challenges is making real-time payment functionality available to all bank accounts in a market. To do this, banks will need to integrate real-time payments into their existing channels, such as online banking, as well as new and evolving channels like mobile payments. 

While one financial institution can’t control whether accounts at other institutions are reachable, they can focus on making sure that their own customer accounts are, and that they are user-friendly and meet customers’ needs. Being seen as a forerunner within a market by offering access to new products and services gives financial institutions an early mover advantage. 

2: Open architecture and standards 

While access to real-time payment systems must be strictly managed through clear authorisation requirements and IT specifications, it is vital that the system architecture and standards are flexible enough to respond to the evolving needs of both businesses and their customers. 

The foundation of the openness and flexibility now needed is ISO 20022. It gives financial institutions access to an extensive level of automated data, with the ability to add new messages as the system develops, and is expected to foster global interoperability in the future. 

3: The wider ecosystem 

Payment systems affect all stakeholders in a society, not just banks. Markets looking to evolve to next generation real-time systems can drive strategic ecosystem development by involving banks, merchants, corporates, government institutions, and consumer groups. 

This means thinking through the implications of real-time payments and how they can form the basis of a brand new financial services ecosystem. For financial institutions specifically, this means thinking about how new products and services can be built using core infrastructure, and overlaying services to better meet customer needs. 

When integrating the next generation of real-time systems, financial institutions should think beyond payments as another silo within financial services, and focus on how real-time can bring advantages throughout their customer base. 

4: Governance 

As with any payments project, strong governance is essential as we move to the next generation of real-time payments - the third generation. While widespread industry participation is important in designing and deploying new real-time systems, it is important that a central governing body is empowered to approve and implement critical projects fast. 

This is particularly crucial in a cross-border context. For instance, the P27 Nordic Payments Initiative has brought together major financial institutions from Nordic countries to develop a pan-Nordic infrastructure for both domestic and cross-border real-time payments.  And in the Eurozone, the European Payments Council was founded to set the rules for SEPA, and help facilitate change and governance among national and regional financial institutions and associations.  

5: Brand 

Real-time functionality is only useful if end users are aware that the service exists. The most advanced real-time infrastructure in the world may not bring many benefits to a market if consumers and businesses don’t use it. 

What’s common between countries with high adoption rates of real-time payments, is the use of a common brand for use cases, such as P2P and C2B payments. 

Swish in Sweden and Mobile Pay in Denmark are two good examples of branded payment apps that run on each country’s real-time infrastructure, that have seen major volume growth in recent years.  

Banks can still offer customised products under their own brands in other areas (e.g. B2B payments), but having a single unified brand for consumer payments can help spur acceptance and adoption. Furthermore, these apps can then expand into new use cases such as mobile POS and e-commerce, increasing their purpose for end users.   

Adding real value 

In conclusion, an individual bank must take in to account the benefits, monetisation options, and the need to drive real-time payment adoption among its customer base. To succeed with building a growing and vibrant ecosystem of services and participants around real-time payments, profound cooperation between banks, central banks, corporates and governments is essential. Close collaboration enables creation of value-added services and killer applications both consumers and corporates love.

In part one and two of our three-part blog series we discussed how to leverage real-time payments to build better customer relationships, and the value-added services that are fuelling its adoption. 

Read our full report on accelerating real-time payment adoption with value-added services.