At the end of last year, a survey reaching out to 100 corporates and 100 banks across the globe was completed. Commissioned by Temenos and Ovum, the 2017 Transaction Banking Survey highlighted the value that corporates and their banks see in real-time payments. The results are very telling. As many as 67% of banks within LatAm agreed that real-time payments would enable them to significantly enhance their service offering. So why is offering real-time payments so important?
Real-time payments – lowering the total cost of ownership (TCO)
Data shows that a real-time, centralised system is the least expensive method of processing payments per transaction. Real-time payments has the potential to eventually reduce costs for banks by breaking their payment silos. Banks incur additional costs just to maintain the status quo in payments, operating and maintaining multiple silos. Ultimately, real-time payments provides an opportunity to move away from aging legacy payment systems and toward a modern infrastructure.
Real-time payments can also result in fewer ‘exceptions’ to the payments clearing process. Cost savings from reduced failed payments offer the largest potential saving opportunity from a real time infrastructure perspective – estimated between $612 million and $1.7 billion in 2020.
ISO20022 – the new normal in payments
Most true real-time payments services utilise the ISO20022 format or are planning to move to this format. Deployment of ISO20022, opens up the possibilities for data handling and the marketing of consumer analytics. This is because reporting can be broken down into payment status, account balances and transaction details in both intra-day and end-of-day situations. ISO20022 not only has a rich set of data definitions, but it is supported by sophisticated toolsets and utilities to manage them that greatly simplify definition of new message sets and rules. In turn, this makes ISO20022-based systems easier and less costly to maintain than other systems such as MT105 and ISO8583-based systems (which don’t have a similar set of tools).
However, in addition to its data richness, it is the flexibility and maintainability of ISO20022 that adds true value. Banks can increase focus on their customers cross-border business, gaining a greater understanding through analytics to design and offer valuable services to customers as well as providing insight to support their business such as information on liquidity. And data to the bank’s corporate client has never been more important, for example; 67% of corporates in Brazil and Mexico said they would consider moving to a trusted third party provider (TTP) who can offer a consolidated view of their accounts.
Real-time payments – the new bank standard?
LatAm saw very early adoption of a form of real-time payments initially. Brazil implemented SITRAF back in 2002, operating 0730-1700. Mexico went on to implement SPEI in 2004, and Chile followed in 2008, with its TEF system operating 24/7. However, since then we have seen very little traction with real-time payments rollouts elsewhere within the region. This is surprising as the interest elsewhere in the world has never been higher; approximately 35 countries have implemented or scheduled hard launch dates for real-time payments. This growth is driven partly by the ubiquity of smartphones and other connected devices, which have catalyzed consumer expectation for immediacy.
The importance of a single solution
Real-time payments are irrevocable, there is no time for errors to be corrected so it’s essential that information is correct. Any change within the core banking system is picked up instantly by the payments system. In addition, banks audit and risk departments are against taking the risk on an instant payment to meet the SLA’s, if the core accounting engine is to slow to react, or is unreachable. Both need to act as a single solution rather than two separate systems. Therefore, ideally, a bank would have their payments hub/system embedded into their core banking system. This enhances performance, thanks to the reduced number of calls to external core banking or other applications due to a single information source. Embedded payments and core banking also means open API’s and initiatives like open banking is easier to achieve. Consequently this means that being embedded allows data aggregation and insightful analytics to improve. It allows data to be consistent and driven inherently, offering a single version of the truth. And a seamless real-time experience in general.
Implementing real-time payments economically
However, for some banks that want to benefit from this new environment a complete ‘rip and replace’ of their existing payment systems isn’t practical. Some payments hubs offer order management capabilities to support a gradual adoption strategy. Banks and FIs should be able to tailor a progressive renovation approach that suits (e.g. start by moving a particular type of payment to cloud for example instant payments adoption). This can also support scalability; payment volumes are anticipated to grow exponentially as digital real-time payments become mainstay, therefore having a solution which scales on demand is critical for sustainable long term growth.
Further cost savings can also be applied by adopting a cloud based payments hub solution. With cloud there should be no hardware or maintenance expenses and no software licensing, installation or upgrade costs. Along with the additional benefit of the security and flexibility of a private cloud.
More than real-time payments
Those with a long-term view must look beyond the ability to offer instant payments and embrace end-to-end digital banking. Banks will benefit not only from being able to provide real-time payments, but also up-to-the minute data analytics to improve customer services, drive revenue growth and cut costs. The flexibility of digital systems also means banks will be able to respond faster to market changes, develop new products more quickly, and run better, tighter, anti-fraud systems. It will future-proof their business.
Bank customers are already flocking to instant payment services such as PayPal, GoogleWallet and ApplePay, taking their valuable business with them. And this year we have seen TTPs moving into the region aggressively with Visa expanding its footprint with its FinTech NovoPayment partnership; providing B2B real-time payments services across Latin America and the Caribbean. Disintermediation is a real threat, partnership is an option, however, ultimately banks need to be able to be ready to offer real-time. The survey highlights this threat with 89% of LatAm corporates saying they will consider alternative providers to get them. Now is the time to plan for the inevitable to face this threat head on.
 Data compiled by the Reserve Bank of Australia and the Centre for Economics and Business Research (cebr)
 Centre for Economics and Business Research (cebr)
 2017 Transaction Banking Survey survey by Ovum and Temenos
 2017 Transaction Banking Survey survey by Ovum and Temenos