Elizabeth McQuerry

Innovation, Fragmentation in Cross-border and Real-time Payments

I’ve just returned from SIBOS 2017, the annual SWIFT convening of global transaction banks and all things associated with cross-border payment.

And right now I’m in flight, heading to the payments industry grail otherwise known as Money 20/20 USA, getting ready to moderate a cool event on Wednesday morning.

Oooph, this industry’s fall conference season is not for the faint of heart!

Recapping Sibos

Key topics at this year’s Sibos were the future of correspondent banking and the rapid global development of faster, instant payment systems. At Glenbrook, we’ve been working with real-time payments in the rest of the world while hoping that the slower pace set by U.S. payments systems competitors accelerates.  “Faster”, as it is sometimes called, will surely be a hot topic at Money 20/20.

Going Faster at Money 20/20

As Money 20/20 begins, I’m thinking over how both cross-border payments and real-time payments in the U.S. share parallel characteristics: high innovation and serious system fragmentation. Consider this:

Two Models for Cross Border

Cross-border payments is seeing two very different models growing into viable, global options characterized by a lack of interoperability:

  • SWIFT gpi is taking shape as the next generation of traditional correspondent banking, implementing enhancements to make the sector more competitive through payment tracking, greater transparency, and same-day value delivery within the network of users
  • RippleNet, a distributed ledger network for the exchange of cross-border payments, is beginning to gain traction as the alternative to the traditional model. To underscore this point, the Swell by Ripple event was held a few blocks away from the Sibos convention in Toronto

Five New, Faster Payment Rails in the U.S.

Real-time payments in the U.S. is following a similar path. Responding to the faster payment capabilities of PayPal and Venmo, financial institutions will soon have five evolving or outright new payment rails to mix and match:

  • Push to Cards – Both major networks have developed a credit push payment option for their issuers via Mastercard Send and Visa Direct. Notably, both have cross-border capabilities
  • Running batch processes more frequently, the NACHA network is now offering Same Day ACH credits and debits
  • Bank-owned consortia are bringing two new faster payments services to the U.S.:
    • The recent launch of Zelle, initially targeting the peer-to-peer use case
    • The pending debut of Real-time Payments from The Clearing House. RTP is also likely to be extended cross-border in the future

This is a remarkable amount of innovation, even in today’s fast-paced payments industry. All of these services aspire to be the dominant provider in their space. (We sometimes refer to these aspirations as “network fantasies”). And just as with SWIFT gpi and RippleNet, these new instant payment services in the U.S. exhibit limited interoperability.

Accelerating Market Evolution

How these competitive models evolve in this vibrant, multi-provider ecosystem will be especially interesting to follow.

Key questions for me will be:

  • How these services differentiate themselves while seeking to gain overall user traction?
  • Will banks participate in all the new networks or gravitate to individual options?
  • Will banks try to market these options directly to clients or will they quietly route the payments in the background without user input?
  • Are we likely to see each option focus on a specific use case or two, or will the providers attempt to address a broad set of use cases?
  • Lastly, is interoperability between the services inevitable or merely the utopian wish of payments romantics like me?

Find Out at the Faster Money Challenge at Money 20/20

If the U.S. market is of particular interest to you – and these questions resonate with you, too – you’ll want to join us at the Faster Money Challenge on Wednesday morning at 8:30 at Money 20/20. You’ll hear real-world users assert their needs to major providers. To kick it off, we’ll have a mini Glenbrook payments boot camp just on real-time payments.

In short, think 60 Minutes meets Shark Tank.

Hope to see you there!