22 December 2014
Flex for the future
"The future cannot be ignored when designing payment systems” says Kris Kubiena, International Sales Director at VocaLink. Here he shares his views as to why we must introduce technology that works for today and tomorrow.
Given the critical role national payments systems perform in making economies tick, it’s only natural that regulators around the world are increasingly looking at ways to increase payments speed in order to facilitate innovation as a driver for economic growth and to enable the financial inclusion of unbanked populations.
The implementation in March 2014 of FAST in Singapore, bringing together 14 banks and allowing funds to be transferred by businesses and consumers in seconds, is the latest development in this space. Others countries – including Finland and the US – have indicated they are now preparing to significantly overhaul their payments systems in the next decade with real-time capabilities.
Looking closely at this issue, the motives for change become clearer. At a macro level, the introduction of real-time payments systems offer tangible benefits to a national economy through increasing liquidity and efficiency which in turn will support GDP growth. These benefits will have a particularly positive impact on government (in the form of increased taxes and lower costs to the treasury or finance ministry), but will also have applicable benefits to central banks, businesses and consumers.
But if new payments systems are to be successful both economically and for the consumer then the decision as to what is exactly implemented shouldn’t be taken lightly. Payments systems should be introduced in a way that will foster innovation in the years to come and the chosen architectures need to be sufficiently flexible in order to support products and services that haven’t yet been thought of!
To ensure infrastructure remains adaptable and future proofed, it needs to be designed from the bottom up. At a practical level, this means allowing banks to link the ability to make payments with social media. OCBC bank in Singapore is a front runner in this respect given that it has taken advantage of the new real-time rails – brought by FAST – and launched a new Facebook product. This will allow consumers to make fast payments much more easily, using a portal they already use to communicate with friends on a daily basis.
The next generation of bank customers are heavy users of smart phones and have high expectations for social media to be integrated with the services they use. Faster payments capabilities are now being intertwined with the way we live and the way we interact with almost everything in our daily lives. With consumers’ demands for mobile and e-commerce growing, payments systems need to be designed so they provide a smooth interface with new challenges.
How then do you make innovation become a reality? The key starting point is the consumer – what do they want from payments technology both today and in the future? Being able to make a payment in real-time is not an objective in its own right, but a means to an end. Such systems provide the rails to allow others to be able to innovate.
The successful development and implementation of new payments systems can only work when there is collaboration. Introducing FAST in Singapore was possible because the monetary authority brought 14 banks together and kept the project on track. And this is a factor that isn’t going to change. After all, it is the Federal Reserve in the US that is driving forward the real-time payments agenda. However, it is recognised that in order to be successful in the long term, real-time payments initiatives cannot simply play to the national innovation agenda. They have to support the long term business case of the participating financial institutions.
Given the importance of national payments infrastructure for economies, we must introduce technology that is both relevant today and will enable change in the future. Consumer and corporate entities are demanding and we need to develop payments systems that will allow all parties to innovate.