Posted: 02/11/2023 | Read time: 6 minutes
How we pay has changed a lot over the past 15 years, as new technology moves us away from cash and cheques and towards digital wallets. McKinsey expects global digital payments revenues to hit $3 trillion by 2026 – up from $2.1 trillion in 2021.
As the payments landscape continues to develop and expand, what trends will emerge over the next year? And what will these changes mean for back-office teams?
We recently invited a panel of experts to answer those questions for our latest payments webinar. AutoRek’s Nick Botha was joined by Roisin Levine from Wise Platform, Somya Patnaik from ACI Worldwide, and Grant McKenzie from CBS Consulting.
This blog sets out the five key trends our panel believes will alter the global payments landscape in 2024 and beyond.
1. Central push for real-time payments
Real-time payments are becoming a mandatory part of banks’ and payments firms’ propositions – rather than just a ‘nice-to-have’ offering. The uptake of real-time payments will continue in 2024 and beyond as governments recognise their economic impact.
“We’re seeing a strong government push” for the widespread adoption of real-time payments, Somya says, as “we’ve definitely seen a direct correlation between real-time payments and economic growth.”
Real-time payments have become a “must-do for most markets,” Grant agrees. And consumer adoption rate is strongest where it’s introduced centrally by directive “because PSPs get to that network effect more quickly.”
Looking ahead, Grant expects to see interesting developments in Central Bank Digital Currencies (CBDCs) and work on emerging payments infrastructure, including in the UK. “It will be interesting to see how central bank-driven schemes gain traction compared to private sector or competitive schemes,” he adds.
But what does the rise in real-time payments mean for back-office teams? Nick believes it will add pressure to the back and middle office. Operational flows will need to process payments in real-time and accommodate higher transaction volumes.
It’s “a different way of working,” he says, and existing infrastructure and systems “are not normally set up for real-time, but for more traditional methods” like BACS and CHAPS.
2. Widespread FedNow adoption
In July, the US Federal Reserve launched its instant payments infrastructure FedNow, which our panel believe will alter the US payments landscape over the next year and beyond. While instant payments aren’t new in the US – RTP went live in 2017 – the Federal Reserve anticipates widespread adoption of the new system.
“That adoption is key,” says Nick. “The reason we are going to see more adoption with FedNow than what we have seen with the RTP is because of the regulation and experience of the Fed that sits behind FedNow.”
Widespread adoption will mean higher volumes, he says. “To overcome that, businesses can look at leveraging off partnerships of organisations and looking at the geographies that have been able to successfully adopt real-time payments.”
We can also expect FedNow to result in more market entrants and, therefore, higher levels of competition, he says. “Because of that, in my opinion, we may see it becoming more cost-effective than traditional means of making payments.”
Signing up for FedNow? Talk to our team and find out how AutoRek can get your operations ready for instant payments.
3. Faster cross-border payments
“Cross-border payments have changed drastically and still are changing,” says Roisin. She says Wise, a technology platform that has built a cross-border payments network, could be seen as a “winner of customer expectation change.”
Customers now expect a better user experience when it comes to cross-border payments, including faster payments, lower prices, and the ability to track and trace them.
She says customers with instant transfers provide 90% NPS scores, so striving for instant payments is highly important to them. If a payment takes too long, a customer will contact with an inquiry, which carries significant operational cost.
How close are we to cross-border instant payments? “We’re getting closer,” says Roisin, “but we’re not at 100%.”
Somya notes that markets are using domestic schemes for cross-border initiatives. For example, the Asian Payments Network and the new Immediate Cross-Border Payments (IXB) pilot, which is creating a USD-EUR payments corridor.
She agrees that, while real-time cross-border payments “is not a reality today, we’re going to see it become a reality very soon as the world becomes more interconnected using these domestic real-time schemes.”
4. ISO 20022 and cost-reduction
CHAPS in the UK switched to full ISO 20022 in April this year. So, how will firms be able to leverage the richer, bigger payload that ISO 20022 provides?
“Most of the use cases we’re seeing now are cost-reduction driven,” says Grant. “So it’s about back-end automation for reconciliations, for example, or automating payment repairs.”
More description around payments and purpose will also improve the intelligence of financial crime controls.
ISO 20022 will also provide a data analytics proposition, although this is further down roadmaps, Grant adds. “It takes time for that richer dataset to build up within data warehouses and transaction data stores to enable meaningful mining of trends and data over time.”
5. Partnership opportunities will continue to grow
Grant believes the opportunity for partnerships is “huge” and allows companies to build out capabilities quickly and scale their operations models. It also enables firms to alleviate common pain points, he says, as the regulatory parameter moves closer, which will see manual methods come under greater stress.
Roisin echoes this view and adds there has been a growing trend of emerging fintechs with a very specific niche. Those fintechs can then partner with banks that customers trust, so users don’t have to manage their money in multiple apps.
“Rather than seeing ourselves competing with traditional banks, we can come together,” she says. “They’re able to leverage what we’ve built.”
Reasons to be optimistic
Customer expectations for faster, cheaper and more transparent payments are driving change across the sector. In 2024, we’ll see real-time payments continue to become the norm across global jurisdictions. And the success of these domestic schemes will continue to drive the demand for faster cross-border payments.
These changes will come with challenges. Real-time payments will place new pressures on finance, operations, treasury, and technology teams. And firms will have to assess current back-office processes and determine if they can handle higher volumes and faster payments.
But these developments – along with ISO 20022 – will also see more firms embracing automation and streamlining their operations. This will help them reduce costs.
By leveraging partnerships, organisations can use the expertise of other firms to scale their operational model and build out their capabilities faster.
Somya ends the webinar on an optimistic note. She believes current macroeconomic conditions are promoting innovation. With more embedded payment experiences on the horizon, we might be paying by voice sooner than we think…
Missed the webinar? Watch the full recording here.
Get your operations ready for faster payments. Find out how AutoRek simplifies reconciliations, financial data management and reporting requirements. Head to our payments page.