Payments systems in the digital economy
07 August 2023
David Watson of The Clearing House reflects on how payments systems are meeting demands from businesses and consumers alike for increased speed and efficiency as the digital economy demands a state-of-the-art payments infrastructure
The world’s payments infrastructure moves trillions of dollars through the global economy every day, and for decades, security, efficiency and resiliency have stood as the most essential criteria. In recent years those core criteria have expanded to include the requirement for payments systems to not just be safe and reliable, but to concurrently deliver an array of new capabilities, including speed, enriched data, and new levels of flexibility and scalability. Coupled with competition from new market entrants, the demand for these new capabilities is forcing dramatic upgrades and step change in global payments infrastructure. Now well underway, this process is resulting in improved offerings for financial institutions and their customers.
The digital economy
As with practically every segment of the economy, the digital revolution has been the impetus behind the major upgrades to payments infrastructure now underway, with customers expecting immediate and easy access to goods and services. Just as with online shopping, streaming entertainment platforms and media consumption, among many other areas, consumers and businesses alike are today increasingly demanding these same requirements for the movement of money: simple, fast and efficient.
In the consumer realm, for instance, many digitally native workers – the fastest-growing segments of the workforce – can’t fathom the idea of a traditional two-week pay cycle. As a result, instant payroll and earned wage access is exploding in popularity and businesses and payroll providers are rapidly adjusting to meet these expectations. Concurrently, businesses are seeing increased demands from their customers and employees for simple and fast payments capabilities for transacting business with partners, suppliers and clients.
Speed, data, flexibility and scalability
Payments infrastructures are responding to today’s accelerated demands by delivering new levels of speed and data capabilities, as well as enhanced scalability and flexibility. There are now over 70 real-time payments systems operating around the world, where traditional multi-day settlement has been replaced with immediate payment capabilities. In 2017, The Clearing House launched the RTP network, the first new payments structure in the United States in over 40 years, to deliver 24/7 real-time clearing and settlement of payments and immediate funds availability, while also providing for the transmittal of large amounts of data, enabling the sending of invoices and the instant confirmation of receipt so customers know that a payment was successful. Today, the RTP network has universal technical access to US financial institutions, with usage growing rapidly.
The adoption of the ISO 20022 message format standard is another area where payments infrastructure is being upgraded. Rolling out over the next 18 months with the major payment networks around the globe, this standard allows banks, and most importantly their customers, to benefit from enriched data content and structured message formats, and to support innovation around a common message suite.
Flexibility and scalability are being incorporated into payments infrastructure not only to handle today’s demands, but also to scale and adjust for changing priorities in the future. For instance, the maturation of cloud technology is poised to provide payments systems with the opportunity to meet customer demands while also accommodating the market’s continued growth in a more cost-effective way. Cloud technology has matured, and its benefit is more than just cost reduction. Cloud will also be a key accelerant for related technologies, such as the recent breakthroughs in generative AI and its impact on banking and payments.
Delivering efficient payments capabilities has always been about providing customers with a highly reliable way to make payments and to improve the movement of money to improve customer satisfaction. The pace of change driven by customer expectations and the rapid development of new technologies has, however, created an environment in which payments infrastructure providers are now required to continually deliver the innovation, flexibility, scalability, and operating efficiencies needed for the marketplace. When effectively delivered, these capabilities enable banks to meet customer expectations and control costs, while simultaneously being able to scale to meet tomorrow’s growing demand.
David Watson is President and CEO of The Clearing House, a banking association and payments company that is owned by the largest commercial banks and dates back to 1853. He was formerly Chief Product Officer at Swift and Head of Cash Management Americas and Global Head of Digital Products at Deutsche Bank
President and CEO of The Clearing House