Article 5 : Real-time payments (RTP) and why we should consider it.

Today I planned to discuss about real-time payments and their overall benefits to society whilst highlighting the risks and challenges of it. When it comes to Real-time payments, most of the readers would like to know how it works, why real-time payment platforms are needed, what are real-time payment networks available across countries and regions, and finally I would like to discuss Lanka pay and CEFT solution that they have implemented for streamline the domestic payments across the country.

?01. What is Real-time payment?

Real-time payments and instant payments are both referred to same. Those payments typically take place to process transactions and to be completed within a few seconds. ?RTP helps to replace the traditional funds transfer process by simplifying the overall process. As a result, a transaction can be completed immediately after transferring from one account to another with minimal effort and time. Hence, your other recipients will be able to get a particular payment within a few seconds.

02. Why RTP has emerged?

Initially, the RTP was developed by the US and other European markets to streamline payments and transactions. ?Based on the reading and other researchers I have found out that there are some significant reasons why RTP has taken place in the financial services industry in the UK and USA.

?1.???? Lack of visibility – The parties who were involved in the process failed to see the status of the payment especially the ones in the payment process and rejections.

2.???? Significant bank fees and charges – incurred a lot of charges and fees which lead to demotivating the businesses and end consumers.

3.???? Time – There was some considerable time allocated for checking the status of the payments, resending failed payments, etc.

4.???? Issues and errors – Because of the manual work caused some errors in the entire payment process which delayed the overall completion of the process unwantedly.

?03. Benefits of Real-time payments

?RTP or Real-time payments offer many benefits and advantages for the public as well as banks and financial institutions in many ways. Here are some important ones that have been listed for your kind consideration.

?1.???? Increased efficiency and productivity – RTP eliminates or controls manual processing as much as possible. As a result of that, it helps to enhance the overall efficiency and effectiveness at a greater scale.

?2.???? 24 * 7 availability – If you look at the traditional banking process which takes place between only Monday to Friday (Depending on the countries and the regions) RTP is being processed even during the weekends and other public holidays. Hence, businesses and the public are taking massive benefits and advantages by using the RTP payment process.

?3.???? Improved customer experience – Customers who have been using the RTP process enjoy the true sense of banking and do their financial services promptly. They enjoy the convenient way of doing transactions instantly anywhere and anytime. This will help to enhance the customer experience as well as customer loyalty towards their financial service provider in a different manner.

?4.??? Risks and challenges of implementing Real-time Payments

?01. ?Fraud and security risks – The most significant drawback of the RTP process is the risk of fraud and cybercrime. Because the RTP process takes place within a small time window. There is no proper timeline for the banks and financial institutions to check the payment. As an example, once the transaction has been processed under the RTP process, it cannot be reversed easily. That will lead to a significant loss if the transaction is fraudulent.

?02. ?Technology and other infrastructure requirements – In order to roll out the RTP (Real-time payment) processing and mechanism which requires some considerable investment and infrastructure layouts. Therefore, Banks and financial institutions must allocate their funds and budgets to upgrade their systems and other payment ecosystems to facilitate RTP transactions.

03. Customer adaptation and education – if there is a gap between customer education and awareness of the processes that triggered some problems and challenges in making ROI and expected growth and revenues in the banks and financial institutions. Therefore, financial service providers, Fintech institutions, and payment network providers need to carry out some proactive approaches to increase customer awareness and other necessary arrangements to popular the RTP platforms among the public.

?Let’s look at the typical payment flow of RTP (Real Time Payment) processing.

?5.??? What is the typical payment flow of Real-time payments?

?Overall, the real-time payment process is required to be designed to be efficient, faster, and secure with minimum effort in processing transactions. This will help to make instant or real-time payments much more popular with the general public and attractive payment options for businesses and end consumers who are expecting to make payments more quickly. The payment process can differ based on the availability of the infrastructure, systems, and other payment ecosystems, etc. But when it comes to payment processing the consumer side will always be the same.

?01.?? Initiation of the payment process – The payment process can be initiated through online banking or mobile banking platforms. The payer must confirm some of the details to initiate the payment request. Examples: Confirming the account number, amount, bank and the branch, recipient name, etc.

?02.?? Authorization – When the payment process is initiated by the payer, then it will be processed to authorize the payment. the payer’s bank and financial institution will be checked whether the bank details are correct, and funds are sufficient to make the payment. in addition, it’s triggered whether the customer has chosen real-time payment or any other payment options.

?03.?? Transmission – The payment message is transmitted to the recipient’s bank in real-time or near real-time. This transmission may occur through a variety of channels.

?04.?? Clearing & settlement– The recipient’s bank will confirm the bank details and process the payment. Once the process is completed, the consumer will receive an SMS and email confirmation as same. This settlement typically occurs in real-time or near real-time and the recipient account is credited with the payment details. Let’s examine some of the payment networks that were established in the world.

?06.???? Real-Time Payment Networks and solutions

?When it comes to Real time payments (RTP) in the world, different countries have implemented different mechanisms and solutions to roll out real time payments. Each system possesses unique characteristics for each of the payment networks due to many factors. Some of the factors would be regulatory landscapes, banking and financial infrastructure, technical and technological advancements, and many more. But whatever is said and done, real-time payments are carried out to fulfill the main key objective which is transferring cash from one account to another in real time. Here are examples of payment network providers in some of the regions.

?·???????? Faster Payment System (UK) Launched in 2008, the UK’s?Faster Payment System (FPS)?is often cited as one of the first major real-time payment systems. FPS enables almost instantaneous payments between accounts at different British banking institutions.

?·???????? Immediate Payment Service (India) Launched by the National Payments Corporation of India,?Immediate Payment Service (IMPS)?offers an instant, 24/7 interbank electronic fund transfer service. Customers can access IMPS through different channels, such as mobile phones, ATMs, SMS, and web browsers.

?·???????? The Clearing House (US) The?Real-Time Payments network?by The Clearing House is the first new core payments infrastructure in the US in more than 40 years. The RTP network provides instantaneous settlement and availability, and it operates all day, every day.

?·???????? FedNow Service (US) The Federal Reserve launched a real-time solution called the?FedNow Service?in July 2023.

?·???????? Pix (Brazil) Launched in 2020 by Banco Centro do Brasil,?Pix?enables users to make instant payments 24/7, every day of the year. The system is accessible to all customers who have a bank account, payment institution account, or prepaid payment account.

?·???????? PayNow (Singapore) The Monetary Authority of Singapore introduced?PayNow?to facilitate real-time payments between bank accounts of participating banks in Singapore. It also allows customers to make payments with mobile numbers, National Registration Identity Card numbers, or Unique Entity Numbers.

?·???????? Swish (Sweden) Swish, which more than half the Swedish population uses, is a mobile app that facilitates real-time payments between individuals, as well as between individuals and businesses.

?·???????? New Payments Platforms (Australia) The?New Payments Platform (NPP)?in Australia supports real-time payments between accounts at participating Australian financial institutions. It also offers PayID, a feature that enables customers to make payments with easy-to-remember information. Customers can provide a mobile phone number or email address instead of using a traditional Bank State Branch (BSB) number—which identifies a particular Australian bank branch—and account number.

?·???????? CEFTS from Lanka Pay – it stands for Common electronic fund transfer, which is powered by the National payment switch of Sri Lanka, called Lanka Pay. This facilitates customers and businesses to make real-time payments across many channels and different business landscapes in real-time or near real-time. This is a never-ending list of Real-time solutions. Each year, more countries develop and launch their solutions with more features and advantages for their citizens and travelers.

?07.???? ?What is the CEFTS Solution?

?The CEFTS Solution Is designed by Lanka Pay which is governed and managed by the Central Bank of Sri Lanka. CEFTS solution is stranded for Common electronic fund transfer Switch. It offers real-time fund transfers domestically which empowers end consumers and businesses to transfer funds and also make payments for utility bills, government institutions like Sri Lanka Customs, Island Revenue, EPF, ETF boards, etc, and many more instantly 24*7 for 365 days.

CEFTS is targeted to provide seamless, faster, and reliable payments across many payment channels such as mobile banking, online banking, and other digital channels without any hassle. As Lanka Pay, ensure that by integrating the CEFTS into financial services and digital applications will be able to offer cutting-edge payment solutions that meet the ever-changing financial needs and requirements of the customers.

?08.???? Explore the advantages of CEFTS solutions for financial institutions. ?

?01.????? Customers can do interbank fund transfers in real-time.

02.????? More innovative payment options for customers via your financial institutions.

03.????? Reduce administration hassle and back office manual work.

04.????? The window of opportunity to streamline payments in real-time.

?09.???? Key features of CEFTS Solution

?01.????? A web-based application to monitor transactions on a near real-time basis and download ready-made reports (such as reconciliation reports)

02.????? Web-based application to monitor net position and settlement between banks in real-time.

03.????? Automated rule-based dispute management system embedded in the back-office solution.

04.????? Different user levels for system access.

05.????? 24*365 Support Services

As of now, almost all banks and financial companies are providing real-time facilities to their clients through various touch points such as Mobile and online banking and over-the-counter fund transfers. There are some key facts about the CEFTS Solution published under payment bulletins by the Central Bank of Sri Lanka.

?01.????? Lanka Pay CEFTS, the second phase of CCAPS, which provides real-time retail fund transfer facilities to customers of Lanka Pay CEFTS members through payment channels such as Internet Banking, Mobile Banking, Kiosks, Over the Counter (OTC) and Automated Teller Machines (ATM), was launched on 21 August 2015.

?02.????? As of the end of the fourth quarter of 2023, CEFTS consisted of 47 members [24 Licensed Commercial Banks, 4 Licensed Specialized Banks, and 19 Licensed Finance Companies].

??03.????? Fund Transfer mode Maximum Fee (per transaction) (Rs.) Effected through Internet Banking, Mobile Banking, ATMs of respective CEFTS members 30.00 Effected through ATMs of other CEFTS members 100.00 Effected Over the Counter 100.00.

?04.????? 47 members have been identified as CEFTS members as of 2023, and the total volume of financial transactions under CEFTS is close to 149,651,000, and the total value of transactions (Rs Billion) is 12,546.20 during the period of 2023. Compared to the 2022 year, the total number of transactions and total value of transactions have been significantly improved during the period.

?About the writer

?Mr Dinuka Mandula Peiris – Practicing Marketer in SL, MBA (PIM-USJP), PgDipM (SLIM), CIM(UK), CPM (Asia), MSLIM, ACIM. Currently working as a sales Manager – Fintech and Digital payments at Epic Lanka (Pvt) Ltd. Currently serves as a visiting lecturer at SLIM. ?

?References.

01.??? https://www.lankapay.net/en/for-you/real-time-payments-cefts

02.??? https://www.cbsl.gov.lk/en/publications/other-publications/statistical-publications/payments-bulletin

03.??? https://www.sampath.lk/digital-banking/knowledge-hub

04.??? https://www.facebook.com/watch/?v=812771329787355

05.??? https://dashsolutions.com/real-time-payments-in-a-digital-world/

?