Chapter 12 - Understanding Interbank Real-Time Retail Payment Systems

Abstract

Present day consumers are accustomed to the fast and ubiquitous access to information and services brought about by digitalization. In contrast, electronic payments between bank accounts, even within the same country, can often take more than a day to complete. The reality is that interbank payment systems are a well-entrenched infrastructure and have taken a long time to evolve and mature to its present state. They were originally designed decades ago for specific purpose, at a time that pre-dates mobile technologies. There are limitations to how effectively they can handle present day payment scenarios, even after iterations of costly enhancements and retrofitting. As such, this gives rise to a sudden increase in implementations of interbank real-time retail payment systems over the last decade. These payment systems are not new in concept but are new in scope. They can process account-to-account fund transfers faster than traditional ACH networks, be more scalable than wholesale payment systems, cheaper than card payments and more ubiquitous than closed loop services. However, the implementations of such systems can come at greater complexities and costs especially to the banks. The purpose of this writing is to help the reader gain an insight into how real-time payment systems fit within the interbank retail payment landscape as well as the complexities and challenges in their implementations and design.