Financial institutions (FIs) began modernizing their digital payment systems a decade ago, recognizing that existing systems were starting to lag behind the 24-hour nature of the global economy. Companies were slow to adopt many new services and capabilities, such as real-time payment tracking and SWIFT gpi data, until the pandemic struck last year.
“Suddenly those capabilities were there, and we saw clients using things on a scale we had never seen before,” said Melissa Tuozzolo, Head of Financial Markets Infrastructure and Industry. payments for Citi. “When everyone is working from home, you don’t have access to your systems. Being able to easily enter and digitally see what’s going on with the payment has been incredibly helpful.
The pandemic has served as a driving force in how the global economy pays and is paid for goods and services, with consumer behavior accelerating the adoption of e-commerce and digital payments. A May 2020 survey found that more than 39% of consumers were shopping more online than before the pandemic.
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The share of companies who felt it was important to offer digital selling methods rose from 48% before the pandemic to 66% after it struck.
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This boost has been accompanied by renewed interest in the need to improve real-time payments. Existing organizations that process much of the $ 27 trillion in cross-border payments are seen as slow, clunky, and error-prone, especially when compared to straight-through processing rails put in place nationwide by FinTech companies such as Venmo. . One study estimated that it can take days and sometimes weeks for cross-border payments, especially high value payments, to go through multi-step processing.
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Modernize the payment infrastructure
The payment infrastructure system is plagued by a patchwork of non-interoperable data standards as well as varying hours of operation, according to Tuozzolo. This means that a payment from an Australian company to a US-based company could be suspended until the banking system reopens the next day. These outdated systems are increasingly making the cut, she said.
“We have seen a real increase in transactions in the e-commerce space,” she said. “All of these business models naturally tend to be real-time, 24/7. Being able to make payments 24/7 just feels natural for you. [consumers], in particular in the field of electronic commerce, the markets [and] the concert economy space.
Modernizing global payments infrastructure could fundamentally change the way businesses and workers in the odd-job economy budget and operate, Tuozzolo said. Some independent contractors may need to borrow money or take out payday loans while waiting for a cross-border payment, for example.
“It really does shake things up for them because they no longer wait for hours or days to get paid, and now they can refuel their car or motorbike if they can get paid almost instantly. She said.
Likewise, instant payments would allow businesses to rethink their corporate treasury models and liquidity, rearrange supplies sooner, or negotiate better business deals if they know when a payment is guaranteed to arrive.
Tuozzolo said she believes upcoming changes, such as SWIFT’s release of ISO 20022 standards, increased use of application programming interfaces (APIs) and even emerging innovations, such as blockchain and central bank digital currencies (CBDCs), would help mitigate the sources of payment frictions. .
“The more we can move these systems to 24/7, change business models, incorporate the best data sets and, again, really move towards this 100% secure, instant and frictionless payment space,” I think the better off we’ll all be. – and the global economy will be, ”she said.