Real-time payments without borders
In April 2022, EBA Clearing, SWIFT, and The Clearing House announced their plan to launch a pilot service for immediate cross-border payments with the support of banks from both sides of the Atlantic. Twenty-four financial institutions are contributing, and the pilot service will launch at the end of this year. Initially the service will begin with the U.S. dollar and Euro, and the intention is to expand to other currency channels and payment systems. Here’s why this is an important development:
Connects the U.S. and Europe in the immediate future
Although the global card networks have been offering fast cross-border payments for years, this announcement is important because it provides a means for the U.S. real-time payment rails to connect with Europe (real-time cross-border products have already appeared in Asia and in the Nordics). Russ Waterhouse, the executive vice president of product development and strategy for The Clearing House, stated to American Banker, “As much as we see use cases developing from real-time pay in the U.S. and Europe in their own countries, you’ll see the same kind of innovation in cross-border payments.”
Avoiding the lag and friction
Sometimes international transactions can take longer—sometimes multiple days— due to local liquidity and risk management requirements. Currently, there are intermediary banks that act as hubs, meaning one payment could go through several banks. This also adds to the time it takes for a payment to clear. Manual processes still prevail, and there is a lack of interoperability between platforms. With cross-border real-time payments, parties will know immediately if a transaction has settled, removing the risk of being unsure of settlement.
The potential of a global network
There are already four dozen countries with a real-time payment system. With economies becoming increasingly interdependent globally, there is more need for cross-border real-time payments. This could democratize entries into markets by reducing barriers to entry and promote financial inclusion.
There isn’t just one rail or channel that’s ideal to deliver faster payments. Card networks such as Visa can push instant payments to debit cards where existing rails can’t reach. Conversely, having an A2A option in real-time can reduce friction for members and businesses that make payments between countries where card penetration differs. It’s important to partner with a fintech that can provide connectivity to all the major rails, so the credit union is completely covered no matter where or how fast the payment needs to arrive.
In other news, the Metaverse is becoming very important in the financial services industry. Read more in The Metaverse and Payments: 5 New Developments.
Alacriti’s centralized payment platform, Cosmos, provides innovation opportunities and the ability to make smart routing decisions at the credit union to meet their individual needs. Credit unions can take full ownership of their payments and control their evolution with ACH, Wire, TCH RTP® network, Visa Direct, and the FedNowSM Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.
