As more countries implement real-time payments rails (including the U.S. in July with FedNow), the next big frontier in the industry is the race to develop the best real-time cross-border payments solutions.
ACI Worldwide (NASDAQ: ACIW), a global provider of real-time payments solutions, can speak to the role FedNow will play in advancing US interests in this race, and how ACI Worldwide specifically is approaching fraud protection in a world where millions of multinational instant payments process every second.
We recently caught up with Bridget Hall, Leader of Real-Time Payments, Americas, at ACI Worldwide.
She discussed FedNow’s role in the race for real-time, cross-border payments.
She commented on how cross-border payments could revolutionize the way individuals and businesses conduct cross-border transactions, streamlining processes and reducing costs.
She explained why she believes Asia is poised to lead the charge in creating a cross-border payments ecosystem.
Our conversation with Bridget is shared below.
Crowdfund Insider: What is your perception of market reaction to the launch of FedNow?
Bridget Hall: The market’s response to the launch of FedNow has been notably positive. It has generated significant interest among financial institutions eager to integrate with the FedNow Service. We’ve also seen businesses across diverse industries show interest in exploring how they can leverage FedNow for their operations. Witnessing businesses recognize the inherent value of an instant payment service is truly exciting and underscores the growing importance of instant payments in the US.
Crowdfund Insider: How long will it take to see significant payments volumes on FedNow?
Bridget Hall: We know from our experience in launching new payment schemes around the world that it will take time for financial institutions to connect and start driving traffic across the FedNow Service. Based on ACI’s research, we anticipate a noteworthy four-fold increase in U.S. real-time payment transactions within the next few years, including volume from FedNow.
FedNow’s launch into the payment ecosystem has been smooth, underscoring its significance in advancing the landscape of payments within the United States. I look forward to seeing what use cases are realized through partnerships between financial institutions and service providers such as ACI to contribute to transaction volume growth.
Crowdfund Insider: FedNow is currently a domestic payments system. Do you foresee its extension for cross-border payments?
Bridget Hall: The trending conversation of real-time payment platforms expanding internationally is certainly on our radar. Although cross-border functionalities are not part of FedNow’s initial launch capabilities, our team is envisioning ways to facilitate cross-border real-time payments, aligning with the evolving needs of serving multiple countries’ financial ecosystems simultaneously.
Crowdfund Insider: Which region might be the first to establish a cross-border payments ecosystem with real-time payments?
Bridget Hall: There are a few regions that are looking to establish a cross-border real-time payments system. Asia appears to be strategically positioned with the use of the Asian Payment Network. Established in 2006, they now have a dozen payment scheme members, from just as many of the region’s countries, connecting through the use of common cross-border transaction standards and guidelines.
In India, citizens are very used to real-time payments with the use of UPI, the world’s largest real-time payment system. India has worked with countries such as France, the UK, Australia, Singapore, and Canada to enable the use of UPI, allowing Indians to spend rupees while traveling abroad.
The US and Europe are also looking at cross-border payment capabilities with conversations between TCH, EBA and SWIFT. The Immediate Cross-Border Payments (IXB) pilot service was announced with the intent to leverage RTP run by TCH in the US and RT1 run by EBA Clearing in Europe. Though the Asian region seems the most advanced, there are other areas making progress as well.
Crowdfund Insider: What are some potential consumer cross-border use cases for FedNow?
Bridget Hall: Often when the topic of consumer cross-border payments come up we talk about individuals sending money to family or friends that live in another country. This process is currently intricate, costly and not very transparent to the sender or receiver. There is certainly more improvement to be done in these types of transactions.
Another consumer example arising is the embedding of a transaction within social media. For example, merchants or small businesses may have an online presence through a social media app and list their good for sale. With some platforms being quite global, this may allow for a merchant in one country to sell goods to a consumer in the US. If that merchant wants settled, irrevocable receipt of funds prior to shipping the product and the consumer needs this product quickly, a real-time payment transaction to provide a benefit to both parties.
Crowdfund Insider: What is the potential for business-to-business cross-border use cases for real-time payments?
Bridget Hall: The potential impact of real-time payments in the business-to-business domain is considerable for domestic and cross-border transactions. However, as US businesses grow their footprint and expand beyond country borders, the prospect of future cross-border real-time capabilities becomes increasingly important. Imagine companies in the United States seeking to expedite payments to their suppliers in China or even to their neighbor to the north in Canada.
Currently, such transactions don’t benefit from the speed and capabilities of real-time payments. With the use if ISO 20022 rich data messaging on top of real-time settlement, businesses can make better use of working capital, utilize e-invoicing and request for pay capabilities, and improve reconciliation and exchange of products timing.
Crowdfund Insider: Why are other countries paying attention to the impact of FedNow?
Bridget Hall: The launch of FedNow by a government-backed entity in a major global economy like the United States has ignited significant interest among other countries. When a country with the world’s largest economy takes a definitive step, it motivates other economies to review technological advancements for adoption and opportunity.
The U.S.’s significant role in cross-border transactions, particularly in terms of remittances, further amplifies this interest. Touching back to our consumer conversation earlier, according to the World Economic Forum, global migrant workers sent nearly $800 billion home in 2022 – but it still takes days or weeks for recipients to gain access to funds. Speeding up the access to these funds will, in turn, drive economic activities in the countries where the $800 billion is being sent. There is certainly a ripple effect being seen.
Crowdfund Insider: What are ACI’s perspectives on the potential for FedNow to expand globally and support cross-border payments?
Bridget Hall: The discussions surrounding a potential need for FedNow’s global expansion and its ability to support cross-border payments are gaining momentum. This is particularly pertinent when considering the substantial significance of cross-border transactions for businesses immersed in international trade.
As we consider the possibilities of cross-border real-time capabilities, it becomes evident that FedNow’s role could extend beyond domestic boundaries, fostering an innovative approach to global transactions.