Payments modernization challenges
Payments modernization is a rapidly-evolving, highly complex area that represents both a significant opportunity and a substantial challenge. The opportunity stems from innovative new approaches that can help transform payments modernization. The challenge comes from the need to update and implement these changes on a global scale. Modernization is no small feat, however as payment needs continue to evolve, our industry must keep pace.
One of the central issues surrounding payments modernization is its complex nature; in many countries, current payment infrastructure requires updating or redesigning to successfully handle real-time payments. Without first performing major upgrades to these payment systems, the implementation of new technologies will become increasingly difficult.
Global payments standardization
Standardization also presents an industry-wide challenge; different countries and regions have their own payments systems, protocols, and regulations. Consequently, payments providers will struggle to expand their services globally, while consumers will struggle to make and receive payments seamlessly across different countries and regions.
Lack of government support and necessary regulations is also a major obstacle to payments modernization. Some countries would benefit from additional funding and resources to help update existing payments infrastructure, as well as further develop the necessary regulations which would support new payments technologies and solutions.
Despite these challenges, there have been some promising advancements around the world, with certain countries successfully deploying modern real-time payments solutions. Canada would certainly benefit from following these examples:
One of the best examples of successful modernization can be found in the United Kingdom. In 2007, the UK government launched a “Payments Council” program to modernize the country’s payments infrastructure.
This program saw the development of a real-time payments system called Faster Payments, which allows consumers and businesses to make and receive payments in near real-time.
The system has been widely adopted by banks and payments providers, and it has greatly improved the efficiency and convenience of the payments system in the UK.
In 2012, the Swedish government launched a program called “Swish,” developed by a consortium of banks, which allows consumers to make real-time payments using their mobile phones. The program’s success – having been widely adopted by consumers and businesses – has led to the development of similar mobile payments solutions in other countries including Denmark and Norway.
In 2015, the EU passed the Payment Services Directive (PSD2) which aims to create a more competitive and innovative payment market in the EU. The directive includes provisions for real-time payments and open banking, allowing third-party providers to access bank account information with the account holder’s consent.
In 2015, the Federal Reserve launched the Faster Payments Task Force to improve the speed, efficiency, and security of the country’s payments system. The task force has been working on several initiatives to modernize the payments infrastructure, including the development of a real-time payments system called the FedNow Service.
Singapore – already known for its advanced payments modernization – developed a national e-payment system called “Fast” which allows consumers to make real-time payments using their mobile phones.
The system has been widely adopted by consumers and businesses, and it has greatly improved the efficiency and convenience of Singapore’s payments system.
The future of payments
Payments modernization challenges occur on a global scale due to the complexity of current payments infrastructures, the need for standardization, and the lack of government support and regulations.
Some countries, however, have been successful in deploying modern real-time payments solutions – the UK, Sweden, the EU, the US, and Singapore amongst them.
Canada too may improve the overall efficiency and security of our payments system; with crucial government support, enhanced payments regulations, and an increased investment in modern payments technology and infrastructure, it is possible to successfully transform payments modernization and position ourselves amongst other global leaders.