Real-time payment systems which are appearing in major economies around the world, undercut a claim for crypto as a fast, low-cost payments innovation. Instead, it is slow, has limited capacity, and is unregulated, which means users are not protected.
“Electronic payments have been increasing for a while,” said Elena Whisler, senior vice president at The Clearing House, which launched real-time payments in November 2017.
“The global pandemic is forcing us to do things differently remotely.”
Real-time payments can cost pennies, or fractions of pennies, she said, and are often free for consumers — businesses tend to pay for most payments across all payment types, she added.
She sees crypto operating in closed loop systems —you can’t easily go from bitcoin to Ethereum and other digital assets.
“Our payment network can provide, and will be providing, what crypto claims to offer. Right now we see niche reasons why crypto exists — to hedge on currency or provide an alternative way to buy goods and services.”
However, in order to buy goods and services with crypto, funds need to move from crypto wallets to bank accounts.
“I still think the audience for crypto is a bit of a niche — users looking to create investment mechanisms to buy and sell those cryptos. It’s not mature or mass enough for people to buy services with crypto. People are playing with the idea, but it’s not a mature concept yet. It’s expensive and its slow because it’s not made available to function in our daily lives. I view it as an investment mechanism for trading.”
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Crypto advocates have touted it as a way to simplify cross-border payments and lower the costs, but The Clearing House is moving ahead there too, Whisler said.
“We have been conducting a proof of concept for cross-border real-time payments. We have finished that, focused mainly between the U.S. and Europe with the EBA (European Banking Authority) clearing. It showed the technical feasibility to go from the U.S. to a European financial institution and facilitating the payment flow, with minor formatting adjustments to ISO 20022, and having confirmation within a few seconds. The next step is establishing all the work-streams related to participation.”
The cross border initiative, dubbed IXB (Immediate Cross Border), will probably launch in 2023. Eventually it can lead to 24×7 funds movement around the world for real-time large-value payments.
“Any financial institution that is a participant in the RTP network would be able to originate or receive a real-time payment directly to any European financial institution that is member of EBA clearing.”
The Clearing House is still in the process of prioritizing the next countries to get involved. Whisler said TCH would like to work with nonbanks and fintechs who are providing payments services as partners, rather than the banks just providing settlement services. Financial institutions provide safety, security and trust, she added.
“They are regulated and are managed to a very high standard, and that will in effect provide great security to those payment transactions and allow those payments to follow U.S. payment laws to protect the end consumers and businesses.”
For more on the topic, see the transcript of an interview that Karen Webster at Pymnts.com did in December with Rob Hunter, deputy general counsel of TCH. Hunter said the industry began thinking about real-time payments in 2010 but the global financial crisis meant banks were tight on money to invest in technology.
(If you have an American Banker subscription, search for the great stories Kevin Wack did on the way big banks blocked NACHA on moving to faster payments and his question whether the Fed had the will to move — it dithered for several years and TCH got ahead of it.)
Advances in real-time payments are rarely mentioned in crypto discussions — it is almost as if the two topics are traveling down parallel but separate, rails. In discussing a Central Bank Digital Currency (CBDC) Hunter brought the topics together: “We’ve seen a lot of debate in Congress on the issue,” Hunter said. “Most of it has focused on the potential benefits of the central bank digital currency. I think the question needs to be posed: What problem does it actually solve?”
Go to Publisher: Financial Technology
Author: Tom Groenfeldt, Contributor