Barry Baird, Head of Payment, TD AMCB, TB Bank

Below is an insight into what can be expected from Barry’s participation at CeFPro’s Digital Banking Congress.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

How can the development of real-time payments help financial institutions mitigate the risk of fraud?

• There is substantially more capacity to push data within the new ISO formats.
• Remittance data should include transaction endpoints, so you know the sender and receiver, but other predictive data can be optimized over time.
• Transaction confirmation and money movement in real-time means no float; therefore, funds are verified and settled immediately. Real-time systems will pressure financial institutions to use AI and other technologies to augment and expedite human review, but removing latency will limit the ability of bad actors to capitalize on real-time transactions as quickly as they can with traditional payment vehicles.

How can financial institutions ensure risk controls are in place for real-time payments?

• Unlike traditional rails, where you could use more queue and review processes for quality assurance, instant payments require a much heavier reliance on automated decisions. There will be a significant need to utilize thoughtful up-front criteria and AI-based verification processes to do this more quickly and intelligently. Third-party products addressing this need are already beginning to hit the market. Still, larger financial institutions have an advantage as some already use highly automated tools for other payment transactions today.
• Institutions must train risk models for real-time considerations as they pivot into instant screening for risk, fraud, and sanctions (mainly international). This will be an evolution and require them to adjust their approach over time to ensure that banks can still effectively manage real-time transactions within their risk appetite as volumes increase.
• The dramatic increase in potential data from the new rail means there will be much more predictive analysis and resources in play. Still, it also gives exciting opportunities to capitalize on further information accompanying the transaction – invoice data, URL fields to potentially use for multi-factor authentication, or other tools and strategies that can be employed in real-time with the sender and receiver.

Why should US financial institutions look to collaborate with European firms with real-time payments?

• Europe is a more mature market, so those institutions have had to establish learnings, time to optimize data, train risk models, automate transaction review, sanction checks, back-office processes, etc.
• International remittance and liquidity management are natural use cases for real-time payments. Due to its ‘always on’ coverage and instant settlement, having coverage in European and Asian markets will increase liquidity and decrease latency in global commerce.
• There remains much opportunity to speed up beyond Swift and other wire money movement options.

What are the critical complexities of real-time payments across jurisdictions?

• Building out a broad international network for RTP should be the goal. Still, standardization will be the challenge – similar to the issues we already see domestically between FedNow and The Clearing House/RTP executions – even within the US; there aren’t consistent ISO data formats. Translation layers and integration efforts across these become far more complicated in a world where the rail can accommodate 1000+ data fields versus a dozen in traditional payment rails.
• There is ongoing work at the BIS (bank for international settlement) to create international standardization across ISO 20022 formats. While that may slow the advance short term, it may make an interoperable future that should certainly increase real-time payment adoption.

How can financial institutions look to effectively shift real-time payments out of siloed applications to being viewed holistically?

• Overall, focus on an API strategy to provide a framework to connect standard data sets and joint capabilities, which can be applied across different consumer products, commercials, small business use cases, auto financing, treasury plays, etc.
• There are a variety of 3^rd party providers with real-time payments solutions in the market – they can help clients realize this strategy with open API approaches to allow for more collaboration and innovation, bringing capabilities to life across the industry and uplifting/maturing their solutions.There isn’t a clear service provider market leader at this point, so the company willing to be thoughtful in this architecture uplift could see market share increases in share as real-time payments grow.
• As discussed previously, interoperability will be a big part of making real-time payments ubiquitous. Financial institutions should push on industry consortiums, vendors, and their peers to push for data standardization and common technical solutions to make platform and capability integrations easier.
• A thoughtful approach to data capture and retention and investing more in adjacent data mining can fuel insights gained from real-time payment transactions. These can build value across your customer’s entire relationship with your bank, making real-time payment investment and integration more of a foundational need for financial institutions.