Time is money, but interoperability is the key to saving both. Image: Shutterstock
For the past couple of years, the financial industry and its regulators have zeroed in on the real-time payments opportunity. Real-time systems are an important first step toward on-demand payments globally, but the industry already needs to work on the next step—interoperability of systems.
Benefits of Real-Time Payments
Banking customers demand real-time payments, just as they once demanded online and mobile access. And that demand isn’t just coming from consumers—it’s coming from corporate customers, as well. Corporations currently outlay capital in bank accounts around the world, in order to service local payments efficiently (e.g., to make vendor payments by their deadlines). That money sitting in bank accounts is an opportunity cost to businesses, because it can’t be used as working capital.
Countries around the globe are seeking to solve these problems with real-time payment systems to service regional demand. In Europe, the Instant Payment Task Force is working to develop a Pan-European instant payment infrastructure. The Central Bank of Mexico has already implemented real-time payments with the Sistemo de Pagos Electronicos (SPEI). Australia is developing its New Payments Platform to provide real-time infrastructure for low-value payments within the country. Here in the U.S., Ripple’s Director of Regulatory Relations serves on the Federal Reserve’s Faster Payments Task Force Steering Committee.
However, these real-time payments initiatives require cross-border interoperability to enable settlement between regional systems—that is, global real-time settlement.
Real-time systems are an important step, but we must go further.
Interoperability: Taking Real-Time Payments One Step Further
Distributed financial technology allows financial institutions in any part of the world to transact directly with each other, enabling faster, cheaper, more transparent transactions across currently disparate systems. One way to enable global interoperability would be for all the world’s banks and other payment systems to share one ledger. This a virtual impossibility, given concerns over privacy and the total abandonment of legacy technology. However, the adoption of a shared universal protocol would allow banks to maintain their own systems and their own architecture while communicating and interoperating securely with the rest of the financial world.
Toward this end, we are working with others in the Web and payments worlds to develop web standard for payments. Just as the Internet was built on open, neutral web standards, the Internet of Value needs a universal payment standard. The W3C (the World Wide Web Consortium), the international organization that creates open web standards like HTML5, is well-positioned to create a global standard for web payments. The W3C Interledger Payments Community Group met last week to discuss using the Interledger Protocol (ILP) as a standard way to enable frictionless transactions across networks. A common web protocol could allow different systems to interoperate, enabling the Internet of Value: a world that exchanges money as it does information today.
The Internet of Value is coming.
As the World Economic Forum predicts, the world is not only ready for the Internet of Value, the global economy needs it. The first link in the chain is truly global, real-time payments. Nilesh Dusane, Ripple’s Head of Global Sales and Client Relations explains why in this webinar.