"Real Time Payments" Thoughts by DJ Monday 3-24-2023
DJ: DID YOU KNOW?
Once again it’s time to debunk Intel providers’ speculations, assertions and misrepresentations of the impending, or rather on- going, restructuring of the global financial systems. While it is a multifaceted system with many variables that make it function, and each variable is significant , the focus of this article is the delivery system or RTP ( Real-Time Payments).
RTP refers to “payment rails”. Simply put, payment rails are platforms or networks which payments pass through. First of all it’s in the name: they are real time, or very near real time, initiating, clearing and settling in a matter of seconds. Ideally they operate 24x7x365, meaning they are always online and available for a transfer.
Prior to RTP implementation you would write a check or use your credit card to buy or pay for something. Whoever received your payment would then forward the receipt of payment type on to whoever the bank or credit card company is to be reimbursed for the transaction. Most of the time there is a delay in clearing because of the processing time which could take days, weeks or, depending on the size and type of the transaction, months to clear.
The scuttlebutt of the “QFS” being this elaborate new-age thing is just not accurate. RTP’s have been used for decades now. There are dozens of them mixed into the global payment system. A couple of examples are; In the U.S. it’s The Clearing House (TCH) , UPI in India, Faster Payments (FP) in the UK, and PIX in Brazil. Recently the Federal Reserve is launching the “Fednow” system. While other countries RPI”s are now transacting cross-border payments in real-time the Fednow system is only domestic.
The trick to making the RTP’s viable and acceptable by a consumer is the security component. It’s all about the data. Effective RTP’s move the financial data (the money) but not the consumer data (personal Info). Payment rails move messages between financial institutions . For example: SWIFT is a codified messaging system used to send messages to financial institutions. The message details what type of transaction is being moved. MT 103 signifies “Single Customer Credit Transfer” an MT 102 signifies “Multiple Customer Credit Transfer” an MT 107 “ signifies “General Direct Debit Message” and so on.
The global payment system does not currently have a single standard to exchange payment instructions between local and foreign financial institutions but they all use payment rails. Currently a consensus between global financial institutions has been agreed upon utilizing ISO 20022 which will provide a standardized series of rules and practices . ISO (International Organization for Standardization) will encompass the Basel 3.1 banking standards and more.
As these messages of what type of transaction is processed move through the payment rails, the rail passes through various regulatory software that identifies and clears the transactions and forms a consensus that the transaction is legal. The QFS is an encrypted messaging system that moves through the various payment rails, the difference is the payment rails run through block-chain and consensus is made from millions of computers as opposed to one centralized server. The message cannot be interrupted. If it is interrupted, the message dissolves.
To put it simply, think of the global payment system as a vast network of plumbing. Instead of the water passing through an array of pumping stations and valves that can shut it off, interrupt , add to or change the water , you turn on your faucet and you get a glass full untainted immediately.
DJ