Over the last couple of years, a lot has happened in the lives of every human. We have all been affected one way or the other by the pandemic, and many of the direct impacts have not had the most positive feeling. Many of us have lost our near and dear ones, some lost their jobs, and it’s been challenging throughout.
We have been forced to stay at home, trying to save ourselves from the virus- while at home, we have been trying to make the best out of the situation at hand. We have been grinding away at our jobs, shopping at will – all completely online and have been busy, working as always, trying to grow businesses, offer better services, hold to our promises to customers, and deliver on our service commitments.
Along these lines of fervent business activity – there have been some very interesting strategic shifts in the market as well. Even though COVID has accelerated digital adoption manyfold, the organisations and entities responsible for controlling Market Infrastructure have better utilised this time during COVID. They have taken a leaf out of India’s Payments playbook – taking the native RUPAY Card way. By applying this model to Real-Time Payments Infrastructure with the same level of National and Regional patriotism, these entities are ensuring there are lesser and fewer dependencies on the incumbent Global Payments Market Infrastructure providers.
The true essence of modernising the overall payments landscape comes from the glory of being the hero, being able to offer the national and regional markets the ability to utilise real-time payment rails. An offering with a greater service guarantee, local support, and of course, at fractional costs compared to existing incumbent global payment market infrastructure providers. And all this without having to depend on any particular currency. However, it also comes with the risk of becoming what we set out to change as we consolidate power from one network to another.
Either way, the benefits are just too good to ignore, considering the significant drop in prices per transaction going through these systems.
While analysing the Global Payments Landscape around cross border/local/regional and multi-currency payments, we can see a rising transition or consolidation of payments instruments into Real-Time infrastructure. Keeping this in mind, one can draw parallels to the strategies being adopted across:
- NPSS – UAE – Real-Time payments platform for local transactions
- PAPSS – Africa – Cross-border, multi-currency, instant payments
- GCC RTGS – Regional payments between participating countries – GCC alone
- BUNA – Regional payments between participating countries – Arab Speaking world
All of the above Payment Rails are Market Infrastructures built with the notion of solving one problem or the other present in incumbents. This could be the consolidation of correspondent bank relationships as in the case of BUNA or enabling functional capability such as local Account-to-Account instant payments using identifiers like Mobile number/ Emirates ID in the case of NPSS. The ultimate goal is to offer opportunities for local innovation by:
- Giving a reliable, less expensive local alternative
- Reducing the dependency on existing market infrastructure
- Giving room for more distributed control and better rates
The National Payment System Strategy in UAE- An Overview
The Central Bank of the UAE has announced that the intention behind the National Payments System Strategy is to offer a better way to move money within the UAE. Real-Time Payments are being aggressively adopted across the world, with more than 50 countries having at least one form of Real-Time Payments as an option in their overall payments ecosystem.
The UAE, in my opinion, has taken this strategy one step further. The UAE is not just looking at adopting a Real-Time Payments Strategy to enable a more user-focused approach to payments and to create a cashless economy. UAE is also looking at consolidating and focusing on 24/ 7 Real-Time Payments so that older systems can be retired in a phased manner. Even though these phases will have a prolonged sunset period, it’s a bold and aggressive move nonetheless.
The UAE NPSS focuses on a couple of use cases as follows:
Cross Institution Payments where entities such as Banks, Exchange houses and Digital Wallets can all connect to NPSS, facilitating interoperability between these entities.
As mentioned, every transaction is a Real-Time Payment and the NPSS gives way for instantaneous micro-settlements of each transaction.
The NPS strategy also brings to the fore capabilities that are already available in technically advanced markets like India – the ability to have real-time payment in the form of Credit Transfers as well as Direct Debits. This functional capability is extended into Direct Debit Authorization and e-cheques processing, further highlighting the intent to consolidate and transition multiple payment rails into one overarching real-time payments infrastructure.
As the Central Bank of the UAE is driving the NPSS, there are inherent benefits for all stakeholders, such as business owners, individuals, and institutions which bring comfort and ease of use at the forefront. This also effectively:
Drives more accountability
Results in lesser fraud
Enables access to liquidity
Aggressively promotes financial inclusion and large scale digital adoption
Thus, the NPSS is a step in the right direction for boosting commerce and the overall economy of the UAE.
PAPSS – Pan African Payments And Settlement System
PAPSS is by far one of the most ambitious projects spearheaded by the African Union through the Afri-Exim Bank. PAPSS will eliminate the need for Correspondent Banks outside Africa and the need to depend on any particular currency. All transactions that happen in Africa are envisioned to happen in real-time in local currencies, with settlements happening instantaneously.
The vision is that a customer – say a Building contractor in Kenya – should be able to pay a supplier in Nigeria where goods are paid for in KES but received in Naira and can process transactions instantaneously with the least cost.
PAPSS’ vision is more strategic. The current focus area is for African Banks and Businesses to leverage PAPSS as an immediate real-time payment platform more than anything else, transacting in local currency and paying local rates. The applicability of PAPSS is not only for Vendor payments but also to realise a true instant account-to-account transfer across the entire African Union
The vision to build on top of this payment rail to bring in addressing and proxy services to ensure Peer to Peer payment connectivity and QR code enabled merchant payments is something of a possibility in the near future.
I am glad to be part of a world where Payment Market Infrastructure like PAPSS is a reality and hope to see the entire African continent connected and transacting on this market infrastructure – a common Instant Payment Platform.
GCC RTGS & BUNA
The world of GCC RTGS and BUNA are similar. The intention is to create a network that is local and can enable cross border transactions without necessarily considering them “cross-border “.
In the case of GCC RTGS, the system leverages the existing RTGS networks and establishes interconnectivity at a Central Bank level to ensure there is a dedicated corridor. This ensures that people moving money from UAE to Bahrain or from Bahrain to KSA can do so as if they were sending a local transfer, provided each country participates in GCC RTGS.
In the case of BUNA, the mechanism is a lot similar, but BUNA has chosen to leverage SWIFT Infrastructure. The focus is on the consolidation of correspondent banks to enable the same kind of service – i.e. being able to make payments happen across the Arab Speaking world as if transfers are sent within the same country.
In both scenarios, the transaction currency and existing infrastructure rules remain the same. However, the ability to do transfers in local currencies at local rates proves to be the common thread that further establishes a global shift toward a cheaper, more open Payments Market Infrastructure.
The Ever-Evolving Payments Landscape
The Connected world of Real-Time Payments
As an organization, we are starting to see the collaboration of Real-Time Payment Networks between countries and systems. The NPCI International is doing a phenomenal job taking the successful UPI payments platform to different countries such as Nepal as we recently saw.
Such international collaboration in adopting existing payment platforms and furthering the interoperability of payments platforms has resulted in seamless real-time cross-border payments. Thus, someone in Ghana could send money to someone in India using each of their own individual Universal Payments ID ( so to say ) and make a cross border, account-to-account, real-time payment happen instantaneously – even though we know that the payment is hopping two networks. Despite the above scenario not being a reality today, with the way things are going, we believe it need not be just a dream much longer.
About GSS
Global Software Solutions is a Software product company enabling Banks and Financial Institutions across the world to comply with Payments Market Infrastructure requirements and automate, modernize and evolve the overall techno-functional landscape of Banks and Financial Houses. GSS leverages its Veracious Product Line and its Gartner Peer-Reviewed Torus Low Code platform to make its vision a reality. GSS caters to Banks in 9 countries across the world with its headquarters based in Dubai, UAE and the Product development teams in India.
Sources:
https://www.investopedia.com/articles/economics/08/nps.asp
https://www.worldbank.org/en/topic/paymentsystemsremittances#1
https://newsroom.accenture.com/news/accenture-to-develop-uae-national-instant-payment-platform.htm
https://www.centralbank.ae/sites/default/files/2021-04/CBUAE%20-%20Annual%20Report%202020.pdf
https://centralbank.ae/sites/default/files/2021-10/CBUUAE%20NPSS.mp4
