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Mastercard's Payments Modernisation report outlines best practice when it comes to payments modernisation, so that all markets can map out their preferred strategy to modernisation.

Mastercard

Mr George Evers, senior vice president, Mastercard

We’re living in a more connected and, in many ways, smaller world. Through the advent of digital innovations, more people than ever have come to expect a 24/7, 'always on' service when dealing with all aspects of their lives.

It’s therefore unsurprising that consumers and businesses now expect this when they send money, make a payment, and manage their finances. Having to go into a physical bank branch to complete simple requests, or having to wait days to receive funds into their account, jars with the way people have become accustomed to living so much of their modern-day lives.

While the benefits to businesses and consumers are clear, modernisation of payments is equally important for institutions like central banks, looking to safeguard and grow economies, as well as financial organisations like banks which want to find new, better ways to serve their customers while increasing revenue and efficiency.

Over the last 10 years, we’ve seen a significant rise across the globe in the number of countries and regions that are looking to capitalise on these opportunities, by embracing real-time, always on payments. Through this process they are looking to boost their economies, increase financial inclusion and create safer, more secure financial systems that allow people and businesses to send and receive money instantly, formalise cash economies and bring the unbanked into the financial system.  

But the journey to achieving this can often be complex. Since the 1950s we’ve seen the rise and continued success of cards networks, all the way through to the more recent implementation of real-time payments systems. In-between, systems and services have changed and evolved incrementally, often as separate systems. So, the challenge of modernising these and bringing them together can often seem daunting, with much uncertainty about the best approach to take.

Mastercard is in a unique position, as both an informed voice on payment services and a key player in delivering payments infrastructure in countries from the UK to US, Thailand to Canada, to support those looking to modernise their payment systems. Drawing on this expertise and experience, we have reviewed 81 markets across the globe, including 61 real-time markets – accounting for 90% of global GDP – to better understand the successes and challenges of payments modernisation.

What can we learn from best practice?

Today, we’re launching the first part of our Payments Modernisation report, setting out in detail the full findings of this review. Our aim in this report is to set out best practice when it comes to payments modernisation, so that other markets can learn from and benefit from the successes we’ve seen around the world.

The first chapter of this report, focuses specifically on defining payments modernisation and looks at the different approaches countries have taken in their journey. This includes looking at the needs, drivers and influences they’ve taken on board in addition to the outcomes that gradualist or big bang tactics can lead to.  

What we found was that, while approaches and needs differed, the intended outcome and goal was the same – to create an open, inclusive and innovative payments ecosystem. These are the guiding principles behind payments modernisation. For policymakers and central banks, this is often about improving clearing systems, while for banks they want to improve efficiencies and find new revenue streams. For consumers and businesses, it’s about solving pain points with the current ways in which they manage their finances.

So how have some countries gone about this? In Canada, for example, the country decided to undertake a full top-to-bottom revamp of their high and low value payments infrastructure and regulations over a short period of time. In contrast, Japan has taken an incremental approach with its Zengin payments infrastructure, launched in 1973, and it has been iterated on ever since, moving to its seventh-generation version in 2019 having gone 24/7 in its service the previous year.

More specifically in Thailand, Mastercard partnered with National ITMX, a national payments service provider, and Thai banks to develop PromptPay, a real-time proxy payment service. The initiative grew through an alignment of goals with the Thai government to address the nations reliance on cash while driving a more inclusive economy for its citizens. From its initial P2P use case many more have been weaved into the fabric of society with the government playing a large role in the national payment infrastructure using it for everything from tax collection to a range of remittances included social benefits.

There was a clear rationale and roadmap to effect change and implement a real-time payments infrastructure. PromptPay has helped Thailand reduce its reliance on cash as well as connected the unbanked to the financial ecosystem, enabled more businesses to thrive and now looks to expand across borders. Its success is undeniable, becoming one of the fastest-growing real-time payment services in the world. The service jumped 147 percent in 2019 to 2.6 billion transactions making it the fourth largest globally, and in 2021 daily transactions surpassed 30 million. While the approaches differ, the outcomes of greater openness, inclusivity and innovation are the same.

Another key element that we identified was that, regardless of approach, payments modernisation should always be viewed as part of an ongoing process rather than a one-off moment. Complexities have arisen through old, separate payment systems which have proven difficult to modernise. It’s why there is today more importance placed on harmonisation, bringing different components together, while remaining focused on delivering high levels of availability, reliability and scalability that are expected.

A key example of this approach can be seen between Sweden, Denmark and Finland, with the P27 Nordic Payments Platform initiative. In an environment where banks routinely operate across markets, these countries have come together to overcome the challenges of multiple standards and currencies by unifying their payment systems into a single platform with multi-currency modules. Through a keen focus on integration, the initiative will reduce cost and complexities, ensuring frictionless trade across the Nordics, alignment with EU and international standards, and can be efficiently scaled for potential future needs.

It’s clear that commitments to openness, inclusivity and innovation have helped enable these successes. The report will also explore the other aspects of payments modernisation that have been integral to building successful systems, including the advent of cloud computing, the rapid rise of real-time payments and the overlays used to interact with these infrastructures.

Payments modernisation has the chance to bring greater economic prosperity, better financial inclusion and a wealth of new innovations. It’s vital that all countries can share in the advantages this can bring. By working in partnership with others, sharing best practice and highlighting successes, we can help create new opportunities and drive inclusion for people and business owners, through which we all stand to benefit.

To download the first chapter of Mastercard’s Payments Modernisation report visit: https://b2b.mastercard.com/news-and-insights/payments-modernization/

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