APIs Promise to Make Instant Payment Systems Interoperable

Thought Leadership· 3min February 9, 2024

Cory Barnes, senior product manager at Form3, told PYMNTS that instant payments can reach their full potential only when far-flung systems are truly in sync and interoperable.

“The expectation with instant payments is that they are frictionless,” he said. “It’s all about the end user.”

Real-time payments have been a reality over The Clearing House’s RTP Network for the past seven years and across the Federal Reserve’s FedNow® Service since July. Each system has its adherents, with hundreds of financial institutions signed up to one or the other, and sometimes both.

But as it stands, payments initiated on one rail must travel and settle across the same rail — confined to RTP or FedNow. A payment or remittance can’t travel from a bank on one system and land with a bank on another system.

Barnes likened the situation to the mobile phone landscape a few decades ago, where Verizon subscribers could not call someone on the AT&T network. That changed over time. We’re headed to the same flexibility with instant payments.

He said that interoperable schemes — linking RTP and FedNow — could expedite the overall pace of growth for instant payments in the United States. To get there, more banks will have to sign on to embrace faster payments, which in turn will spur a “network effect” and growth in the number of endpoints.

Viewed through the lens of his own time in the banking industry, over the course of more than a decade in banking, Barnes said that banks are reluctant to sign onto new infrastructure. They’re concerned about fraud, vulnerability and the need to overhaul their own back-end processes.

Providers who sit in the proverbial, such as Form3, can help solve the interoperability concerns for banks. The company offers instant payments functionality, tied to RTP and FedNow, which means that the financial institutions need not wait for TCH or the Federal Reserve to solve for the interoperability issues.

“We absorb the burden on the banks’ behalf,” said Barnes.

Linking Far-Flung Payment Networks

As RTP and FedNow are headed inevitably toward interoperability, it’s natural to look toward faster payments rails based in the U.S. to link up with faster payments schemes operating abroad.

“Interoperability does not necessarily need to be firmed up or cemented 100% in the U.S. before there is an opportunity to ‘play’ in the cross-border space,” he said.

Form3 already facilitates nearly half of the faster payments volume in the United Kingdom, he said. There have already been expansions in the European markets as instant payments are possible across countries in the SEPA area. API connectivity will enable the U.S. schemes to work with instant payment rails in Europe and elsewhere, giving rise to international directories and peer-to-peer transactions that are truly borderless.

“For any customer that’s global, that’s an ideal scenario,” he said. “…Interoperability will drive some significant progress forward in the world of instant payments.”

Originally published on PYMNTS.com