The payments landscape is undergoing a revolution, with new technologies like blockchains, stablecoins, and central bank digital currency (CBDC) being touted as the answer to slow cross-border payments. Even Elon Musk has joined the fray, with his subsidiary, Twitter Payments LLC, recently receiving its first money transmitter license. But according to J.P. Koning, a columnist and financial writer, these new technologies may not be necessary to speed up payments. Wise (previously Transferwise), a London-based money transfer company, has increased the proportion of its customers’ cross-border payments that are processed instantly from under 10% in 2018 to 55% today, without relying on blockchains, stablecoins, or CBDC.
Koning suggests that the script of the revolution may be based on dubious assumptions, and that the incoming challengers need to update their views on the incumbent infrastructure they are looking to displace. Central banks have been building a new generation of payments infrastructure: real-time retail payments systems, which process incoming retail payments on a first-come first-serve basis, and do so instantly. This new generation of real-time retail payments systems is a big part of why Wise can move 55% of its customers’ cross-border payments instantly.
The world’s first real-time retail system, Zengin, was built in 1973 by the Bank of Japan, but the movement really only hit its stride in the 2000s as Korea, Mexico, and the UK sped up their capabilities, Koning explains. India and China went real-time in the early 2010s. The U.S. finally got its first instant retail payments system in 2017, with the debut of the Real-Time Payments network, run by privately-owned The Clearing House. It will get its second such system this summer as the Fed introduces its FedNow payments network.
Koning suggests that the new entrants may find it useful to be integrated into 24/7 central bank instant payments systems. Let a thousand instant payments options bloom, built on top of central bank instant rails, he says.