Why real time payments matter in this current economy and why governments need to get moving today.
As I round out a year here at Nium, I have realized that there are material benefits to ensuring that money moves as fast as possible from Point A to Point B. On some level, that’s the reason that I joined Nium, and why I was drawn to the vision of what we wanted to build. But as I look deeper on how we’re helping our customers and the impact that real time payments has on the overall global macro-economy (especially in the middle of a recession), it’s worth taking a step back and recognizing the need for as many regions and regulatory bodies to embrace real-time rails (how money moves across a country’s banking infrastructure) ASAP.
Over the next few posts in 2023, I want to spend time talking about specific countries that have moved quickly to establish their in-country banking rails to move money in real time, how they accomplished it, and what benefits they are seeing. But before I jump into that, here’s the high level on why businesses who pay suppliers, contractors, employees, gig works and just about anyone or any company should care (and in turn, why governments should move fast to modernize their rails).
Minimal to zero float — When money can flow into the system and go back out to the end recipient quickly, there’s an overall reduction in “float”. The Center for Economic and Business Research noted that in 2021, there was a $78B benefit that was realized when measured across 30 countries that have established real time payment rails. That number is expected to $173B by 2026.
A study by Mastercard noted that 63% of businesses surveyed maintain a cash reserve in anticipation of not receiving payments on time. Just think about what that means for a country like the US where paper checks are often used by businesses to pay each other, and the efficiencies we would realize by moving to a more digitally driven economy.
Reduction in processing and operational costs — When businesses can move money digitally rather than via paper, there also is an inherent improvement in overall processing and operational costs. The savings in cost is significant, and it creates economic value both to the sender and recipient.
When you get away from paper checks and cash, that also means that governments have a better handle on where money is going allowing more effective tax collection and a reduction of the black market economy. India is a great example of moving quickly to change their economy to embrace real time digital money, and I’ll explore that in a future post.
Reduction in network costs — As new tech players like ourselves and others remove the dependency of relying on the corresponding banking system, we are now moving money quicker, safer and without the additional overhead of having to go through the legacy network chains. At the same time, it’s insanely important for modern tech infrastructure to be connected into localized real time banking rails country by country to complete the journey in record time at a lower cost than the traditional networks.
Value creation for the recipient— The reality is that recipients of funds pay more (willingly or out of necessity) to get their money faster. Today in the US, where we don’t have a great option for real-time payments through the traditional banking system, about half of Lyft and Uber drivers are paying a small fee to receive payment when they need it. And in countries where more people are living paycheck to paycheck (including the US), real time payments starts to remove the need for payday loans. That’s an obvious unmet need that can generate value for the economy, and it gets people out of the vicious cycle of constantly keeping up with paying their loan shark and getting deeper in the hole.
The reality is that we all expect everything to be real time given how we live today, but the question for me was always how this benefits businesses and those who they pay. With the technology that is readily available both to governments and public/private companies, it seems almost irresponsible to not have a plan to bring payments closer to real time while removing the inefficiencies of a system that don’t make sense in today’s world. I’m looking forward to sharing a bit more on what some countries have been doing for a number of years already, and what it can mean for us individually and as a society as other countries get on it.
