Real-time payments have been a windfall for businesses and national economies worldwide, including India and Brazil. In these regions, digital innovations have increased financial inclusion while ramping up the pace of commerce, soon, the U.S. may experience the same phenomenon.
Seasoned IT executive Ratan Saha, VP at Infinite Computer Solutions, leverages 20 years in FSI to analyze how US payments can adopt the proven success models of UPI and Pix.
Brazil’s launch of the Pix Instant Payment System in 2020 rapidly matured the country’s digital payment market. As of September 2024, Pix processed $432 billion, making mobile payments more ubiquitous in the country than credit card transactions. Additionally, the mass adoption of Pix is benefiting the whole fintech sector, as according to the IMF, almost 40% of Pix activity is carried out through payment institutions and fintech entities.
At the same time, India’s Unified Payments Interface (UPI), an always-on digital system that handles tens of billions of transactions per month, is now making up the lion’s share of digital P2P and merchant payments in a nation that is home to tens of millions of businesses.
The two countries have something in common: rapid mass adoption of sophisticated new payment technologies. The U.S. is now making major strides in this same direction, and it’s something to be excited about.
The U.S. is entering a phase where real-time payments, unified payments infrastructure (via payment hubs), and artificial intelligence are reshaping the way money moves., The country still must overcome legacy complexity and regulatory fragmentation, but the momentum toward a unified system is beginning to pick up steam.
New digital rails in the form of Real-Time Payments (RTP) and FedNow hold the promise of making America’s payment landscape more like India’s in terms of speed, ubiquity and low friction.
And it could happen in less than a decade, if an architecture adapted to America’s scale, legal and regulatory concerns, and varied market structure can be carefully built.
Lessons from India’s UPI
Though India, Brazil, and the U.S. face their own unique sets of challenges and opportunities, there are learnings that will be helpful as America builds and refines its digital rails.
In India, various stakeholders came together to make unified payments a reality, including the country’s central bank and its regulators. Operated by the National Payments Corporation of India (NPCI), UPI includes regulatory frameworks that promote financial inclusion, for example, low or zero fees for small transactions – the kind of top-down support helped its usage explode. The massive growth of India’s UPI has also shown:
- User experience matters: This includes seamless onboarding, minimal friction, QR codes or simple apps, a mobile-first approach, and low costs.
- Identity integration helps: In the Asia Pacific region, many countries have national ID or strong digital identity programs, which reduce fraud, improve confidence among users, and make onboarding easier.
- Interoperability and simple overlay services make a difference: Various digital rails need to be interoperable if adoption of a unified payments system is to ramp up. QR codes, mobile wallets and other innovations can provide the necessary “overlay.”
India’s payment system is core to everyday transactions, not just special or high-value transactions. Usage of UPI became widespread because so many citizens find it useful for everyday merchant purchases, transfers between peers, and other common transactions.
The Road Ahead
With RTP and FedNow up and running, the stage is set for the U.S. to create a unified payments system. Below are six important considerations for making such a system robust, inclusive and effective:
- Interoperability and Standardization
With RTP and FedNow being separate rails, making them work smoothly together will be essential for a unified system. Examples of how this can be done include standard message formats (for example, ISO 20022), consistent compliance standards and consistent identity verification. - Modernizing Legacy Systems and Payment Hub Adoption
Many banks have legacy payment engines (ACH, wires, internal processors) that keep important information siloed. Consolidating these into Payment Hubs will help with agility, monitoring, fraud detection, compliance, better routing, and faster service. The transition won’t be simple, but it is necessary. - Balancing Speed with Risk and Security
Fraud detection and screening must be nearly instantaneous. AI and machine elarning techniques will be essential, particularly for anomaly detection, identity verification and device authentication. Regulation will need to keep pace with innovation to make this happen. - Inclusive Access and Cost Management
Ensuring smaller banks, credit unions, community financial institutions can adopt real-time rails and Payment Hub architectures without prohibitive costs: This is a Holy Grail for a unified payments system. Keeping costs low is the key to mass adoption. - New Use Cases and Innovation
New digital payment rails enable new business models, for example instant payroll disbursement, gig economy payments, real-time merchant settlement, embedded finance (banking services inside non-bank apps), cross-border payments and overlay services like Request for Payment. - Regulation, Oversight and Trust
As AI becomes more ubiquitous, model risk (bias, explainability, adversarial attacks), fraud detection and privacy become more challenging. Regulators in the U.S. will need to evolve rules regarding identity, data sharing and consumer protection because failing to do so will lead to a loss of trust.
The U.S. Payments Landscape in the Coming Years
In the near-to medium-term, a number of shifts will likely occur that can be seen as steps in the journey toward a payments system that functions like UPI in India. For instance:
- More financial institutions, for example. will connect to both RTP and FedNow rails, either directly or via intermediaries. Payment hubs will abstract away which payment rail is used, routing payments intelligently based on cost, speed, risk, and customer preferences.
- AI will be increasingly embedded throughout the system, from chatbots and virtual assistants to real-time risk monitoring and predictive models that suggest payment methods or financial advice.
- Cross-border payments will improve in terms of speed and cost, either via use of global interoperable RTP rails, cross-linked networks or even blockchain and tokenized settlement in some corridors.
- Biometric and device-level authentication will become standard, and identity platforms may consolidate or integrate so identity verification becomes seamless, possibly incorporating government ID, device, behavior and biometrics in safer ways.
And as consumer expectations will begin to change, there will be demands for instant settlement, 24/7 availability, transparent fees, robust security and seamless UX across channels.
Real-Time Payments (RTP) and FedNow are the beginning of something new, but they are only the beginning. Work remains, and a variety of private and public sector players must join forces to make unified payments a reality.
About Ratan Saha:
Ratan leads the sales, business development, partnership & the engagements for Infinite Computer Solutions. Ratan is a seasoned IT executive with two decades of experience in Banking and Financial Services.
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