Standardized processes and advancing technologies made transfers of funds reliable and routine – perhaps even taken for granted. Today a proliferation of payment brands and products, high-performance rails for data and value transmission, and the prospect of immediate settlement on blockchain or other infrastructure are complicating banks’ strategic choices and risks as they confront new opportunities and competitors in what was historically their own domain.
“What was once a pursuit of universal efficiency has become a competition among various market systems, each with its own philosophies, capabilities and constraints,” said a McKinsey & Co. report last year. Among the trends and scenarios: “fragmentation and regionalization of the payments landscape”; “erosion of global standards”; and “accelerated adoption of stablecoins and tokenized money”.
Incumbents are not necessarily back on their heels. Take, for example, The Clearing House (TCH), once known as the New York Clearing House, where member banks brought loads of paper checks to net out what they owed each other each day.
TCH operates three major networks, all growing at a healthy clip: CHIPS for high-value wire payments; EPN, the private-sector automated clearing house (ACH); and RTP for real-time payments, which was established in 2014 and competes with the Federal Reserve’s similarly expanding, two-and-a-half year-old FedNow.
Source: The Clearing House
The performance “reflects the strong growth across all types of digital payments and the immense trust the financial industry places in The Clearing House’s payment systems,” TCH chief product officer Pat Antonacci said in December. That “validates the investments we’ve made to support efficiency, resiliency and innovation across the U.S. payments ecosystem.”
“While both [TCH and Fed] rails are optional, there is fear of missing out to some extent, because financial institutions of any size can’t afford not to offer them, and that drives participation in both,” said Mihail Duta of Finastra, whose offerings include multirail payment hub solutions.
But the landscape is bigger, and risks are potentially more interconnected, than in any single country or operating entity. In the McKinsey consultants’ description, “How money moves is becoming as critical as how much. Whether it’s wage payments in Southeast Asia, B2B settlements in Europe, or retail checkouts in Latin America, the design choices being made today are shaping the next decade of payments and will determine who leads, who follows, and who falls behind.”
Besides having to make strategic decisions, financial institutions need to be “up to speed” for the risks of payments that move instantaneously. Fraud is not a major hazard on the highly secure rails; that vulnerability is more on either end of the transaction, according to Gareth Lodge, principal analyst with research firm Celent.
Gareth Lodge of Celent
Lodge warned of possible “flights to quality” away from banks in times of stress, and liquidity risks when payment networks are operating 24/7.
In a global context, the U.S. having multiple instant-payment networks is “almost unique,” which could pose issues such as, when payments traverse separate networks, a problematic event occurring in one network not being visible to banks operating in the other. Cross-product or -system risks have been flagged by regulators eyeing cross-border and multi-issuer stablecoin developments.
In countries with a single real-time network, Lodge said, there is greater visibility of fraud or liquidity runs “to plan for and manage.”
Banks can more readily manage operational changes on a single network, as compared to multiple rails going through changes of their own. The U.S. central bank’s wholesale Fedwire migrated only last year to the widely adopted ISO 20022 messaging standard. For banks connected to the ACH network, Nacha, its governing body, has a set of new risk management rules taking effect in March.
Nacha is “making some liability adjustments in 2026 that will expand the obligations of payment-receiving financial institutions to begin inspecting inbound ACH payments,” said Trace Fooshee, strategic advisor at Datos Insights.
Outside the U.S., regulations have encouraged standardization such as through the Single Euro Payments Area (SEPA) and India’s Unified Payments Interface (UPI). Lodge pointed out that in part because of the size and diversity of its financial system and regulatory architecture, the U.S. is behind other regions on such matters as instant payments, open banking and ISO 20022.
U.S. banks have at their disposal, by way of the joint venture Early Warning Services, the Zelle person-to-person (P2P) payment system. It is making a play for small businesses and announced last fall it is turning to stablecoins for cross-border transactions.
Other such stablecoin initiatives include a strategic collaboration between Finastra and Circle Internet Group, which is issuer of the second-largest stablecoin, USDC; and the international Swift messaging network working with more than 30 financial institutions on a blockchain-based ledger “to accelerate and scale benefits of digital finance across more than 200 countries and territories worldwide.”
That ledger “will record, sequence and validate transactions and enforce rules through smart contracts,” Swift said.
Celent’s Lodge noted that last year’s GENIUS Act, which spurred U.S. stablecoin activity, applied to products denominated in dollars, yet there are some 120 stablecoins in a variety of currencies and in jurisdictions where regulations are at varying stages of maturity.
“How do you convert from one currency to another, where does that take place, and who controls it?” Lodge said. “All that has to be worked out.”
And while services like Zelle and RTP rely on banks for account validation and verification, customer onboarding and due-diligence are not yet fully in place for the planned digital euro and other digital currency programs.
“Those are the kinds of details that desperately need to be worked out, and that kind of infrastructure doesn’t just come into being overnight,” Fooshee said.
“Interlinking of instant-payment systems may be the easiest and quickest way of achieving’ more efficient cross-border payments globally,” Lodge suggested.