Real-time payments are of course about speed; it's in the name. But there is so much more to the concept, according to Thomas Halpin, head of global payments solutions North America at HSBC in New York.
"I don't want to talk about it from a real-time settlement perspective," Halpin said. "The way we experience our business journeys has to be as nimble as any mobile technology."
In an interview, Halpin, who has been in his current role for about two and a half years, discussed the competitive edge available from advancements in real-time payments, new forms of artificial intelligence and digital assets such as central bank digital currencies.
A key element of the bank's strategy is harnessing the benefits of real-time payments that go beyond instant processing, particularly as businesses manage the challenges associated with moving funds across borders. While most real-time payment systems around the world are focused on domestic payments, HSBC is using its international network to move funds globally in real time by connecting the bank's various units to real-time networks in different countries.
HSBC is part of the RTP real-time payment network. Regarding FedNow, HSBC is observing bank participation, the impact of pre-established options like Venmo and Zelle, and differing interests of the consumer side of the banks due to protection interests of interchange before making the investment into FedNow. The payment landscape in the U.S. is changing, and Fednow can be seen as both an enabler and splitter of the market, depending on whose perspective you see it from, Halpin said.
"This will be a moment for real-time payments," Halpin said. "You'll get more insights, more structured data and new information. That will improve risk controls and practices."
Global stakes
HSBC faces competition in business payments from large international banks such as JPMorgan Chase and Citigroup, as well as fintechs that are increasingly focusing on larger enterprise clients. HSBC is positioning itself for the growth of international real-time payments by focusing on the greater amount of control corporate treasury managers can assert over different parts of their business.
"Real time payments is really an information exchange at a higher level," Halpin said.
This can create more context around a transaction, improving tasks for businesses as varied as inventory, supply-chain tracking, product sourcing and the financial management requirements that surround these tasks. The data that real-time payments produce can inform these activities and can determine when a payment should or can be made, thus improving liquidity.
"How can all of this be turned into a working capital benefit? That's what real-time payments can do," Halpin said.
Higher interest rates provide numerous challenges for businesses such as financing, liquidity and the overall cost of operations. But there is also an opportunity for banks in making these processes simpler by analyzing payments and business data and providing liquidity tools that match that data.
"We're in 56 markets, and can help businesses focus on what's going to be needed … we can act as a single repository for treasury management," Halpin said, adding that it can help firms organize international activities around specific markets that are more efficient or inexpensive at a single point in time.
Smooth payment processing is necessary for this strategy to work, he said. As banks compete to offer interoperable cross-border real-time payments, Halpin said adhering to shared protocols to process transactions will be an important piece of the puzzle.
While that sounds basic, a large number of banks are not yet on board with one of the main protocols. The ISO 20022 standard will guide the messaging used in international payments, attempting to clarify information about transactions, the participants and improve tracking, yielding much of the improved payment data that Halpin discussed.
Partly due to work on other IT initiatives, more than a third of U.S. banks may miss the March 2025 deadline to comply with ISO 20022. Halpin says that should be more of a priority.
"A big part of anything in payments is the utilization of a common standard," Halpin said. "It provides much more structure. I remember when ISO 20022 was first being discussed, it was said it would improve anti-money-laundering and sanctions screening. But it's being made better now and can provide benefits at a whole other level."
AI and partnerships
Like most banks, HSBC is scoping out uses for new forms of artificial intelligence and machine learning. HSBC's management has expressed a bullishness on generative AI, saying there are a "few hundred" use cases for the fast evolving technology.
For example, the bank is applying it to combat money laundering, among other uses. The speed enables AI to identify up to 400% more suspicious activity, while reducing the number of alerts by more than 60%.
Other emerging uses include currency management. AI, for example, can tell recipients who are getting paid in pounds if the exchange rate would be better with another currency in near-real-time. HSBC's also using gen AI to help staff communicate complicated issues with parties outside of the organization. "That's not replacing or accelerating decision making," Halpin added.
Another evolving strategy is digital assets, with a focus on how distributed ledgers and related technology can aid cross-border payment flows. HSBC's projects in stablecoins and central bank digital currencies include work with the Banque de France to experiment with how CBDCs can work across borders, between traditional and digital currencies and across different ledger types. HSBC is also developing a custody service for digital assets such as stablecoins, and has partnered with Metaco, a digital-asset firm that was acquired by Ripple in 2023.
The bank's work in digital assets includes participating in a proof of concept for the Regulated Liability Network for wholesale payments operating on a shared multi-entity distributed ledger. RLN is designed to address factors in digital cross-border payments including speed, expense, settlement and off-hours availability. Other participants included BNY Mellon, Citigroup, Mastercard, PNC Bank, Swift, Truist, TD Bank and Wells Fargo. Pilots are still ongoing.
In a cross-border digital payment use case, HSBC or another RLN bank would use its international network to maintain a deposit token for a foreign bank denominated in U.S. dollars, which would be used for settlement, said Aaron McPherson, principal at AFM Consulting.
"So, much like today's correspondent banking system, there is an intermediary bank, here HSBC, which is settling on behalf of a foreign bank and then settling directly with the foreign bank," McPherson said. "The difference is that the foreign bank also has a partition on the RLN blockchain, so a complete record of the transaction is maintained in an immutable format."
RLN exists alongside other projects such as the Bank of International Settlements' mBridge, which enables access to domestic banks directly, rather than working with a correspondent bank such as HSBC.
"This is more disruptive because it could disintermediate a bank like HSBC," McPherson said. HSBC and Halpin did not provide comment on RLN or other CBDC projects by deadline.
One of the challenges is the different pace of digital currency development in different countries. CBDC projects in smaller markets tend to be much further ahead than in larger economies in Europe and the U.S. where final decisions on whether to have a CBDC still haven't been made.
"We know that at certain times, different countries may work at a faster pace than others, but we can shift into markets to create products for clients when the opportunity arises," Halpin said.
