K Mayo, S Fozdar, and MP Wellman

2nd ACM International Conference on AI in Finance (ICAIF), Article No.: 45, pages 1–9, November 2021.


Real-time payments (RTPs) allow consumers to receive funds before the completion of payment clearing and settlement. This early, irrevocable release of funds represents a credit risk to banks in the event there are issues with the payment, such as the consumer’s deposit holdings being insufficient to cover the payment they are sending. We investigate the effects such risks may have on the strategic adoption of RTPs by banks. We define a network game in which consumer nodes with deposit holdings are assigned to bank nodes responsible for routing consumer payments within the network. Bank nodes make a strategic decision regarding which consumers may send RTPs in the network by selecting from a set of available strategies based on the initial deposits of the consumers. Using agent-based modeling and empirical game-theoretic analysis, we analyze this strategic decision in various game configurations. Our results show that bank nodes tend to choose strategies that allow many, but not all, consumer nodes to send RTPs. We find that this outcome in strategic equilibrium reduces successful payments and increases the incidence of insufficient funds availability, compared to a setting where RTPs are universally enabled. This manifests in our model because RTP enables receivers of payments to turn around those funds more quickly to make payments of their own. As a result, banks are better off when all payments are real-time, but a strategic bank node is inclined to avoid the liability of allowing its own depositors to use RTPs when the risk is considered high.