Instant payments are at the heart of a new global payments landscape – within a few years, all payments will be either instant or initiated in bulk and processed instantly, 24×7, and credit transfers will dominate. The payer will be in control through overlay service like Request for Pay (RfP), and transaction volumes will be 10 times – or perhaps 100 times – greater than they are today.
Here are my own 10 trends for 2018 that will drive these changes:
1. More new schemes will go live
2018 will see a number of new schemes going live: Pan European ECB TIPS, Belgium, Slovenia, Spain, Portugal, DR Congo, Hong Kong and Malaysia will all launch their own national real-time payments schemes. France, the Netherlands and Hungary, plus potentially Colombia and Peru, will follow suit in 2019 (Hungary with a mandatory scheme). The financial institutions in those countries have a lot of decisions to make, and their work cut out for them, to be ready in time.
2. Business cases are crucial for success of instant payments (IP)
We will see more financial institutions developing business cases for IP. It is fair to say that so far only a minority of banks have embraced long-term digital strategies. We expect this to change in 2018 as more financial institutions are beginning to understand that instant payments are not just a ‘fancy technology,’ but a new way to engage and nurture clients, whether consumers, SMEs or corporates. Successful IP implementation requires new organizational and business models, a new vision, and the understanding of IP as a vehicle for adding extra revenue.
3. New entrants
Instant payments will act as a springboard for innovation – mobile, POS, e-Invoicing and eCommerce payment solutions are all enabled by instant payments systems. New market entrants, free of the shackles of complex legacy IT systems, are agile and responsive to consumer demands. If banks are to avoid becoming marginalized in the payments market by these new kids on the block, and maintain hold of valuable customer interactions, data and revenue sources, they need to step up to the instant payments table.
4. Request to Pay
In 2019, the UK Faster Payments Scheme and the EBA are expected to launch ‘Request to Pay,’ a flexible new payments service. The US has already launched a similar service in 2017. Of course, ‘Request to Pay’ (also called real-time debit) would not be possible without immediate payments.
Designed to provide a flexible way for payments to be made and received, the new service could include notifications for consumers and businesses about upcoming bills, allowing them to change payment dates to suit their needs. We believe that ‘Request to Pay’ has the potential to revolutionize payments, helping millions of consumers and billers to better manage their payments, as well as enabling fintechs and retailers to offer innovative new ways to purchase goods and services.
5. Moving traditional ACH payments onto IP rails
The proliferation of immediate payments will also accelerate the trend of moving traditional ACH payments onto IP rails. The Dutch have been the first to team up as a banking community and declare ‘instant as the new norm.’ When the Dutch scheme has gone live in 2019, it will turn off ACH processing and get rid of all legacy platforms. Expect other countries, such as Australia and the UK, to follow suit.
6. Growing volumes
As more banks join the various schemes, transaction volumes are expected to grow rapidly. According to the ‘Instant Payments and the Post PSD2 Landscape Report 2017’ from Ovum, three-quarters of a trillion euros in annual retail expenditure across Europe is set to switch to instant payments by the end of 2027. Today, many banks’ IT systems simply don’t have the capacity, performance or resilience for higher transaction volumes. This negatively impacts the customer experience required for a digital, cashless society driven by open banking and micro-payments (from The Internet of Things).
7. Shift to instant cross-border payments
Making efficient and cost-effective cross-border payments remains a basic need for companies operating internationally. However, to date, sending payments cross-border in most cases still relies on the same procedures and technologies that have facilitated payments since the 1970s.
As scheme ubiquity increases and volumes grow, the move toward instant cross-border payments will be the logical next step. While SEPA Inst is a cross-border scheme, it still involves only one currency. The first multi-currency cross-border IP scheme may be launched in Asia, where the ASEAN Payments Network (APN), driven by Malaysia’s PayNet, is exploring cross-border links with Thailand and Singapore.
8. The ongoing move to ISO 20022
Real-time payments are based on a messaging standard that offers richer data: ISO 20022. This drives improved efficiency and innovation within a bank’s own operations, and the ability to analyze data to create tailored solutions for larger corporate customers. We are seeing more schemes being built with ISO 20022; this in turn will further accelerate the trend away from legacy infrastructure, more integrated 24×7 systems, and new ways to monetize data.
9. Big Data
The use of Big Data is likely to transform the way products and services are provided to consumers, at a better quality and with more cost-effective solutions. Big Data also means the ability to process and analyse data to unlock income-generating insights, revealing patterns or correlations and predicting future events. The latter holds the greatest promise for financial institutions, as there is more scope for value-added, revenue-generating services to be developed.
In the digital world, ID and security are of paramount importance. We already see the increased use of biometrics and three-factor authentication. Many new immediate payment schemes that will go live in the next few years come with built-in ID management systems, with proxy databases allowing payments from email address, mobile phone number, government ID numbers and car number plates.