Real-time payments are not new. In fact, it could be argued that we have had a real-time experience since the first card was processed electronically. But for the modern definition, we have seen real-time payment systems since 1973. Now there are dozens of schemes in production around the world and we are seeing some countries looking to deploy a second-generation solution. Much of the drive for this second generation is around the desire to use ISO 20022 and enable data-rich payments.
Although most schemes are adopting ISO 20022 as their data model standard, some very successful schemes (e.g., India with UPI) have made a significant impact on their respective markets with a proprietary data model. However, one key factor consistent across all successful schemes is the ability to incorporate all the data needed to provide the service experience expected by the payer and payee in addition to the payment. The additional data supported with these payments allows for events to be linked to payments, reconciliation, allocation and other services overlaying the payment.
Another feature of successful schemes is that the payment limit is high enough to cover the value of items such as second-hand car sales and other higher-value secondary market transactions (e.g., U.K. raised their limit to GBP 250,000 in November 2015 and the volume of transactions accelerated). This might seem like an odd criterion for success, but in countries where these transactions were traditionally managed using checks or cash, people have found real-time payments have given them a safer, easier and quicker way to pay.
From analyzing all the schemes globally, we can conclude that there are two key ”lessons to be learned.” The first is that fragmentation, through a lack of regulation or industry segmentation, leads to a lack of ubiquity and delayed adoption. In the U.S., where we have the potential to end up with three real-time schemes, we are seeing limited success beyond P2P payments, with many smaller banks deferring participation until they see which scheme wins.
The second observation is that use cases are not enough. Both the U.K. and Australia had strong use cases in their plans. However, unlike India, there was not a clear model for taking these use cases and converting them into overlay services that people could use. Making services available ensures that customers experience a large enough difference for them to break habits and choose to use the real-time payments scheme.
To make money from real-time payments, all participants and banks must look at how to make their customers use and take advantage of the capabilities the real-time scheme offers. The first area in which we have seen success is Addressing and Alias services to simplify the payments experience. Although this looks like a minor opportunity, for businesses and merchants to send and receive payments without needing to use card details or bank account details is a significant benefit. It simplifies the payments process, lowers risk and allows for new reporting and channel experiences.
The most significant new revenue stream being created in real-time schemes is from the Request for Pay (RfP) overlay service. This payments model uses the data and speed of the scheme to allow for a merchant or biller to request payment from their customer. The value of this model is that every payment can be reconciled and applied at the point of payment. By using the scheme’s full capabilities, banks can offer this payments model with fees while generating increased customer satisfaction from both merchants/billers and retail customers.
As we look at what has happened in real-time payments around the world, we can summarize the following:
- A strong, regulated scheme that provides a foundation of capabilities that drive adoption is needed. Without this, a country can end up with fragmented schemes or inconsistent deployments that limit adoption and value.
- The use of ISO 20022 or a comprehensive data model allows for overlay services to be provided by the market. Without the data, real-time payments can sometimes only show a limited differentiation from existing methods of payment.
- While there is only limited revenue in the payment itself, the reality of 24/7/365 real-time results in customers wanting tools and visibility around the payment. These overlay services provide extra revenue streams as they are perceived as valuable to customers and a “must-have” investment.
The speeding up of all methods of payment is inevitable. Technology, customer expectation and competition will all make it happen. The opportunity for countries, banks and regulators is to have a vision of a payments ecosystem where the payment is invisible, and the commercial transactions happen in the easiest and most effective way for all parties.
ACI has released the first global research report for real-time payments transaction volumes: Prime Time for Real-Time. Download the report for the global view on real-time payments growth and to understand the opportunity in the markets where you do business.