Instant Payments Are at the Heart of the New Global Payments Landscape: 10 Trends to Watch in 2018
2017 was a big year for immediate payments: European Banking Association, Real-Time 1 (EBA RT1) SEPA Credit Transfer Instant, The Clearing House (TCH) Real-Time Payments in the U.S., and the Australian New Payments Platform (NPP) schemes, all either going live, or in the case of Australia, about to go live. These schemes enable real-time payment transfers across the United States, 34 European countries and Australia, with the potential to reach nearly another 1 billion people. This comes on top of the existing live schemes in the UK, China and India, so that over half of the global population now can access real-time payments solutions.
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, 24x7, 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 24x7 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.
The explosion of immediate payments schemes, regulation, and innovative technology have influenced a new, faster-than-ever payments ecosystem. To remain competitive, payment intermediaries (processors, PSPs, fintechs and networks must evolve their business models to meet the demands of today’s speed-needy customers.Download our report to read more about faster payments trends and their implications: www.aciworldwide.com/npefastreport
Related Blog Posts
Maintain Vs. Invest: What the Digital Era Ushers in for Banks
Taking place this week in Brussels, the European Credit Research Institute (ECRI) will host a high-level debate on how policymakers can build on the process of digitalisation of banks to raise competitiveness in light of increased competition from fintech start-ups and tech giants.
How the Merchant Payment Ecosystem Can Create Value in Instant Payments
Recently, ACI conducted some research into the appetite to make use of instant payments among corporates. The results were overwhelmingly favorable, but when we think about the benefits of immediate payments for corporates, it does seem obvious that they would want to leverage this new payment type.
Real-Time Payments Will be Europe’s Most Dominant Payments System – Are You Ready to Realize the Full Value?
Since the launch of the SCT Inst rulebook in November 2017, many more banks are live and offering real-time payments to their customers, with most of the rest committed to 2018. The buzzword at the recent ECB #TIPSapp Event in Frankfurt was ‘Interoperability,’ or as my friend José Beltrán from STET would say, ‘Reachability.’ No-one expressed this more clearly on February 6th than Javier Santamaria, President of the European Payments Council, when he reiterated his message from Il Salone Dei Pagamenti, the day after the SEPA launch; "We have launched the Pan-EU scheme, now it is up to you in the audience and beyond to take advantage of it and make it work."
The Hammer Finds Its Nail: Open Banking and Commercial Cash Management
Globally, the Open Banking story has been shaped by Europe, thanks to PSD2 (The Revised Payment Services Directive) and the effect that it will have on us as everyday consumer banking clients. This will forever change our experience with financial tools for the better.
The banks that have traditionally served us will modify their models to support the foundational layer of a new ecosystem of co-invention and partnership. This story is all well and good, but so far most – if not all – of the discussion has surrounded the consumer experience and has neglected where the most fertile ground for change and disruption lies—corporate and commercial banking.
Three Ways to Build Your Business Case for Real-Time Payments
In the UK, faster payments are well established, and we have seen new innovations as well as new businesses being built since May 2008. In Singapore, which went live in 2014 with its Fast and Secure Transfers (FAST) scheme, we are starting to see similar innovations. And we can expect similar seismic shifts in payments innovation for years to come, as Instant Payment schemes in Europe and Real-Time Payments in the US go live, ubiquity increases and real-time payments become the new normal.
Three Reasons Why Corporate Banks Must Invest in New Security Measures
The New Payments Ecosystem brings great opportunities, if banks can mitigate the new risks and threats that arise. Real-time and open payments enable a wealth of new revenue streams; however, the potential for growth must be balanced against maintaining payments security. They cannot break the bank.
What's Your Small Business Banking Bacon?
Every hip recipe has bacon in it these days. So why shouldn’t your digital banking experience be the same? After all, it’s a yummy addition that gives a standard dish that extra flair.
Small business banking has been a prodigious untapped market for over a decade. Banks desperately strive to make revenue from this market, but in most cases, they have struggled to do so.
The ATM Turns 50: Why Evolution Is Key for Its Survival
The ATM turns 50 this year and half a century on ATMs remain popular with consumers worldwide. Banks and building societies more than ever see ATMs as a key channel of communication and interaction with their customers and many are now offering ATM services that go beyond simple cash withdrawal. We spoke with Paul Horlock, Director for Payments at Nationwide, one of the biggest high street financial providers in the UK. Nationwide has been working with ACI Worldwide for over 30 years and currently uses ACI’s BASE24 eps solution to power an estate of around 700 ATMs across the UK.
Authorization Management Is the Key
If you happen to be a fraudster, it’s likely that you are loving all the ways the industry is making it easier for people to pay. The less friction in a payment, the quicker the money moves, and the more opportunity you have to intersect with fraud and move the money away before anyone notices.
How SWIFT Gpi Will Change the Cross-Border Payments Market
SWIFT global payments innovation (gpi) is ushering in a new dawn in international transfers which, quite frankly, has been a long time coming, especially when you consider the current race to real-time payments. The world is getting smaller and faster, and cross-border payments are about to catch up.