Faster Payments Pick Up Steam: A Global Update

Faster Payments Pick Up Steam: A Global Update

Faster Payments Pick Up Steam: A Global Update

Arnie Cho

Arnie Cho

Arnie Cho is an analyst for GlobalData Financial's Asia Pacific-based team in Sydney. He focuses on the consumer payments and retail banking markets in the booming Asia Pacific region.

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In today's connected world, consumers expect instant fund transfers – just how they expect immediate access to information on their smartphones or computers. But in many markets, that’s still not happening.

Instant payments are those in which the funds being transferred to the payee are available to them seconds after the transfer is made. For banks, this means more potential to deliver new services to customers; increased efficiencies created through the shift away from paper; strengthened relationships with current customers and the ability to acquire new ones.

Faster payment systems are live in 18 global markets and are planned in 24 other markets. However, these systems are still the exception rather than the rule.

Yet that may be changing in the near future. The implementation of instant payments globally over the past decade has played a significant role in the development of digital and mobile payments. Some examples include Paym and Pingit in the United Kingdom, Swish in Sweden and OCBC Pay Anyone in Singapore.

Let's take a look at the profound changes instant payments have made in these markets.

Opportunities in global markets

Countries that have yet to adopt an instant payment system face the drawbacks of cost, duration and complexity. Yet the benefits of implementing an immediate payment system by far outweigh the drawbacks.

Perhaps the most important benefit is improved customer experiences, making funds available quickly to businesses, enhancing their cash flows and reducing fraud.

However, they also stimulate innovation by developing new solutions for domestic peer-to-peer (P2P), retail, commercial, fraud detection and serving customers.

Additionally, they facilitate a more reliable service for both consumers and the commercial sector, since increasing the speed of the payment cycle reduces the time during which payments are most at risk of fraud.

Savings first, revenues later

In most countries, conducting a payment between accounts held at different banks does not incur a fee. For this type of transaction, consumers are accustomed to low or no costs, and this will be difficult to change.

Therefore, in most markets where instant payments are available, consumers do not pay fees for making payments on the new platform. New payment tools launched on the back of immediate payment systems face competition from other payment tools including cards and alternate payment methods, such as PayPal, Apple Pay and Alipay.

The reduced need for cash - "New payment solutions launched on the back of instant payments infrastructure are contributing to the declining amount of cash in circulation."

Low fees are generally acceptable to business customers, particularly if service is offered as part of the package, together with merchant acquiring and other services. This has proven to be important in Singapore, where business customers use the FAST service for their day-to-day payment transactions as well as enabling consumer payments at retailers.

In Sweden, the popular Swish app, which was developed on the back of the country's instant payment platform, expanded its offering to small businesses. This has led to higher payment volumes and a new revenue-generating opportunity for banks.

Cross border instant payments are the future

Currently, the payments platform Ripple offers a real-time gross settlement system that provides remittances and foreign exchange for cross-border transfers. However, the platform is not operated by the banking community. It is an open-source distributed ledger platform. Internationally, about 40 banks use Ripple for cross-border instant payments.

Exactly how cross-border instant payments will shape up in the future is still difficult to predict, but it is likely that within the next five years, international instant payments will become possible among countries that have adopted the same standard.

Lower bank costs, less risk

Before the advent of instant payments, most payment systems quickly cleared large transfers and batched smaller value payments in order to reduce liquidity risk when moving funds between banks. However, this process has a significant cost associated with it. Additionally, when funds were in the process of being settled, there was significant exposure to risk until the funds reached the bank of the intended payee. The cost of fraud and risk prevention has declined in the instant payment environment.

New payment solutions launched on the back of instant payments infrastructure are contributing to the declining amount of cash in circulation. These innovative payment solutions offer convenience to both consumers and retailers, and their adoption reduces consumer need for cash.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Arnie

Arnie Cho

Arnie Cho is an analyst for GlobalData Financial’s Asia Pacific-based team in Sydney. He focuses on the consumer payments and retail banking markets in the booming Asia Pacific region. Prior to joining GlobalData in 2010, his experiences included consumer research.

With his main research focuses on consumer payments, he closely follows the development that has been going on in the global payment space. However, being based in Asia Pacific, Arnie is even more enthusiastic on the payment evolution in the region on the way how it can increase financial inclusivity in developing areas.

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