2018 will certainly feature in the annals of the history of immediate payments: 3 major schemes – Real Time 1 (EBA RT1) for the processing of SEPA Credit Transfer Instant in Europe, The Clearing House (TCH) Real Time Payments in the US, and the Australian New Payments Platform (NPP) – went live within a month. These schemes will enable real-time payment transfers across 34 European countries, the US and Australia, with the potential to reach nearly another 1 billion people. On top of the existing live schemes in the UK, China and India, over half of the global population can now access real-time payments solutions.
But the party has only just started. Instant payments are at the heart of a new global payments landscape, which is rapidly evolving. We have identified 10 key trends for 2018 that will drive further changes.
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). Needless to say, 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.
Business cases are crucial for success of Real-Time Payments
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 organisational and business models, a new vision, and the understanding of IP as a vehicle for adding extra revenue.
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 marginalised 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.
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 revolutionise 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.
Moving traditional ACH payments onto Real-Time payment rails
The proliferation of immediate payments will also accelerate the trend of moving traditional Automated Clearing House (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 get rid of all legacy platforms. Expect other countries, such as Australia and the UK, to follow suit.
As instant payments open up new opportunities, it is anticipated that over the next decade annual retail expenditure based on instant payments could grow to three-quarters of a trillion euros in Europe 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).
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 towards 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.
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 analyse 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 monetise 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.
About Barry Kislingbury
Barry Kislingbury, Director, Solution Consulting - Immediate Payments, ACI Worldwide has worked in the financial industry for nearly 30 years designing and integrated market data distribution, financial messaging and payment systems around the globe. His recent work has included UK Faster Payments solutions, implementation of standards and enabling real-time systems around the world. Barry has been a representative for industry bodies including SWIFT, EPC, EBA and ISO 20022, attending many international events as a speaker.
About ACI Worldwide
ACI’s UP Real-Time Payments solution is an integral part of the UK Faster Payments Scheme, Singapore FAST, TCH’s Real-time Payments System, Zelle, as well as Australian and pan-Europe schemes. ACI serves in standard working groups, including the ISO 20022 Real-Time Payments Group, EBA Instant Payments Forum and EPC Scheme Technical Forum, and payments and security task forces for the US Federal Reserve faster payment initiative. It chairs the International Payments Framework Association Rules Committee.
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