Real-time payments are faster, data-rich and more secure. Cyber security is a high priority for all financial industry players.
Globally there has been a rapid need for real-time payments:
• Three-quarters of a trillion Euros in annual retail expenditure is set to switch to Instant Payments across Europe by the end of 2027.
• Single-transaction card payments (in which the customer enters their card Primary Account Number (PAN) and other information for each transaction) will drop from 40% online market share to 11% in the next 10 years.
Ovum ‘Instant Payments and the Post-PSD2 Landscape’
Businesses and financial institutions face strong cost incentives to move to accepting real-time payments over payment cards and digital wallets, particularly in e-commerce. Real-time payments are essential for more efficient payment processes and payments systems. They help businesses anywhere, anytime.
Benefits upon benefits
Receiving cleared funds 24/7, 365 means that merchants would be able to reduce payment services chargeback costs. Volume would move away from card-not-present (CNP) transactions.
The faster receiving and management of payments will also have cash management benefits, potentially improving liquidity and reducing reliance on revolving credit facilities. Real-time payments are an essential payment solution. For 55% of digital wallet users, fast payments is the number one reason for using the app.
Similarly, transaction costs for any merchant who chose to become a Payment Initiation Service Provider (PISP) or accept real-time payments via an intermediary would be lower than the current costs of card acceptance.
The convenience and speed of completing a payment are the top considerations of consumers. Incentives to support these are becoming an increasingly important part of RTP. The use of credit cards – particularly where merchants are using tokenized credentials – and digital wallets will remain important aspects of the retail payment landscape, alongside the continual growth in RTP.
Real-time payments in combination with Open Banking has the capability to disrupt the largely card-dominated POS experience, as well as provide alternatives to online card payments.
Customer centricity
The potential value of instant payments for customers is unprecedented. Customers can benefit in multiple ways from instant incoming and outgoing payments.
Real-time payments improve business efficiency. The ability to send and receive payments instantly allows businesses to better support their customers. For example, insurance and reimbursement claims to customers can be settled in real-time, greatly improving customer experience in multiple sectors.
Furthermore, being paid in real time with real time reporting and automatic reconciliation creates unparalleled efficiencies.
Customers can also pay at the latest moment with instant confirmation of successful payment. These new ways of interacting with customers can greatly improve customer service.
Clearing and settlement 27/7, 365
ISO20022 allows businesses to attach invoice data to a bank account payment, allowing for more efficient reconciliation.
As real-time payments include 24/7, 365 availability of clearing and settlement, there is no naturally defined cut-off time for making end of day statements.
Businesses will need to redefine their internal procedures for managing cash positions.
As incoming payments may take place beyond office hours, businesses will need to update their operating capabilities to predict future cash flows in order to optimally manage financial positions overnight and during weekends/holidays.
With adequate tools and services, treasury departments can benefit from the reduced need for operating loans or lines of credit, as payments are not only received faster, but 24/7 365.
Customer experience is key in payments; friction and slowness can reduce acceptance of the payment itself for both the customer and the merchant.
This in turn leads to higher cancellation rates in the electronic e-commerce checkout process and longer queues in the store.
As new players enter the payments space, secure customer authentication is vital to this process.
Customers expect greater transparency when they send a payment. Real-time payments provide better data and better security for both businesses and consumers.
